Sramana: Who is your typical power user? Are they small businesses?
Wendy Tan White: Today it is predominately small businesses. In the early days we had a wide ranging audience. We had hobbyists, home users, and small businesses.
Sramana: This is a crowded marketplace and has been for some time. How do you view your position? How did you navigate that landscape?
Wendy Tan White: After going through several business models, we became a subscription website builder. I left the business in 2004 to have our children, and Joe came in from McKinsey. At that point he did a lot of work changing business models from free to paid and trying to find the right balance for us. In the end we found that the freemium model worked best. Our degraded model is free and we have found that we can always get a certain percentage to upgrade their subscription.
Joe White: This is where my time with McKinsey helped. I came back and took a strategic view of the different processes and plans we could do. We did testing with the customer to see what we could do. We went from a single paid plan to one that was split into three different versions. You can tweak the feature set and pricing between them. We also reintroduced the free option, which really drove advocacy. People are excited about what they can do for nothing. They would tell friends, who could come back and create a site, either paid or free. It created a circle of advocacy and brand building. Because we were not spending money on advertising or sales, that is what drove our growth.
Wendy Tan White: Meanwhile blogging started to appear. That helped our business. People who became comfortable blogging also became more confident in their ability to publish on their own. Some of them needed more than simply a blog for their website as well. We actually started to grow again during that period.
Joe White: That was when we started looking at different ways to do distribution. We started talking to other companies about white labeling our service. We talked a lot to the European division of Lycos. One of the men who ran their paid services business was going to buy the business, but then Lycos abandoned a paid services business model. They focused only on advertising and closed down a few years later.
That man wanted to carry on in the domain hosting industry, and he ran into a French company that was for sale. He knew we had raised capital before, so he came to me and Eirik, and the end result was that we raised money to acquire that French business. We raised about $16 million. There was a period between 2005 and 2010 where we ran both businesses in London and Paris.
Sramana: What was the revenue level of Moonfruit in 2005 when you raised that capital?
Joe White: It would have been just around $1 million. The company we were acquiring was doing $6 million.
Sramana: Was the French company also building websites?
Joe : They sold domain names, but they did not have a downstream after that. Domain names are the highest-volume, lowest-value part of that industry. Usually you make money from the customer by selling software services. We were taking Moonfruit, a high-value software product, buying a large domain base, then cross-selling the product into that domain base.