wayfair-business-model

How Does Wayfair Make Money? The Wayfair Business Model In A Nutshell

Wayfair is a furniture and household item eCommerce company founded in 2002 by Niraj Shah and Steve Conine. Wayfair initially operated as a simple drop shipping business but has since diversified its revenue generation strategy, and it makes money via product sales, installation services, advertising, and interchange fees.

History of Wayfair

Wayfair is a furniture and household item eCommerce company founded in 2002 by Niraj Shah and Steve Conine. 

During the early 2000s, the long-time friends and co-founders noted that shopping for furniture and housewares lacked variety.

Consumers would be lucky to see three or four variations of the same product on a shelf in a store.

Businesses were also hamstrung because many did not have the physical floor space to showcase a diverse variety of options.

Inspired by Conine’s mother – who owned two furniture stores – the pair sought to move furniture shopping online and give consumers more choice in the process.

Racksandstands.com was launched in August 2002, an early eCommerce site selling storage furniture and media stands. The site became very popular, thanks in part to a diverse product range and good SEO.

To increase the legitimacy of their venture, Conine and Shah created holding company CSN Stores. Eventually, CSN Stores would encapsulate more than 200 different websites selling everything from bar stools to aviaries.

Expansion into the Canadian, British, and German markets soon followed as the company built a logistics network specially designed to ship large items quickly.

In 2011, the CSN Stores group of sites was consolidated and rebranded as Wayfair, Inc. Total net revenue for Wayfair was $3.7 billion in 2020, representing a 44.9% year-over-year increase.

Wayfair revenue generation

Wayfair initially operated as a simple drop shipping business but has since diversified its revenue generation strategy.

The company now makes money in the following ways.

Product sales

As an eCommerce giant, Wayfair purchases goods in bulk and then attempts to sell them for a profit

The company still engages in drop shopping to some extent. When Wayfair receives a customer order, it forwards the order to a partner to fulfill.

The company does not charge partners for sending business their way and even covers shipping costs. 

Installation services

Wayfair has partnered with Handy to take the stress out of furniture assembly by connecting consumers with certified installation experts.

The fee for this service varies by product and is split between Handy and Wayfair.

Advertising

Furniture retailers can also buy sponsored ad placements on the Wayfair website. 

Ads may be placed preferentially in product search results. They may also be placed in Wayfair video content or via sponsored brand posts.

Wayfair collects advertising revenue based on the number of clicks ads receive. Sponsored posts may attract a fixed fee or a percentage of each subsequent sale.

Interchange fees

Wayfair recently started offering credit cards to consumers with access to perks including cash back rewards, discounts, and no annual fees.

The company makes money whenever a customer purchases with a Wayfair branded Mastercard. This so-called interchange fee is collected by Mastercard from the merchant and is shared with Wayfair.

Credit card interest is also collected if users fail to pay for their orders in full before a designated period. The annual percentage rate (APR) in such a scenario is 26.99%.

Key takeaways:

  • Wayfair is a North American furniture and household item eCommerce platform. It was founded by Niraj Shah and Steve Conine to give consumers access to greater product diversity in home furnishings. 
  • Wayfair makes money by purchasing stock in bulk and then selling for a profit. In collaboration with Handy, the company also charges to help customers assemble or install their furniture.
  • Wayfair also charges for advertising placements. These may take the form of product search listings, video content, and sponsored brand posts.

Read Next: Who Owns IKEA? IKEA Business Model, IKEA Competitors, IKEA Effect, ALDI Business Model, Tesco PESTEL Analysis.

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Platform Business Model

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A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

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A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

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Asymmetric Business Models

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Attention Merchant Business Model

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In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

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Retail Business Model

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A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

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Open-Core Business Model

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While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

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Freeterprise Business Model

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Franchising Business Model

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