Stealing Signs - Issue 48
Marketplaces, Commerce Brands, & Unfair Advantages, Self-Serve Ads and DIY Advertising, The Rise of DTC Media, The Market Curve, Priori Legal Raises $$
Worth Reading
Marketplaces, Commerce Brands, & Unfair Advantages
Zack Noorani, Foundation Capital
Homebnb has drastically more utility than new entrants as compared to Slimer. Second, the composition of that higher utility is likely driven by more supply breadth /availability /engagement-related than price whereas for Slimer it’s very price-driven. What’s so important about that is that price can and will be subsidized. The implication is that each viable competitor that enters Slimer’s market seriously compromises the amount of unique utility Slimer has to offer its prospective customers. Homebnb’s unique utility by comparison, isn’t terribly affected by all of these new entrants that don’t actually work very well.
Just such a great post. Zack unpacks the concept of ‘unique utility’ through two different business models: direct to consumer brand and marketplace. Unique utility is an excellent concept with which to frame the competitiveness of a market and both the capital efficiencies and defensibility of a company over time.
Zack outlines how the marketplace model begins with low unique utility but increases significantly over time because more supply begets more demand which begets more supply, which creates more valuable for both exiting customers and each new customers. This value creation cycle becomes a defensible competitive advantage because the value to customers is not price-driven.
On the other hand, consumer brand advantages are often price-driven. While consumer brands can generate significant unique utility from day one, this decreases over time because supply chain and distribution advantages erode, leaving price as the only competitive vector, thus lowering unique utility for consumers.
Self-Serve Ads & The Rise of DIY Advertising
Ana & Maja Milicevic, Sparrow Advisers
Large brands continue to struggle with the ‘which budget should this come out of’ challenge. One way to solve this is tying a regular and frequent rebalance of the media mix to attribution signals of what’s working well. This in turn, would allow brands to unlock more spend in newer channels (and newer platforms). This key technique has been working well for challenger brands (and particularly DTC) who don’t have to contend with legacy infrastructure and can operate faster across a smaller number of effective channels.
Ana and Maja unpack the evolving advertising market and propose a few strategies to combat rising costs of Facebook and Instagram ad networks.
A stat that’s fascinated me ever since I first heard Ben Thompson surface it during the time brands began to pull out of Facebook advertising in protest of Facebook’s lacking content moderation practices is that just 40% of Facebook’s ad revenue comes from large brands. The majority of ad revenue comes from SMBs, the long tail. It’s striking in that it demonstrates the resilience and sheer size of Facebook’s ad network.
Shifting gears, Ana and Maja identify an important and often overlooked strategy brands should execute to combat rising Facebook and Instagram ad prices: dynamic media mixing. Digital as are heavily concentrated on Facebook and Instagram, but there are numerous other channels which large brands often fail to engage with because marketing budgets are rigid and difficult to alter. For this reason, startups are much more effective in changing their ad mix because they can easily reallocate budget and make decisions quickly, which they’ve used to their advantage — the DTC wave is a good example; consumer brands quickly gaining steam and nipping at incumbents heels with creative marketing campaigns via under-penetrated channels.
Finally, a side note — check out AdQuick. I absolutely love this model — The OOH advertising space appears to be under-monetized and I suspect simply by introducing liquidity and transparency into this market, they can ~2x the market size.
The Rise of DTC Media
Brian Morrissey, The Rebooting & Former President of Digiday
The media business is changing. The scale-by-any-means era is now firmly in the rearview mirror. The shift from ads to subscriptions offers a sturdier business model for many media companies with real communities. New platforms like Substack, Patreon and others are a boon to a new class of solo operators. Niche is no longer a polite insult for “small and obscure.” There is similarity to what has taken place in e-commerce, where an array of niche brands have taken flight thanks to Shopify and gobs of Instagram ads.
This is a helpful framework for understanding where DTC companies will emerge and what they’ll look like. One addition is that successful DTC media companies will also have significant presences on social media. One of Substack’s biggest weaknesses, for now, is that it doesn’t control distribution. Instead, they rely on platforms like Twitter to spread Substack content and serve as the discovery tool for Substack writers. Further, I believe DTC media companies’ social content will be as important as the core content itself. This is especially the case for solo entrepreneur media companies or those driven by a single identity. Because social is the main distribution channel, these media companies must rely on the social presence of their creators to drive discovery and generate awareness. Examples include:
Austin Rief at Morning Brew
Web Smith at 2PM Inc
Dave Portnoy at Barstool
Packy McCormick at Not Boring
Darren Rovell at Action Network
Justin Gage at Technically
To this end, it seems DTC media is more about the individual than traditional media — more about who’s writing and their online persona, largely because there are so many to chose from, similar to DTC brands like shoes or luggage. Social media is not only a critical distribution channel, but a brand component for DTC media companies.
The Market Curve
Mike Vernal, Sequoia
Two questions, please — what % of the Fortune 2000 will ultimately buy this product? And how much will they be worth to you on average?
The reason this question is great is because for most enterprise-focused companies, the vast majority of their revenue will come from the Fortune 2000 (F2000). This question provides a very quick way to approximate market size.
This is the perfect post on market size. It’s critical to understand who is buying, how much they’re spending, and how many of them exist. This is not only a great exercise for founders raising venture capital, but also to determine if a business is a venture-style business in the first place. In other words, does the revenue model and customer segment allow for a $1B company to be built (typically $100M in annual revenue)? Certain realties become glaringly obvious in this exercise — for example, few customers at a high price point vs. many customers at a low price point:
When Peloton went public last year, they reported 511,000 subscribers and $915M in FY2019 revenue.
In Q2, Grubhub announced quarterly revenue of $459M and 27.5M active diners, suggesting quarterly revenue of ~$16.70/diner and annualized revenue of ~$67/diner.
Comparing Grubhub and Peloton, you see that Grubhub has about 30x more consumers and about 30x less revenue/consumer, leaving both with annualized revenue of ~$2B.
<stuff> Weekly
LOL Weekly: When Tech Founders Buy Sports Teams
lolllll. For those who missed the news, Qualtrics CEO Ryan Smith bought a majority stake in the Utah Jazz this week. Qualtrics is an “experience management” company… in other words, they help companies administer surveys for research purposes
Funding Weekly: Priori Legal
Priori is a legal marketplace for in-house legal teams to find and hire outside counsel at law firms of all sizes. Using data and technology, the company rapidly connects teams from 1 to 1000+ with the right attorney for any project globally. Clients include Fortune 500 enterprises and leading technology companies, who use platform to find vetted attorneys at firms of all sizes for projects requiring niche expertise, local counsel, cost-control or overflow capacity support.
Priori Legal raised a $6.3M Series A from Hearst Corporation, Great Oaks Venture Capital, Mindset Ventures, Bridge Investments, and Orrick’s Legal Technology Fund.
Priori is an interesting take on the future of law firms. In theory, Priori decentralizes the traditional law firm, enabling individual attorneys to connect with clients in their area of expertise without the headache of a client engaging with the law firm as a whole. This introduces liquidity into a historically inaccessible and high-friction market, which is a recipe for a winning marketplace.
Another view of this marketplace is a tool for solo entrepreneurs — Priori’s marketplace and workflow tools enable individual lawyers to easily run their own practice and access a robust demand pipeline.
Important considerations here include credibility and risk mitigation. As they say, ‘nobody has ever been fired for hiring IBM.’ So which use cases apply for Priori? High stakes cases are likely out, but the long tail of corporate legal work makes more sense.
Baseball Weekly: Video-Based Scouting
Brett Taylor, Bleacher Nation
A few teams have already moved toward different models in areas like pro scouting — switching from less in-person coverage to more video work — and now other teams are more likely to follow suit. Teams that have done so believe they’re not just saving money, but also becoming more effective because of ever-growing technological capabilities. The Astros were the first to make the switch a few years ago. The Orioles made the same change a year ago, and the Cubs are following suit.
MLB teams executed a slew of firings over the last week, which, in the case of the Chicago Cubs, hit the scouting department hard. Some of this no doubt is related to the down year revenue-wise for MLB teams, but what’s more interesting is it’s implication for video-based scouting over time. The Cubs are the latest team to publicly express their intention to rely more heavily on video-based scouting and less on traditional, in-person methods.
This is exactly what happened in venture capital during the pandemic. VCs got comfortable with the ability to meet and analyze entrepreneurs virtually to the extent they could make an informed decision to invest. This behavior is *very* likely to continue post-pandemic and will definitely result in many, many more investments. While this new dynamic won’t impact staffing as much as it does MLB teams, if the top VCs in the world can invest in talented individuals virtually, the top baseball teams in the world can do the same.
Art Weekly
Jason Shames, Founder of Skipper
