Evernote - Freemium and the Marginal Cost of Cloud Computing

Here is a superb blog from Rory Cellan-Jones on some of the financial numbers emerging from Evernote a business that, like Spotify - has opted for a freemium business model as a way of monetising the cloud computing services it offers.

“So it turned out that back in May, Evernote had 900,000 users, of whom just 12,000 were paying $5 a month for a premium subscription. Today, that’s risen to two million users, with 31,000 premium subscribers. Hmmm - so about 1.5% are choosing to pay - that doesn’t sound a very cheerful state of affairs. But Phil Libin came charging back with a series of spreadsheets and graphs telling a more encouraging story….... what really makes Evernote look like a sustainable business is that its costs are so low - nine cents (about 6p) per user per month. I was surprised that it wasn’t much higher, given the cost of running an ever larger data centre.”

It provides a terrific example of the low marginal cost of adding extra users to the site and the revenue and profit opportunities from converting users of the free service to the paid for model.

Interesting video here from Oxford Entrepreneurs who invited the Spotify founder Daniel Ek to speak to their society a few weeks ago.