The one thing that most new-age mobile and Internet companies struggle to achieve is an effective monetization strategy. If recent valuations are to be believed, it is scary that a billion dollar plus valuation is no guarantee of a successful revenue model. Mountain View-based Evernote is one mobile app company that seems to have figured out how to deliver a revenue generating service.
Founded in 2007 on a freemium model, the Evernote app lets users save digital content including voice memos and handwritten notes onto the cloud so that they can access them later over multiple platforms. The service has amassed over 80 million registered users. The basic Evernote app is available for free, but they earn revenues by charging a monthly fee of $5 or an annual fee of $45 for their premium services. Evernote’s latest paying member base is not known, but when they had 41 million users, nearly 1.5 million of them were paying members. In the freemium world, this is considered one of the highest conversion rates from free to paid.
Last year, they also expanded into e-commerce which is also helping them deliver strong revenue growth. Without disclosing details, they claim that revenues in 2013 for the company grew 2.5 times over the previous year. Overall, individual subscribers are the biggest revenue generator and account for 61% of their revenues. Business subscribers bring in 9% and their e-commerce initiative contributes 30% revenues. Some guesswork would tell us that their revenue range from subscriptions is about $15 million a month or $120 million a year. If that’s 70% of the total revenue, we could, reasonably, estimate that total revenue is around $170 million. That tells me, that a billion dollar valuation is justified in this case.
Evernote’s Product Expansion
Evernote has been experimenting with alternate revenue services and last year, they successfully launched their products segment. As their e-commerce initiative, Evernote Market, is an online marketplace which sells products that are either lifestyle products or hardware products that sync up with Evernote’s services.
As part of this effort, Evernote partnered with 3M’s Post-It Notes to create those into digital formats in Evernote. As part of this upgrade, users can now take pictures of Post-Its in Evernote and index, sort and search them using Evernote. Considering that Post-It notes are among the most popular method of note taking, this is a significant move by Evernote.
Other Evernote Market products include digital scanners. Its ScanSnap Evernote Edition Scanner by Fujitsu can automatically scan a stack of various kinds of documents including receipts, photos, business cards, and documents and upload them to Evernote. Evernote then uses its intelligent features to sort these documents into various categories to help the consumer organize his stuff. They also upgraded the Moleskine notebooks, which now allow for Evernote to automatically upload and categorize photographs of notes on these notebooks. Evernote has seen big success with its Market initiative. Within a month of the launch of the service, Evernote recorded over $1 million in revenues from this segment.
The company remains venture funded with their last round of funding held in December last year when they raised $85 million at a valuation of $1 billion. Till date, they have raised $251 million in funds from investors including AGC Equity Partners/m8 Capital, Valiant Capital Partners, T.Rowe Price Associates, Harbor Pacific Capital, Allen and Company, Meritech Capital, CBC Capital, Sequoia Capital, Morgenthaler Ventures, and DOCOMO Capital. Twitter’s successful IPO has made analysts wonder if Evernote will take the plunge as well. For now though, their management has remained silent.
One thing I am perplexed by is why an app company needs so much capital.
Our recent story, Bootstrapping an App to $10M in Revenue: Christophe Bach, CEO of TextMe, highlights an extremely capital-efficient app company.
TextMe is Christophe’s third venture. He and his cofounder put in $1 million into the company, and have raised no outside financing thus far. The company has monetized its free TextMe communication app right from the get go, and is now doing $10 million in profitable revenue.
TextMe has only 12 employees, and with that, they have scaled to $10 million. And they achieved this amazing feat in less than two years.