How Does Bitwarden Make Money? Analyzing Its Business Model

Executive Summary:

Bitwarden is a password manager that helps individuals and organizations securely store and manage their passwords and other types of sensitive information.

Bitwarden makes money by charging a yearly subscription fee to both its business and individual clients. The company itself operates on a freemium business model.

How Bitwarden Works

Bitwarden is a password manager that helps individuals and organizations securely store and manage their passwords and other types of sensitive information.

What sets Bitwarden apart from comparable tools is the fact that it is open-source, meaning that everyone can see and contribute to its codebase.

Apart from being open-source, Bitwarden offers all types of other features. It provides users with end-to-end encryption while the tool itself is audited for security on an annual basis by an independent third party.

Passwords and other sensitive information can even be shared securely with other users via Bitwarden Send.

Users can also access detailed event logs and other metrics to assess if any of their used passwords may be weak or compromised.

And those who like to completely own their data can do so by self-hosting their Bitwarden instance instead of relying on the firm’s cloud servers.

Bitwarden itself is available on all kinds of devices, ranging from your desktop PC to Android and iOS-based mobile phones. Consequently, information among those devices is synced in real-time.

Who Owns Bitwarden?

Bitwarden, although it is an open-source application, remains managed by a private entity named Bitwarden Inc., which was formed by its founder Kyle Spearrin.

Previously, Spearrin operated Bitwarden via another private company called 8Bit Solutions LLC. The move to a corporate (Inc.) setup was likely motivated by tax optimization purposes.

With that being said, there are currently no detailed records on who owns what given that corporations in private ownership are not obligated to disclose their shareholders.

However, there are a few pointers that aid us in answering that question. Bitwarden, according to Crunchbase, has raised two rounds of funding thus far, namely:

  • Undisclosed Series A in January 2019
  • $100 million Series B in September 2022

Normally, founders would give away about 20 percent of their company in a Series A round. However, given that Bitwarden had already been launched 3 years before, it can be assumed that the firm wasn’t necessarily relying on venture funding.

As a result, Spearrin likely raised on more favorable terms. This notion is supported by the $100 million Series B round, which Bitwarden announced during the midst of a heavy downturn.

Being able to raise $100 million for a Series B during a downturn points towards Bitwarden being a healthy and likely profitable company.

It can thus be assumed that founder Kyle Spearrin remains the largest shareholder of Bitwarden. Michael Crandell, who joined the company as CEO in late 2019, also owns a sizeable stake in all likeliness.

How Does Bitwarden Make Money?

Bitwarden makes money by charging a yearly subscription fee to either its business or individual clients.

Plans vary depending on the use case. Bitwarden offers three different plans for personal usage, namely Free, Premium, and Families.

The Free plan provides users with essential features, including unlimited password storage and linking as many devices as they’d like to.

Consequently, the higher-priced tiers also offer additional features such as being able to sync multiple accounts (for families) or advanced two-factor authentication.

The business plans are split up into Teams ($3 per month per user on an annual basis) and Enterprise ($5 per month per user on an annual basis), respectively.

Again, the plans come with a varying set of features. The Enterprise option, for instance, enables users to set organization-wide controls or self-host their Bitwarden instance.

Interestingly, Bitwarden is able to underprice its biggest competitors, namely LastPass and 1Password, across all of the plans it offers.

This isn’t particularly surprising given the costs they seem to incur. While Bitwarden ‘only’ employs around 100 people, LastPass counts over 600 employees, and 1Password even 900+.  

Additionally, due to its open-source nature, Bitwarden profits from the free contributions that its users make to the source code and knowledge base.

With that being said, let’s take a closer look at how being open-source ties into the firm’s business model strategy.

The Bitwarden Business Model Explained

Bitwarden operates on a freemium business model, meaning core features can be accessed at no cost while premium ones incur a fee.

Offering a free tier for personal usage is a common strategy among software companies due to the cost of distribution.

Unlike physical goods, which incur shipping and storage fees among others, an additional unit of software can essentially be distributed for free.

In the case of Bitwarden, most of its costs are somewhat fixed. Examples include paying salaries or office space. Plus, the marginal cost of additional compute (i.e., new user registrations) can likely be neglected.

With near-zero marginal cost, it is logical for Bitwarden to maximize the number of users it onboards.

The more users it onboards, the likelier it is to upsell them into paid tiers. Again, since the firm mostly incurs fixed costs, it only needs to reach a certain baseline of paid users to break even. Every additional sale is straight profit (minus payment processing fees, taxes, and eventual bonuses for salespeople or affiliates).

The other benefit of its freemium model is that paid user acquisition becomes substantially cheaper. By offering a free tier, the firm incentives users to try out the software. And once users are in the ecosystem, Bitwarden can upsell them at no cost, for instance by using in-app notifications or emails.

The same can be said about upselling into the enterprise, a concept commonly referred to as bottom-up sales. Customers often begin to utilize a given software for personal usage and, if satisfied with the experience, become champions of said software within their organizations.

By having a literal foot in the door, Bitwarden has an easier time selling the software since leads are often somewhat knowledgeable about what it offers. Software startups like Notion have used this approach to amass $10 billion+ valuations.

One key distinction to Bitwarden’s freemium business model strategy when comparing it to other software firms is the open-source nature of its business.

The third-party developers involved in the project don’t derive any salary, which means that Bitwarden’s fixed cost of development should be substantially lower since it does not need to hire as many people (which is supported by the employee count I mentioned above).

Second, those open-source developers, much like the freemium users, become advocates for the software and thus help influence buying decisions.

Point in case: Bitwarden’s Reddit community boasts over 40,000 members, more than double the second-biggest one, which is 1Password at close to 18,000.

Lastly, Bitwarden’s growth is further boosted by its Partner Program, which incentivizes consulting firms and other service providers to work with the company and promote its solutions.

Software giants like Microsoft and Salesforce have utilized a similar approach to help enterprises with complex implementations without taking on the risk of hiring additional staff.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.