The Washington Post is looking to double down on investment in its technology publishing arm, Arc XP, despite outside sales interest valuing the company at nine figures, sources told Axios.
Why is this important: The company sees more long-term value in trying to grow the business than selling it now, executives told Axios.
- “I personally think that in the long term – and by long term I mean three, four years, not 15 years – Arc XP will be the biggest revenue stream for the post, and certainly the most profitable revenue stream. for the Post,” said Shailesh Prakash, chief information officer at The Post.
By the numbers: Arc XP brings in around $40-50 million in annual recurring revenue (based on subscriptions), sources told Axios.
- Software-as-a-service (SaaS) companies are typically valued between 10 and 20 times the ARR amount. When the deals were presented to The Post last year, markets were valuing SaaS companies higher than they are today.
- For now, Arc XP is not profitable, as the company is focused on investing in its growth. “We are not a limited capital company,” Prakash said. “It’s never about funding, it’s always about, is it the right thing to do?”
Catch up fast: The Washington Post released Arc XP in 2015, then called Arc, with backing from owner Jeff Bezos.
- Bezos remains heavily invested in the company, and much of Arc XP’s business relies on Amazon Web Services technology.
Driving the news: In addition to ARR, Arc XP has long made money by charging professional services or consulting fees associated with helping people set up and personalize their accounts.
- Today, it is shrinking its professional services business in favor of more aggressively selling software licensing deals, which are more lucrative and less capital-intensive.
- This pivot, which is common for young SaaS companies, could be more profitable in the long term, but has eaten away at short-term growth.
- Arc XP executives have said for years that they expect the company to generate $100 million in revenue “over the next 3-5 years,” but it still hasn’t reached that goal. , in part because of this transition out of professional services. .
Details: Looking ahead, the company is making significant changes to start growing revenue and profits faster than it has done so far.
- It’s building a much more robust sales and customer service infrastructure, instead of investing the vast majority of its hiring resources in engineering.
- “It’s really about creating more velocity in revenue growth,” said ArcXP President Miki King – the Post’s former chief marketing officer – who was hired last year to oversee the business hub. of Arc XP.
- The goal, King said, is to triple the number of clients he signs per month, which typically equates to one to three new businesses.
- Currently, Arc XP’s technology is licensed to more than 2,000 companies, up from about 1,500 a year ago. A much larger portion of these customers are found outside of media and entertainment, although this remains the service’s largest customer base.
Be smart: Hiring King was seen internally and externally as a signal that The Post was not interested in splitting up the company, at least not yet.
- In the months since King was hired, the company restructured its team and hired new top revenue leaders. Scot Gillespie, longtime technical lead of Arc XP, left the company amid these changes earlier this year.
- He also introduced a new bonus structure this spring to incentivize engineers to work at The Post in an increasingly competitive talent market.
The big picture: Under King’s leadership, Arc XP also began to shift from providing software to media publishers to selling to enterprise customers, especially those looking for tools to build commercial ventures.
- He recently signed AvalonBay Communities, a real estate investment trust. The Golden State Warriors, a long-time customer, recently expanded their partnership with Arc XP to begin licensing its CMS SuiteExchange platform to other sports teams.
- Media publishers don’t always provide such lucrative business opportunities, but they continue to contribute to the company’s global expansion. Arc XP recently brought in The Irish Times and El Financiero from Mexico as customers.
- “We are completely optimistic about our opportunities outside of mainstream media and publishing,” King said. “And it will be with those brands that have the greatest opportunity to really optimize the intersection of content and commerce.”
Yes, but: These transitions have not come without pain points.
- As Arc XP grew, smaller media publishers felt that its software became too advanced for their needs, forcing Arc XP to simplify parts of its publishing product.
- Internally, The Post engineers were concerned that Arc XP was becoming too simplified to meet The Post’s own publishing needs.
- Eventually, The Post engineers created their own version of a content management system (CMS) based on code from Arc XP that they call Spectrum to power parts of The Post’s website.
At the end of the line : Arc XP “is clearly the third leg” of the revenue stool that supports The Post, in addition to advertising and subscriptions, Prakash said.