Breakdown of Harvard Business Publishing

If you have been to a business school or are just interested in business in general, it’ll be hard not to know about Harvard Business Publishing (HBP). Operating under Harvard Business School, the publishing arm is a well-known established name that offers great content, whether it’s case studies, articles or books on business lessons. Yet, very little has been talked about its unit economics and scale. In fact, nobody has spoken officially about HBP on record. Hence, I was really fascinated by Business Breakdowns’ episode on HBP.

HBP has a long history. Starting well over 100 years ago, the unit has evolved to being more than just a publisher of books. Today, it has four major business lines: case studies, advertising, print & digital subscriptions, and books. Together, these business lines generate $270 million in annual revenue with 40% from international markets, up from around $100 millions in the early 2000s. In terms of distribution, below is the estimated breakdown of HBP’s annual revenue

  • Subscription business: $35 million
  • Case studies: $80 – 100 million
  • Books: $27 – 54 million
  • Advertising: $90 – $130 million

HBP has great bargaining power as a seller and a buyer. From the supply standpoint, HBP has an unsurprising source of content. Harvard faculty members must contribute to the library of case studies to maintain tenure. Harvard is reportedly paying little for these case studies, yet making somewhere between $80 million to $100 million per year. These case studies from Harvard professors only make up 20% of what HBO has to offer. The other 80% are penned by professors from other places who are likely not better compensated than their Harvard counterparts. Even though we won’t find individual authors’ names on case studies, being able to show your work with a stamp of approval from Harvard means something.

On the other hand, HBP has no problems selling these case studies to business schools and companies. Universities love to add a flair of reality and pragmatism to theory by using real case studies. HBP carries a certain weight of authority and swagger in the academic world. Case studies are used semester after semester and they don’t need to be rewritten every year. In fact, my personal experience at a US university is that professors don’t like to change their curriculum every year either. As a result, HBP gets a sweet deal for them: pay little for a case study and milk revenue out of it every semester from every school that wishes to use it. The same goes for companies. If they want to train their managers and executives, what’s better than HBP case studies?

This goes to show what I think is the best asset of HBP: its brand. The brand draws readers to the materials that the publishing arm puts out and professors to create content for them. It makes everything tick.

While HBP’s achievements are admirable, there are two things that irk me. First, HBP can force professors, especially those employed at Harvard itself, to write case studies for them to avoid losing tenure and make a lot of money out of it while allegedly paying little for it. It would be a different matter if these professors weren’t under employment contract and voluntarily wrote for HBP knowing all the conditions. But since they already put in the work to keep the level of education worthy of the name Harvard, why can’t they be paid commensurately to what HBP earns on those case studies?

Second, a lot of HBP’s revenue is tax exempted. The speaker said that while HBP has to pay taxes on their advertising revenue, they don’t need to do so for the rest. I mean, Harvard charges arms and legs on tuition fees and has an enormous endowment fund of, wait for it, $53 billion as of June 2021. Do they really need tax breaks as much as small businesses that don’t even earn a fraction of what they do? I am not arguing that they can’t sell materials to other schools or whoever wants to read them. But there should not be any tax exemption on that revenue stream. That’s just absurd.

In short, I like this episode of Business Breakdowns as it sheds light on a business that few talk about. Have a listen if you are interested.

Get to know Wix

What is Wix and what does it do?

Wix was founded in Israel in 2006 by Avishai Abrahami, Nadav Abrahami and Giora Kaplan. The trio were brainstorming ideas for a startup and they realized that building a website was complicated and expensive. They pivoted to building a tool that would enable an easy and painless process to quickly construct a website, even for those without coding experience. Hence, Wix was born. The company reached 1 million users in 2009, debuted on Nasdaq in 2013, reported 50 million users in 2014 and, as of June 2020, had 182 million registered users. The latest reports showed that Wix was available in 190 countries and 20 languages.

The company mostly operates on a freemium basis. In addition to a free tier, Wix also offers paid subscriptions such as Ascend by Wix and Premium, the latter of which comes into two sub-tiers: Website and Business & eCommerce. Moreover, there are also standalone services such as: Domains, Mailbox in a partnership with G-Suite, Wix Payments, Wix Answers and Wix Logo Maker.

Wix’s two main revenue segments are Creative Subscriptions and Business Solutions. The former consists of mostly Premium Subscription while the latter is made of Ascend by Wix, other services and the 30% commission that comes from the use of 3rd party apps. For instance, if a user pais $10/month to use a 3rd party app on Wix, Wix is entitled to $3/month and that revenue will go to Business Solutions segment. As of December 31, 2019, 84% of Wix’s premium subscriptions were yearly or multi-year subscriptions while the other 16% was made of monthly subscriptions.

Figure 1 – Wix’s services and reported segments

To cater to industries, Wix offers tailored packages that include various tools specific to each industry such as Wix Stores, Wix Hotels, Wix Bookings, Wix Music, Wix Video, Wix Restaurants and others.

How has Wix been doing?

Wix’s quarterly revenue has been steadily increasing. In Q2 2020 ending June 30, 2020, the company recorded around $236 million, up 27% from the same period a year ago. Over the years, there has been a shift in revenue mix as Business Solutions has been gaining share from Creative Subscriptions. Since Creative Subscriptions segment has a higher gross margin, the shift negatively impacts the company’s overall margin. In Q2 2020, the gross margin stood at 70%, compared to 75% a year ago.

Figure 2 – Wix’s quarterly revenue. Data source: Wix

Figure 3 – Revenue Mix. Data source: Wix

With regard to user acquisition, Wix has been steadily adding both registered and paid users; however, out of 100 registered users, there have been consistently only 3 paid users. What does work for Wix is its monetization from these paid users. According to the Investor Presentation, Wix, the company made more money and recouped marketing cost faster from more recent cohorts.

Figure 4 – Increasing Monetization of Cohorts. Data source: Wix
Figure 5 – Faster Recoup Time of Marketing Expenses. Data source: Wix

A concern for the company is operating margin. In Q2 2020, operating margin stood at -23%, the highest since Q1 2016. The increase in operating loss resulted from the decrease in gross margin and increase mostly in Sales & Marketing, which was 50% of total revenue in Q2 2020, the highest in the last 3 years. In my opinion, this is particularly worrying because the company lost more money from acquiring users during a pandemic that should accelerate the adoption of their offerings.

Figure 6 – Operating Margin. Data source: Wix

Unsurprisingly, North America is Wix’s biggest market with 57% of total revenue, followed by Europe, Asia and Latin America. Europe and Asia’s share has been consistent in the past 3 years while half of Latin America’s share in 2017 (9%) was transferred to North America. Since the company doesn’t break down margin by geography, it’s hard to say which one is more profitable, but I suspect that the fierce competition in the largest market contributed to the decrease in operating margin.


Wix is undeniably a success story. The company has been around for 14 years as 90% of startups fail. It is used by 180 million users around the world and many businesses are powered by its platform. However, I am very concerned about the company’s competitive advantages. Its competitors in the eCommerce space include Shopify, Square, WordPress, Adobe, BigCommerce, Etsy and to some extent Amazon, all formidable entities. A business doesn’t only need a tool to build a website. It needs other operational tools to run, and equally importantly traffic to its website to generate sales. That’s why you see Shopify partner with Facebook, Walmart and Pinterest. That’s why you see Shopify has shipped new features relentlessly and launched a fulfillment service of its own. That’s why it’s important that Amazon’s marketplace attracts 150 million unique visitors a month. I don’t see yet how Wix help small and medium sized businesses do that.

It can be argued that some of the standalone services are quite new and they take time to gain economies of scale. That is a valid argument. I hope it’s the case and that as they entice more customers to use such services, the marketing leverage will improve and so will the margin. As of now, that is not the case yet.

Understanding YUM! (Owner of Taco Bell, KFC and Pizza Hut brands)

Yum! was founded in 1997 as Tricon Global Restaurants under Pepsi and spun off in the same year. Headquartered in Kentucky, the company was rebranded as YUM! in 2002. As of 31st December 2019, YUM! “franchises or operates a worldwide system of over 50,000 restaurants in more than 150 countries and territories, primarily under the concepts of KFC, Pizza Hut and Taco Bell”, according to its latest annual report. Let’s get to know a little bit about the business that owns and operates three brands that are well-known among Americans and thousands around the world.

Business Description

YUM! revenue comes from two primary sources: Company Sales and Franchise Revenue. Company Sales refers to the sale of food items at company-owned restaurants which make up about 2% of YUM’s total restaurants. Franchise revenue includes upfront fees in order to be a franchisee, continuous percentage of monthly revenue (typically around 4-6%) and contribution to advertising. In terms of expenses, YUM! is responsible for all expenses at their own stores. For franchised stores, YUM!’s costs consist of lease, depreciation of the buildings/lands that YUM! owns and leases to franchisees, direct marketing support and others.

Over the past 5 years, the new unit growth rate is pretty steady at the mid single-digit while the franchise segment makes up an increasing part of the whole business

The shift towards franchise is understandable, if you look at the margin of company sales and franchise revenue. In 2019, YUM’s own restaurants’ margin stood at 20% while margin of the franchise segment was almost 93%.

The company sales decreased by over 50% in 2019 compared to 2017 level. Franchise and property revenue continued to the biggest revenue generator for YUM!. The company-wide operating margin stood at a respectable 34% in 2019, even though it is down from 46% in 2017.

KFC Division

As of the end of 2019, there were about 24,000 KFC restaurants under YUM!, of which 83% were outside the US and 99% were operated by franchisees. Revenue has been declining since 2019 due to the drop in company sales and shift towards more profitable franchise model which helped push operating margin

Franchise revenue rose to 56% of KFC’s total revenue in 2019, up from 38% in 2017. While restaurant margin largely remained at 15%, franchise margin rose by 400 basis points in 2019, compared to 2017.

Pizza Hut

As of the end of 2019, there were around 18,700 Pizza Hut stores, of which 61% were outside the US and 99% were operated by franchisees. Revenue for Pizza Hut has been on the rise since 2017, albeit the fact that its operating margin slightly dipped

While restaurant margin fluctuated as the company didn’t even make money at its own stores in 2018, franchise margin has been on the rise, reaching 93% in 2019. As in the case of KFC, YUM! shifted Pizza Hut’s model towards franchise model which made up 56% of the chain’s total revenue in 2019

Taco Bell

Taco Bell has much smaller footprint than its siblings under YUM!. As of the end of 2019, there were around 7,300 units of which 92% were in the US and 94% were operated by franchisees. Revenue has been on the rise while operating margin remains steady at around 30-35%

Franchise revenue made up a smaller chunk of total revenue for Taco Bell than it did for Pizza Hut or KFC. While franchise margin is in the same ballpark as that of the other two brands, restaurant margin is much higher for Taco Bell

The difference in restaurant margin, overall operating margin and the number of stores explained why KFC led the way at YUM! in terms of franchise sale contribution and operating profit contribution while Taco Bell was the leader with regard to restaurant sales

Even though these fast food chains share the same high franchise margin, they differ from one another in terms of restaurant margin. I am curious about what factors result in such a difference. Is it because of the competition in each vertical? Is it due to specifically how each product line is made as in pizzas carry more expenses than chicken wings/fries or Mexican tacos? I’ll try to dig deeper in the near future, but that’s it for today. Hope that it is helpful to you guys. Have a safe and pleasant weekend!

Which business segment is the most profitable for McDonald’s?

Overall business

McDonald’s main business segments include the company operated and franchised outlets. At the moment, franchised restaurants make up 93% of the total store count, not so far off the company target of 95%. Under the franchise segment, there are conventional franchise, developmental and foreign affiliate agreements, each of which comes with a different revenue and expense structure. Below is a diagram I quickly drew to summarize McDonald’s business structure

Getting into the weed

Between the company-operated restaurants and franchised counterparts, the latter have a much higher margin

Source: McDonald’s

The franchised outlets posted a 82% gross margin in 2018, compared to just about 17% by the company-operated restaurants. The three-year figures also indicated the shift of focus on being a franchisor. Revenue from franchised restaurants grew on average by 8% every year from 2016 to 2018. In the same period, the domestically run outlets recorded a decline of around 19% on average every year.

The focus on being a franchisor is also reflected on the lease agreements that the company has

Source: McDonald’s

In 2018, the company was on the hook for smaller rent expense at company-operated restaurants than at franchised outlets.

McDonald’s defines its main geographical segments as follows:

  • U.S. – the Company’s largest segment.
  • International Lead Markets – established markets including Australia, Canada, France, Germany, the U.K. and related markets.
  • High Growth Markets – markets that the Company believes have relatively higher restaurant expansion and franchising potential including China, Italy, Korea, the Netherlands, Poland, Russia, Spain, Switzerland and related markets.
  • Foundational Markets & Corporate – the remaining markets in the McDonald’s system, most of which operate under a largely franchised model. Corporate activities are also reported within this segment.
Source: McDonald’s

Systemwide revenue has been decreasing since 2016. The main reason for the decline was attributed to company-operated segment as it shrank by 21% and 17% year over year in 2018 and 2017 respectively. Additionally, the chart showed that International Lead Market was the only segment that registered revenue growth in 2018. High Growth Market delivered the biggest growth in franchised revenue, but also the biggest decline in company-operated revenue. Concerningly, the high growth market segment registered a decrease in revenue while it should have been the opposite, essentially due to the decline in company-operated revenue.

In terms of operating margin, Foundational Markets led the way in the franchise department while International Lead Markets took the top spot in the company-operated one.

Source: McDonald’s
Source: McDonald’s

Regarding restaurant counts, systemwide restaurant count went up compared to 2017, but presence in the US shrank.

Source: McDonald’s

It’s helpful when the company gave more color on the company-operated/franchise breakdown of the store count.

Approximately 93% of the restaurants at year-end 2018 were franchised, including 95% in the U.S., 88% in International Lead Markets, 83% in High Growth Markets and 98% in Foundational Markets.

Source: McDonald’s

It is very interesting that the net restaurant addition in 2018 was bigger than that in 2017, but the company added smaller initial fees in 2018 and bigger revenue from rent and royalties than in 2017.

Source: McDonald’s

The most likely explanation I could come up with is that the company gave quite a haircut on the initial fees for new restaurants in High Growth Markets (see the breakdown a few paragraphs down).

The timing of new and closed restaurants varied from one market to another and it made the calculation of average revenur or sale per restaurant tricky. Nonetheless, if we can make simple assumptions and take the revenue as well as restaurant count at year end, we can compare 2018 vs 2017 to see where the business is going

Regarding the US, compared to 2017, average sale and revenue per company-operated restaurant decreased in 2018 while both average revenue and sale per franchised restaurant increased.

For International Lead Markets, compared to 2017, average revenue and sale per restaurant increased for both company-operated and franchised outlets.

The situation in High Growth Markets is similar to that in the US. Average revenue and sale per company-operated restaurant decreased significantly.

Foundational Markets mirrored what happened with High Growth Markets.

In terms of ownership type, conventional franchise is the biggest source of revenue, followed by developmental licensed and foreign affiliate. However, foreign affiliate grew the most in 2018 compared to 2017, by 6.5%, followed by developmental licensed with 4% and conventional franchise with 1.5%.

Source: McDonald’s

When looking at the expense structure for company-operated restaurants, food and paper is the biggest piece of the pie, even though personnel registered the biggest growth YoY compared to 2017.

Above is just my analysis for the operating side of McDonald’s based on its last two annual reports. There is a lot more to look at such as the cash flow, the financing and investing activities. I hope that you found something useful in this entry.