Freemium, Conversion Rates and More: AVG CEO J.R. Smith (Part 6)

Sramana: What does the competitive landscape look like for you?

J.R. Smith: Competition is pretty vast for us. By giving away our products and figuring out how to cross-sell and upsell, we have grown our customer base to 106 million active users. When you get 100 million users, that changes the business model. We are no longer just the “freemium guys.”

In 2009 we started to diversify our product portfolio outside of security. We have online backup and system optimization as well as live customer support for free and paid users. We have 10 products and services that we can cross-sell and upsell. We have expanded our brand beyond security, but our roots in security help us establish trust.

Our competition is more like Facebook, Twitter, Google, and Zynga. Those are companies with massive user bases that have figured out how to monetize those users. We have turned AVG into a company with a massive user base with great subscription software. AVG at its heart is a customer acquisition company.

Sramana: What is the distribution across your product base?

J.R. Smith: The majority of the revenue generation is through security products and computer tune-up products. We have also moved onto mobile platforms, and we are seeing customers generate revenue there as well. We have partnerships with Microsoft, Google, VeriSign, and other companies that want access to that user base. About 30% of our revenue comes through those partnerships.

Sramana: What is Google trying to do by gaining access to your user base?

J.R. Smith: We have a product called LinkScanner that offers web protection. We partner with Google and we protect the browser in the search environment. We have a feed from Google and we scan search results and we make sure there is no malware in the banners or landing pages of the search results. We render the results and protect them, and any time someone clicks on an AdWords link we get paid via revenue share.

Sramana: You get paid a portion of Google’s PPC revenue?

J.R. Smith: Yes, we are just part of the cost of acquisition to them. It is a common model used by anyone who has customers in the browser.

Sramana: So, the search is happening through the browser?

J.R. Smith: LinkScanner is in all of our security products. Within Firefox, IE, and other browsers we are able to control and protect the search. We render the search results. Because we protect the search results, we have a unique arrangement with Google to provide protected search.

Sramana: Essentially you have the power to eliminate the paid search results if you wanted to.

J.R. Smith: Google gives us the feed for all search results, but we do the rendering. Google wants to hold their place in the market. Not many companies control the search experience for 106 million people like we do, so there is value we provide to Google. They would never do a partnership if they felt we would eliminate paid search terms. They willingly give us those feeds because they know we will add value. There may be a little bit of cannibalism between our customer bases, but they find that our customer lifetime is longer and our customers generate more revenue for Google because our customers feel safer browsing the Internet through us.

This segment is part 6 in the series : Freemium, Conversion Rates and More: AVG CEO J.R. Smith
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