SurveyMonkey's next move: Benchmarks

The concept of a business model based on a “freemium” product boggles the mind of observers outside Silicon Valley, but it shouldn’t. After all, just as companies like Evernote or Dropbox make all their money on a relatively tiny percentage of users, broadcast radio and television have “given away” their product for decades (and recouped their costs handsomely with advertising) and grocers have forever profited from ubiquitous buy-two-get-one-free deals. You can, in fact, get something for nothing—especially if that something, otherwise known as a sample, might lead you to buy a whole lot more.

The Palo Alto, Calif. company SurveyMonkey has perfected the give-a-lot-get-a-little technique for years now. By offering free online survey tools to the likes of schoolteachers and non-profit administrators, the privately-held company run by seasoned entrepreneur Dave Goldberg has been able to rack up far more than $100 million in highly profitable revenues. Most surveys are free on SurveyMonkey; bells and whistles like analytical tools, customer service, and high-volume surveys cost more. And even customers who pay end up paying far less than if they’d gone to a giant market research firm that specializes in milking giant corporations.

Despite is goofy name and relatively low profile, SurveyMonkey has turned into a veritable piggy bank for its investors, including Goldberg. Just before the end of the year SurveyMonkey raised $250 million from a group that included T. Rowe Price, Morgan Stanley, and Fidelity. That brought SurveyMonkey’s total fundraising to just north of $1 billion. According to Goldberg, about $75 million of the recent haul went for the first time into the company’s coffers, meaning investors have taken home the other $1 billion for themselves. To state the obvious, SurveyMonkey’s cash flow otherwise funds the business.

Goldberg does need to grow the company. He took charge six years ago when SurveyMonkey had about a dozen employees in Portland, Ore. Since then he’s added nearly 500 people; integrated the company’s survey capabilities into other web apps including Salesforce.com, Eventbrite, Mailchimp, and Zendesk; and begun to position SurveyMonkey for corporate use. Its users complete about 3 million surveys a day, creating an enormous data pool SurveyMonkey can tap into when its users grant permission.

The existence of that data pool led to its most recent product, a benchmarking service for four lucrative areas: employee engagement; customer satisfaction; so-called Net Promoter scores, which measure if customers would recommend a merchant to others; and website feedback.

Read the conclusion of this post at Fortune.com.