Thursday June 18, 2020 |Notes

Direct-to-consumer models & advertising

There's a natural inclination to believe that business has shifted from traditional, physical means to a new digital means. In fact, digital commerce has enabled new business models that have spawned countless direct-to-consumer brands that never would have existed otherwise.

Before digital commerce, it was both costly and difficult to reach the target market. The only way to reach potential customers was through mass advertising (newspaper, tv, magazines) and there were few ways to track effectiveness. Then there was the problem of conducting the actual transaction (mail order, stores).

Benedict Evans recently wrote a thought-provoking post on the newspaper industry, the false narrative of ad spending simply shifting to digital, and the new spending that has emerged as a result of the shift in advertising.

It’s very common for people - especially newspaper people - to look at the newspaper and internet series in these charts and conclude that all the money went from newspapers to internet. There’s also a tendency to try to calculate Google and Facebook’s share of that ‘internet’ line.

if you talk to people at both Google and Facebook and in the agency world, you’ll hear that perhaps two thirds to three quarters of money spent on Google and Facebook is money that was never spent on traditional advertising - it’s coming from SMEs and local businesses that might have spent in classified at most but probably wouldn’t have done even that. $60bn of consumer spending went through Shopify last year - it’s safe to assume those vendors spent money on advertising, but how many of them would have bought an ad in a local newspaper?

D2C brands have been enabled by the entire digital commerce ecosystem. Without the ability to reach targeted customers effectively, the costs of establishing these brands would be astronomical because it would require entirely inefficient marketing methods. Instead, brands can direct efforts to the right people.

There are problems the current online advertising landscape. It's also not as heavily dominated by Facebook and Google as is often portrayed.