Business

Wish Business Model | How Does Wish Make Money?

Wish is the second-largest mobile shopping application in the world. ContextLogic of San Francisco owns it. It began as a wish-list application for users to recommend things to one another. 

Wish connects merchants with potential customers and distributed discounts for specific products based on the users’ preferences.

The primary distinguishing characteristic of ContextLogic’s product was the discounts and great prices. 

Wish Business Model allows consumers can now purchase items from shops and wholesalers, including wool sweaters, Chanel no. 5, duct tape, MacBook Airs, and home decor.

The Wish platform acts as a middle man between merchants and purchasers. However, it is each merchant’s responsibility to offer e-commerce services to their targeted customers. 

The Wish app acts as a conduit between buyers and sellers but is not directly involved in their transactions.

Wish works with manufacturers, brand owners, retailers, artisans, creators, and artists but employs procedures to prevent merchants from redirecting Wish app users to their stores or websites.

Over the past five years, Wish has attracted funding totaling over $578 million.

What is it about the Wish business model that allows them to prosper in such a crowded e-commerce market?

What is Wish?

Wish is an e-commerce platform for mobile devices that connects buyers with sellers worldwide, mainly in China. 

The app boosts sales and raises revenue through an algorithmic feed and several psychology tricks.

Wish Business Model

Wish earns money through sales commissions, logistics services provided to merchants, and advertising services called ProductBoost.

Wish was founded in 2011 and has grown to be one of the world’s most valuable private firms, raising over $2.1 billion in venture capital over the last nine years. Wish went public in December 2020.

Wish Business Model

A few years ago, Wish was a personalized discount service, but now it is a fast-growing platform primarily focused on the iOS and Android platforms.

Peter Szulczewski and Danny Zhang emphasize mall shopping as a factor in attracting new customers when discussing Wish’s formula for success. 

When someone says “mall browsing,” what do they mean?

Imagine walking into a store and being greeted by various goods from different categories, all of which seem quite appealing. 

You don’t need all the chips, soap, and furniture displayed beautifully in front of you, but there is always something special that draws you in.

Many of us do not have shopping lists and make purchases based on what we see. 

The idea has been successfully applied for a long time, generating significant revenues for brick-and-mortar businesses such as Walmart. 

It’s all about presenting products properly and appealing to impulsive shoppers or those who care more about low pricing than specific brands or a product’s lineage.

To summarize, Wish’s three primary strategies are: focus on mobile platforms, targeting impulsive shoppers and offering a diverse selection of goods, and delivering high discounts to ensure that no one can compete with Wish prices.

Another strategic decision that distinguishes Wish is its multi-app strategy. 

The Wish platform comprises six mobile commerce applications, each of which sells a unique set of products. Let us summarize them.

How Does Wish App Work?

Wish is a platform for e-commerce that allows customers to purchase clothing and electronics through mobile apps for iOS and Android devices.

The company acts as a middleman between merchants and prospective customers. Therefore, Wish does not store any of the items it sells. Wish’s sellers are primarily based in China and other low-cost manufacturing countries.

The Postal Service and other logistic providers have special agreements that allow merchants to send lightweight items at meager prices. The disadvantage of this is that shipments may take months to arrive.

Wish Business Model

Wish differs from the competition with a mobile-first strategy and technical depth, in addition to their meager prices. As a result, over 95% of the things mentioned in the shopping feed may be of interest to buyers.

The corporation also employs a variety of psychological “tricks” to increase sales. For example, deeply discounted items that create scarcity (e.g., “Almost Gone”) or social acceptance (e.g., “10,000 bought this”).

Wish has over 100 million registered users. A total of more than 500,000 retailers are also affiliated with the site.

How Does Wish Make Money?

Wish serves as a two-sided market where merchants and consumers can sell their goods and services. 

Corporations facilitate transactions by hosting shopping infrastructure and managing payment processes. 

The company has added a fulfillment service as of 2019.

The platform’s operator charges a commission for every successful sale, as is common practice for marketplaces. 

Wish does not publicly disclose its revenue share percentage. Commissions can differ depending on the nature of the sale and the sale price.

Wish optimizes sales through an algorithm that displays the most relevant products to customers based on real-time data. 

Wish Business Model

Many merchants have access to products such as product boosts and sales statistics.

Wish charges merchants for additional services in addition to the revenue-sharing model. 

Retailers can elect to have Wish manage fulfillment (called Fulfillment By Wish).

A fee is then charged to merchants based on where, how much, and how heavy the goods are kept. 

Wish Express offers merchants the same ability to expedite deliveries to customers.

Merchants are also charged for the ProductBoost campaigns they initiate. ProductBoost articles appear at the top of the feed, similar to Google or Amazon ads. 

The products are then tagged as “advertising” to comply with rules.

The price is determined by factors such as the number of impressions or the level of competition in the promoted product category.

Features of Wish Business Model

  • Wish (then known as ContextLogic) started as software to match user intent with product ads in the ’90s into a mobile e-commerce platform in the ’10s. E-commerce sites such as Amazon emphasize a clean interface but Wish offered a “rich experience” with gamification components that resembled an online bazaar.
  • Wish operates an asset-light business strategy, which means that it does not maintain inventories or deliver goods like Amazon. Wish, however, works with local partners to deliver items to distant regions and with cross-border partners to distribute items internationally. It can then operate following the logic of the digital platform, collecting fees for merchant services and advertising on the merchant’s outlet.
  • Marketplace profits (merchant fees and advertising) and logistics profits account for most of the earnings.
  • Wish’s rationale revolves around the product stream, which provides customers with a more personalized shopping experience than a search engine. As a result, wish seeks to reduce user searches, and the majority of sales originate from users’ product feeds.
  • A mobile-first e-commerce platform, it is heavily oriented toward discovery, gamification, and conversion, with less attention paid to search.
  • As an e-commerce platform, Wish continues to rely heavily on third-party merchants’ sales; nonetheless, it has begun selling its labeled select brands.
  • Despite losing money, the business still generates positive cash flows due to its low assets. In addition, it operates on a positive cash conversion cycle, collecting money in advance from customers and paying merchants weeks later, freeing up short-term liquidity for business activities.

Value Propositions of Wish

Consumers and merchants are the two main stakeholders of the platform.

Value Propositions for Wish Consumers

  • Affordable, as vendors on the platform typically sell unbranded products at a discount of up to 85%.
  • Wish was designed to be a mobile platform, focusing on giving consumers a great mobile experience.
  • Globally accessible, the platform is offered worldwide.

Value Propositions for Wish Merchants

Wish had over 100 million monthly active users by 2020, making it an excellent platform for retailers to sell their products. Wish also provides merchants with a suite of tools to help them expand their businesses.

Success Story of Wish

Peter Szulczewski (CEO) and Danny Zhang established Wish in 2011. (CTO). The duo met in college at the University of Waterloo, where they studied Computer Science and Mathematics.

Szulczewski began his career as a software engineer at Google in 2004 after graduation. Following spells in San Francisco and Seoul, he founded ContextLogic.

ContextLogic was founded to compete with Google AdWords (which Szulczewski co-founded), as the search giant’s technology was deemed “quite old” at the time.

Szulczewski was connected to Yelp CEO Jeremy Stoppelman by a mutual friend, who provided the required investor contacts for a $1.7 million investment in ContextLogic.

Szulczewski invited Zhang, who was working at YellowPages.com, to join him as a co-founder in May 2011. 

Following numerous meetings with existing investors and past colleagues, the two shifted their focus away from advertisements and toward Wish’s forerunner Wishwall.me.

Users were drawn to the website through placing ads on Facebook (which remains a significant component of Wish’s advertising budget). 

Wish handpicked a selection of products for users to peruse and build wish lists. Users might win numerous benefits such as discounts or free things by loving the product.

Wish then leveraged the thousands of users it had gathered to connect them with retailers. In exchange for a 10% to 20% price discount, the company pledged to introduce the sellers to a list of pre-qualified customers. 

To accelerate growth and attract new customers and merchants to the site, Wish eliminated commissions.

Additionally, Wish invested extensively in advertising its platform and products (and continues to do so). For example, the corporation spent $100 million on Facebook advertising alone in 2015. 

Two years later, Wish became the Los Angeles Lakers’ jersey sponsor, paying more than $30 million to have their emblem on the team’s uniform.

That strategy undoubtedly paid off. By mid-2013, Wish had surpassed 15 million registered users and was growing at a rate of 50,000 per day.

Amazon acquired Wish in 2015 for $10 billion in cash. Szulczewski rejected the offer instantly. 

Wish Business Model

Amazon responded by launching their own Under $10 area, which is aimed at the same demographic as Wish.

Despite this phenomenal growth, numerous issues have arisen throughout the years. 

Thousands of customers complained about extremely delayed delivery periods, fraudulent products, and subpar quality. 

Additionally, the online marketplace is plagued with phony reviews (much like Amazon), making it difficult to distinguish between real and fraudulent deals.

Additionally, clients may occasionally come across strange things advertised on Facebook or within the app.

Despite its niche offers, Wish multiplied over the next few years. Finally, Wish ongoing performance resulted in its initial public offering (IPO) in December 2020.

Today, the company employs over 1,000 individuals across seven global locations.

Who is the Owner Wish?

Szulczewski, the founder and CEO, owned more than 58 percent of Wish at its IPO. He is, therefore, the largest shareholder. 

Dan Szulczewski owns 31.04 percent of Wish, followed by Danny Zhang with 9.3 percent.

DST Global holds a 4% stake in the company, followed by Formation8 Partners with a 5.2 percent stake.

Given that Wish is now a publicly-traded company (with its shares available to the general public), its ownership structure is likely to alter in the future.

What is the Revenue of Wish?

Wish generated $1.9 billion in revenue in its fiscal year 2019. However, the company lost $129 million during that period.

What is the Funding and Valuation of Wish?

Crunchbase reports that Wish has raised over $2.1 billion in venture financing throughout 14 fundraising rounds. 

The company raised $300 million in its Series H round at a post-money valuation of $11.2  billion.

General Atlantic, Goldman Sachs Capital Partners, Temasek, Founders Fund, and Third Point Point Ventures are some of the company’s investors.

Wish raised another $1.1 billion in its first public offering. At the time of its initial public offering, Wish was valued at $17 billion.

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About the author

Madhav

Hey Folks, I am Madhav! I lead a team of Marketers at Tech Startup based in Australia. In my free time, I dissect the business models of various businesses. And if there's any free time, I cook some new Dish!