Evernote Market: App Maker’s Retail Strategy Pays Off

Evernote Market: App Maker’s Retail Strategy Pays Off

By John Tozzi January 23, 2014

Cloud software company Evernote lets people store musings, links, photos, and other files with its popular personal management app. It has built a user base of about 85 million by pitching itself as a cooler, more effective organizer for creative minds than business-focused data management services such as Dropbox and Box. The problem for Evernote is that most users don’t pay for the basic service, which allows them 60 megabytes of uploads per month. It’s been relying largely on about 10,000 businesses to cough up $10 per user per month for subscriptions that come with “business notebooks” and other collaboration tools. The company says it has a total of 4.5 million paid users, including those business customers, trial subscriptions, and individuals who pay a $45 annual premium for such features as more capacity (about 1 gigabyte per month) and a better search engine.

Now the privately held company, based in Redwood City, Calif., has hit on a new revenue stream with its four-month-old online store, Evernote Market. The store sells branded merchandise from scanners to Moleskine notebooks to socks, and Vice President Jeff Zwerner says it has delivered more than $4 million in revenue since its late September debut on Evernote’s website and apps. “This is about diversifying the revenue streams for the business and allowing us to transform into a larger lifestyle brand,” says Zwerner, who runs Market. At an Internet conference in Paris in December, Chief Executive Officer Phil Libin said the new venture was responsible for 30 percent of the company’s sales. It’s also helping the company broaden its paying audience, says Zwerner. Roughly half of Market customers don’t pay for the premium app, and 1 in 9 haven’t used Evernote before.

Market customers pay high prices for sleek-looking goods, often bearing Evernote’s elephant logo. A 16-inch-long gray triangular bag made of nylon, polyester, and leather sells for $199. A package of five pairs of “business socks” costs $85. The retail strategy dovetails with Evernote’s cooler-than-thou image, says Doug Weltman, a senior analyst at researcher PrivCo. “These are people who want to be organized and don’t mind spending a fair amount of money doing it,” he says.

The surge of revenue comes as Evernote, which has raised $305 million since its 2007 founding, has struggled to convince longtime users and business customers that its software is stable and secure. In March, Evernote revealed that hackers had gained access to users’ e-mail addresses and encrypted passwords. The latest version of its iPhone app, released the week before Market’s launch, drew user complaints about technical problems and a cluttered design. Libin, in a Jan. 4 mea culpa blog post, noted the “frustrating roll-out” and said he’d begun “a company-wide effort to improve quality.” On Jan. 21, Evernote announced a deal with European wireless carrierDeutsche Telekom (DTE:GR) to give DT customers six months’ worth of the premium app.

Chris McConnell, a premium Evernote subscriber who writes a technology blog called DailyTekk, says he worries that Evernote Market is distracting the company from app development. “Some of this stuff has nothing to do with anything Evernote,” he says, adding that he was disappointed with a stylus he bought from Market to review. “Let the bagmakers make the accessories, and you focus on your core product.”

The Market development team, formed in 2012, comprises just six of Evernote’s 300 employees, says Zwerner. Still, he and Libin have made clear that the company’s retail interests are growing. Evernote has leased warehouse space in Los Angeles, Lancaster, Pa., and near Tokyo. Its headquarters prominently features a retail store packed with Market products, and Libin said at the Paris conference that he expects a “complete blending together of physical and digital products” within five years. Its new business gives Evernote an opportunity to expand beyond technology, says Ronda Scott, the company’s director of communications, who is pitching Market gear to Vogue. “Vogue would not have taken a meeting for an app,” she says.

The bottom line: Boutique cloud app company Evernote has sold more than $4 million worth of branded merchandise in less than four months.