Outside’s Membership Business Could Be a Precursor for Something Bigger
The house of brands concept is such an efficient strategy because adding new publications does not come with linear growth in costs. While the new publication will need an editor and reporters—or whatever the content team looks like—that doesn’t mean the rest of the company would need to grow linearly.
For example, HR doesn’t need to automatically expand because of the addition of a new publication. Neither does technology, marketing, design, and various other functions at the company. If new publications are continuously added, then yes, more people will be needed. But it’s not 1:1.
It’s been in the press a lot in July, but Outside is executing a house of brands M&A strategy by acquiring many different active lifestyle products. I wrote about Outside+, its bundle offering, earlier this month, but at the core of it is a belief that if the company can offer enough value, it can convince people to pay $99 per year for a membership.
According to the Washington Post:
His [CEO Robin Thurston] solution is bundling digital subscriptions to all of the magazines into a $99-a-year Outside Plus subscription. Members get print subscriptions to Outside and another magazine of their choice, plus perks such as a mapping app, two books a year and reduced entry fees for athletic events.
“I felt like there was an opportunity to bring it all together under a single umbrella and really unify the experience for the consumer,” Thurston said. “When you combine the services like Gaia GPS, and the discounts to events, and you add in video-on-demand courses and all of the premium content, I felt like this was an offering for consumers that truly could be a foundation for their active lifestyle world.”
I bolded that part because it’s an important aspect of the strategy. At the core of the subscription is Outside, the print magazine. But some subscribers might want Yoga Journal; others might want Trail Runner. To increase the number of potential opportunities to convert new subscribers Outside needs to touch on as many different “active lifestyle” areas as possible.
That’s why it was unsurprising when it announced that it was acquiring three more brands. According to Axios:
Outside Media, home to dozens of outdoor enthusiast brands, is acquiring two new titles, Pinkbike and Cycling Tips, as well as Trailforks, a trail mapping app.
Why it matters: The deals will help further cement Outside’s coverage of cycling and bolster its mapping tools.
* Outside currently owns Bicycle Retailer, a cycling industry news site, and Gaia GPS, a mapping app for biking and outdoor activities.
* It also owns VeloNews, a cycling and race results magazine, Peloton Magazine, and Beta, a mountain biking magazine.
It already owns a few brands related to cycling, but Pinkbike is the leader. Therefore, this introduces the Outside suite of products to a much larger audience. Now it can push Pinkbike users to become a bundle member, pay $99, and get one of the company’s biking-focused magazines plus everything else. Ultimately, building a larger subscription business requires a larger top of funnel.
We can put these acquisitions in two categories. First are the new publications, which are the core of the subscription. A member gets Outside and one more magazine. The company could buy another dozen publications and that offering would be the same. Second are the tools and perks. Not every perk will matter to the entire audience, but the hope is that the whole audience is covered by at least one. That’s why this acquisition’s addition of Trail Forks, a mapping service, and the secondhand marketplace on Pinkbike are so important.
Despite these deals and additions, the cost of the membership isn’t increasing from $99. Members simply get more. If we think about it, the new publications are a way of acquiring users (and costs aren’t changing since the member only gets Outside and one more magazine) and the perks are ways to keep people retained. As a marketing cost, giving current members more as a way of decreasing churn is a smart strategy. All that said, creating bundles can still be very tricky.
Soon after publishing my piece earlier this month, a reader sent this section over to me from The Membership Guide, which was interesting.
Every (previously Everything) is a popular bundle of writing on business strategy and productivity. MPP reached out to Nathan Baschez, one of the founders of Every and the writer behind Divinations, to learn more about what publications should look for in a good partner for a bundle. (At the time of the interview in August 2020, Every was still Everything and included five publications who all publish on Substack.)
For the economics of a bundle to work, Baschez told MPP:
1. There need to be some things in the bundle that a particular audience member really loves and that they would be willing to pay full price for (the revenue maximizing price)
2. There needs to be some things that an audience member is a fan of, but not so much that they would pay full price for.
3. If there are things in there that they aren’t a fan of, those things shouldn’t make their experience worse.
The third point is only possible if the bundle offers a degree of personalization, such as the opportunity to opt out of receiving communication from the publications that audience member isn’t interested in. The less personalization a subscriber is offered, the stronger the overlap between the publications in the bundle needs to be.
In the case of Outside, it’s able to account for all three action items. I’m not an active person, but my guess is its subscribers like the core magazines, which is why, according to Adweek, retention is 95%. Additionally, the other products are liked enough to make the perceived value of the membership more obvious. And when push comes to shove, if you’re into Yoga, it shouldn’t be pushing biking material to you.
Again, I’m not in their marketing funnel, so perhaps they’re failing at that third bullet point, but my guess is that the only real unifying product that it forces on any of its readers is the Outside magazine.
But my suspicion is that this is simply the first step for Outside. While it wants to increase its subscription revenue, if I had to guess, in the next few years, we will be hearing a lot more about the success of its bundle in relation to commerce rather than straight subscription revenue.
According to the 2020 shareholder letter from former CEO, Jeff Bezos, Amazon has more than 200 million Prime members worldwide. If we dig into the financials, subscription revenue (we’re mostly talking about Prime here) was $25.21 billion, up 31.2% year over year. As an aside, if Prime was its own business, it’d rank # 114 on the Fortune 500. I digress…
While subscription revenue is $25.21 billion, that’s only 6.5% of the company’s total net revenue of $386.06 billion. And yet, Amazon has been spending a ton of money to continue adding new features to Amazon Prime. I’m looking forward to gaining access to MGM’s library of content when that $8.45 billion deal closes.
But it presents an interesting question: why does Amazon spend so much on making Prime more valuable when it only gets 6.5% of its revenue from subscriptions? There are 1,400 reasons why.
According to Consumer Intelligence Research Partners back in 2018, people spend more if they are Prime members.
Prime member spending has gradually increased. A Prime member spends an average of $1,400 per year at Amazon, compared to $600 per year for a non-member. As of the June 2017 quarter, on average a Prime member spent $1,300 per year at Amazon, and non-members spent $700 per year. Prime members with the longest tenure spend more, as customers with memberships longer than 3 years spend $1,500 per year, compared to $900 per year for the newest members.
Getting someone to spend on an Amazon Prime membership is important not because of the direct revenue, but because those members spend more than double what non-Prime members spend. To this day, Amazon Prime is one of the best things that ever happened to that company.
Let’s circle back to Outside…
Right now, the commerce business for the company looks incredibly small. It acquired Cairn back in April, which sells some branded merchandise and a subscription box where you get different “curated & tested outdoor products” every month.
However, with the number of brands that it currently has, what’s to stop it from introducing branded merchandise for each of its brands. Could it create a line of yoga mats for readers of Yoga Journal? Could it partner with a bicycle helmet maker to create quick drops for Velo Magazine? What about launching a line of energy drinks or protein bars? And oh yeah, all of this comes with free shipping because you’re a member of Outside+.
With the bundle, Outside gets everyone into the core magazine. Additionally, it captures 1st-party data on what is the most important activity for each subscriber by analyzing what the second subscription is. This creates targeted marketing lists to promote different types of products. Now Outside knows exactly what people care about and what they are more likely to purchase.
The paid membership gets them in, helps them build stronger loyalty (which is why there are so many add-ons like the GPS, free books, etc.), and then my guess is that most of the profit will come from the down funnel commerce business.
When you put it through this lens, it makes sense why it’s not increasing prices. What matters most is that it is able to keep users engaged and subscribed (retention increases by adding more perks to the membership) because the future business opportunities are much greater.
To be fair, this is all highly speculative. Outside could decide that it really does just want to make money on the subscription and avoid the commerce business. However, I believe that would be shortsighted. The real value in these niche communities is in becoming a deeper part of the audience’s lives. When that happens, trust is gained, which translates nicely to successful commerce businesses.
Thanks for reading. If you have thoughts, please hit reply. Or join us in the AMO Slack to talk more about this. It’s included in your premium membership. I hope you have a great weekend!