On hearing the news that the New York Times is paying an estimated $30 million to acquire a site called The Wirecutter, a fairly common reaction from non-media observers was "What is a Wirecutter, and why is it worth $30 million?" The first part of that question is relatively easy to answer, but the second part is a little harder.
When it comes to the what, The Wirecutter and sister site The Sweethome are technology and consumer-product review sites started by Brian Lam, a former editor of the tech site Gizmodo, which at one time was part of Nick Denton's Gawker Media empire (which went bankrupt and was bought by Univision).
Lam quit Gizmodo after five years of editing the site and driving it to new traffic heights—including the scoop of a lifetime, when he got his hands on a prototype of the iPhone 4, an event that led to a series of awkward personal calls from former Apple CEO Steve Jobs.
Burned out by the never-ending race to boost traffic, Lam moved to Hawaii to surf, and in his spare time he started a small review site focused on gadgets, originally as part of a blog network called The Awl.
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Wirecutter's approach was fairly simple. It hired professional reviewers to sample and test every major product in a specific category—headphones, cameras, disk drives, etc.—then picked one to recommend. The site had few ads. Instead, it earned money through "affiliate" links, which pay a referral fee when links to products are clicked on and a product is purchased.
Because of the quality of its in-depth reviews, Wirecutter started drawing a significant audience of gadget fans and people obsessed with researching every aspect of a purchase.
When Bloomberg wrote about it earlier this year, it said Wirecutter was driving $150 million in e-commerce transactions a year (of which Wirecutter would keep a small percentage, usually in the 4% to 8% range). The site only posted a few articles a week, but was generating revenue that was orders of magnitude larger than its competitors.
Assuming Wirecutter gets an average of 6% for its affiliate links, the company's annual revenue is probably in the $10 million range. So is that worth $30 million? That's a harder question to answer.
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The appeal for the New York Times isn't necessarily how much revenue Wirecutter and Sweethome generate, since it's probably not going to move the needle much at a company with annual revenues of about $1.6 billion. And the paper already uses affiliate links in a number of places on its site, including books and theater reviews.
The potential is that learning from Lam and what he's been able to build at Wirecutter—with a tiny fraction of the number of staff the New York Times has—could help the paper learn and adapt that model to a whole range of different products and services such as food, fashion, etc.
If it can do that effectively (which is obviously a question mark), the Times might be able to turn Wirecutter into the revenue engine for a growing digital unit, something it has very few of.
The paper's experiments with standalone apps haven't really paid off in most cases, subscription growth is slowing, and both digital and print-advertising revenue are in decline. Overall, the company is barely managing to keep its head above water, and it is looking at what are expected to be significant cuts to the newsroom.
Is buying The Wirecutter going to solve all of those problems? No. But it is a sign that the Times is thinking about alternative models beyond just display advertising and digital subscriptions, and that is worth taking note of, even if the size of the deal itself is small.