On how The New York Times can profit on The Wirecutter M&A in just a year. Affiliate commerce is nothing new but The Wirecutter’s outsized influence is a wakeup call to media sites who’ve depended on ad revenue for the last ten years of the internet. The Wirecutter drove nearly $150M in eCommmerce sales, netting $15M in revenue for the small, independently owned company. To understand why the NYT acquired the property and its potential, you’d have to understand the basic eCommerce mechanics behind it.
Here are a few facts and figures: (source: SimilarWeb Pro)
- TheWirecutter.com drove 116.16M visits to their site in the last year.
- Amazon Links accounted for 59.26% of their outgoing traffic.
- That’s ~ 31,408,800 clicks to Amazon in the last year.
- 27.05% of all visitors clicked through to Amazon.com.
- For every click to Amazon, The Wirecutter netted almost $.50 (that’s like printing money just by ginning up visitors).
- The typical Amazon margin falls between 5-15%.
- Their top advertisers in the last six months: Microsoft, Dell, Nike.
- The site’s 10M+ visitors per month drives $150M in eCommerce revenue per year.
The New York Times is in an enviable position. Unlike many in media, they have quite the leverage when it comes to B2B eCommerce. Without bolstering Wirecutter’s traffic at all, they have a nearly $135M delta to work with. That’s the difference between (1) Amazon’s top line revenue driven by The Wirecutter’s influence and (2) the commissions that Wirecutter earned for that influence. The New York Times can leverage their relative power to innovate within the editorial eCommerce space. That toaster that the Wirecutter will choose as the top pick for Christmas 2016? Why not just source the products themselves? Cutting out Amazon.com, i.e. The Washington Post’s benefactor. How so?
- Build a native eCommerce cart through Shopify and ditch their current, custom built eCommerce site.
- Easily integrate Amazon checkout at the cart, allowing customers to one-click pay for products no differently than they would had they done so through Amazon.com.
- Source products directly from the vendor, cutting Amazon out as the middle man, while achieving margins far greater than 15%. Wholesale margins are up to 60% of MSRP.
Let’s say that the NYT built a small team to source the products featured in upcoming product reviews. This small division could be worth $65-82M in annual revenue, generating a 210+% return on investment ($30M) in just a single year.
Ben Thompson, via Stratechery.com
Just as important, though, is that lovely business model: The Wirecutter is still small, on pace to generate ~ $15 million in revenue this year, but that’s a number that could jump substantially with the sort of exposure the New York Times could provide, particularly when pairing The Wirecutter recommendations with regular New York Times content. Lam previously noted on The Recode Media podcast (that link is time-stamped to the relevant portion) that previous experiments with The New York Times along these lines resulted in some of the highest traffic the New York Times has seen — and, presumably, some of the best revenue The Wirecutter has seen as well. Now the New York Times will reap the benefits, as well as the chance to adapt The Wirecutter’s approach to even more verticals. Given that newspaper advertising revenue is plummeting, said growth will come not a moment too soon.
See more of the issue here.