Thursday, September 30, 2010

Xmarks is Dead. Long Live Xmarks?

First off, a big thanks to all of you that sent kudos and “Nooooooo’s” in response to our shutdown announcement. We take enormous pride in the sync service we worked so hard to create and it means a lot to hear how much our users love what we’ve built.

We've also received a lot of credible interest from companies interested in acquiring the Xmarks assets and taking over the service - no guarantees, but we've been pleasantly surprised by the volume of interest and we may yet find a path to a continued Xmarks sync service.

But on to the main thing we've heard... many of you have cried from the rooftops that you would be willing to pay for Xmarks. There’s an interesting thread on our customer support forums discussing this. I want to add some history and data to this discussion, so you can better understand where we’ve been as a startup and why we haven't tried to pivot into a premium service.

But first, the punch line: we're revisiting the idea of Xmarks as a premium service. We've set up a Pledgebank page where you can sign up if you're willing to pay at least $10 a year for Xmarks. No credit card is required, but please only pledge if you are genuinely willing and able to pay:

This is not a scientific experiment to predict what % of our base will pay, but it's a data point that will definitely help.

So, why hasn't Xmarks tried to charge for a premium service in the past? Here's a three-part answer:

1) Charging users for sync was not our original strategy

  • Foxmarks started, before I joined, with a strategy to crowd-source bookmarks at scale and then aggregate and analyze that data to create valuable new web services that tens of millions of users would use every day.

  • As CEO, under the direction of my investors, I led my team to execute on that original vision. I’m proud of how agile we were in launching, testing, and iterating on a number of search and discovery services. Ultimately, none of those services achieved significant user traction and scale, but they were spot on our strategy of leveraging our “corpus” of over one billion bookmarks. Keeping the sync service was an essential part of our strategy to grow that bookmark corpus as quickly as possible.

2) Early "freemium" tests and models were discouraging

  • We were one of the first add-ons to turn on the Mozilla “contributions” feature, allowing users to make a suggested $7 donation when they download Xmarks. Participation was abysmal… less that 0.001% of users contributed. (Interestingly, most of the contributions came from Europe, not from the US.)

  • In a true freemium model, we would hold some features back behind a pay wall. Successful services in this category typically see 1-3% of free users convert to paid. The popular service Evernote, for example, have said publicly that 2% of their free users convert.

  • For Xmarks, 2% of our two million users paying $10 a year would generate $400,000 of annual revenue. Today Xmarks costs over $2 million a year to run. For two developers in a garage this could be a nice business, but we had big aspirations (per point #1) and have already invested $9 million dollars to create the technology and grow the data corpus. If $2MM / year seems crazy high to you, remember that we staffed senior engineers to keep up with changes on multiple browsers and operating systems, plus a team building our search features.

3) Free alternatives have significant market power

  • The advent of Mozilla and Google building in sync to Firefox and Chrome has had significant negative impact on Xmarks. While we have lots of users signing up for Xmarks, we have also seen increased "churn," with users switching over to the native Firefox and Chrome sync solutions. When Firefox 4 is released with free sync built in, it will become harder for a standalone add-on that must be purchased and installed separately to compete.

    UPDATE: Many comments point out that Xmarks is the only game in town for cross-browser sync; that's something that Firefox or Chrome can't hold a candle to. Absolutely true! Point #3 is still relevant to our business prospects, as over 75% of our current users are Firefox-only.

    Hopefully you can see that, for us and our investors, we were aiming for a different business, and staffing at a different level, than what it is likely appropriate for a freemium model. For a new company taking a fresh start with Xmarks, a freemium model could be really compelling. The overwhelming positive user support from all of you, combined with strong interest by companies looking to take over Xmarks, means that the service might just find a ninth life. Please stay tuned.

    James Joaquin
    CEO, Xmarks Inc.