SurveyMonkey's (SVMK +0.00%) IPO didn't gin up much fanfare, and the shares have been sliding since day one.
In this segment from Industry Focus: Tech, host Dylan Lewis and Motley Fool contributor Evan Niu explain how the survey specialist's business model works.
A full transcript follows the video.
This video was recorded on Oct. 5, 2018.
Dylan Lewis: The company that we are talking about today, SurveyMonkey, was founded in 1999 and has enjoyed quite a lengthy lifetime as a private company, kind of an under-the-radar unicorn.
Evan Niu: Right. The brand's been around forever. I recognize it from high school. This was right when everyone was going on the internet and you'd take these random little online surveys and polls. Yeah, they've been around forever.
Lewis: Shares hit the market last week. The company IPO-ed under the ticker SVMK. In case anyone is not familiar, it is a software as a service company that allows people to design and distribute surveys. They have some partnerships and integrations that work with a lot of the other major tech platforms out there. I'm sure that a lot of our listeners have probably taken a SurveyMonkey survey before and maybe not even realized it.
Niu: Lots of people use this service, because it's free and very easy to use, anytime they want to go out and collect some data or feedback about their business, how they're doing, all sorts of purposes.
Lewis: They have that free tier. That offers some limited functionality. They have some response limits, things like that. Then, they have several individual tiers. Those go from $37 a month, or just about $370 annually, to over $1,000 per year. It scales with different functionality, branding, data exports, all that kind of stuff. They also have a negotiated pricing on their enterprise segment. They have a B2B side of their business. But I think that really, they start out with consumers directly.
Niu: Right. They said the vast majority of their accounts are individual accounts. They estimated that roughly 12% of revenue comes from customers with organizational-level accounts, those enterprise negotiated ones. They have about 3,000 organizational customers out of about 615,000 total paying users. That's a pretty small proportion.
But that being said, I think that a lot of these accounts are still using these individual accounts for business purposes, even if they're technically registered as an individual account. SurveyMonkey says that about 80% of accounts, they estimate, are still using these for some type of business purpose. It makes sense, if you think about it. This isn't the type of service where you need everyone in your organization to have an account. Anecdotally, my wife actually has one at work. She was telling me, she works for the state of Colorado, she actually shares an account with another department. That's kind of an exact situation example here, where you have one account, it's probably registered as individual. I'm not sure how that one's registered. But, you have lots of people across departments using this one account.
Lewis: If this sounds at all familiar, this idea of a free service that people come into, they tend to deal primarily on the consumer side, and then build their way into businesses, it's because it is. We talked about a company that has a very similar model maybe a month or two ago with Dropbox.
Niu: Right. Like Dropbox, they have this huge mass of free users, and their challenge is to try to convert those over. But you can see in the numbers that their conversion rate isn't super high. That's also similar to Dropbox. Dropbox isn't really super aggressive with sales. They rely more on word of mouth marketing. Same story here.
Lewis: The drilldown on that, since inception, the service has 60 million registered users. They count 16 million active users, people that have used it in the last year, and 600,000 paying users. Roughly 4% of active users are paying users. To your point, not a huge majority of them paying for the service.
