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Analyst 1: When we got into the position, I think the pieces were that there was a big TAM and a long runway. There is going to be this market share that has been taken, over time, from WordPress and Wix has a culture of always evolving through R&D, and recycling capital back into R&D and improving the product. That will allow it to continue to take market share because we have the shift to online as well as the market share that they take from WordPress. Those were the top-level pieces.
In comparison to others, we felt that Squarespace was a little more niche, on the design space. At that point in time, Wix was definitely the leader in the do-it-yourself category, which is about 10% of the market, with 90% being the agency side. I think the big question now is, it seems as if they also want to push into the agency side of things as the 10% of the DIY is somewhat saturated. Can they keep taking market share there?
Analyst 1: I would start off by saying I don’t have a high conviction, at the moment, in the sense that I can’t say I know the answer to that, confidently. That is the starting point and it’s a work in progress. Initially, when we saw the metrics on return on marketing spend and net retention, given that we have our own website on Wix and it’s so cheap, there is a lot of upside in the sense of ARPU, of being able to raise prices. All those factors gave us a sense of confidence that there is a long runway. Even if customer account growth is somewhat slower than the 20% rate, there are levers to pull on the ARPU side. Maybe someone else is better qualified to answer on the other aspect.
Analyst 2: First of all, the customer proximity is a big advantage, in terms of how close they are to their customers and how constant dialogue with and feedback from their customers drives their product evolution and has done so, right from the beginning. That coupled with their very impressive engineering organization and their huge willingness to invest in R&D, significantly above and beyond others in the space, gives me confidence that they will just be able to constantly iterate, improve the product and serve customers better, as they move up into more of the partner segment.
There is one thing and I’m curious as to whether anybody else has some thoughts on this. When I started studying this space, I was thinking that there has to a winner. Who is going to be the winner? But the more I think about it and learn about it, the more I think that, depending on who the user is, or the type of customer, there are lots of little sub-segments of this market. It is not as if there are five relevant competitors for every user. If you are doing heavier ecommerce, Shopify is obviously an amazing business. If you are just DIY, some of the heavier and more code-oriented solutions are not really relevant. I’ve sort of come away thinking that this is less of a market where there are five or six really strong competitors, going after every user.
Analyst 2: There are also factors such as if your business is not predominantly ecommerce. If your coffee shop also sells mugs, hats and t-shirts, you have a small ecommerce business, Shopify is not really the best solution for you. It is quite a bit more expensive, if your primary business is something other than ecommerce and you do a little bit of ecommerce on the side. That’s a good example of what I’m talking about where, on Shopify, the website building functionality isn’t really the same. Unless you are doing big ecommerce, it’s not necessarily as relevant a competitor.
Analyst 3: I think Webflow is the big problem for them. Wix have invested heavily in trying to get better position for the agency side of things, with low code no code, and do it in a way where the owner of the site still owns the actual code, so they could do something and import it a little easier. That is something that Squarespace doesn’t do, where they cater more to design agencies. Webflow does everything, makes it easy for everyone and seems to have dominant share of the non-WordPress agency-built sites.
Wix doesn’t have a lot of trust in the agency community, at this point. What I really like about Wix is that their approach to DIY is really smart and in contrast to Squarespace. I love the fact that you have the freemium model where you have these cohorts of people who build their site for free and you have a never-ending funnel. This is in contrast to Squarespace who makes people pay from day one and just might not get the person who, luckily, ends up with a site that turns into something more or who wants to pay down the line.
The key is, they’re annuity-like businesses. People don’t move their site once they are there, so you really want to lock them in and get them there. I do think there is something to be said about how the entire WordPress world is, basically, up for grabs. That is a massive TAM and that is what keeps me interested here.
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