Wix Fund Raising – is Freemium the Way to Go?

in Opinions by Yohay Elam — March 26, 2010 at 5:40 pm | 2 comments

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Israel’s Wix raised $10 million in Series C funding for increasing their development efforts, and encountering the fierce competition. Wix’s business model is “Freemium”. Examining this funding closely raises questions about growing popularity of this business model.

Wix, situated in the center of Tel Aviv,  enables its users to create widgets and flash websites using a very friendly interface. The advantage that Wix has over traditional Flash sites is that their mechanism doesn’t dry up the SEO juice. Many pretty flash sites remain deserted as search engines can’t understand them.

Wix is on the rise, and boasts 3.5 million free users and is gaining traction. So far, so good. The days that more funding was directly correlated to the company’s value are gone. A viable business model is necessary.

Wix enables its users to buy extra design and customization features. This is the freemium model – approach the audience with a good free product to get them in, and once you have a critical mass, offer them premium services. A small portion will be willing to walk the extra mile, but this should be enough to break even and to make a profit.

Strong confidence

Wix’s investors have strong confidence in the company and its success. Here are things I’ve noted:

1. Round C: This is the third series of funding for Wix, higher than all the previous rounds altogether. A third round of funding isn’t common. Many VCs stop at Round B, even for successful startups. Some of them participated in previous rounds.
2. No special plans: The purpose of this fund raising is enhancing development efforts and perhaps for extending the company’s lifeline. No plans for new partnerships, new markets or hiring in new fields were reported. In many cases, the money is allocated for more specific purposes.
3. Fierce competition: As seen by the growing number of users, 400,000 a month, Wix is doing a great job. Nevertheless, it isn’t alone. Companies such as Weebly and Yola are operating in the exact same field.

In my opinion, this funding not only shows the investors’ belief in Wix’s future, but also in their business model. With this model, money comes from the users rather than the advertisers. Relying on advertisers for income may not be sufficient. And there’s another factor.

Image credit: louisvolant on Flickr

The Freemium Model

Some may say that the freemimum model is “not social”. It takes money from the simple people rather than the big advertisers. Also for a small company, it might be easier to close a handful of deals with advertisers than thousands of deals with users, and supporting them afterwards.

On the other hand, this model decouples the company from the advertisers. Being dependent on advertisers is quite problematic and fragile. Being dependent on users is practically being more dependent on yourself – being independent.

Do you think that this funding shows confidence in the freemium model as well as in the company? Do you see this model gaining more traction? We’d love to hear your thoughts.

Read more on Wix on The Wadi Index.

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