There have been some fantastic pieces of content about commerce lately that have helped me crystallize some of my thoughts of late. So first, giving credit where it is very much due, I highly recommend checking out these two pieces:
・The Pivot to Owned Commerce
This is a piece by David Perell on how media can move into commerce.
・Tech in 2020: standing on the shoulders of giants
This is Ben Evans’ latest presentation on trends in tech. He recently left a16z and gave this presentation at Davos to many world leaders.
On to what I’ve been thinking about. In my last post, in which I may have been a bit harsh on Amazon, I talked about their primarily being a conversion platform and not a discovery platform. So what can they do about that? Lots of things actually.
In his presentation, Ben Evans talks about how the majority of people across the globe are online and the remaining will be online quite soon (Voice is one reason. I’ve got a post in draft about this that will come soon.). What we’re beginning to see now is that the money is following, ala eCommerce. This was all included in his presentation last year as well, but a new, interesting trend is that the digitization of TV, ala cord-cutting, overtook eCommerce in just 5 years.
So good for media, but what does this have to do with commerce? That’s where David Perell’s and my thinking converges. David makes an interesting point that the majority of large brands today are here because they advertised their way here. The likes of P&G buying up expensive TV spots to reach the masses leading to even more profits was a vicious cycle that kept them on the grocery store shelf, and any hopeful new players on the sidelines. But the internet has changed all that. Thanks to the likes of Amazon, Shopify, Instagram, and more, nearly anyone can sell their product online. Hurdles are massively lower, so the big boys of yesterday are finding themselves having to fight against numerous newcomers.
So what makes these direct-to-consumer businesses successful and such a threat to the establishment? Their relationships with consumers.
The max-advertising strategy that worked in the era of TV resulted in, to quote David Perell, “[brands that] try to be everything to everyone. But in reality, [are] nothing to no-one.” I can’t count how many times I have heard clients say they want to better understand their consumer. They’re firing on all advertising cylinders and getting sales, but they have very little knowledge of who these people actually are, much less have any kind of relationship with them.
And not having a relationship means you’re easily replaced. McKinsey researched this in their very interesting piece called ‘The new battleground for marketing-led growth.’ What they discovered is that only 3 industries had consumer loyalty: Mobile Carriers, Auto Insurance, and Investments. It doesn’t take much thought to realize that that isn’t so much loyalty as it is imprisonment. At the bottom of the list? Shoe retail with only 3% loyalty.
But DTC businesses are different and are asking a different question. “What products are in demand?” produces much more useful insights and loyalty than “Who is buying our products?”
DTC doesn’t just sell products, but a lifestyle, often working with specific influencers and images that reflect what they’re about. They use data and feedback to understand their consumers and frugally target those who are most likely to gel with their clique. People seek them out rather than purchase them because they were what happened to be around.
The big brands of today found success by making their own good-enough, broad products, using spray and pray mass advertising, and boxing out competition from shelf space.
Big brands tomorrow will find success by better understanding their consumers and making products for them.
Everyone prefers a shirt tailored to their dimensions over the ‘one-size-fits-all’ that’s really a ‘one-size-fits-nobody.’ We used to only have the latter, but thanks to the internet we can have better.
So good for DTC brands, but they still need people to buy their products. This is why platforms that have an audience are in a fantastic position to dominate commerce. In my last post I talked about discovery vs. conversion, and you really need to connect, and shorten the distance between the two. DTC has to work upstream and find ways to get more into their targets’ daily life (hence why social media and influencers are so useful for them), but once they do they can make the right products for them. Platforms with large audiences, aka discovery platforms, drive the demand. So how does this work? BuzzFeed cut out the middleman to go directly to the point of conversion.
So they can write a piece about a beautiful vacation spot and link directly to hotels there and take a cut for linking. They can link to a product and get a percentage of sales. They can do this because people are already on their site often, but this is actually just step 3 of 6 of a blueprint Netflix used and David clarified in his article:
- Create a brand people love (and get an audience)
- Gain early revenue traction by selling other companies’ products
- Collect data on user behavior
- Create owned products based on data insights
- Sell those products to your existing audience
- Iterate and improve those products.
Don’t be surprised if you see BuzzFeed launching their own products or vacation packages in the near future. 21% of their revenue already comes from driving $425M in directly attributable transactions.
Now lets bring things back to Amazon and have some fun. Amazon is a conversion platform, you don’t go there to window shop or waste a few minutes in transit. But you do watch Amazon Prime Video. This is a ‘prime’ discovery source that Amazon needs to tap if they want to stay ahead.
Imagine this, you’re watching your favorite show on Amazon Prime Video and love the main character’s style. So you say, ‘Alexa, what is so-and-so wearing?’ ‘Oh, that’s this product. We have it in stock for $X and can ship it to you tomorrow, would you like to buy it?’ ‘Yes ma’am!’ ‘If you’d like I can also send you the entire collection of their wardrobe to you phone to browse later.’ ‘Gimme gimme!’
You could do this today. The tech is here. Amazon, similar to Google and most other main players, has an image recognition system. Their’s is called Rekognition. On its own it could recognize a good amount of products and lookalikes, but we can guarantee accuracy. When shows are shot, it’s very often in collaboration with brands eager to get exposure for their products, aka product placement. You’ll often see these in the credits. Using Rekognition you could tag these products in their shows.
With Amazon Rekognition Custom Labels, you can extend the detection capabilities of Amazon Rekognition to extract information from images that is uniquely helpful to your business. For example, you can find your corporate logo in social media, identify your products on store shelves, classify your machine parts in an assembly line, or detect your animated characters in videos.
Amazon Rekognition
Wanna keep it even simpler, allow brands to ‘tag’ which products are in the video and add metadata like which episode it’s in, which character is wearing it, etc. Don’t want to use Alexa? Have a frame accessible during or after playback that showcases all the products from the show, easily sorted.
And don’t limit it to products, ask the location, book a reservation at the nearest hotel and at the specific restaurant they’re eating at.
But none of this happens without an audience, and there are only so many hours in the day. Take it from Netflix who in their letter to the investor’s last January said, “We compete with (and lose to) Fortnite more than HBO.” The battlefield is much broader than most think.
I work primarily around performance-minded people. ROI and the bottom line is supreme. This is seen often in almost all businesses and has lead to an over-correction towards the analytical mind, and for a long time I was completely in that ship. But when you look at the full picture, you can see the need for a balance between creative and analytical. Creativity creates the beautiful content and pieces that stir emotions and attract an audience, building loyalty. Analytics gets that message in front of the right people and optimizes the journey through purchase. I’m looking forward to seeing more of that collaboration.