The Rise of Evernote: An Interview with CEO Phil Libin (Part 2)

6/16/10Follow @wroush

Yesterday, we ran the first part of a wide-ranging conversation with Phil Libin, the CEO of Mountain View, CA-based Evernote. He talked about how he got recruited to the company two years ago by Esther Dyson, and how he has extended the company’s note-taking software across platforms to build a customer base that’s now 3.2 million members strong.

Today, in the second installment of our conversation, Libin talks about his strategy for growing the computerized note-taking service, which has been described as an “offboard brain,” and how Evernote stacks up in this increasingly competitive field. He also details Evernote’s business model; interestingly, Libin says that if too many people were paying for Evernote’s $45/year premium version, it would be a sign that something was wrong.

Xconomy: Here we are three years after you joined the company and rolled out a multi-platform version of Evernote, and you’ve got millions of users. You’ve spoken of it as a “cognitive prosthesis,” but do your users think of it that way?

Phil Libin: I think you know a technology is really going mainstream when people don’t think about what they’re doing as being particularly noteworthy. The vast majority of people who use Evernote don’t actually see themselves as pushing the boundaries of the human memory.They’re just using it to remember stuff. In fact, one of our big challenges is that people have such completely different ways of using it that it’s sometimes hard to unify around a consistent message about what you actually do with it. They are using it across platforms, and the vast majority use it on more than one type of device within the same day.

Adoption rates are very high. On a slow day we add 5,000 users and on a good day, 9,000 or 10,000. That has been sustained for the past few months now. We’re at 3.2 million users, and all of this has been done without any real social features. Evernote is not designed to be a viral product. It’s designed for you, not for your friends. There are definitely hooks in there for all sorts of sharing and collaboration, and a lot more of that is coming soon. But it’s meant to be your private, trusted, lifetime memory. But even though there are no viral features, it grows through word of mouth. We don’t do any formal advertising or marketing. It turns out that Evernote users talk about Evernote to their friends. So we’re growing at this incredible rate, as fast as Skype or Twitter were growing at a comparable stage, even though there are no network effects.

X: Not only do you have a lot of users, but you’ve got an increasing number of competitors. In fact, the whole idea of online notekeeping is hot right now, with companies like iCyte, Springpad, Snaptic, and Shelfster offering similar services. How many startups do you think this sector can sustain?

PL: There is definitely a lot of activity in this space, which is great.I want there to be as much stuff as possible. I don’t think it’s a zero-sum game. We are partnering pretty closely with a bunch of people, where there is enough difference between what we are doing and what they are doing that there are ways to integrate the products.

There are a bunch of people actively, expressly going after Evernote—where their whole marketing pitch is that “we are a better Evernote”—which is entertaining. It’s not just the little guys, but there are big players as well. Microsoft is starting to make noise again with OneNote, and no one is really sure what Google is going to do.

Competition is good, but I don’t think anybody is doing quite as well as we do. I don’t think anybody else comes close to having nine different native clients and synchronizing across all of them. It’s actually fairly difficult to step up and do anywhere near what we do. So I feel pretty good. I’d rather be running Evernote than any of the other guys.

X: Evernote works particularly well on the iPad. Have you seen your signups increase since the iPad came out?

PL: The iPad app has become very popular. Since it launched in Japan, we are seeing huge numbers coming from Japan. The iPad is almost a perfect device for Evernote. The only thing that would make it more perfect would be a camera; without it, it’s a consumption device. But we’re really excited about the new iPhone, which will be just great for us. And a bunch of Android devices are coming out that are really interesting. We are significantly extending our Android development work—and mobile across the board. We’re starting to spend more money and not trying so hard to conserve. We’re just getting our heads around the idea that we’re not a starving startup.

X: But in the bigger picture, it seems to me that mobile devices are really the clincher for Evernote. The service wouldn’t be nearly as compelling if you couldn’t capture and access data while you’re out and about, doing your daily things.

PL: I think that mobile is very important, and it is definitely the catalyst that has brought about a huge amount of adoption and usage. In daily use, about half of our usage is coming from the desktop, and half from mobile. The ability to have this mobile device always on you, and know that all of your memories are in your pocket, makes it much more useful, even on your desktop.

People are still spending about half their lives sitting in front of their laptop or their desktop computer, so we don’t want to ignore that area. But when we launched, we had a native Windows client, a Web client, and a Windows Mobile client. On an average day back in the summer of 2008, maybe a couple of hundred people would use Evernote from a Windows Mobile device, and 500 on a really good day. But when the iPhone app launched, we immediately had 30,000 users per day from the iPhone. The iPhone fundamentally just broke apart every other mobile platform in terms of how many people know what it is, and having a unified place to get apps. The usage went up by many orders of magnitude. Then we saw the same thing with Android, and with iPad. BlackBerry shot up pretty fast when we launched in the BlackBerry App World, but it’s still nowhere near the same rate of growth as iPhone and Android. Those two are really fundamentally changing the business right now for everyone.

X: Let’s talk about your business model. You have a free version to get people in the door, where users can store up to 40 megabytes of data per month for free, and then if they pay $5 per month or $45 per year they can store up to 500 megabytes per month. Is that model working for you? Are people converting from the free service to the premium plan at a high enough rate to pay for all that storage and to keep your bottom line healthy?

PL: It’s working great. Revenues are growing 15 percent every single month. It’s significantly over projections. Paying for the storage is nothing—it does way more than pay for storage. We have 40 people in the company, and we are living on the revenue.

The main engine is the premium conversions, but two things you said are a little bit wrong. The free version is not a way to get people in the door. Almost nobody hits the 40 megabyte limit; unless you are putting in high-resolution photos, you are just not going to fill it up. We intentionally set it up that way, so that people feel comfortable that they can use the free version forever. It’s full-featured, and we intend the vast majority of our users to always be free.

Our goal is not actually to increase the conversion rate—it is to keep it within fairly narrow bounds. It can’t be too high, because if it is, it means we are dropping users; it means that the premium version is so much better than the free version that the free version is probably not good enough. We are very happy if users use the free version forever and never convert. What happens is that people convert to premium at increasing rates as they use the service. [About two percent of Evernote's users are premium members.] The number-one predictor for when people will convert is how long they’ve been using the service, not whether they’re nearing the 40-megabyte limit.

X: I’m not quite following you. As long as the free version is good enough to attract initial users, why wouldn’t you want to convert as many of them as possible to the paid plan?

PL: There is an easier way to think of this. Where a lot of people stumble when they’re thinking through this model is that they get stuck on the percentage of people who pay. If 98 percent of your customers are using it for free, it seems like there’s no way that could be a good business model. But the percentage does not matter at all. What matters is the total number of people who are paying, and the total expenses you are incurring to get those who pay.

So let’s say our goal is to have a million people paying for Evernote. There are two ways of doing it. If we were a traditional product, and we wanted to get a million people to pay us $45 a year, we’d have to spend some very large amount of money on advertising and marketing. Or, we can get 50 million people to fall in love with the product and use it for free, and have 2 percent of them pay us. It’s actually a lot easier and cheaper to get 50 million people to use your software and have them fall in love with it and tell their friends. You wind up with the same result, but you get there faster because you are spending money on the product and not on advertising. It’s a positive cycle, as opposed to spending that money on a Super Bowl ad.

X: One thing you don’t do much of is advertising. Couldn’t you easily sell in-app ads targeted to the types of content that users are storing to their notebooks?

PL: I’ve done some angel investing, and one thing that I’m always extremely suspicious of is business models that are too clever, that rely on things I don’t totally understand. Like “We’re going to get a bunch of data and monetize that through affiliate referrals or showing targeted advertisements or doing lead generation.” There are all of these companies that are trying to make money by letting people use their stuff for free, and getting a bunch of data, and I just don’t buy it. That’s going to hurt you with users, especially in this field. The whole point is that these are your memories. We are not data mining those, or combing through those to do anything. And also, as a business model it’s much harder to make money indirectly than to just say we’re going to have a great product and convert 2 percent of our users.

X: You’ve emphasized the private collection of memories, but as a longtime Evernote user, one feature I would love to see is more sophisticated ways to curate and republish the material I’m collecting. Right now, users can set a specific Evernote notebook to be publicly viewable on the Web, but it’s not possible to do anything fancy in terms of how the material is presented. In this area, even simple Web publishing platforms like Posterous seem to be ahead of you guys.

PL: You can break that problem into two halves. Right now, as you said, you can share notebooks with selected people or with everyone, and you can give read or write access—but only through the Web client. So, one half of the problem is that we are adding this [sharing] capability to all of the clients. Later this year, basically you will be able to subscribe to and view everybody else’s shared notebooks right inside your client.

But that doesn’t address how it looks; it’s just going to look like Evernote. The second part is more about publishing to the Web. If you really care about how it looks, that stuff is purely partnerships for us. We are launching several partnerships and integrating over the next couple of months with a whole bunch of companies, including companies that publish blogs. From within Evernote, you will be able to publish things either manually or automatically. Anything you take in and tag in a certain way could automatically be published to whatever blog you like. We have more big things coming out this summer, where we are going to have tons more partners, and a real ecosystem. So if what you want to do is use Evernote to collect your thoughts and put that on a blog, that will become easy through some integrations.

X: It sounds like you intend to stay in the collection and storage business, but that you’re content to leave the publishing to someone else.

PL: The publishing stuff is a really valuable use case. But it’s one of those things where there are so many really good casual publishing systems right now that it seems unjustified to try to rebuild that.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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