Shopify and the Hard Thing About Easy Things

Somehow, despite massive secular shifts and a lot of noise about rising ecommerce penetration, the DTC products themselves have produced only one billion dollar outcome: Dollar Shave Club (two if you count Harry’s).

All of the tools and services in the DTC value chain win - more competition means that each of the rebels needs more powerful weapons.

If ecommerce is blowing up, why are there so few big DTC exits?

Here’s the hard thing about easy things: if everyone can do something, there’s no advantage to doing it, but you still have to do it anyway just to keep up.

Sunglass and visor companies lose - by fighting against each other, we erode profit margins and enrich suppliers.

UPS, FedEx, and USPS win - we’re fighting to bring customers online, and more customers shopping online instead of in store means more shipping.

When the pandemic began, we bought 16% of our things online. Now, we buy nearly 34% of our things online. That’s the kind of hockey stick growth investors like to see, and the ecommerce infrastructure companies’ valuations are skyrocketing accordingly.

By making Direct-to-Consumer (“DTC”) easier, software like Shopify increases entropy and lowers the probability that any specific company will generate sustained profits.

It’s happening in newsletters, where Substack gives writers an easy way to try to become the next Ben Thompson. It’s happening in video games, where Epic Games is building the tools and literally giving them away for free to expand the Total Addressable Market. It’s happening in AI, where OpenAI is giving everyone GPT-3 to build on top of.

Customers win slightly - they have more choice on the surface, but we’re all offering the same thing, and because we’re paying so much to acquire them, we don’t have room for major discounts now that venture capital isn’t bankrolling us as heavily.