Sramana: What did you do after you Dot Mobile?
J.R. Smith: As I was leaving Dot, I had heard that a firm I knew had purchased a small antivirus company called AVG out of the Czech Republic. It was a company that was doing tens of millions of dollars in revenue and had a nice user base of 45 million users. They had an interesting freemium business model. I bumped into the chairman, and he was looking for a CEO. He liked that I had strong consumer experience, so he threw my hat in the ring. I had just been married and had a baby girl a year later. I liked living in London but it was tough living there with a little bambina, so I decided to go through the interview process and got the job.
Sramana: When you took over AVG, what year was it?
J.R. Smith: I did Dot Mobile from 2004 to 2007, and I joined AVG in 2007.
Sramana: The antivirus market is pretty competitive. Where did AVG find its niche?
J.R. Smith: AVG was making close to $50 million with 45 million users. Their distinction is that they built a very good antivirus product, and they gave it away free. Their free product was very good but basic. They had a premium version of their product that they sold for $45. It was a product for Windows PC computers.
Sramana: What percentage of the customer base was upgrading to premium, about 2%?
J.R. Smith: A minuscule percentage. When you are in the Czech Republic and have highly automated systems, there are not a lot of costs. It had good margins and good growth. They key was that their product got picked up by a lot of early adapters and techies in the U.S. and the U.K. The product was available only in English. Even today our biggest customer base is in English-speaking countries.
Sramana: In 2007, when you took over as CEO, what were your first few objectives?
J.R. Smith: I came in a year after the investors. When you have VCs on the board who are essentially your bosses, the name of the game is growth and margin. It took me a while to realize how powerful free is and the goodwill that goes with it. When you give away antivirus products free that are as good as the paid products out there, you get a lot of goodwill. Passion gets built around the brand.
We continued to leverage the freemium model and today we have 106 million users. We went from $50 million to $255 million as of September 2011. We generated $86 dollars of adjusted cash flow with a growth rate increase of 40% a year, all based on good margins.
To directly answer your question, the first thing I did was move to the Czech Republic. The next step was to focus on the web because I realized we had a lot of web traffic, but it was highly technical. It was not oriented toward sales or intended to drive conversions. We focused on increasing the conversion rate, and that was the sole driver of growth the first year. We went from 50% growth to 96% growth.