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R.I.P. ‘content and commerce’

September 30, 2015, 5:16 PM UTC
For Ben Lerer, content and commerce aren't mutually exclusive -- especially online.
Photo: Christopher Lane for Fortune

E-commerce is not a high-margin business. Even Amazon (AMZN) doesn’t regularly turn a profit.

To paper over that challenging reality, and perhaps trick investors into higher valuations, e-commerce startups have adopted faddish business models. Each one is heralded as revolutionary.

2009 was the year of group-buying with Groupon and LivingSocial. Around the same time, there were flash sales with Fab and Gilt Groupe. In 2011, subscription commerce emerged with the rise of ShoeDazzle and JustFab, alongside “stuff in a box” from BirchBox and NatureBox and even BarkBox.

Since about 2012, we’ve been living in the time of “content and commerce.”

Ben Lerer has been the business model’s most outspoken cheerleader since his media company, Thrillist, acquired an e-commerce company called JackThreads in 2010. JackThreads quickly outgrew Thrillist in revenue, and Lerer passionately made the pitch that his integrated, two-pronged business model was better than either one—content or commerce—alone.

The idea behind the model is that supplementing e-commerce with editorial content attracts customers who are more loyal and spend more money. It’s why Nasty Gal, a women’s clothing site, and Net-a-Porter, a fashion luxury retailer, launched their own lifestyle magazines, and why Etsy (ETSY), an online marketplace, has an editor-in-chief. Even eBay (EBAY) hired an editorial director at one point.

Today, with the split of Thrillist and JackThreads, content and commerce officially died.

Thrillist might have been the only company still carrying the content-and-commerce torch. Since the trend emerged, many of the media companies that waded into commerce found that shipping, inventory, logistics, fulfillment, and customer support is too complicated to execute. Refinery29 walked away from its commerce strategy in 2013, arguing that its advertising business was simply more attractive.

And commerce companies, which already have thin margins, realized that investments in content don’t necessarily result in a bottom-line increase. Gilt Groupe shut down one of its large editorial operations. Nasty Gal’s lifestyle magazine stalled at its second issue, published in 2013. And Porter, the Net-a-Porter quarterly, is considered one reason the company is underperforming peers.

Back in 2013, Lerer complained that investors saw Thrillist as an e-commerce company, even though the majority of Thrillist’s revenue came from commerce, not advertising. “The investors who thought of us as an e-commerce company—I clearly didn’t do a good enough job convincing them why we’re not,” he said on stage at a PandoMonthly event.

Ad-supported media companies tend to garner higher valuations because they have the potential for higher margins. Especially these days—see the recent billion-dollar valuations of BuzzFeed and Vox Media, and this week’s $343 million sale of Business Insider. Looking at public companies, shares of ad-supported Facebook trade at a 93X price-to-earnings multiple and Google shares trade at 31X. But e-commerce company EBay only carries a 10X P/E, and its peer, Alibaba, trades at 22X.

So it makes sense that Thrillist, which got its start as a media company, would want to be viewed as one. From Lerer again in 2013: “The valuation that we sought may or may not have been in line if we were an e-commerce company. There’s different valuations for media companies and e-commerce companies,” he said, emphasizing that Thrillist is a media company.

Lerer tried to sell Thrillist earlier this year, according to reports. He may have discovered that acquirers from the e-commerce world didn’t want to pay a media company premium, and that media industry buyers didn’t want to own an e-commerce property.

As part of the split, Lerer raised more money for each company. The new investment indicates the properties are no longer for sale, even though the separation might make each company more attractive to potential buyers. Lerer told Fortune today: “These two businesses have each grown beyond a point where they need to be together.”

You can follow Erin Griffith on Twitter at @eringriffith, and read all of her articles here.

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