Free Service Provider Seeing Revenue Soar

• Patrick Seitz
• On 6:14 pm EDT, Wednesday October 14, 2009

LogMeIn has 25 million registered users for its remote access software, but only 1% of them pay.

That's OK with LogMeIn's (NasdaqGM:LOGM - News) chief executive, Michael Simon, because users of its free basic product provide a big potential market for its premium paid offerings.

In the second quarter, LogMeIn earned $2.3 million, compared with a year-earlier loss of $3 million, on sales of $18 million, up 58%. On Oct. 28, analysts expect it to report third-quarter per-share profit of 10 cents, up from a penny, and a 30% sales gain.

LogMeIn, which went public July 1, offers software that lets people access data on their computers remotely from another computer or smart phone.

The Woburn, Mass., firm sells its on-demand, remote-connectivity services to small and midsize businesses, information technology service providers and consumers. It also provides software for mobile operators and handset makers.

The company has more than 200,000 paying customers. CEO Simon recently spoke to IBD about his company's strategy.

IBD: What customers pay for LogMeIn products?

Simon: A huge range, from Global 10 companies to part-time workers from home.

Our portfolio of products includes remote access -- meaning work force mobility products -- and remote maintenance, which is something an IT department would use to manage a device, and products that are used for on-demand help and customer care.

The (paying) customers are principally small-business people. They're using LogMeIn Pro. That product is roughly $70 per year per seat, whereas LogMeIn Rescue, which is a customer-care product, is $1,200 per aide technician. So you have a wide range in the price points per license.

To give you a sense of something that binds all of our customers together, from small-business mobile professionals to Sprint (NYSE:S - News)providing customer care, essentially what you have is an Internet-enabled device that is physically disenfranchised and separate from classic IT support. Fundamentally, what LogMeIn is trying to do is give all the management and connectivity tools that you'd typically have within a well-served enterprise, which has a dedicated IT team, and make those available for small offices, for remote workers.

IBD: Which product area generates the most sales?

Simon: Roughly one-third of our business is premium remote access. Two-thirds of it is what we classify as IT services, including proactive maintenance and break-fix. Best Buy's (NYSE:BBY - News) Geek Squad runs on our platform (and uses) our LogMeIn Rescue product.

IBD: What can LogMeIn do to convert more free users to pay?

Simon: That is a great opportunity for us in that the free user base is so large. Small improvements in conversion rates have an enormous effect on the customer count.

Our focus tends to be: How can we deliver additional, adjacent, essential remote services (for a fee) to our free customer base? That will continue to be an opportunity for growth for us.

I can give two timely examples.

We just introduced a product called LogMeIn Central. It's $300 and designed for the most active free users -- those who are running business-grade applications and operations on our free product.

We're not saying, "Don't use (LogMeIn) Free," because they like free. But what we're saying is, "We might be able to make your life better, with better user management and more smart remote system deployment and reporting." LogMeIn Central is geared to be something that's useful for people who are using our current, free product to deliver IT support.

On the opposite end of the spectrum, we have a complementary application designed for individual consumers and small-business users who like LogMeIn Free. It's our Ignition for iPhone product.

People really like it. It's been very successful. It's $29. And basically it means if it's on your desktop, whether it's a Mac or a PC, it's on your (Apple) iPhone.

We're the No. 1 productivity app in terms of gross sales (on Apple's (NasdaqGS:AAPL - News) App Store). It's a good opportunity for us to convert more free users into paying customers.

IBD: When will Intel's (NasdaqGS:INTC - News) use of LogMeIn's Gravity platform bear fruit for LogMeIn?

Simon: It generates pretty substantial fruit for us now. It's generating $6 million a year in revenue for us -- specifically, $1.5 million in Q2. That is a contractual minimum they pay to use our Gravity platform. That's a meaningful chunk of revenue for us at this stage in our company.

The Intel-LogMeIn solution is known as the Intel Connect Service. Today, if you want to remotely access a computer -- whether to use it, to do a patch update or to back up data from it -- you need to leave it on 24 hours a day, seven days a week, because you don't know ahead of time when you're going to take advantage of that.

Our technology with Intel allows you to turn off a computer and then use our Web service, whether you're a human being logging into LogMeIn.com or a third-party application logging into Gravity on a machine-to-machine basis, and actually power on a remote computer.

Beyond that, a lot of our customers like Geek Squad, Toshiba, Sony (NYSE:SNE - News) and others who are maintaining and fixing broken computers often hear from customers who say: "My computer doesn't work. Can you fix it?" With the Intel Connect Service, not only can they fix a computer that isn't working, but they can use our LogMeIn Rescue product and actually do a remote service session into a computer where the operating system has failed and has the so-called "blue screen of death." There is a small fee, which we and Intel split 50-50.

IBD: Why aren't much-bigger Cisco Systems (NasdaqGS:CSCO - News) and Citrix (NasdaqGS:CTXS - News) eating your lunch?

Simon: When we went into this free space, the general belief among our competitors was that it was just not economically viable to do what we were doing. They thought we couldn't build a profitable, sustainable good business.

What most people underestimated is the enormous cost advantages we've created when it comes to service delivery. Because we have such a huge user base, we can basically go and harvest new (customers from that user base).

Buzz up!