During half-time at this coming Sunday’s Super Bowl, the major football event watched by millions, one of the advertisements shown will be that of Israeli website builder and operator Wix. This company, which exemplifies the current trend of Israeli high-tech firms away from exits and toward the issuing of stocks, has still not seen profits. It’s focusing on building its brand on its way to conquering the world.
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“We want people to identify Wix with the building of websites”, says Avishai Abrahami, founder-partner and managing director of the company in an interview with TheMarker. “Nike and Google are brands. Wix is three levels beneath them.”
The company went public just over a year ago, but has still not reaped a profit. Its decision to invest in advertising at the Super Bowl has raised eyebrows – half a minute of advertising there is estimated to cost $4.5 million, excluding the cost of producing a video clip.
“I don’t see this as just advertising at the Super Bowl,” says Abrahami. “We’re launching a campaign, which started a few weeks ago with some clips we uploaded. We’re counting on the wide coverage at the Super Bowl. The exposure and linkage of our brand to what we believe in make this investment worthwhile.”
The company’s new campaign, called “It’s That Easy#,” shows five former professional football players struggling with the challenges involved in their transition from stars to small business owners. Small business owners comprise a big chunk of Wix’s customers.
The Wix platform enables the construction of a website without requiring programming skills, based on ready-made templates. The company allows users to build a basic website for free, but collects fees for applications and other options, such as using a shopping cart on the website, sending out newsletters or using an address different from Wix’s.
Waiting for customers to ‘ripen’
The company was established in 2006 by Giora Kaplan and brothers Avishai and Nadav Abrahami. At the end of September it had 54 million registered users around the world, including 1.13 million (2%) paying customers. Some view these figures as a reflection of users’ unwillingness to pay for the site’s premium products, but Abrahami sees this as indicating the company’s growth potential, with tens of millions of customers likely to pay for products in the future.
“I don’t think the number of paying customers is that low,” he says. “Many people use Wix but don’t currently require the non-free products. Many customers only ‘ripen’ after five years. When I consider revenues in terms of dollars, not as a percentage, they have increased by 70% this year, compared to last year.”
I’m sure you sit in closed meetings wondering how to increase the number of paying customers.
“You’re mistaken. I only think of making our website the best place to go to for building a website, and in many cases we already are. If we keep raising our standards it will be very difficult to compete with us.”
In order to improve its premium product, Wix just launched a new eCommerce platform, which enables merchants to easily construct websites for online commerce, as well as a management toolbox that includes payment collection and managing inventories and deliveries.
In addition, when the company realized that it wasn’t meeting the demand of restaurant owners it purchased OpenRest, a company which developed a kit for managing orders and deliveries from restaurants via mobile devices and the Internet. Another recently launched product enables website design for hotels.
Wix’s competitors provide services that are different in the technical skills required and in their flexibility. Among such companies is Weebly, which offers its users several templates, or GoDaddy, the world’s largest company for registering domains, which also offers its users a simple website design option. According to Wix, none of its competitors offer users the range of services that it does. Wix faces further competition from professional designers who have turned to website construction.
‘We’ll learn how to do well in the East as well’
Wix turned down offers to sell for more than $200 million. In an IPO on the Nasdaq in 2013, the company raised $127 million. Since then its shares rose from $16.5 to $31 at the end of last February, falling since then by 50% to a current value of $20, with a company valuation of $770 million.
“I don’t know why our shares showed such wild swings,” says Abrahami. “I think it reflects what happened to our entire sector during that period. We’re not stressed – we’re familiar with these numbers and know the market. Fortunately, we exceeded our expectations, which feels great. It’s great that we could distribute stock options in January, giving our employees additional income.”
Can one learn something about the global economy from data on Wix websites?
“In the past, when I had more time, I managed to find an amazing correlation between the opening of our websites in weaker countries and the rise in the value of their currencies. If the number of sites went up I knew that their currency would increase in value within a year. That meant that people were beginning to build things, thinking of how to set up their businesses, how to establish an international presence. Perhaps I could have made billions from that, but I didn’t think of it at the time. I don’t know if this correlation still exists.
“A typical story came out of Morocco, where a road was paved to some village in 2008, followed a year later by hookup to the electricity grid. A year later the village had Internet and in 2011 they were building Wix websites there. Clearly the economy was exploding, but we were only one indicator of that. Many small businesses were sprouting there, such as tour guides, and the effect on the entire economy was overwhelming. It’s amazing how many microcosms like that occur all at once in a country’s economy.”
‘Until Regulation Doth Us Part’
Late last month Wix reported that the benchmark fund which held 10% of the company during the offering got rid of its holdings in the firm. “That’s what these companies do – they come in and after the public offering they leave,” explains Abrahami. “Even though Michael Eisenberg, our working partner there, left, with no one who knew us remaining there, they behaved in a very gentlemanly manner, selling our stocks only gradually.”
When asked about the company’s future, Abrahami chooses to speak about regulation, a topic much discussed by Wix’s senior people.
“Regulation in Israel is interfering with my building a good company,” he says. “If the set of rules here was not different than those in the United States, I’d go public here as well, perhaps entering the Israeli market before going to the Nasdaq. The problem here is that I have to expose my business plan and how I intend to distribute bonuses, and I can’t do that.
“I keep thinking that I should move Wix away from Israel. I don’t mind if employees remain here and I’m happy to pay taxes here – it’s only the regulation that bothers me.”
Such a move would be very complex, requiring the establishment of a new company in the U.S., which would acquire Wix’s business and then issue shares on the Nasdaq. Abrahami says that they haven’t started looking into the implications of such a move.
What’s keeping you from doing so?
“I’m not sure. I might still do it. The state receives money through our salaries, through rental fees, and the whole port of Tel Aviv benefits from Wix employees. I’m happy to pay taxes, but I won’t float shares if the stock exchange imposes ever stricter rules.”
It’s no coincidence that Abrahami mentions stock options for employees and the port location (see box). In a survey conducted by BdiCoface, which examined the desirable places of employment among high-tech people, Wix came in 22nd. On the roof of the building occupied by the company, a location known for its parties, a chef waits every morning to make omelettes for employees according to their liking, with a fridge stocked with beer standing nearby. Employees can even bring their pets to work.
Isn’t this a golden cage for employees?
“Why call it a golden cage? You’re at work all day, so what’s wrong with having a place for your dog? We’re not a company that doesn’t allow employees to take a vacation. We don’t hold them down with rules and regulations. People here give their all to the company because they care, and the aim is to make things easier for them.”
There are currently 900 employees working for the company, twice as many as when they went public. Of the workforce, 750 are based in Israel. The company recently opened a development center in Be’er Sheva, in addition to two others in Latvia and Ukraine.
‘People come to work on bikes and scooters’
Wix’s headquarters in the Tel Aviv port is constantly growing, spreading out into additional buildings, some of which are multi-storied, others built as one big open space. Employees currently occupy 10 structures in the port and nearby, none of them owned by Wix. According to realtors, this is a very desirable area, with rentals costing NIS 80-90 ($20-23) per square meter. However, many of these buildings are unsuitable for offices, requiring companies to adapt them to their needs. For comparison, in Ramat Hahayal, another popular high-tech location, rentals cost NIS 70 per square meter. However, buildings there are usually refurbished office buildings.
“Most employees arrive on foot, by bike or by electric scooters – it’s a different quality of life. You’re not stuck in traffic for an hour and a half. I prefer being here to anywhere else,” explains Abrahami.
“If anyone needed a car I would have to partially fund it, so saving by moving to Ramat Hahayal isn’t as straightforward as it might seem.”