Are Website Builders the Next Big Growth Market in Local?

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One of the things I love most about the SMB software market is its evergreen nature. Unlike enterprise and, especially, consumer technology markets (anyone remember the hype of Pokemon Go?), small business technology markets tends to last a long time.

A perfect illustration of this is the website builder market. Website builders have been around almost as long as the internet itself. Early versions were pretty limited, but developers knew from the early days that the vast majority of people who wanted a website would not be able to develop one themselves. Hence, a simple builder was needed.

As you would expect, this is a busy market. tracks 35 vendors. There are many more. Interestingly, only 4 of the 35 vendors listed here get a good rating. Clearly, this is a large market that is ready for new and better solutions.

Website Builders 2.0
Far from being an established, sleepy market, the website builder market is going through significant growth and change. This is being driven by the fact that customers’ expectations about a merchant’s online presence are also changing.

Gone are the days when a merchant could take out a Yellow Pages listing, print up some business cards and engage in the local community to find customers. Today’s customer finds vendors online. She expects merchants to not only have a website, but to have one that can be easily viewed from a mobile phone. Moreover, today’s customer expects to be able to validate merchants through online reviews before she ever steps foot into your store or business.

There is a new breed of website builders, companies like Squarespace, Weebly and Wix, that have recognized this change in the market and are poised to win massive market share. Both Squarespace and Weebly are privately held, but Wix gives us a window into the growth potential in this market.

In the past year, Wix’s share price has gone from $28 – $77.

This appreciation is being driven by strong growth in new customer subscriptions. This 11 year old company now has a market cap of over $3.4B.

Despite its phenomenal results, Wix is one of the smaller players in the market in terms of revenue and subscriber count.

Now, this is not an apples to apples comparison. Wix is the only pure play website builder company. But it’s clear that other incumbents, particularly Godaddy, have a very large customer base with which to sell their web offerings. Godaddy has definitely recognized the potential in this market, making two recent acquisitions in the WordPress space.

Turning our attention to privately held website builder companies, there are some interesting trends and opportunities.

Squarespace is perceived to be the most successful of the privately held builders. It is also the company whose builder ranks highest in the market. The company is rumoured to have the financial results to go public any time it wants to.

Despite the size and disruption potential of this market (remember only 4 out of 35 listed website builders got a passing grade), this market has not seen a lot of new players lately.

According to Pitchbook, only 13 companies in this category received seed funding in the last three years and only 31 funding rounds at any stage happened in this market.

However, some large funding rounds have happened recently. It’s interesting to note that other than Weebly, the other companies all have a rather focused target, whether it’s e-commerce, brands, or politicians. These are some of the up and comers to watch in this space.

What’s next in the website builder market?
The pace of change is only going to increase in this market in the next few years. Here are a couple of new trends that I think are most exciting:

Going Vertical
No one thinks of themselves as a ‘small business owner’. Instead, people identify with their industry. Several players in this market recognize that and are building features and messaging to cater to specific verticals or segments.

Wix has recently made a push into the music space to better compete with the specialist Bandzoogle (full disclosure: Bandzoogle is a client of our firm). These music-focused offerings enable bands to not only launch sites but drive fan mailing lists and publish new music, features that go way beyond basic website building.

Done right, these vertical implementations should give customers in targeted industries all the features and integrations needed to build a great online presence and grow their business.

Automatic websites
The challenge with building a truly great website is that it takes time. What business owner has the time or skills to do that? While web design agencies remain and while platforms like Squarespace have recommended specialists to build websites for you, an interesting new trend is leveraging machine learning and artificial intelligence to (more or less) automatically build websites for you.

Last year, Wix launched its “Artificial Design Intelligence” (ADI) offering, billing it as the world’s first artificial intelligence solution for building a website. As with most AI capabilities today, it’s still pretty rudimentary. Still, Wix claims that ADI enables a 10x reduction in the time that it takes to build a website.

While there will still be a meaningful segment of the market that will invest time or otherwise pay for custom design (this is the Squarespace market), the bulk of the market will opt for something simpler and faster. This is the future of the market, where not only your online presence, but all the marketing that drives customers to that presence, will be automated.

Stay tuned for further developments in this space.

Mark MacLeod is the Founder of SurePath Capital Partners, the leading strategic financial advisory firm to the global SMB software market. Follow him at @startupcfo.