No. 322: On DTC and Public Relations

As digitally native brands go, high-growth DTC concepts find their way to the halls of creative engines like: Bullish, Gin Lane (now Pattern Brands), Red Antler, or King & Partners. A subset of the dozens of DTC companies that launch each week, these digital-natives have likely completed a raise or they are well on their way to closing that first $1 to $5 million in seed capital. Primed to achieve outsized success at launch, it’s not uncommon for a small selection of DTC brands to finalize cap tables before their products are finalized or go-to-market strategies are decided upon.

Before a potential customer can determine their affinity for a product, or tolerance for its price, or their appreciation for the go-to-market process, or even intensity of their brand preference – a company’s PR precedes many of these decisions. Product, price, process, and preference share two letters: PR.

Depending on the product being sold and the company’s average order value, key performance indicators vary but CPA, CAC, LTV, COCA, and ROI are considered the most important. The aforementioned measures tend to be quantitative. For PR agencies, however, the majority of the key performance indicators are qualitative in measure. Here’s a short list of those qualitative KPIs.

  • quality web traffic: did the campaign reach the right audience?
  • media mentions: was there buzz around the campaign? did the promotion earn media?
  • content quality: a sentimental analysis (how it was received by potential consumers) and prominence (was the campaign distinguished?)
  • share of voice: media performance in comparison to the brand’s competitors. Which company has the greater share of attention
  • social engagement: the volume of potential consumers that interact with the story
  • impressions: while extremely difficult to measure, this KPI is the number of views across all media sources and platforms

And here is a list of KPIs quantitative measures:

  • lead volume: the success of the campaign as determined by contacts received via email, opt-in, or enquiry form
  • advertising value equivalency (AVE): the (volume of media) x (ad cost per impression) at volume. PR firms often measure what a client would have paid for the same exposure through traditional advertising.
  • revenue: did the efforts of the PR agency impact top line revenue? Sophisticated efforts include attribution monitoring across traditional media channels and social media.
The Harry’s “pre launch” landing page. KPI: captured emails. Waiting list? “100’s of thousands.”

Though the DTC era chatter tends to revolve around the vaunted LTV:CAC ratio, it’s time that we consider PR has potential to be an x-factor for brands looking to efficiently grow. From Member Brief collection’s Retail Media Report: “On February 15, 2010, warbyparker.com went live. Within 48 hours of GQ’s dubbing the company “the Netflix of eyewear,” the site was so flooded with orders for $95 glasses that Blumenthal temporarily suspended the home try-on program.” This is not the only example, Harry’s executed a similar approach to use a PR agency to drive pre-orders by collecting tens of thousands of email addresses. And Away launched with the help of Sunshine Sachs and then Azione PR and a clever plan to sell coffee table books before their now-famed carry-on’s were available to fulfill. From her recent interview with NPR’s “How I built this“:

So basically, you had to buy the book for $225, which was the price of the first suitcase. And we sold hundreds on the first day. And a bunch of other [news] outlets picked it up all of sudden. The people [featured] in the book were like really excited about it.

By nature, public relations is a wild card. Media efforts can launch a brand to sold out inventory. Or the launch can fail and lead to a terminated PR agency. Sometimes, both can happen – depending on the circumstances. With retainers ranging from $15,000 to $30,000 per month – founders and PR executives must be aligned on approach and expectations.

Product, price, process, and preference share two letters PR.

The direct-to-consumer (DTC) era is maturing and with that growth comes a shift in priorities. To differentiate themselves, brands have begun to emphasize efficient acquisition and improved brand equity. Digital-only has evolved into digital-first. Until recently, challenger brands maintained an insatiable appetite for a narrow scope: paid advertising. It’s not uncommon to see brands focus spend on a limited number of platforms. These platforms shouldn’t be a surprise: Instagram, Facebook, and Google. And perhaps, Pinterest, Snapchat, and Twitter – if the brand is more risk tolerant.

A Different Era: Zero to one

For top DTC PR agencies like Derris, Moxie, Azione, and Jennifer Bett Communications, the stakes are always high. DTC brands that invest in public relations retainers require an ROA that resembles what they’d otherwise earn through quantitative spend (Facebook, Instagram, Google). But to do so, it takes a mutual trust, a shared vision, a bit of risk, and a lot of luck. One macroeconomic development works in the favor of PR agencies: the DTC ecosystem has spawned countless of traditional and independent media brands who’ve modeled their growth on the coverage of breaking news and analysis of burgeoning DTC companies.

In Member Brief: Retail Media, we featured a short list of the reporters who were most-read by the 2PM audience.

[table id=46 /]

Retailers shifted to a leaner go-to-market strategy, over the last decade. In turn, a growing number of publications, consultants, reporters, and analysts expanded their coverage to feature the strategies, successes, failures, and macroeconomic effects of online retail. Just 5-7 years ago, stodgier business publications covered major retail. Coverage of DNVBs were limited to Warby Parker, Dollar Shave Club, Bonobos, and Harry’s. Capacity was limited and so were the perspectives. But over time, newer publications (and reinvented traditional outlets) began to cover developments in greater detail. This democratized coverage and gave readers a unique look into companies that were in an earlier stage; these companies are more vulnerable (and interesting) than ones who’ve raised venture in the nine figures.

Retail media’s analyses have expanded and resources have grown to cover the ecosystem with greater depth and a growing frequency.

Quite frankly, the DTC media industry has evolved into sport. This, especially, as the coverage has become more lucrative. Publishers like Forbes, Fortune, Fast Company, and Inc. now cover early-stage, direct-to-consumer developments en masse. And this is not just limited to traditional media. Without this new era of direct-to-consumer retail, it’s unlikely that platforms like New Consumer, Lean Luxe, or this one would exist. Digiday‘s recent decision to expand their coverage of the DTC era by launching Modern Retail, a familiar format, confirms this. The term “ecosystem” has taken on new life. In response to an early-draft of this report, Paul Munford of Lean Luxe had this to say:

Because people’s first interaction with Lean Luxe is the newsletter we publish or the reporting that we do, they tend to think of Lean Luxe as a media property. In some way it is, and that’s always been a core function (and will continue to be). But by far, pound for pound, the most powerful component of the Lean Luxe ecosystem is the private Slack channel that subscribers, for the moment, have to qualify for in order to be considered. Not only is it a place for daily connection between users around this shared interest in modern brands and business, it’s also, more importantly a place that facilitates real world connection offline.

Platforms like LL have amplified impressions and product discovery. Rather than focusing on reach, Lean Luxe chose to focus on depth, a characteristic of many of the most effective PR nodes throughout the ecosystem.

What does this mean for DTC and public relations? While it may be easier than ever to submit a quote for a major tech, lifestyle, or retail publication, market-moving coverage has never been harder to achieve. Alternative forms of PR will be considered and KPIs will continue to be developed. A press mention isn’t the validation that it used to be. But PR agencies have never been more essential to the lifespan of DTC brands. And the best agencies are finding new ways to reach primed customers, online and in real life. In some niche circles: forums, Slack chats, and direct email – product buying decisions are made and brand affinities are formed. Haus [1] cofounder Helena Price Hambrecht saw this first hand when with the successful launch of her spirits brand. She opted for personal connections over the traditional KPI: optimizing for top funnel impressions:

Influence is not follower count. Influence is years of making meaningful connections in the industries you’ve chosen to work in. It’s building a reputation for doing what you say. It’s a track record of putting out work that doesn’t cut corners. If people expect quality work from you, they’ll invest in whatever you put out next.

It’s now a matter of mass impressions (lower conversion) vs. niche influence (higher conversion). As customer acquisition continues to evolve, PR must evolve with it. One observation is abundantly clear for DTC founders: revenue is the KPI. For digital-natives looking to launch with velocity, they’re opting to set aside impressions as the primary KPI. These brands are optimizing for a genuine and deep connection.

Read the No. 322 curation here.

Relatório de Web Smith | Por volta das 14h

[1] Haus is a 2PM portfolio company

Memo: Shopify Unite and Network Effects

In a recent conversation with the founder of the infamous digitally-native brand Wone, Kristin Hildebrand was opining on her recent struggles with her eCommerce cart. With a price point of $320 per pair of her leggings, dropped carts are a way of life for luxury products. But BigCommerce, her platform of choice, wouldn’t let her review dropped carts for outreach to potential customers.

When the issue was researched, 2PM received answers from nine separate eCommerce agencies. Each confirmed that dropped carts should be reviewable across any platform. The irony wasn’t lost on me. Nine separate agency executives responded publicly or privately to highlight a key differentiator between Shopify and BigCommerce. They were all Shopify Partners. In the month of May 2019, Shopify’s stock rose 12.9% after earnings reflected that the company beat analysts’ estimates. As of this post, the company’s stock has risen 907% over the last three years and 2019 has seen 120% growth, thus far. But is Shopify the most technically capable eCommerce SaaS? The vast majority of honest observers would contend that while other platforms are technically superior at the enterprise stage, Shopify owns pre-enterprise ($0 – $5,000,000 in annual sales).

If you were to sit in a room with BigCommerce or Adobe’s c-suite and explain that product differentiation can be more than a software iteration – you won’t be sitting there for long. And that is part of Shopify’s mounting advantage. It’s unclear whether or not the original intent of the Shopify Partner ecosystem was to be a catalyst for network effects. But that’s certainly the case. Founder Tobi Lutke, Harley Finkelstein, and team stumbled upon a new form of competitive advantage in commerce SaaS. Here, at the intersection of influence and efficacy, sociological advantages of retail brands have interfaced with an ecosystem of software as a service.

For enterprise-level customers, Austin-based BigCommerce’s platform has maintained tremendous technical advantages, as does Adobe’s Magento. But it seems to matter less and less, relative to Shopify’s continued momentum. Shopify’s network effects are unlike any in SaaS. We’ve seen Microsoft Windows exclude Netscape in favor of its own Internet Explorer. Some of us can vaguely remember when Instagram only serviced iOS users. For a time, Apple’s app store was its own network effects-driven moat. But Shopify’s defensibility is slightly different. It’s been bolstered by human resources and sociology.

BigCommerce and Handshake Announce Strategic Partnership to Deliver Joint SaaS Solution for B2B Ecommerce. (January 2018)

As with any tech platform that possesses network effects, platform improvements are a development cycle or acquisition away. In a recent report by Tech Crunch, Ingrid Lunden detailed the quiet acquisition of a company that – until recently – was a competitive advantage for the BigCommerce ecosystem.

This is big business: a recent report found that B2B e-commerce sales in the U.S. alone passed $1 trillion for the first time in 2018. As with consumer-focused sales, platforms like Handshake’s offer merchants the ability to handle these sales directly, rather than handing off the sales to third-party marketplaces, where the merchant also needs to pay a commission to the third party and need to play by its rules.

In a flash, Shopify acquired Handshake for a number that hovered around BigCommerce’s 2017 gross revenue. It’s been reported that this acquisition was such a surprise frustration for BigCommerce that their editor removed their partnership announcement from the press release page. And rightfully so. Handshake will enable Shopify Plus’ existing enterprise clients to grow their B2B business. And it will remind early-stage customers (and ones who’ve yet to be sold on Shopify’s services) that they are the end to end solution from launch to exit. The author of a recent essay on the network effects of Bird scooters, Lightspeed’s Jeremy Liew explains network effects in this context:

We’d all like to believe that innovators with the best product win. Sometimes that’s true. But in the consumer world, where your product is easily observable by your competitors, product innovation is a fleeting advantage.

Are you attending Shopify Unite?

Shopify in blue, Adobe’s Magento in yellow, BigCommerce in red.

Leading up to the annual event, this is the most frequent question that you’ll hear in the DTC ecosystem. When rumors of Shopify’s Handshake acquisition began to surface, it was all the chatter among Shopify’s impressive circuit of loyal agencies. Prior to the announcement, this buzz materialized online like a massive public relations coup. Both a sales channel and a PR platform of sorts, Shopify’s partner ecosystem deserves the credit for a considerable amount of Shopify’s explosive growth – of late. In a December 2018 report by Digiday, it was reported that Shopify’s agency ecosystem generated nearly $800 million in revenue.

This is in addition to the $1.1 billion in forecasted revenue for Shopify, Inc. By most measures, Shopify’s business is outpacing that of Magento’s and BigCommerce’s. With over 16,500 partners referring potential vendors, the growth makes sense. Shopify boasts agencies like Winnepeg’s Bold Commerce, a group that’s grown to 256 employees. And San Diego’s Brand Value Accelerator, an agency with 151 employees and growing.

Tobi Lutke on Twitter: “😂 / Twitter”

😂

For the most successful agencies in the space, it means big business. For Shopify, it means referred sales, an organic public relations arm, and a community of enthusiasts that operate – quite literally – as a defense mechanism. And there’s no bigger event than Shopify’s annual Unite. It’s a yearly capstone that should remind analysts that Shopify is effectively commoditizing technology, making human relationships the differentiator. It makes the platform’s advantages that much harder to duplicate. Shopify COO Harley Finkelstein made this clear at last year’s event:

The future of commerce needs to be owned by all of us — partners, merchants, service providers, tech enablers and shoppers. The masses, not the few. So we need you to join our movement.

In a sense, Shopify has grown by way of the technological advancements of its competitors. On occasion, the company builds and democratizes new technology for the different stages of its own customers: Basic Shopify, Shopify, Advanced Shopify, and Shopify Plus. Lightspeed’s Jeremy Liew concluded his essay with the following, “Unfortunately, the leaders in industries with strong network effects cannot be overcome through product innovation alone.”

The growth of the DTC era can be attributed to SaaS companies like Shopify, BigCommerce, Magento, and Demandware. But in an industry where innovations are finite development cycles away, community and brand equity has become the key differentiator. The city of Toronto is the home of the first, international NBA title and a certain, best-selling musician. But it’s also home to the annually sold out Shopify Unite – an industry-leading display of a SaaS company’s network effects. It’s unlikely that either of these mainstays will be duplicated any time soon.

Relatório de Web Smith | Por volta das 14h

No. 320: It’s Not An Antitrust Problem

The New York Times recently published a report [1] that suggested that Google made $4,700,000,000 on the backs of local news publishers in 2018. This figure has since come under fire but, regardless of its accuracy, the figure frames an argument that you’ll see more of. Are Google and Facebook to blame for digital media’s decline? The answer isn’t as direct as you’d anticipate. And will solutions like HR 2054 properly address the concerns of traditional media? That answer is no.

The HR 2054 bill: To provide a temporary safe harbor for the publishers of online content to collectively negotiate with dominant online platforms regarding the terms on which their content may be distributed.

For the old guard, the problem is technological. But not in the way that they’re thinking. Consider the number of clicks between discovery and a confirmed subscription for a publisher like the Atlanta Journal-Constitution (no seriously, try it). The number ranges between 11 and 17 total clicks. The typical eCommerce site accomplishes the same transaction in 2-5 clicks. Google and Facebook are not the culprits here. Understanding modern commerce ecosystem is the problem.

Digital publishing CEO Erika Nardini has gone on record as saying that, for Barstool Sports, she hires employees that are digital-natives. The idea of being from the internet, not on the internet is a concept that is, in itself, revolutionary. These digital native individuals tend to see things differently, according to Nardini. Certain ideals and processes are native to them. And it enhances their business: Barstool has between 5-7 revenue streams at any given time. This basic understanding of modern media and consumerism can be the difference between seeing FAANG (Facebook, Amazon, Apple, Netflix, and Google) as allies or as the threats.

The digital-native publisher optimizes their offering, in partnership with these platforms, to grow their reach. But this far different than blindly relying upon them for traffic or search juice. But for every Bleacher Report, The Athletic, or Barstool Sports, there is a media company that’s failed to discern a suitable path forward. For digital media, it isn’t solely about reach, it’s more than ever about depth. Depth, more so than reach, is how publishers are rewarded today. Bleacher Report’s growth doesn’t happen without FAANG, the same platforms that traditional publishers decry as the culprit of their shrinking revenues. Look no further than Bleacher Report’s social media statistics. The sports news site uses social media as a value-add rather than the traditional means for social in the media industry: an RSS feed.

2PM Data: Bleacher Report and FAANG

Most popular Twitter accounts worldwide as of February 2019 | Source: Axios, Crowdtangle
Leading brands in the United States on social media in 2018 | Source: Shareablee
Leading brands in the United States on social media in 2018, based on user engagement on owned video content | Source: Shareablee

In a recent report, Digiday estimated that Bleacher Report is due to generate over $200 million in revenue in 2019. Led by new CEO Howard Mittman, Bleacher Report (B/R) has methodically adopted a linear commerce strategy to differentiate themselves from others in the market. Here’s a key paragraph from the Digiday report [2]:

Bleacher Report is weaving in commerce with custom apparel and other merchandise that the company sells to fans both online and through its events. For the upcoming FIFA Women’s World Cup, Bleacher Report is working with female artists to design nine unisex soccer jerseys, which people will be able to purchase on Bleacher Report’s site. Bleacher Report’s commerce business is still in its early stages, with revenue up 500% year over year, said the spokesperson.

Though Mittman is against paywalling content, the Turner Broadcasting-owned Bleacher Report has introduced a growing number of opportunities for readers to transact through the company’s channels. A key to these commerce opportunities? Maintaining brand presences wherever their target demographic’s attention is held. In this way, Google and Facebook have become assets rather than liabilities. This is a common refrain amongst digitally-native media companies and the legacy-publishers who’ve adopted these best practices.

Old Dogs, New Tricks

The New York Times leads in this category. Though the 2016 election cycle garners a lot of the attention for the publisher’s subscription performance, growth began before these key election months and has far-exceeded expectations through 2018 and into 2019. If nothing else, this shows that old dogs can learn new tricks.

Number of paid subscribers to New York Times Company’s digital only news product, Q1 2014 to Q1 2019 | Source: New York Times
While some publishers decry Google and Facebook’s presence as barriers to their survival, The New York Times has fostered a cross-promotional catalogue of high-visibility media experiences, brand statements, and enhanced utilities. This has helped to elevate the publisher to a KPI beyond eyeballs and clicks, alone. NYT has developed a level of digital brand affinity that, in turn, has grown the company’s revenue verticals. In short, the Times deemphasized reach, alone, in favor of fostering a readership that sought a deeper consumer relationships with their publisher.

From: Linear Commerce

The digital economy rewards the companies that work along the line that separates traditional digital media and traditional eCommerce.A great product needs an organic and impassioned audience. Captive audiences need products and services to offer the community. Linear commerce is the understanding that digital media and traditional online retail will eventually meet at the center – along the line – the most efficient path for growth.

So why do other publishers seem to ignore this shift? In a recent conversation with CNN, the Editor of the Atlanta Journal Constitution (AJC) made a striking statement; he cites reach, he ignores depth. Here’s Kevin Riley on his concerns:

At the Atlanta Journal-Constitution, our audience has never been larger than it is today. And I think that is true of many, many newspapers when you combine the print audience and the massive digital audience that we can all garner in our markets. So does it make sense, that at a time when our audience is at our biggest point, our financial difficulties are at their most difficult point. To me that doesn’t make sense.

But it does make sense. And it explains the broader disconnect that exists in business, as a whole. Publishers, like many in retail, view their legacy products as dutiful purchases rather than market-driven, affinity-based products. Ben Thompson wrote a brilliant antitrust breakdown in “Tech and Antitrust.” Thompson concluded with the following thoughts on the potential of Facebook or Amazon experiencing legitimate antitrust scrutiny:

At the end of the day tech companies are powerful because consumers like them, not because they are the only option. Consumer welfare still matters, both in a court of law and in the court of public opinion.

Below is a comparison between a newspaper in a top 20 market (blue) and an independent publisher in the same market (orange). The difference couldn’t be more striking, the orange company optimizes for brand affinity, utility, and captive attention. The blue company optimizes for tradition-driven utility.

Web Smith no Twitter

Blue (legacy to digital): 1/ two revenue sources: display, subscriptions 2/ employs 200+ 3/ ownership group is public and trading at historical lows. Orange (digitally-native): 1/ four revenue sources: display, native, affiliate, DTC 2/ employs ~12 3/ privately-held

Across America’s second tier of metropolitan areas, legacy publishers like the Atlanta Journal-Constitution or Ohio’s Columbus Dispatch market to potential customers in a lackluster manner, at best. Like many news bureaus across the country, the contributions of these publishers are critical to the good of the public. As such, the typical value proposition seems to be duty to, rather than affinity for the publisher.

True, the dance between commerce and local news is different than what you’d find in sports or lifestyle but that doesn’t mean that the principles don’t apply. The New York Times has done a masterful job of reducing purchase friction (CRO), for instance. A casual reader can subscribe in 3-5 clicks. The publisher has also taken measures to widen and shorten their marketing funnels while staying true to their core mission. Consumers can learn about their product and convert in a much shorter time.

Traditional newspapers must begin to incorporate the ideas of digitally-native thinkers or viewership, clicks, and subscriptions will continue to suffer. The first step would be to examine their own platforms before dissecting the merits of another. Attacking Google, Facebook, Apple in the name of antitrust scrutiny distracts publishers from the KPIs that will determine present and future. They must operate as affinity-based businesses, now. Duty to newspapers perished with broadband access. But that doesn’t mean that business has to perish with it. What these editors and publishing executives will find is that the truth is less the 17 clicks away.

Read the No. 320 curation here.

Relatório de Web Smith | Por volta das 14h