No. 341: The Golden Age and Peloton


The past is a foreign country; they do things differently there. British writer Leslie Poles Hartley used this line to open his 1953 novel entitled The Go-Between, a novel that explores memories profound effects on our present. For his protagonist –  Leo Colston – it a memory that he cannot shake. Nostalgia is a type of memory that reminds us of the past and drives us forward. In America, nostalgia is often tied to consumerism and for good reason. For one, it influences our perceptions of brand equity. We drive a Ford because that’s what Americans do. High school students compete for coveted spots in timeless institutions like Harvard, M.I.T., and Stanford to take part in what was – with the hope of becoming what will be. People join clubs because of their rich history. Nostalgia drives our passion for sports, cars, education, and even travel. But what is nostalgia that you haven’t personally experienced?

Anemoia is the nostalgia for something before your time. Better put, “a nostalgic sense of longing for a past you yourself have never lived.” [1] For many, there is an anemoia for the Golden Age of air travel.  And yet, few reading this are old enough to have experienced travel in the 1950’s and 1960’s. Even so, there is a clear demand for the Golden Age of air travel. For example, there are a number of retailers that still merchandise Pan Am goods despite it being bankrupt for nearly 30 years.

Pan Am is somewhat of a cautionary tale. In 1955, had someone mentioned that – in 1992 – air travel would be a bigger industry but Pan Am would be gone, few would believe it. The airliner, once remembered for glamour, went bankrupt in 1991. A combination of industry deregulation and a lack of investment in booking systems closed the book on nearly 70 years of world renown operations. The TWA hotel is another example. In New York’s JFK airport: plush rooms replaced an empty terminal. The hotel’s Paris Cafe, mid-century architecture, infinity pool, and a room of Peloton bikes expresses a sense of anemoia: air travel’s Golden Age.

For those who endure perpetual business travel, it’s often a pastime to imagine the foregone era of cocktails and business suits. Sophistication, spaciousness, and exquisite service were the rules of the day. Today, these ideals are the exception. Air travel is an altogether different product; it’s inexpensive enough for the masses. But travel didn’t just become more accessible, the entire product changed. For every Qatar Airlines or Qantas, there is a Spirit or a Frontier Airlines. Down-market and highly accessible, airliners have shifted to an economy-first model. Market leaders employ a strategy that requires economies of scale to tip the scales of razor thin profitability.

In this era of flight travel, someone’s foot is on your arm rest. There is an infant’s snot on your right shoe. And you’ve gorged yourself on peanuts and coffee made of brown powder and potable water. When you think of the Golden Age of air travel, you think of a cocktail party with wings. Today, you think of a metro bus equipped with bags of Doritos.

For many, the American airport is no longer an aspirational destination. Yes, there are lounges. And yes, terminals are being redeveloped to meet the demands of modern consumers. And Delta’s food is edible. But as long as flights are $100 from Columbus to Miami, the entire industry drags with it. Air travel will be remain chore to achieve the pleasure and no longer the pleasure, itself. This should be a lesson to today’s retail brands. What happens when you move down market? It becomes a different product altogether. The consumers make the market.

When we think about the Golden Age of Flying–the glory years of Pan Am and the Concorde in the 1950s and 1960s, before flight became cheap with the rise of the jumbo jet–we imagine a colorful, lavish era in which our every comfort and requirement is catered to. [2]

In the United States, the devolution of American air travel should serve as a case study to retailers. There are 5,170 airports open to the general public. None are in the world’s top fifteen. America is the land of the free with your purchase. We are addicted to down-market expansion and excessive promotion.

Anemoia influences consumer sentiment in indirect ways, not just the nostalgia for specific things. This type of nostalgia also influences certain principles. For example, despite the appeal of pricing promotions, consumers want exclusivity. In most cases, people yearn for a time when things were “better” or “more valuable.” Even if they don’t know exactly what that means. Consumers reward the brands that provide that sensation. These products are capable of generating a veblen effect. This effect is often seen in brands like Off-WhiteSupreme, or Yeezy. Brands with the highest value are known as veblen brands. A veblen brand defies economic law. As price rises, so can demand.

And yet, many brand managers and chief marketers forget this. These days, pricing integrity and product exclusivity are as foreign as the top 15 airports. It’s as if promotional pricing 101 is the first course taught in the halls of the finest business schools in the country. In effect, brands are choosing to compete in the red ocean of a dwindling middle-class rather than an often-uncontested market of modern luxury buyers. Rather than making the competition irrelevant, brands are choosing to compete head on. Their modeling suggested that total addressable market (TAM) would be greater that way.

Rather than a go-to-market that appeals to a growing number of modern luxury consumers and HENRY’s (high earners, not rich yet), many DTC brands optimize message, branding, and ad spend to reach a contracting number of middle-class consumers. Or worse, off-price consumers who’ve yet to fully adopt online retail as a method of consumption. It’s unclear whether or not this dynamic is contributing to a rising CAC but the shifting dynamics of an audience should concern marketers. [3]

When TWA Hotel chose to furnish their facilities with items like Peloton bicycles, they did so because of what it communicated to consumers: perceived luxury. Yet, if this past week was any indication, it’s Peloton that is headed the way of American air travel.

People think of Peloton as a product for hyper-achieving rich elitists because that’s how it branded itself at first. Now, the company is trying to walk back that idea because it got its own appeal totally wrong. It’s not going well! [4]

Peloton and Lightning in a Bottle

Very middle-class living room.

Occasionally, a business can experience lightning in the bottle, tangential growth that is unexplained and unaccounted for. The company’s recent marketing efforts and responses to criticism both suggest that it has yet to come to terms with the origin of that lightning. The photo to the left is from Peloton’s 2013 Kickstarter. You won’t find the word “luxury” on the page. But the photos are worth a thousand words. It’s almost as if they built a product without an understanding of what it would take to buy one. And then actively disowned those who did. Prior to the launch of its financing option, a Peloton owner would have to possess each of the following:

  • ample room for storage: 15 – 20 sq. ft. for the cycle or 40-50 sq. ft. for the treadmill
  • a convenient storage position with electrical access
  • superior wi-fi that is capable enough to stream classes without interruption
  • around $4,000 of disposable income
Peloton’s demographic is just 15% of American households

These four things sound relatively basic to some. However, even with out ~ 2,000 sq. ft. home in the urban center of our midwestern city,  there is exactly one small area that worked in our house. That would seem to to place us at the lower end of Peloton buyers. And yet, recent advertising efforts are intent on convincing the mainstream that the aforementioned requirements aren’t markers of upward mobility. While Peloton’s current c-suite would contend that it is neither a luxury brand nor a fitness company, the brand’s former CMO (Lori Tauber Marcus) explained her advertising strategy as such, in 2016:

Because we are a disruptive innovation, we have to explain to consumers what the Peloton fitness proposition is. My hope is that the campaign continues to elevate the brand while educating consumers about this transformational in-home exercise phenomenon. [5]

Elevate the brand, it did. Not only did Peloton instructors become household names, the cycle became somewhat of a status symbol among fitness-interested suburbanites. The hardware became more than a connected tool for fitness. Peloton became an aspirational brand. Two camps began to emerge:

  • Non-users: “Peloton is a stationary bike with an iPad attached.”
  • Power-users: “Peloton is a community of successful, motivated a-types.”

So Peloton’s recent post-ad stock decline should have served as a wake up to the company’s leadership. Consumer sentiment matters. Daniel McCarthy, an assistant marketing professor of marketing at Emory University, told Forbes:

[Negative Consumer Sentiment] can cause companies like Peloton to exhibit a lot more stock price volatility when there are events that can cause people’s views to move up or down. I think that is exactly what we are seeing right now.

Peloton is no longer interested in becoming the elevated fitness brand that Lori Marcus envisioned. In fact, she held the position for fewer than eight months. The new direction, driven by the company’s desire for SaaS multiples and profitability, has emerged in recent months.

Peloton and The Mainstream


The now-infamous ad featuring “Peloton Wife” came and went. The Aviation Gin advertisement came and went. According to New York Times reporter Tiffany Hsu: 

[Ryan Reynolds] heard about the Peloton ad via text at 2:34 p.m. on Tuesday, when the company’s stock was falling. By Wednesday morning, he was on a call with the actress, Monica Ruiz. “She was game,” he said. “She really does have an excellent and incredibly evolved sense of humor.”

And Darren Rovell, Reynolds’ viral ad received $9.3 million in exposure by December 7th, just a day after the ad premiered. But the overblown outrage towards Peloton will not remain, nor will the memes. However, Peloton’s lack of pricing integrity will impact the company for quite some time. The market fell another 4% when Peloton announced its subscription discount.

Founder and CEO John Foley’s response today was to double down and dismiss any and all criticisms.

That was last week. We don’t have to do much more in order to be one of the great consumer companies of the next couple of decades. If you’re thinking hard about getting a treadmill, I don’t know where you are going to go. Fitness equipment has been a dopey category with dopey products. It’s an albatross we are trying to shake as we build one of the most innovative companies of our day.

This confirms that Peloton doesn’t want to compete in the fitness category, after all. But it may also inform a lack of industry awareness. Rogue is an indirect competitor to Peloton; the Columbus, Ohio company began as a barbell manufacturer but has since built patented fitness machinery (including stationary bikes). And while the cycling company likely leads in revenues (Rogue is very private), it cannot be by much. Additionally, Rogue shares Peloton’s core competencies (software development and product engineering) while also possessing mastery over packaging development, fabrication (domestic and international), sourcing intellectual property, shipping, and native tracking. It’s also important to note that while Peloton raised $994 million while a private company, Rogue raised $0. Rogue is profitable.

Screen Shot 2019-12-09 at 8.27.18 AM

One could argue that little of this matters; software development is Peloton’s chief concern. In an effort to grow the user base, Peloton recently reduced its digital-only subscription. The digital-only subscription, originally $19.49, is now $12.99.

Peloton’s internal consensus is that profitability will only come through deep discounting, heavy de-risking, and a high-margin software model. This model is incompatible with current consumer sentiment. The product that many early consumers paid $3,000 may be commodities by Q4 of 2020. Because Peloton began as a product for some and became a product for everyone. Business strategist Marc Ross recently published How Peloton went from being Porsche to being Honda with one advertisement. In it, he contends.

It is not wrong and not without merit to have goals to build a huge brand, have millions of customers globally, and chase billions in market capitalization – it is just that the company you want doesn’t mean the market is there. [6]

It’s unclear whether Peloton’s management fully understands the attrition risk involved. Until recently, the company’s strength has been two-pronged: (1) its on-screen, aspirational fitness talent and (2) its cult-like early adopters. Peloton is shifting away from a premium model because it now contends that it never meant to be a luxury product.

The market may reward Peloton for leaning into new methods of influence and acquisition. However, their management won’t begin to see the unintended effects of mass adoption (and increased churn) until its early marketing flywheel begins to sully. [7] But for many of Peloton’s early adopters, they see cracks in the anemoia that benefited the brand early on. Consumers look for retailers to hold steady. In Christopher Muther’s 2014 article, “What happened to air travel?” he wrote:

As competition grew and prices dropped, something had to give, and that something was free booze and fancy meals. Lower prices helped democratize air travel, but it effectively squashed the halcyon glow of the golden age.

Consumers want the Golden Age to last forever but it rarely does. For Peloton, it remains to be seen. There are few brands like Porsche, there are many brands like Honda. And in this way, it’s likely that the the story of air travel is more universally applicable than not. And so, consumers will imprint on the next breakout brand that represents a premium experience, exclusivity, and sophistication. This is how anemoia works in American consumerism. We want what we believe once existed. Book reviewer Kevin Gardner wrote the following reevaluation of Hartley’s “The Go-Between”, 60 years after its publishing date: 

Hartley’s tale […] underscores the modern experience of broken time, a paradox in which humanity is alienated from the past, yet not free from it, a past that continues to exist in and to control the subconscious.

Report by Web Smith | About 2PM

No. 340: A Mobility Collision Course

Smart Cities

Steve Jobs believed that one of the few things that separated humans from high primates was our ability to build tools. In some cases, these tools mitigated the crippling inferiority of human mobility. Compared to some animals, humans possess lesser top end speed, endurance, and efficiency of movement. It’s our ability to engineer solutions that ultimately improves our collective mobility. Jobs assessed these shortcomings in a 1995 interview:

I read a study that measured the efficiency of locomotion for various species on the planet. The condor used the least energy to move a kilometer. And, humans came in with a rather unimpressive showing, about a third of the way down the list. It was not too proud a showing for the crown of creation.

Over the course of Jobs’ career, he predicted the future quite a few times. He foresaw what the interconnectivity of internet would do for humanity. He predicted the efficacy of the computer’s mouse, and the dawn of cloud computing, and the professional preference of the laptop computer. Jobs even understood that the diffusion of this technology would be so profound that ten year olds would own computers that are orders more powerful than the ones used by 1960’s-era NASA engineers. But it was perhaps his two distinct thoughts on figurative and literal mobility that may go on to define the next ten years of disruption.

Jobs indirectly recognized the inverse relationship between online retail and shopping centers:

People are going to stop going to a lot of stores. And they’re going to buy stuff over the web.

The second thought expounded on his obsession with human physical efficiency:

Somebody at Scientific American had the insight to test the efficiency of locomotion for a man on a bicycle. And, a man on a bicycle, a human on a bicycle, blew the condor away, completely off the top of the charts.

This line of thinking is the origin of Jobs’ commentary on the personal computer serving as a proverbial bicycle for the mind. According to Jobs, “What a computer is to me, is it’s the most remarkable tool we’ve ever come up with. It’s the equivalent of a bicycle for our minds. Walking is relatively slow and inefficient.” This remarkable thought may end up meaning something more than what Jobs meant at the time.

The advancement of mobile payment technology and the evolution of physical mobility are on a collision course. The diffusion of one technology may lead to the diminishing of the other. There is no greater example of the potential disruption than China’s stark contrast to the nature of American retail. Cashless consumer economies will have a profound effect on mobility. Paul Haswell of Pinsent Masons notes:

Many Chinese cities are now the closest we have to cashless consumer economies.

According to eMarketer’s Shelleen Shum: 79.3% of smartphone users in China will operate within a completely cashless economy. By comparison, the United States will see just 23% of smartphone users doing so by 2021. And Germany will have just 15%. Why is this significant? The move towards a cashless economy corresponds with a shift in mobility preferences. “The use of digital technologies—from smartphones and wearables to artificial intelligence and driverless cars—is rapidly transforming how city dwellers shop, travel, and live.Without a firm foundation in electronic payments, cities will not be able to fully capture their digital future, according to our analysis,” said Lou Celi, Head of  the Roubini ThoughtLab.

Web Smith on Twitter

Mobile payments are influencing a collision course. No. 1 market for mCommerce (payments) is China. Here is a quick comparison. Mobility: 1a/ US cars per 1000: 838 1b/ China’s cars per 1000: 179 Retail locations: 2a/ US sq. ft. / person: 23.5 2b/ China sq. ft. / person: 2.8

And here is the key question. If the United States is moving towards a cashless society driven by mobile wallets and smartphone-driven payments systems, will the shape of our economy begin to change with it? The data affirms. The shuttering of American retailers outpaced all of 2018 by April of 2019 according to data from Coresight Research. As of now, the correlation does not rely upon mobile payment tech. Rather, it’s driven by the growing adoption of online retail. However, online retail adoption in China is driven by mobile payment technologies. American adoption of such technologies will accelerate overall growth. The percentage of retail in the form of eCommerce will hockey stick when it does.

Smart Cities and Urban Mobility

From Polymathic: The market opened to red, post Black Friday 2019.

There may not be a greater example of the potential clash between online retail and mobility than the city that is quietly known for its specialty retailers. In retail circles, Columbus is known as HQ City; the Central Ohio region is host to Abercrombie & Fitch, L Brands (Victoria’s Secret, Bath & Body Works), Express, Ascena Retail Group (Limited, Justice), DSW, and American Eagle Outfitters to name a few. There isn’t a mall in the United States that isn’t influenced by this region’s businesses.

For Columbus, it’s a double-edged sword. The city’s working population is heavily influenced by this small group of very large employers. And these large employers have a symbiotic relationship with America’s inflated 23.5 square feet of retail real estate / person. In comparison, China has just 2.8 square feet of retail / person. Despite this lacking physical infrastructure, China passed the United States as the number one retail market in 2019. [1]

In 2015, Columbus, Ohio applied for a national grant for the Smart City Challenge, a national competition between a collective of technologically progressive cities.

Smart Columbus will help shift travel patterns. Even more, we want to shift people’s thought patterns and behavior. This means inspiring policy makers and influencing people’s preferences. We will partner with others to create programs, introduce new solutions and promote adoption. Once our city understands what’s possible, everybody should be able to get on board. This will be a gradual process over the coming decade. As a region with urban sprawl, we are committing to a new, improved ecosystem of solutions to move people and goods. [2]

A smart city is tasked with testing technological solutions and progressive policies to innovate mobility practices. As the winner of the first-ever Smart City Challenge, the city agreed to embrace the “reinvention of transportation to accelerate human progress.” The city would then serve as a standard bearer to other cities as they continue to evolve. In 2017, the city outwitted dozens of other top cities to include: Pittsburgh, San Francisco, Portland, Kansas City, Austin, and Denver. The result was an award of a combined $50 million grant from the US Department of Transportation and the Paul Allen Foundation.  This award would then be amplified by hundreds of millions in public-private partnership, generated by the cities own businesses and political partnerships.

Through the Smart City Challenge, the Department committed up to $40 million to one winning city. In response, cities leveraged an additional $500 million in private and public funding to help make their Smart City visions real. [3]

Screen Shot 2019-12-02 at 1.44.24 PM
United States: eCommerce as a share of retail

The data suggests that the advancement of eCommerce adoption would influence mass transit and ride sharing as primary means of urban travel. This same data would suggest that eCommerce would also spur economic development in harder to reach areas of the region. But it would have to get much worse before conditions improve. Some 92% of the citizens in China’s largest cities use Alipay or Wechat as their mobile wallets and sole means of transacting. In rural China, that number is 47%. In both cases, the primary means of retail is through eCommerce channels. In contrast, America will see just 12.4% of retail by eCommerce in 2020. For rural citizens and underbanked Americans, that number is significantly lower. The majority of eCommerce transactions are located in or near major metropolitan areas. This is relevant and will be explained shortly.

Black Friday 2019

In September of 2017, the proverbial floodgates opened. Amazon’s patent for one-click purchasing expired. With this, any and every online retailer could build or integrate payments solutions to promote better consumer experiences on desktop and mobile platforms. The improved experiences were especially noticeable on mobile operating systems, where dropped carts were commonly 60+%.

The end of Amazon’s hold on one-click ordering gives opportunities to large and small retailers to reap benefits they haven’t had before. Perhaps the most widespread benefit will come in the world of mobile commerce where there are high rates of cart and purchasing abandonment. […] The patent expiration will allow for widespread adoption of one-click purchasing, which will challenge the market to adapt quickly. There is an opportunity for major reconfiguration of social networks to challenge major e-commerce giants such as Amazon.  [4]

This coincided with the integration of tools like Apple Pay, Android Pay, and Shopify Pay, three solutions that would fuel mobile commerce in ways that were only previously seen in Chinese markets. Apple Pay recently crossed Paypal in volume of transactions. Amazon’s YoY growth was closely tied to the stickiness of similar technologies. An unnamed Shopify analyst suggested that with Shopify Pay, conversion rates were nearly identical to Amazon’s – an extraordinary improvement in performance between 2016 and 2019.

Screen Shot 2019-12-02 at 1.42.59 PM
United States: Projected revenue from mobile commerce ($B)

Over this most recent retail holiday, there was a contrast to observe. In 2PM’s most recent Executive Member Report, I explain the context behind the title “The Blackest Friday.” According to data pulled from Alibaba, Amazon, and Shopify – Black Friday was a success for the burgeoning eCommerce ecosystem and a disappointment to traditional retailers like Kohl’s, JCP, and Nordstrom. The holiday shed light on the growing divide between mobile adoption and the dependence on traditional retailers.

Web Smith on Twitter

It wasn’t deals that drove the BF, it was ease of purchase. Via Adobe Analytics: 1/ 39% of eCom: mobile 2/ 61% of traffic: mobile And Shopify added 400k stores in 2019. The avg. BF $ / merchant dropped just 1.8%. Payments ease mitigated the lack of trust or perceived value.

Adobe, which now owns Magento, revealed data that communicates a permanent shift toward mobile traffic (61% mobile). Shopify’s data (69% mobile) reflected the same. Physical retail continued to slip.

The drop in Black Friday physical shopping mirrors a year-long share pullback in departments stores including Macy’s, Kohl’s and Foot Locker, all of which are down more than 25% this year. Meanwhile, Amazon, the dominant U.S. e-commerce retailer, has gained about 20% this year. [5]

For Shopify, the result was especially positive. On the heels of Apple Pay adoption and the growth of Shopify Pay,  the company added 400,000 new stores in 2019 while dropping just 1.8% in average store revenue on Black Friday. This tells a story. Despite the relative infancy of nearly 40% of the stores on the platform, new merchants were able to generate nearly enough in sales volume to match the per capita avg sales figure of the previous year’s merchants. This would indicate that the shift away from desktop and towards mobile payments mitigated issues of trust or early-stage brand equity concerns by lifting conversion rates. As mobile payment adoption increases, the divide between DTC-minded brands and traditional retailers will continue to grow. So where does this get us?

Conclusion: On Primates and Politics

If you’ve ever frequented Amazon Prime Now, you understand the value of two hours saved. In a matter of 90 seconds, you can click through on recently purchased grocery items to replenish your pantries. Then, in a matter of 60-90 minutes, those selections manifest. There are four packages at your door. When Steve Jobs suggested that software engineering would impact our mobility, it’s unlikely that he imagined the effect that mobile commerce would have on developed cities. Mobility isn’t just the efficiency, speed, or distance traveled. It’s what we can do with our time. Mobility is freedom.

When Columbus, Ohio was awarded $50 million to build the blueprint for a smart city, it’s unlikely that the city’s leaders understood the ties between commerce technology and physical mobility. If so, the heaviest investments would have been earmarked for commerce infrastructure:

  • improving shipping lanes by designating key routes for delivery vehicles and couriers
  • retrofitting struggling malls and shopping centers as fulfillment hubs
  • investing in the numerous local businesses by equipping them with the same types of technologies that enable the DTC mobile revolution
  • repurposing successful malls as meeting grounds, deemphasizing the emphasis on shopping
  • and laying the groundwork for a city with 60-80% fewer cars and 70-90% fewer shopping centers

America is over-retailed. And unfortunately, innovation in online retail will exacerbate this. For Columbus (and many other forward-thinking cities), this is a conflict of interest. As regions shift toward mobile commerce-forward models, old ways of retailing will subside. And given early data  – the numerous retailers that are headquartered in and around the city would be placed at existential risk.

It’s for this reason that Columbus serves a microcosm of traditional retail as a whole. The industry will have to choose between its past and its future, both of which are tied to shifts in mobility innovation.  Like Jobs said in 1995: “People are going to stop going to a lot of stores. And they’re going to buy stuff over the web.” This is beginning to reflect in public and private markets. What happens when we stop driving to stores? What happens when shopping centers no longer have sufficient demand? What happens when advancements in last-mile delivery becomes carbon negative? This is happening now.

The largest retail economy in the world is no longer the United States. But this will potentially change, as the United States closes the gap in mobile computing and payments adoption. China has 10% of the retail square footage and 79% fewer cars. This should give us pause. These numbers provide a bit of foresight into how this country must adapt to modern retail. Computers did become the bicycles for our minds. And now, advancements in mobile computing and payments are influencing physical mobility. The smartest cities will correct for these advancements before the markets correct it for them.

Research and Report by Web Smith | About 2PM 

No. 339: In Defense of Tim Armstrong


Tim Armstrong is not wrong.  The “DTX” in DTX Company is short for “Direct to Everything”; the fund hopes to provide a proverbial spark to this age of online retail. Formerly the CEO of Oath, Tim Armstrong announced the launch of his latest venture with the following mission statement:

We invest in mission-driven founders who are leaders in the direct-brand economy. We are building the infrastructure for the direct brand economy by creating experiences, designing platforms, and investing in founders and talent. [1]

DTX is part venture fund and part amplifier for DTC brands. The fund has already invested in six well-established digitally-natives with an investment thesis that is focused on their appeal to influential, millennial DTC consumers. I’ll come back to the importance of influence at the end.

On November 6, his DTX Company contacted 120 direct-to-consumer brands, making the invitation to join DTX as official partners on the inaugural DTC Friday, the latest man made retail event. Armstrong joins Jack Ma and Jeff Bezos in this respect. The one-day event featured DTX’s portfolio companies and an additional 110 or so that Armstrong recruited. Just seven days later, the day was announced and on the following Friday, Oath’s former CEO took to CNBC to explain his vision for digitally-native brands.

It’s really about having an alternative to the [FAANG] platforms. […] We want to move everything out to the edges.

The retail event’s promise was simple enough, DTX would advertise to 150 million potential consumers.  However, it didn’t work out for many of the brand partners. Fred Perrotta of Tortuga backpacks reported:

As of 10 AM Pacific Time, has sent us 14 visitors, almost as many as Duck Duck Go.We had better results back when Bitcoin Black Friday was still active.

And led by co-founder and CEO Matt Bahr, Enquire is a SaaS company that powers attribution surveys for hundreds of Shopify stores. Bahr’s platform works with 15 of the 120 brands that partnered with DTX Company. In total, those brands earned ten sales attributed to DTX Company’s efforts.

We analyzed anonymous survey response and UTM parameter data for DTC Friday’s brands that we work with. Several were highlighted on the DTC Friday website and we found that less than a dozen orders were attributed to the campaign. From our experience working with direct-to-consumer brands, this isn’t too surprising. The blanketed media approach is not typically effective in driving conversions in such short-term time-windows.

Nik Sharma, one of AdWeek’s 29 “Young Influentials in branding” also works with a selection of brands featured by DTX. In his words: “I didn’t have any brands that achieved any surge.” There was positive feedback, however. According to Andie founder Melanie Travis, “[DTX Company] had asked me not to share any numbers yet but I’m definitely excited by the early results.” According to Google Trends, Andie Swim’s search interest was at a seven day low on DTC Friday.

For those who are tracking DTX Company’s trajectory, there has been an abundance of skepticism. I’ve mentioned Armstrong’s team’s makeup. Of the 29 employees,  zero of them have been former founders of digitally-native brands. There is little to no practical experience within the walls of a company tasked with revolutionizing customer acquisition for DTC. There is little of the instinct that’s driven certain brands to outsized valuations and exits.

In contrast, to prepare Away-competitor Rimowa for the DTC era, LVMH hired former Raden founder Josh Udashkin shortly after his luggage brand shuttered. His practical experience has informed the Rimowa’s tactical decisions for over two years. It’s this lack of practical experienced that convinced Lean Luxe founder Paul Munford to provide this scathing comment:

From what I understand anecdotally, DTC Friday was a bust. Am I shocked? No. I cringed when I heard it was coming, and it certainly doesn’t seem to fit the spirit of the DNVB space. There seems to be a great deal if hubris here to think that just by decreeing this a new holiday, that it would instantly become something massive event like the Black Friday for DNVBs, which is an awful motivation alone.

I understand the need now for a centralized marketplace for the space. And I believe that DTC Friday was meant to play that role. But execution seemed off, there didn’t seem to be a cohesive effort at launch, and I’ve just heard conflicting feedback from folks who participated.

By my estimation, it wasn’t a bust. Despite the poor feedback from a number of brand operators, DTC Friday likely its purpose. Tim Armstrong is not wrong, he’s early. DTX’s effort to launch DTC Friday 2019 wasn’t designed to prioritize the advertising brands. The goal was to advertise Flowcode, a reportedly advanced rebrand of the QR code concept that was dismissed in the United States, several years ago. The star of each of the retail holiday’s TV ads, street posters, and influencer whitelisting efforts wasn’t swimwear, technical fabric menswear, children’s clothes, or a relaxing drink. Nor were the stars the founders, themselves.

In each case, the most prominent property on each ad was Armstrong’s Flowcode – an easier way to link visual marketing to an online property. DTX was discriminate in its advertising investments. While some brands experienced little to no lift, there is evidence that leads me to conclude that a selection of brands were given the royal treatment. And they benefited from it. Andie’s request for silence makes more sense, with this as the context.

Armstrong’s estimated spend on Rockets of Awesome: $35,000

Armstrong’s estimated spend on Andie: $45,000

Armstrong’s estimated spend on Rhone: $27,000

Armstrong’s estimated spend on Recess: $65,000

Flowcode, QR culture, and online retail penetration

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Mobile Wallet users: United States of America (2019)

Commerce has been democratized and thanks to platforms like Facebook and Google, attention has become centralized. According to the President and COO of Loop Returns:

As attention decentralizes, brands will have an opportunity to build DTC communication channels with consumers. DTX and Flowcode looks like an early experiment in this genre. It may not (will likely not) be right but that doesn’t mean they’re wrong.

It’s worthwhile to mention that when Tim Armstrong made the comments (below), it was misinterpreted by many.

The distribution structure of social, search, YouTube and their ad formats allow these companies to put everything in their product catalog directly in front of consumers. The payments space, though complicated now, is on the verge of getting a lot easier. And the systems getting built now are allowing companies to get real-time, direct relationships built with consumers.

Armstrong maintains a notable disdain for FAANG’s influence on media and commerce, a fact that comes through in every sound bite or article on his work with DTX. His solutions are sound, they are just early. While we’ve seen vast improvements to payment systems in North America with the adoption of Apple Pay, Android Pay, Square Cash, Venmo, the advent of Amazon Go, and the expansion of other digital-first solutions: the U.S. continues to lag behind China and other Asian countries.

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China’s eCommerce as a % of retail

A lagging indicator, eCommerce is still at a lowly 12% of all retail in the United States. By comparison, this number borders on 39% in China. The primary difference between the two penetration rates can be chalked up to mobile wallet adoption. In China, nearly every citizen uses mobile payments for day to day life. In country, WeChat Pay and AliPay are so prevalent, it can be difficult for tourists to transact without them.

Travelers have had more luck on Alipay, which introduced a seven-step process last week that requires visitors to submit passport and visa information to Alipay, before loading money using an overseas card onto a prepaid card. [2]

And here is why the data is important. Offline-to-online attribution has been difficult for marketers. In the United States, offline attribution is mostly manual for billboards, brochures, mailers, and physical activations. Brands issue surveys or ask for attribution data. In China, however, QR codes fuel sales and attribution at scale. [3] Given the flow of retail innovations from China to the United States, it’s clear to see that when Armstrong discusses payments “getting easier”, he anticipates an adoption of mobile wallets and streamlined payments systems. Why? The prevalence of these systems correlated with a mass adoption of QR code usage in China.

At the start of this decade, most Chinese people were still carrying cash everywhere and credit cards were rarely used outside of the big cities. But as people began to earn more, it was clear they needed a new way to pay without carrying wads of cash. [3]

DTC Friday may not have been a successful sales day by most standards but it was an effective way to recruit popular brands to market a concept that America laughed at just a few years prior.

In the United States, there are barriers to the future that Armstrong imagines. Here, America is over-retailed. There are more brick and mortar stores, per capita, than anywhere else on Earth. The real estate development industry is so prevalent that the brick and mortar has become eCommerce’s greatest hindrance. We are less likely to adopt mobile payments and when we can use debit cards in most physical stores.

So, in the meantime – digitally native brands are best served leveraging the methods of traditional retailers to achieve scale. But eventually, Armstrong’s hypothesis will prove correct. Time will tell if it’s DTX Company that lives to take the credit for this shift in consumer behavior.  The diffusion of innovation curve does not favor Armstrong. It will be up to DTX and its band of DTC loyals like Andie, Recess, Rockets of Awesome, and Rhone to persuade savvy millennials to shift their shopping behaviors. If not, Armstrong’s Flowcode will be the Webvan to another innovator’s DoorDash or UberEats. Time and adoption velocity will determine who gets the credit for the sale. And that may be one attribution problem that even Armstrong cannot solve for.

Research and Report by Web Smith | About 2PM