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Axios Doubles Down on Core Media Offering

In a shocking change of events, Axios went from the target of Axel Springer to watching from the sidelines as Politico came in and got picked up. But no one keeps baby in the corner.

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Now let's jump in...

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Whether it is in response to a lack of near-term liquidity events or it's simply reaching a point where it can invest aggressively, Axios is doubling down on multiple parts of its business. According to Insider:

Nicholas Johnston, Axios' editor-in-chief since its 2016 founding, will move to the newly created role of publisher, where he'll focus on expanding the company's local news unit in addition to launching "Axios Pro," which will charge business-oriented readers for niche subscription newsletters.

Johnston told Insider that Axios would start with three paid newsletters focused on fintech, retail, and healthtech. The company is recruiting three reporters and two editors, according to its job board. No price is set, but Johnston said he anticipated the new paid newsletters to cost in the hundreds of dollars per year.

This is not a surprising development because the team always wanted to be in the subscription business. Before Axios focused on its HQ product, the idea was for the company to develop a product similar to what the team had built at Politico. That meant it would look to push its SmartBrevity reporting as a five-figure subscription business.

Yet, for years, it held on releasing that; instead, it has generated the bulk of its revenue from its advertising business.

It's interesting that these are being presented as three paid newsletters. When Axios launched in 2016, the idea that a newsletter not written by Ben Thompson would be a paid product was so far out of the lexicon. And yet, what we have learned over the past few years is that not only will people pay for newsletters, but they will do so rather easily.

It's also a relatively straightforward business to build. At first glance, this doesn't appear to be a centralized service (like Pro is) so much as a series of independent paid newsletters. There's little crossover between fintech and retail (unless we're talking payment tech) and the same can be said for health tech.

Ultimately, I think this strategy makes sense for Axios. With its top-line newsletters, it can acquire a large database of users and then push them down into the various paid newsletters with smart targeting. This is similar to how it expanded into local; it knew enough about its subscribers that it could get them to sign up for publications that they'd be interested in.

If this works for Axios, my suspicion is that we'll see them make a much larger investment in late 2022—that's about how long it took between launching the local initiative and its aggressive expansion.

Speaking of...

Axios recently launched three new local publications targeting Washington D.C., Chicago, and Nashville. According to a tweet from Ted Williams, GM of Local: "About 400,000 total daily newsletter subscribers w/ 35% open rate. 5 markets launching in the next 2 weeks. And at least 11 more markets in early next year, for a total of 25 by Q3 2022."

I've always found the local business to be incredibly fascinating, but not highly replicable. For most local publications, the bulk of the advertising is likely coming from local businesses. In the case of Axios, I looked at a variety of the publications and the advertisers were all national: AT&T, Siemens, Google, Palantir.

In essence, Axios is building a highly scalable local newsletter business, but selling national advertisements. It's a fine strategy, but I remain very curious to see how the business starts to introduce local advertising. Or maybe it doesn't. The only publication that does really seem to pull in local advertising is Axios Charlotte, which was an acquisition/acquihire.

Another option is that Axios is looking at jobs as a possible "local" advertising product. According to Axios' career page, it is hiring for the role of "Associate, Client Success (Job Board Operations, Axios Local)." This could make a lot of sense as a product extension. If it has tens of thousands of subscribers in each local area, it could be enough to reach a critical mass with users for employers to pay to submit jobs. It's a classic chicken and egg problem. How do you get jobs posted without an audience, but how do you get an audience without jobs?

Suffice it to say, it's clear that Axios has found gold with its local business and it is growing as quickly as possible.

With both local and paid newsletters, scaling is straightforward. If it can identify smart niches—geography, industry, or job-specific—and can find the right talent for it, the costs associated with expansion are relatively low. It's why I've always been a fan of the house of brands model. Expansion is not linear, but it can add considerable revenue.

But one thing is interesting to me about the expansion at Axios. It has been almost a year since there has been any real coverage of Axios HQ, its attempt at an HR-directed SaaS product. At the time, Axios told The Wall Street Journal that it had already earned $1m in revenue from the project.

And yet, since then, crickets. That's not to say the product is a failure. The company is hiring over 10 roles for the product, so it's obvious the team is still bullish on the idea.

But as we think about all of the money Axios raised and the valuation it was hoping to be acquired at, this business unit becomes incredibly important. This could explain why Axios is finally moving into the paid newsletter space. If reports are true, Axios was looking for $400-$450 million as a target valuation. If 2021 revenue is $85 million (according to Insider), then it was looking to be acquired for nearly 5x revenue. For an advertising-driven business, that's a little high. For context, Politico got 5x and a solid half of its revenue comes from enterprise subscriptions.

If I had to guess, HQ is not growing as quickly as the company initially thought, so it has refocused somewhat to its core media offerings. Frankly, there's nothing wrong with this. I'm not going to put a metaphorical nail in the coffin because I'm not inside Axios' business; however, I've long believed that most media companies can't also be software companies. The DNA is different.

All things considered, Axios appears to be pushing hard into what it knows best: reporting-driven product. Between its paid newsletters and local, it has multiple areas to spread its wings and fly.

Sara Fischer at Axios wrote an interesting story about the explosive growth at GovExec. According to the story:

It's the company's ninth acquisition since spinning off from Atlantic Media in March 2020.

The company is on track to bring in $50 million in revenue this year, up from about $20 million in 2020, and continues to be profitable.

When it spun off from Atlantic Media in March 2020, it had 80 employees. Today, it has more than 200.

I find this business to be incredibly fascinating. As Axios explains, it was originally a lead generation business through and through. It had an events component, but the bulk of its revenue was in lead generation. But it wants to evolve. As Tim Hartman, CEO of GovExec, told Axios:

"Our ambition over the next two-four years is to have 50% of our revenue come from paid content (software, data services, content, etc). A lot of our acquisitions are trying to build out those capabilities."

This is why Politico got bought for $1 billion. To a lesser extent, it's why The Hill was acquired as well. There is a lot of money in and around government topics. With so much uncertainty in D.C., there is a need for high quality information to help businesses and lobbyists make better decisions.

It's easy to see how GovExec can continue to expand. With all this uncertainty, what other areas are going to be regulated, deregulated, disrupted, or otherwise influenced by the government? If you can name one, that's an area to expand into.

It's equally as important for those that are looking to do business with the government. While GovExec wants to see its paid content business grow to 50% of total revenue, that lead generation business will remain incredibly lucrative for a long time.

I've always found this model interesting. Finding a core niche and then acquiring products around that core can be a great way to expand in a sustainable way. In the case of GovExec, it has an audience on its news sites, which I imagine it can then push down funnel into high-priced data products.

Like I said at the start of this section, there appears to be very good money in things related to the government. And despite multiple publications targeting the topic, it seems more money appears. It's a good time to be in D.C.

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