How Eventbrite Benefits by Giving Away Its Product for Free

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Eventbrite (NYSE: EB) provides event organizers with tools to manage and promote events. But, the company doesn't focus on events headlined by superstars like Beyoncé. Rather, the company focuses on medium-sized events like high school plays and has employed an interesting business strategy to grow its customer base.

Because the company recently went public, Eventbrite likely isn't on many investors' radars. However, the company is worth paying attention to because it offers a compelling product and is growing rapidly.

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Freemium business model

Eventbight is a technology platform for event organizers of all stripes, offering a turnkey solution for organizers to distribute invitations and collect ticket payments. In addition, organizers are empowered with data analytics that can help them better market their activities and make better decisions about how to plan future events.

In short, Eventbrite delivers a great deal of value to event organizers who would normally need to pay up for fancy software or hire a consultant to receive the same level of professional service. Interestingly, the company gives most of its software services away for free to organizers who host free events. However, Eventbrite does charge a fee for each ticket sold to a paid event and charges extra for advanced marketing and data analytics tools.

By providing its basic services for free, Eventbrite gets event organizers hooked on using the Eventbrite platform in the hopes that the company can later charge those customers for advanced features, such as payment collection or data analytics. This business model is known as a "freemium" model, and it has worked well for the company.

According to Eventbrite, 17% of organizers who initially used Eventbrite's platform to host a free event went on host a paid event within twelve months. In other words, 17% of free users converted to being paid users -- not a bad conversion rate for an online service.

The freemium model is not unique, but Eventbrite's application of it is inspired. There is virtually no risk for organizers to use Eventbrite, which makes it an easy sell. Once organizers are accustomed to using the platform, they are more likely to become paid customers and are less likely to use a different platform. This is a win-win proposition for both sides.

Word of mouth appeal

If you are familiar with Eventbrite's service already, it is probably because you have used it to attend an event. In fact, this is how many of the company's customers discovered it as well. Word of mouth advertising has been the leading driver of the company's rapid user growth.

Strong growth from word of mouth is encouraging because it ultimately means that customers are happy and recommend the product. Word of mouth growth also happens to be good for business because it helps keep marketing costs down. The platform's high visibility to event attendees is a form of marketing, and the company can afford to hire fewer people in its sales department because users discover Eventbrite on their own and more than 98% of customers sign themselves up for the platform.

The company supplements its organic word of mouth user growth with a sales staff focused on targeting strategically important customers such as large organizers or customers in new geographic regions. Some customers -- especially larger customers -- want to be sold by sales reps. Although these customers are a minority, they still account for over 40% of Eventbrite's revenue.

With its hybrid approach using both a highly targeted sales effort and broad-based word of mouth customer growth, Eventbrite is able to keep its marketing costs down while simultaneously pursuing growth opportunities.

Strong growth ahead

Consumer preferences are shifting because millennials have a greater affinity for experiences than prior generations, who are comparatively more interested in consumption. According to a study conducted by the US Bureau of Economic Analysis, consumer spending growth on experiences has consistently outpaced overall spending growth since 2001. This well-documented trend has been referred to as the "experience economy," and it includes live events that use Eventbrite's services.

The number of live events taking place each year is growing and is helping to propel the company's business. That is largely why Eventbrite saw its revenue grow by 44.7% in 2018 and why the company expects healthy growth to persist for many years.

The growth in the experience economy can be considered a secular trend because it is expected to continue even in the face of downward cyclical pressure from the overall economy. This is a generational shift in consumer spending habits and should benefit Eventbrite for years to come.

A company built for a younger generation

Many aspects of Eventbrite's business indicate that the company was built by Millennials and for Millennials. The company plays in the experience economy where younger consumers are eager to spend more of their time and money. Furthermore, the "freemium" model is familiar to many Millennials who use smartphone apps with a similar business strategy.

The company is well-positioned to capitalize on the growing number of live events held every year. Like many recent tech IPOs, Eventbrite isn't yet profitable, but if the company can keep delivering strong top-line growth the stock will be poised to continue higher.

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Luis Sanchez has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.