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Wix's Strategic Pivot: Tripling Growth & TAM with Partners
Despite a turbulent market, Wix, a $5bn SaaS leader, outperforms estimates. A significant catalyst? Their partner revenue grew 36% YoY, ~3X rate of their direct business, explains Avishai Abrahami, its co-founder & CEO. Let’s dive into how Wix re-oriented their strategy towards partners.
Wix: A Leading Website Builder on the Market
Wix simplifies website design and development with its no/low-code platform. Whether you're a creator or a small business, Wix provides the tools to craft your website, blog, event webpage, or online store.
Founded in 2006, the company is on track to achieve an impressive $1.5Bn ARR in FY23.
The Shift Towards Partners
Initially, Wix's primary audience was "self-creators". However, as growth in this segment began to plateau, Wix recognized the significant potential of partnering with agencies and freelancers who create websites for others, opening the door to a sustainable, compounding revenue stream.
Wix's pivot to a partner focus began in 2019, and the momentum surrounding their partner business has become increasingly evident in recent quarters.
Now, partners drive 30% of Wix's total revenue, and their share continues to grow. This strategic move helped the company achieve $390M in revenue in Q2 2023, surpassing projections.
Lior Shemesh, their CFO, explained in Aug ‘23:
“If you look at the net growth of the ARR, which was about 66% this quarter and Q1 was more than 90%... we managed to generate an incremental revenue to our business, mostly coming from partners.”
Unlocking Compounding Growth with Partners
Wix collaborates with digital agencies and freelancers who build and manage websites for their clients. While partners demand more advanced features and have distinct needs compared to individual users, they also present vast opportunities.
3 undeniable benefits of partner business that Wix discovered:
Partner revenue compounds mid-long term, driving 49% CAGR growth (vs 14% direct)
Partners bring users with higher ARPU, greater product attachment and payment volume.
Partner revenue boasts high retention, with an NRR of 116% even in 2022.
Nir Zohar, Wix’s President and COO, elaborated:
“Compounding growth is inherent to the difference between partners and self-creators. Partners take on more and more projects over time. And therefore, each partner generates more subscription revenues over the lifetime of the cohort.
Partners' website also delivered higher GPV [Gross Payment Volume], and they have a deeper grasp of advanced capabilities, adopting more business solutions and generating higher ARPS [Average Revenue Per Subscriber] across the board.”
Moreover, Wix discovered that partners not only generate higher revenue but can also significantly expand their Total Addressable Market.
(images: company, my edits)
Partners Triple Wix's TAM
Partners enabled Wix to expand their TAM nearly 3X by catering to more advanced use cases and user categories.
Wix's CFO explained the nature of the compounding effect of the Wix partner business:
“Once you get an agency, they continue to build websites for their customers. And on top of it, you are getting a new one. This is why we see that the actual growth of partners is accelerating…
partners growth is also due to the fact that it's a different mix of customers. It's more businesses using more business applications, generating more GPV and transaction revenue,”
For perspective, partners were responsible for ~43% of the $2.8 billion total GPV [Gross Payment Volume] transacted on Wix websites in Q2.
Product Strategy Shift Toward Partnerships
Wix's pivot towards partners led to a strategic shift in their product offerings around 2019-2020, with a focus on launching products tailored for partners.
"Over the last several years, we have invested significantly into infrastructure, product development, and marketing to expand our TAM by building the go-to platform for professionals," shared Nir Zohar, President & COO in August 2023.
In 2020, Wix introduced Editor X, a web creation platform providing "advanced design and layout capabilities," specifically tailored for designers and web agencies. Since the launch, not only has the number of partners grown, but this helped the company to learn more about partners' needs.
"For the last several years that our partners' business has grown, we have been listening to our partners' needs and innovating on a set of solutions tailored especially for professionals. This all has led to the launch of one of our most significant product releases in the last few years, Wix Studio, the new cornerstone platform of our partners' product experience," Wix’s CEO explained.
Building on the momentum of their growing partner business, Wix introduced an even more partner-centric product in August 2023
"Wix Studio is the first-of-its-kind web creation and development platform, meant specifically for agencies and freelancers. It is an all-in-one platform for professionals to create websites, easily collaborate and delegate among team, manage workflows and clients at scale, and grow their business more efficiently," he continued.
Wix is confident that the partner business will only grow in importance over time, and there is a wealth of data already strongly supporting this notion.
Cohort Analysis: Partners Outpace Direct
Wix's partner business is outpacing its direct segment and is now a key strategic focus for the company.
Wix also believes that partners can become even more profitable over time. To understand why, let's take a closer look at cohorts.
When comparing cohorts from self-creators and from partners, they behave strikingly differently over time.
Direct cohorts (self-creators) experience a slight decline over time before stabilizing.
In contrast, partner cohorts continuously increase in value, revenue, and bookings over time. This is true for cohorts from all periods. As a result, partner revenue is growing 3.5X faster than direct.
Partner Revenue Grows 3X Faster: 49% CAGR
Wix’s partner revenue is growing at an impressive 49% rate, more than 3.5X the growth of direct revenue. The number of partners is also growing at a 55% CAGR. The slightly faster growth in the number of partners, compared to revenue, likely indicates the typical delay between partner acquisition and revenue generation.
Direct Revenue Growth: 14% CAGR
Wix’s revenue from the direct self-creator business is ~2X larger than its partner business. It makes it more difficult to grow at a larger revenue base. Still, Wix's direct revenue lags, growing at a rate 3.5 times slower than partner-driven revenue.
Partners Drive Higher Revenue Retention
As we've discussed in previous newsletters, partners can deliver higher retention. Wix observed that partner revenue not only expands faster but also demonstrates much higher historical resilience. The 116% Partner NRR in 2022 is a testament to this (a 120% NRR is considered outstanding, even in favorable conditions).
Examining the Wix retention cohort analysis below, it's clear that partner cohorts grow over time.
Investment and Long-Term Commitment in Partner Business
While Wix's partner business has been growing rapidly, it's important to note that it required significant investment and commitment.
Looking at partner and self-creator businesses separately, it's clear that Wix has been investing in its partner business, effectively subsidizing it from their direct business.
Take a closer look at the distinctions in FCF margins between Self Creators (positive 25% in 2023E)
and FCF margins of Partners (negative 13% in 2023E)
Since launching partner-focused products in 2020, it is not until 2025 that partner FCF margins are expected to become comparable to margins of Wix's direct business. Effectively Wix invested 4-5 years into their partner business before seeing major monetary returns.
Wix aims to achieve positive FCF margins on their partner business in 2024, next year, and their trajectory so far suggests they're on their way to reaching this goal. They just rolled out one of the largest product updates for their partners — Wix Studio platform.
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