May 21, 2021
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Linear Commerce for B2B

There has been plenty of ink spilled over the past couple of years—here and at other publications—about the content to commerce business, otherwise known as linear commerce. According to Web Smith, the Law of Linear Commerce is:

The lines of demarcation between media and commerce are fading. For the brands that are most suited to the modern retail economy: media and commerce operations work to optimize for audience and sales conversion. This is the efficient path for sustained growth, retention, and profitability.

In other words, publishers spend years building an audience with content and then turn around and create products that readers want to buy. The names of publications that do this are well known here: Food52, Meat Eater, Hodinkee, etc. By first focusing on building a community, the publication is then able to monetize with products related to their content.

We will continue to see more brands lean into this. Over the past couple of weeks, I’ve received emails from two different operators talking about how they’re assessing the viability of creating their own line of products.

But anytime I write about this here, I feel as if I am ignoring my B2B readers. We’re not about to see the Yedinak brothers over at Aging Media launch a line of aging-related bedding or something. The truth is, though, there is a very similar model here for business publications. In many respects, it’s a content to data play.

Like linear commerce, though, this is not an easy business to step into and if I had to guess, there are more failures than successes.

At the core of it is identifying what type of information your readers need beyond just straight reporting and then trying to build that for them. While I zero in on data, it doesn’t have to be that. It could be in-depth research where analysts dig into specific topics, spend time with it, and provide something with more information than anything else available.

A good example of this is FreightWaves.

When this company started, it was actually looking to create a futures product for trucking, not a media company. However, it’s smarter to build an audience and then a product. So, the media business soon launched as a way to build a sufficiently large audience that might be interested in that product. As time went on, FreightWaves began introducing new products and features that it thought its customers might find appealing.

One of them is Passport, which gives readers access to a multitude of research reports. For about $600 per year, customers receive anywhere from 3-4 pieces of in-depth research. For anyone not in trucking, this information is basically useless. But for a trucking audience, it’s exactly what a reader might want.

Another product is Sonar, which is a freight forecasting platform. This gives trucking companies the ability to identify freight rates to ensure they’re not too high or too low; it gives them the ability to understand capacity; it allows them to try and forecast using real-time data. This is a tool that you could imagine a trucking company training employees on when putting bids in for big contracts.

Whether it’s a $600 per year subscription or, my guess, a 4-5 figure SaaS contract, both of these products are good examples of what content to commerce looks like in the b2b world.

What makes this model particularly appealing is that the marketing effectively pays for itself and then some. When I interviewed FreightWave’s CEO Craig Fuller for the podcast, he talked about this concept known as the negative CAC, a fundamental metric that makes FreightWaves so lucrative.

Typically, a company trying to sell a product has customer acquisition costs (CACs). For many traditional SaaS companies, the CAC could be in the hundreds or thousands of dollars; however, it doesn’t really matter because if the product is sticky, the returns should be lucrative. Even media companies have CACs, especially if they’re investing in paid user acquisition to drive people to newsletters or paid subscriptions.

The negative CAC flips all of that. FreightWaves runs a media business and sells advertising. I read a random story and saw six different advertisers represented. If I visit any number of pages, FreightWaves is earning revenue from my readership. However, the publisher also has a “Daily Market Update,” which is where it uses actual data from Sonar to create a short, two minute video about what’s going on in trucking.

It builds an audience with its content, it earns money from that audience through advertising, and also promotes its premium SaaS business at the same time.

Rather than having to pay to promote the platform, FreightWaves actually earns revenue as it markets Sonar and Passport. That’s the power of the negative CAC and it’s one reason why so many technology companies are looking at media companies as possible investments. If the media company can sustain itself through advertising but then also provide marketing for the software product, it’s the truest form of free marketing. Or, I suppose, profit-earning marketing.

The Block is another example of this. Focused on crypto, The Block’s target audience is institutional investors and firms that are willing to spend thousands of dollars for in-depth research. While not yet at the level of FreightWaves (it doesn’t have an in-depth data product as of yet), it’s focus is on monetizing with advertising while also convincing major partners to purchase seats to its research platform. While it’s also not profitable, it has built a good audience and is in a much better position to monetize with its premium products. Its recent hire of Politico’s former CRO is indicative of its ambitions.

So, why don’t more media companies do this?

The simple answer is that it’s hard. Building that sort of a product takes vision and patience. While negative CACs are great, that doesn’t mean that you’re profitable from day one. You need a team of engineers, designers, product managers, and other roles to help to build this. When I spoke with Fuller in September, he admitted FreightWaves wasn’t profitable yet (though he was expecting to reach that point this year).

It’s just expensive. Think about it… I joke about VC when it comes to media, but when trying to build a robust software business, there’s a significant need for outside capital. You’re not generating much business early on, so you need to have enough cash to make it break even. That’s hard, especially when the DNA of the business is consistent profitability.

This, by the way, is why I am a proponent of intelligent fundraising rather than blind fundraising. Outside investment can’t help you figure out who you are and what you’re trying to do. Only hard work, reporting, developing sales muscles, and learning how to build an audience can really define a media business. But once that foundation is in place, then outside investment can help speed things up.

I wrote about this back in April.

Overtime isn’t the only example of this. Industry Dive did this as well. One of the earliest pieces I ever wrote was on the Industry Dive deal with Falfurrias Capital Partners. At the time—and to this day—Industry Dive generated strong profits on significant revenue. Its DNA was cemented.

However, what changed was it now had more resources to take chances on new opportunities. Since that deal in September 2019, it has made a few acquisitions. In July 2020, it bought NewsCred’s content marketing studio. In December 2020, it acquired CFO Media Group, adding that audience to its already owned audience through CFO Dive. Finally, in February, it acquired Mobile Payments Today to become part of Payments Dive.

Having the cash from its partner, Falfurrias, at its disposal meant that Industry Dive could continue to make aggressive investments in growth. Did anything change with its business? No. It still runs a sustainable media company that generates strong profit. But now it can grow faster.

That article has multiple examples of media companies that spent years figuring out who they were and how they were going to do things before they took outside capital. Once they take that capital, it’s like adding nitrous to an already highly efficient race car.

That’s how I would think about fundraising in this case as well. Once the main business is humming, efficient, and optimized, then go out, raise the money, and use that to create a much more premium product that is down funnel. That can be done either through acquisition or fresh building.

The other part is just understanding how to build this. A software product is different than a media product. With media, we build a new product every day by creating new content. Software is shipped every two weeks if you’re dealing with a sprint schedule and could take months to have something a client can use. Having that patience is critical to getting this right.

But if you do get it right, the possibilities are quite appealing. A media company is valued at low single digit multiples. Software companies, on the other hand, get much more lucrative multiples. One operator I spoke with talked about how investors valued his media & data company as a pure SaaS business even though half his revenue came from advertising. Why? “I told the investor that that they were investing in the community,” the operator said. That’s very lucrative.

Nevertheless, this is an area that I am particularly interested in. Some of the best consumer media companies fit the linear commerce model perfectly. I believe there is a great opportunity for many of the digital-first B2B media companies to do the same thing. The truth is, they’re likely already out there. But no one’s writing about it.

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