Shopify and the Hard Thing About Easy Things

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

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.

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

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

Google and Facebook win - we’re all spending a ton of money on ads.

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).

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

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.

Shopifywins - there are now four paying customers instead of one, and we’re all spending money to grow the market. Shopify takes a subscription fee and a cut of revenue.