Edition #3 of Implications.

If you’re new, here’s the download on what to expect. This ~monthly analysis is written for founders + investors I work with, and a small group of subscribers.
If you missed the big annual analysis (shared more broadly), or more recent private editions of Implications, check out recent analysis and archives here.
This edition explores forecasts and implications on the new mechanics of brands. So much is changing across (1) how brands (companies and people) are founded and monetize, (2) how brands are navigating new technology, (3) how brands are sharing data and cooperating to compete with big brands/marketplaces, (4) and how the best brands market in real-time and leverage old-school channels. Finally, I have a new “Missives & Mentions” section at the end (why not?!).

Brands, same importance, entirely new mechanics.

The vast majority of the premium we pay for most things is for “the story.” Those $120 Nike shoes are probably ~$6 for the materials and labor, and $114 for the virtual good (the story). Despite all of the effort to commoditize products or manufacture soulless white-labels, brands with story, the ultimate virtual good, continue to command a premium. Following this logic a bit further: The more venues (physical and virtual) there are for us to visit and flex ourselves culturally (and the more reach we get), the more brands will matter. With new mediums (new virtual social experiences, AR, VR, etc) comes new whitespace for brands. As consumers, we want to buy narratives whether we admit it or not. With every purchase we exercise our values, interests, and affiliations. But the mechanics of brand creation and growth are changing. What was once predominantly physical with digital afterthoughts is increasingly virtual and natively digital. What’s new, and what are the implications?

The next generation of brands will still start with the story, but the other moats (logistics, distribution, sponsorships, etc) wither from there. We’ll see the next generation of “DTC” (direct to consumer) brands migrate to traditional retail channels, join large cross-brand data co-ops, shift marketing dollars to community management, and generate >50% of revenue as resellers of previously owned merchandise.

Brand story is increasingly the differentiation, the rest is details. Sometimes eyes roll among my friends in tech when it comes to brands, but brands are the margin in a world that can otherwise be boiled down to commoditized atoms and bits. The creation of brand value is where culture, psychology, and technology all overlap. Just consider the spectrum of recent greats - from Mr. Beast and Kylie Jenner to Warby Parker…these digitally native modern brands were born from story. Great brands have always started with the story, but the major operating moats like manufacturing, marketing, selling, shipping, and customer services that were once differentiating are increasingly available as simple SaaS solutions. As a result, the top of funnel for new brands has been opened to all. Want to launch a delivery-only burger brand for your YouTube audience? Want to turn your pattern creations into custom wallpaper? Have an idea for a new underwear brand? With an idea and story in hand, the rest is (increasingly) details. As a result, the growth of brands will continue and story will be the differentiator. Expect a slew of next generation media companies and new types of “sponsored content” that focus on building the story of brands. There will also be new companies like Thinktesting that help us sort through a long-tail of increasingly personalized brands (vs. the traditional generalized mass-market approach).
Data sharing efforts, like Shopify’s new Data Cooperative, will provide some of the big brand benefits to small and emerging brands. While I have mixed feelings about data sharing in general, I love tech that serves to even the playing field for emerging brands and small businesses. There has been some talk of Shopify allowing brands (and especially the long tail of “microbrands”) to share customer profiles to reach new customers and better service existing customers. “Shopify Audiences” is a data sharing co-op between Shopify merchants. How does it work? Shopify serves as the official custodian of this shared data pool, and participants contribute their existing customer data anonymously into a shared data pool. As Shopify learns from this shared data, they are able to determine customer personas and buyer profiles of Shopify customers, and then use this data to better match audiences with specific Shopify brands. Whether it is Shopify, Magento, or any other platform for commerce tools, the idea of shared data collectives to help small businesses compete with the Amazons of the world is exciting and empowering.
DTC brands will migrate to traditional retail channels en-masse. What was once the pride of DTC brands (avoiding the constraints and margin degradation of traditional retail channels like Target) is becoming not only a preference and growth vector but also a desperation. So many examples liike Hero Cosmetics, a once-exclusively-DTC acne medication, recently announced their line’s debut in CVS. And a few of my own portfolio companies, like Parade, a fast growing DTC underwear brand (they’ve managed to capture >1% of the underwear market, about to launch in a major chain), Omsom, a new spice and seasoning brand, and Sanzo, an asian inspired set of natural sparkling beverages, are inking exciting retail distribution deals. This is a growing trend as the cost of customer acquisition on digital skyrockets given changing data privacy laws and other factors reducing conversion. Modern direct-to-consumer brands are being seduced by the efficiency and predictability of shelf space and chain-wide wholesale partnerships. I suspect Target, Wall-mart, and CVS’s of the world will feature all kinds of modern brands in the years to come as these deals are cut and an emerging industry of brokers are playing a critical “discovery” role in-between. Perhaps this is the new lifecycle of modern brands: (1) be conceived in a DTC form, (2) validate your brand and build with a community of early adopters via social outreach, then (3) scale through traditional retail channels?

The New Mechanics Of Brands, Channel Shifts…

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