Pod Insights Equity Podcast NerdWallet, Gen Z, and the value of the written word About this episode Natasha and Danny and Alex got together to dig into the recent NerdWallet IPO filing, and what it can tell us about how the written word -- in its digital form -- can still be worth quite a lot. Here's an outline of the chat:
NerdWallet shows the financial power of the written word, even if it isn't the precise form of writing that we know and love.
Automattic is a large, startup bet on the written word, amongst other things. Danny had notes for us on the scale of its business, thanks to a new TC-1 all about the publishing empire. Here we talked about the importance of proving value internally, before going external with word power.
And from Kindle Vella to Substack to Memberful from Patreon, there are more and more models for getting paid to write these days. Hell, you can charge for your tweets now.
We were left with questions about if the return of text is inevitable, in an everyone-runs-to-video world. As Natasha notes, distribution is still a bottleneck and human attention is not entirely predisposed to sitting around reading things. But with Gen Z perhaps a little over screentime, perhaps there's good news ahead for writers of all stripes.
Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products.
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Transcript 0:10 Speaker 00 Hello and welcome back to Equity Tech Runche's venture capital focused podcast where we unpack the numbers behind the headlines. My name is Alex and we are here to talk about words today, which is very good because I bought two of my favorite writers with me. Natasha, hi, how are you doing?
0:22 Speaker 01 Doing good. I'm underneath a heated blanket right now because it is winter in San Francisco.
0:26 Speaker 00 Yes, which means that it's actually cold. People think it doesn't get cold there. It actually does surprisingly with all the fog. It's quite miserable. Danny, hi, how's fall/winter in New York?
0:33 Speaker 02 Yeah, fall was deleted out of the calendar this year. We went from 80 to 40.
0:38 Speaker 00 Yep.
0:38 Speaker 02 So climate change sucks and you should read more books about it.
0:42 Speaker 00 Yes, you should read more books because books are full of words and that is the theme today, but not books written down on paper and printed out and shipped to your house via some sort of Amazonian Rube Goldberg climate change disaster. No, we're talking about words on the internet, the digital word. And our question is really, what is the value of the written word today? And Danny, this all came up because NerdWallet filed to go public. NerdWallet is essentially a writing play.
1:04 Speaker 02 It is. I mean, we don't really see a lot of startups that are like, content is what we do. But NerdWallet has become sort of the wire cutter of financial services. So a hub for all kinds of information on credit cards, to bank accounts, to debt products, to mortgages, and they've grown tremendously. So we have a bunch of top line numbers here. So in the first six months of 2021, the company had $181 million of top line revenue and that is up from $137 million in the first six months of 2020. In 2020 fiscal year, $245 million in revenue. So this is not a small platform. When we talk about the death of media and the death of the written word, words clearly are valuable when you're talking about credit cards.
1:41 Speaker 00 Very, very much so. And Natasha, you know, a subject that's near and dear to our hearts, given our prior employment, is the power of having a writing team at a company that isn't run by the business side of things. So tell me a little bit about why having an unbiased writing team at NerdWallet matters.
1:55 Speaker 01 Yeah, I mean, especially in the world of financial products, the conflict of interest would be that Nerd Wallet only recommends services of people that pay them versus really offering what's best for the consumer. And as anyone who listens to the show knows, there's so many products out there these days that having someone who's committed to giving you a full view, or at least a holistic view beyond financially incentivized products would kind of give you a little bit more trust and just add a layer of integrity to all of their advice, which ranges from how expensive weddings are these days to best credit cards of the year.
2:24 Speaker 00 Actually, those two go together because given how expensive weddings are these days, you need several of the best credit cards.
2:29 Speaker 01 There we go.
2:30 Speaker 00 If you read through the S1 filing, there's a lot of notes about how they run their team. And they talk about things like independent and unbiased and so forth. I do have a slight issue with where they put the line item of the editorial team. They put it in their marketing budget when it really should be a cost of revenue, but I think they wanted to hide it somewhere else so they had better gross margins, which is some kind of financial shenanigans, but whatever. Danny, they have an enormous audience, though. I think it's like tens of millions of folks, right?
2:54 Speaker 02 That's right. They have 22 million, what they call MUUs, or monthly unique users. So it's actually a pretty decent site, although nothing at scale of, say, Yahoo Finance, our sister brand, which is up in the tens and tens and tens of millions of folks. But the company really focuses on customers with high credit scores. So customers who are potentially going to buy a bunch of different financial products and obviously are going to have those referral fees that are coming in from their various financial partners. The company listed in its S1, they have 400 financial services partners as of June 30. So obviously hundreds of different folks paying them a lot of money into the till, all based on referrals for financial products.
3:28 Speaker 00 But there's a caveat. There's a risk factor in Natasha about how they actually go about this. So returning back to your important point about unbiasedness, tell us how they had to warn their investors that they're not going to take the easy quick buck.
3:38 Speaker 01 Definitely. So because their partners are the people who pay them, they obviously could, if in times of stress or no revenue, could kind of lean on recommending those to get more money. You get it. Their risk factor, they basically say that they make decisions on the best interests of their users in order to build long-term trust that may result in us foregoing short-term gains. Put differently, they're not going to just recommend Brex because Brex pays them a lot of money, but because long-term, they think that having the trust would actually help them recommend products better.
4:04 Speaker 00 Yeah. And you put an example on this, like if I Went to Wirecutter and I was like, you know, best office cup warmer so I can keep my coffee warm. And they were like, this is the best one. And I bought it and it was terrible, but they recommended it because they got a bigger cut of the sale. I'm never using Wirecutter again. Same thing here. If I want the best points credit card for domestic travel with a Southwest Airlines Focus, I want them to give me the unbiased thing, even if it pays a little bit less. So to me, that risk factor says integrity. And I think it's to their credit. And really, the gist of this document to me is you can monetize writing on the internet very effectively to the tune of hundreds of millions of dollars a year, which I'm impressed by.
4:39 Speaker 01 And it feels like an argument for why we saw Robinhood's newsletter kind of pop off so much. I know we were so excited about that a few weeks ago. Alex, I don't know if you remember the number on the top of your head about how many subscribers Robinhood has on its newsletter product.
4:51 Speaker 00 Seven septillion.
4:53 Speaker 01 Yeah, exactly. Like, what?
4:56 Speaker 00 It was a lot. It was a number that we were shocked by.
4:58 Speaker 01 I think it was tens of millions. And we can link the actual number in our show notes, but while maybe before that would have been like a proof of concept newsletter that just is a nice value add for consumers who maybe already are using the product. Now we have kind of proof that it's actually going to bring money into the pipeline and back out and actually be like something you should put money into.
5:14 Speaker 02 Yeah. Well, I think that's the magic to a lot of these businesses, right? They have a great product, but then you have no content. There's no reason to come back repeatedly to the site. So Robinhood, okay, maybe you want to trade and you open it up or you're tracking as ticker, but actually having the news built into the app is really, really useful. Nerd Wallet actually has an app. That's not where they started. They've always been a website, but they are having an app because they actually have a huge issue, which is most of their traffic is not paid or acquired. It's actually organic. According to them, 73% of all of their traffic comes organically through direct or unpaid channels, mostly through Google. And they actually note in a risk factor that in 2017, Google actually lowered their search page ranking across all the what they call SERPs to lower Nerd Wallet for a period of time. So while this is a really strong business of a sort, it's certainly stronger than some of the other ones we were talking about recently on the podcast. I will point out that like
5:59 Speaker 02 most media companies, the bulk of the traffic is driven by search engines, by social, and therefore you're sort of always at the mercy of the algorithm to ensure that you're top of mind for customers.
6:09 Speaker 01 Yeah, I think the role, going back to like our thesis, the role of a content media marketing arm within A broader company can change based on the season or the mood of the CEO. Alex, I know when we were at Crunchbase, we were working a lot on using Crunchbase data into our stories, which feels like a really easy jump to make and natural and a way to say editorially independent. But where we sat within the organization, how we use those numbers and how often we use those numbers could change depending on what leadership told us.
6:36 Speaker 00 Yeah, and that's the question of independence comes up. And so when I was reading the NerdWallet S1 going into it, I was like, okay, I want to know how they describe how their writing team works, because I've had to have those conversations with folks who weren't journalism first, if you will. And so there's often differing views on the best way to approach this. But on the whole, NerdWallet S1 will be tracking this IPO for a while. It's very impressive to my view. And there's a lot of nuance about margins and how they're doing sales and marketing costs. That's not really our focus today. But Danny, we do want to talk about other companies in the writing space, including Automattic.
7:04 Speaker 02 That's right. So I will say yesterday, we did publish what we are now branding and rechristening the TC one, formerly the EC one to match our new TechCrunch plus branding instead of Extra Crunch. But we did a profile of Automattic. So Chris Morrison, our writer who covered Roblox and Klaviyo before, now diving into Automattic. And for those who don't know it, Automattic is the company behind WordPress.com. So the major complement to the WordPress blog software, open source project. And Automattic has gotten really big over the years. It's now 14 years old, the WordPress project itself is 16 years old. And in that time, WordPress.com now powers something like 43% of all websites on the web. WooCommerce, which it bought in 2015, now runs something like a quarter of all e-commerce sites. It actually runs more than Shopify does, although it has less revenues.
7:47 Speaker 02 And it just bought Tumblr from our old parent company, Verizon Media, or I guess the new Yahoo rebrand. I actually have no idea how to describe the amorphous blob that is this company anymore.
7:56 Speaker 00 We used to own a thing and now we don't.
7:58 Speaker 02 It was like the old thing, but then we got reacquired. So I actually have no idea who owns what or what it means or what I'm supposed to disclose. But we used to own something nearby. It was in the building, then they weren't in the building and there were a bunch of empty chairs spinning around. But they now own Tumblr, so they're in social media, they're in WordPress and blogging, they're in e-commerce. And the core of all that is text. And I think if you go to Automattic.com, their homepage, you're still going to be impressed by the fact that there are no images. It is literally a list of products that they own on the page.
8:24 Speaker 01 I was going to offer a super. Off topic anecdote, but I'm still gonna do it.
8:28 Speaker 00 Yeah.
8:28 Speaker 01 I think just to give us perspective, I was so impressed by Automatic because I ran into one of their team members at a happy hour like two years ago. I told them I work at Crunchbase and they were like, you're a customer. And then they bought me a drink and I was like, how do you remember that I'm a customer? Like the fact that they are everywhere to reinforce your point. I guess this is on topic to reinforce your point, Danny, they are everywhere. And it's pretty interesting to me that they remembered that we were a customer at that point.
8:52 Speaker 00 So critically, the question at this juncture is what, what did you get? What was the drink?
8:55 Speaker 01 Oh my God, I don't even remember. I was probably in my, I mean, I was definitely not in my Long Island iced tea phase. So that was college. So probably gin and tonic. Had to be cool.
9:06 Speaker 00 A standard journalist cocktail, but I mean, Automatic is a good example of the value of the written word. I don't really want to bring up Tumblr as an example because Tumblr is more of a mix of images and gifs and all sorts of things.
9:15 Speaker 02 And written word though, and written word. There are, there are a lot of folks who have their blogs on there.
9:19 Speaker 00 I'm worried. Well, did I might say, I don't think Tumblr is really blowing up. The only time Tumblr's come up in my world in the last like five years was in the last Nas album when he mentioned it.
9:27 Speaker 01 It did have a pandemic bump and I think like a lot of the platforms that they own got a pandemic bump because people were living on the internet in different ways. I saw like the last article in the EC1 series was the one I kind of wanted to dive the most into, which is like the future of remote work is text. I don't know what that means.
9:43 Speaker 02 Yeah. So, so this is actually a really interesting thing. So among the 50 or 100 or 500 projects that Automatic has going on, one of the things they've done is they've created a custom WordPress installation called P2, which is their productivity software. So they run the entire company off text. Everyone blogs basically at WordPress and this is a company with now 1,700 employees. So it's certainly not a small company anymore. And everyone is basically communicating internally using blogging. So when people do stuff internationally, they have employees in 86 countries. They're actually doing everything asynchronously, everything through text and uniquely, and I've never heard of another company doing this. According to them, they will hire someone from start to finish in an interview process exclusively based off text.
10:23 Speaker 02 You don't have to do audio or a video interview or an in-person interview to get hired at Automatic, which I thought was super interesting in the remote working world.
10:30 Speaker 00 I'll throw out there that another company that has an internal blogging culture is Atlassian, because they also have some software that allows you to do written work. And Amazon famously runs off memos. We're getting gently off the topic. I'm going to drag us back because what we care about is writing that's publicly available on the internet versus internally useful. And there's a couple of other examples that have caught our eye lately. One of which, Danny, I don't know as much about as I should, and that's Kindle Vella. What is this?
10:52 Speaker 02 Yeah, so this was an announcement from a couple of months ago. So for those who haven't followed the future of the book, the book is dead. It's very sad, you know, R I P to Gutenberg. But no one wants to buy a 400-page book anymore and read it from cover to cover.
11:06 Speaker 00 Wrong.
11:06 Speaker 02 People want, what?
11:08 Speaker 00 I'm going to keep protesting because I disagree with everything you're saying.
11:11 Speaker 01 You're just telling Alex everything he loves is not.
11:13 Speaker 02 I understand.
11:15 Speaker 00 I haven't bought a book since yesterday and the day before that.
11:17 Speaker 02 I have to say, you do have hundreds of books behind you. You are apparently holding up the entire publishing industry yourself.
11:25 Speaker 02 But nonetheless, so there's been this rise of the episodic novel. So novels that are snackable in the same way that Robin Hood snacks is a brand, apparently. But the idea is like have these chapters are ongoing, oftentimes in the romance Harlequin category. And so we've seen this with Wattpad, we've seen this with Radish. Both of these companies were sold to Korean conglomerates in the last couple of years. And then Amazon is now competing. So they've launched something they're calling Kindle Vella, which came out. It's a play on the word novella for a short novel. And they're focused on romances. So you can subscribe to a book and you keep getting chapters over and over and over and over and over and over again. And some of these books go on forever. I mean, they're like daytime soap operas, except in text format.
12:02 Speaker 01 I think this is completely like a pitch to get Gen Z to be more interested in reading. Like, I love this idea. Periodicals used to be a thing in which a chapter would come out every month in a magazine. And I think that coming back fits into all of these things that are coming back. Fits into a lot of trends of like going back to how things used to look in the past from fashion to food. And now it's coming to books. I will say though, like, I feel like Gen Z similarly, even if their focus is shorter, they want a physical book. Like, I saw surveys online too, that were making the argument of we want physical books versus digital books because we're tired of screen time. So I feel like it's like there's both sides that they're going to have to address. Like, is it short enough that people are going to enjoy it being online?
12:46 Speaker 01 Or will they need to kind of balance them both out?
12:48 Speaker 00 To make an argument against Danny's probably corrected directional points that I just find to be morally wrong because they terrify me. Here, I'm holding up on the, you can't see this because you're listening to Dottie, but I'm holding up that the other people can see. A novella that I recently bought by Alex E. Harrow called A Spindle Splinter. It was fantastic. A great little read. Took me like an hour. You know, just physical books to me have, I still have a certain romance to them until people like me are dead. And I'm not going to die for at least three to five years, you know, like there will be a market for books. But the written word online is not only into fiction formats, there's also quite a lot of nonfiction stuff. And I know we don't want to leverage on Substack too much, but I do think that there's enough business writing and commentary over there to bring it up. Natasha, have you been surprised by the longevity of the newsletter boom such as it is?
13:28 Speaker 01 No, I haven't. Coming back to attention spans, like the best way to get a consumer to pay for writing may be at some points not to make them pay for 500 pages. At a time, it's much more self-help friendly and education friendly and aspirational to commit to reading one article a week from your favorite journalist or favorite writer. I mean, those are the reasons I've subscribed. So I feel like the habit is definitely there. I mean, I don't know if Kindle, Vella, like gave newsletters any credit for this product, but it does feel like those two worlds like really meshed together well.
13:58 Speaker 00 Actually, I don't think Amazon really gives credit to the products quite often, as we've recently learned from both markup and Reuters. Danny, you had something to say and I cut you off. I'm so sorry.
14:05 Speaker 02 No, I mean, I, I think, look, one of the things that amazes me is, you know, Apple did launch Apple News a couple of years ago, and which, which really just kind of flopped. But what I think is interesting is how little any of the large tech companies are focused on texts at all. Amazon obviously does with Kindle. If you look at Facebook, the future of Facebook is obviously video. They're talking metaverse every day. It's metaverse, metaverse, metaverse, metaverse, even though we don't even have that word defined because words don't have any meaning anymore. You go over to Twitter, okay, but Twitter is also trying to focus more on visual media because that's more engaging for folks on the Twitter streams. So you're seeing them constantly embed more and more media content into each of those tweets. You walk over to Apple, obviously Apple News failed. If you listened to the event earlier this week around the MacBook Pro, it was about movies and music.
14:46 Speaker 02 We heard nothing about anything text related because of course you don't need a M1 Pro in order to read a book, one would hope. So one of the things I think is really challenging is there's really no large company in the valley besides Amazon that cares about text. Even Google is not focused on text anymore.
15:02 Speaker 00 Yeah, yeah. And this, it almost makes directional sense because if you think about the world before the internet, right? Think about how important television was. Television set the tone for culture, for art, for conversation. And if you go back even further, not only was television so key in setting the national discourse, but also there's only three channels. So it was centralized video content was the way we communicated. Then the internet showed up and the internet sucked because it was slow and no one had broadband. So we all read stuff on the internet. And now is it really a shock that now that we have better mobile broadband equivalent that we're kind of shifting back towards what humans want, which is video because we're lazy. But I'll say that in general, that the stuff that we're overall outlining to me points to a future in which the written word certainly is not going to be more popular than TikTok.
15:46 Speaker 00 I'm not delusional, I'm aspirational, but I think it points to a future in which the written word does get to persist as a key plank in our conversation online.
15:53 Speaker 01 I think that argument definitely gives it a little bit more precedent, but in some ways it does also feel counterintuitive. Every company I talk to these days is focused, again, like you're saying, more on video and engagement than just plain boring text. So it would be really newsworthy even if a company came out of the gate saying, we're going to focus on text. It's like very anti-virtual HQ. It's anti a lot of what we're seeing venture dollars go to.
16:16 Speaker 02 It's like biodynamic wines. It's like, it's great that you're using, I always bring this up, but like, you know, you having the sheep shit all over the farm to, to.
16:23 Speaker 00 Oh, this, right. Yeah, yeah, the sheep shit wine. This is actually, I remember this now because of the sheep shit.
16:28 Speaker 01 Oh, my God.
16:30 Speaker 02 I will say, so one of the things that I think is becoming clear, though, in the text world, and when it comes to economics, is that there are just buckets of cash for very specific things. If you're in self-help, Substack works. If you're in financial services and you want to be wire cutter for financial services, there's endless amounts of money in terms of referral fees because getting a referral in a credit card is worth hundreds and hundreds of dollars. There's a lot of scale there. Another example, which people never talk about, but is actually a very successful company is WebMD. Thousands of employees, both with WebMD and then their more professional version Medscape, but creating medical content that makes sure that people understand different types of diseases or how their prescription drugs work. So you go in the medical case, there's a huge bucket of cash. The problem is there's not a lot of money if you're doing something new,
17:10 Speaker 02 original, creative, or not something that directly hits people in their finances, medicine, or self-help or careers. And that's one of the challenges that I've had with Substack is like, it's boring because it's all the same two or three subjects.
17:22 Speaker 01 I think distribution, it continues to be the question for a lot of people who are trying to monetize on the written word. I saw a metric out there that Amazon still accounts for 50% of book sales in the United States, which may be surprising to some of you, but it feels like then we need a startup that is kind of living the product that they are selling. That's why automatic was interesting to me, actually, when you were bringing it up, Danny, because internally, if their culture is so focused on text and the value of text, that has to translate into their products in some way. So I feel like that, to me, could be like a way we start to see companies slowly bring text into their product, is like they themselves experiencing it, because everyone's selfish and needs to first feel the pain before they bring it.
17:59 Speaker 00 And I'll just throw out that we are seeing a couple more things that line up here. Memberful from Patreon, building kind of a newsletter type thing. Another way to monetize the written word on top of a community that already exists, which could solve some distribution problems. And then as a last tiny little thing, the ad world is kind of coming back. And I think one of the reasons why the written word so fell out of vogue for so long was that the online advertising market was a crater unless you were Facebook or Google. And that's shifted a little bit as those channels have gotten to be more expensive. We are seeing, amazingly enough, the resurgence of the banner ad.
18:28 Speaker 02 Well, the banner ad is back. We added a sponsored ad on TechCrunch recently. So if you don't have an ad blocker, you are seeing more ads than you have in the past because ads are so good. They're, the CPMs are crazy. And I will throw out as a last news note, that Memberful did launch a newsletter product last week to compete directly head to head with Substack. And so we're seeing more and more platform versus platform. What was interesting as we were covering automatic was how much the company has basically tried to avoid that sort of direct head to head competition over the years. And I'm curious to see in the next 10 to 15 years, the open source model connect into the economics of text, because I do think the sorts of folks who work in open source connect actually extremely well with the kinds of folks who do written word.
19:07 Speaker 00 Yeah, and I think the reason why we ended up having this whole conversation originally was because we were talking about how it's nice to see platforms arguing over how to get as many writers as they could. Because for the longest time, being a writer was essentially like telling people that you hated money and that you wanted to essentially live off your spouse. And it's very exciting to consider the possibility of the potential of a future that may include writing being a lucrative profession once again. And if that happens, huzzah. In the meantime, guys, we're out of time. We're back on Friday morning. We love you. Bye.
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