How Evernote raised prices -- and still more of us signed up

When you need to jot down an idea, check something off your to-do list or scan a business-trip receipt, free tools are plentiful -- think Microsoft OneNote, Google Keep, Apple Notes, Dropbox Paper and more.

But Chris O'Neill, chief executive of Evernote, the company that pioneered the technology, thinks it's worth paying for -- so much so that Evernote raised its prices as much as 40 percent last year. You'd think that might have scared people away, but apparently not. The company just announced that it's reached 220 million users, up from 200 million at the beginning of the year.

"We've more than doubled the number of subscribers over the past two years," said O'Neill, who took over as CEO in July 2015 after 10 years at Google. And although most people using Evernote stick with the free version, premium subscribers are at an all-time high, he said in an interview.

O'Neill, 44, dressed in a plaid shirt and sporting an Apple Watch , met me at Evernote's Redwood City, California, headquarters in a room painted the same bright green as the company's elephant-head logo. The room once showcased Evernote-branded products like Moleskine notebooks and Fujitsu scanners from the now-defunct Evernote Marketplace program. Now it houses awards and comfy chairs.

Evernote is designed to make it easier to withstand the flood of digital information. It lets you take notes but accommodates photos, voice recordings, website links, PDFs, checkboxes and other information, too. Your notes are synchronized across PCs, phones and tablets , and if you're not inclined to organize them by hashtags and folders, you can retrieve notes with a gradually more sophisticated search feature, too.

What Evernote is not, however, is an element of the services that tech giants like Google, Apple and Microsoft offer. That means Evernote doesn't dovetail with your email address book or calendar. It isn't simply built into your phone. But Evernote is happy being independent, with 60,000 to 80,000 new users signing up daily and a business that's generating cash if not necessarily profit.

Premium users appreciate Evernote because it's designed better and organizes lots of documents better than the competition, said Evan Tarver, an investments analyst at tech advisory firm FitSmallBusiness.com. But most of us work with others, and there Evernote isn't in the lead. "When it comes to pure functionality, such as sharing and collaborating on documents from anywhere on any computer, Google Docs is the best," Tarver said.

O'Neill sat down with CNET's Stephen Shankland to discuss Evernote's plans. The following is an edited transcript of their conversation.

Q: Give me the Evernote sales pitch. Why should I be using Evernote? 
Chris O'Neill: The mission goes back to our visionary founder Stepan Pachikov, who saw ahead of many others that human evolution is just simply not keeping up with technology -- the onslaught of information that's overwhelming our lives both personally and professionally. We address that fundamental, universal human need by allowing people to capture their ideas, anywhere, on any format and anytime, and keep them forever -- and then retrieve those ideas in the moments that truly matter. We instill a sense of peace of mind in this chaotic world.

Watch this: Evernote beefs up app with search, sharing and Siri

02:22

But does Evernote just make a small dent in the problem? Even with the nicest of tools, we're still overwhelmed with information -- emails, instant messages, Slack channels, Google Docs sharing, social networks and other conduits for information.
O'Neill: I'm not here to suggest that we're going to completely solve this. What our users tell us is that they feel a sense of calm when they use Evernote. It's a very personal connection. It's not just a place where they keep things. It's an extension of who they are and how they think and how they work.

I am bullish, longer term. In five or 10 years, there will be a nice marrying of technology and humans so we can assist -- so you can feel organized without having to do the organization. Most of the things that we have today are good, certainly not great. But think of [Apple voice assistant technology] Siri as an example. It's good, but it's not great. I think in three, four, five, 10 years, we'll look back and we won't be able to live without these sorts of tools.

A lot of people aren't familiar with Evernote. Why should people move their lives to it?
O'Neill: We've all had the experience of forgetting an idea, or having inspiration and it just kind of goes away. We want to be that place where you capture your ideas at the speed of thought. There should be very little time or friction between having a thought and capturing it. We will look back at the use of our thumbs and keyboards in the next couple of years as a little bit antiquated. We launched an integration with Siri two or three weeks ago which is all about removing friction. You can just speak and capture your ideas when you're on the go, in a car, on a run.

Next, how do you retrieve stuff? We've been tripling down on our investment in our search, in our artificial intelligence team. That allows you to retrieve things not just by keywords but by context. Where were you? What was in the note? Was it a picture? Was it a table? What time of year was it? How long ago was it? Who was it from? All that context will help in the retrieval.

In the long run, will people have to do work up front to organize their information, or will it all happen automatically -- an AI surfaces what you need when you need it?
O'Neill: We want to be flexible. If someone wants to tag things in 15 different ways, they can do it. But the world that I see requires virtually none of that. That will allow automation and retrieval in a near frictionless way. So that's coming very, very soon. We're constantly experimenting with making that great.

Where is the Evernote innovation? What'll satisfy people paying 70 bucks a year?
O'Neill: I would encourage anyone who hasn't been in the product for the last six to 12 months to come back. The quality is fundamentally improved. The fundamental aspects of Evernote hinge around those verbs: search, sync and editing. We are working to make search assisted, to make it automatic, to make it just happen. Search is faster, and the relevance of what you will find is amazing.

We've overhauled all aspects of our sync engine. We have virtually zero sync errors, and the speed is now measured in seconds if not milliseconds.

The editor is rewritten from the ground up. We can build features once, then propagate them across all of our different platforms. A very tangible example of that happened four weeks ago, where we redid our tables. Users have responded by using tables now two to three times more. The quality means our support and number of crashes have improved by leaps and bounds -- orders of magnitude since the time I've been here.

And Evernote plays well with other services. You can clip a Microsoft Outlook email directly into Evernote, and you can integrate Evernote content seamlessly into Outlook. You can take a picture of a business card that allows you to connect in LinkedIn. We announced integration with Google Drive . We're experimenting with calendar and chat integrations.

You mentioned AI, too.
O'Neill: This is the future for us, but it is the present as well. Search is powered by artificial intelligence, extracting meaning and context from the content. Voice input is machine learning or artificial intelligence we are trying to simulate. I mentioned the Siri integration. That will be one of many that will come.

You're in a meeting, for example. You'll use a phone or some other voice capture device, which will translate voice to text. That text will be translated into context. That might be an action item. That might be a reminder to follow up. It might be assigning or delegating something to someone in real time -- as opposed to the current process, where if the notes are taken at all, people forget.

So you build Evernote into people's activity, not just record the information?
O'Neill: Correct. There's enormous opportunity to personalize it. How can we get to the point where we make a suggestion to you in the form of a reminder? These are things we're working on today.

When will I be able to dictate a note with Google Assistant or Amazon Alexa?
O'Neill: I'm not going to commit to a specific date for those things. Siri is one that just happens to be first. You can expect to see more in that direction.

Do you have an ambition where Evernote automatically touches everything, and it gets indexed to make it a lot more usable?
O'Neill: It starts with the user choice. But then, yes, you will have the ability to integrate across all different aspects of your life. And we very much have that as part of our vision for the future of our company. You can spend less time in nonsensical collaborative activities. You can spend less time searching for things. You have this virtual assistant that is going to understand the context you're in at any point and be able to suggest something. That only works if you have meaningful coverage of all the different things that matter.

Have you seen tangible results from the improvements you've delivered so far to the core product -- search, sync and editing?
O'Neill: The number of registered users continues to grow, almost exclusively through organic means. We hover between 60,000 to 80,000 registrations every day. People are continuing to spread the word. Retention is the best it's ever been. It's far, far superior to any of our peers.

What fraction pay for a premium account, and how has it changed?
O'Neill: We've increased prices [in 2016]. And we've more than doubled the number of subscribers over the past two years. People are voting with their wallets in a very clear way. The conversion rates [from free to premium accounts] are the highest they've ever been in the company's history.

But the basic version became worse. Did that drive the migration?
O'Neill: I don't think of it that way. We've been clear about where the value is being delivered. We pulled some aspects of the premium things ahead for people to use, and we established what we call usage-based paywalls. The biggest one, of course, was device. [Free users now are limited to syncing notes across two devices.] We're not apologetic about the value that we deliver.

Does the business have more breathing room?
O'Neill: We just wrapped up our third quarter with by far the strongest financial results in the company's history, whether you look at users or revenue growth. Not coincidentally we're a cash-flow-positive company. We control our own financial destiny now. What's far, far more important to me and to the company is that we can now aggressively invest in our team and our product.

We've added 100 people to the company in the past 18 months. We're hovering at around 340 employees. There are eight new executives in my time, with functional expertise from companies like Google, Dropbox, Skype and Motorola. I have no plans to raise money at this point. Our investors couldn't be happier.

Evernote started as a personal tool. But a lot of what we have to do these days is very collaborative. You've been trying to retrofit collaboration onto Evernote. What fraction of the people are taking advantage of that?
O'Neill: We're seeing collaboration in our usage. It's very rare that anything worthwhile in today's society or at work is a single-player activity. We will stick to where we think we can be the best in the world. We'll play well with others, but we don't feel the need to do all things and try to be all things to all people. We're not a chat company.

Can you offer collaboration when you don't have communication as one of your core tenets? That's such a fundamental part of collaboration. How do teams stay on the same page?
O'Neill: Wouldn't it be great if people had a single place like a product that they actually loved, as opposed to something that maybe just interrupts them? We can have great success in this realm by having millions and millions of people pull us into their lives. It doesn't necessarily mean we have to provide all the parts. Companies in the future will be about providing choice to their users -- products and services and tools that will be chosen by the users and enabled by the companies. It won't be just some monolithic thing.

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You're pushing very aggressively toward AI and machine learning, but that triggered a problem when you tried to change your privacy policy. What happened?
O'Neill: What went wrong is very simple, actually. We communicated incredibly poorly. I don't know if we could have communicated more poorly. We poorly communicated the basics of how any internet company on the planet has to operate -- for example, the situation where law enforcement comes to a company with a valid search warrant.

The knock was Evernote employees are reading your notes.
O'Neill: Which was not true.

What was the reality?
O'Neill: With permission we will continue to innovate on behalf of our users. People were putting facts that were just totally not true out there. So we decided to stop it. If we don't have trust of our users, we don't have a business. We took a step back and said let's engage the world's best data protection and privacy advocacy groups and, step by step, bring our users along.

The beauty of what we do is it's honest, it's a clear business model that aligns with the value we deliver to the users. They don't have to use our product. They can vote with their feet and their wallets and go elsewhere and take their data with them.

When I hear you say "a clear business model," I translate that as "we're not using your personal information to tailor ads."
O'Neill: That's exactly right. We are not using data to try to sell you something. We use that information with your permission to improve the product. We're on the right side of history on this one. Anytime something is free you have to ask: Are you the product?

Lots of us get lodged in ecosystems where somebody like Google, Apple or Microsoft has our contacts, our calendar, our documents. All that stuff gets wired together. How big a problem is it that Evernote is one step outside?
O'Neill: There's a segment of the world who will want to live in one ecosystem. I also think there will be a portion of people who want to integrate best-of-breed things. Open-source software and APIs [application programming interfaces that link different services] will enable that.

Millennials, the younger generation, want to choose stuff. They don't want to just get the standard package. As you see more distributed workforces or a push toward more contractors, things will be less monolithic.

Why should people use Evernote versus Google Keep, Microsoft OneNote, Dropbox Paper and other alternatives?
O'Neill: A lot of people don't have the benefit that we have, that's to focus on one thing and do it exceptionally well. That matters -- the ability for us to wake up in the morning and obsess over latency and speed and ease of use. This is not something that's waxing or waning with the whims of our team. This is all we do. We have the financial underpinnings to really aggressively invest. There's a whole bunch more technology innovations that will come down over the course of the next 18 months, and we couldn't be more excited.

First published October 11 at 5 a.m. PT.
Update, 8:04 a.m.: Adds comment from FitSmallBusiness.com.
Correction, 9:16 a.m.: The story misstated the price of an Evernote premium subscription. It costs $70 per year.

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