Richie Siegel of Loose Threads has an interesting post as part of his (paid for) Loose Threads Espresso newsletter: Do DNVBs exist anymore? Revisiting the buzzword.
The main thrust of the argument is that with rising acquisition costs Facebook has become the ultimate "middleman": by some report, Facebook CACs have risen as much as 17x between 2011 and Q1 2018. The response of many "online first" or "born digital" brands has been to move to omnichannel more quickly, reflecting the better economics of the retail channel (no online acquisition, no logistics cost).
The core challenge is thus that the better contribution margins attributable to the "vertically integrated" (relative to retail ecommerce) brands are eroded significantly. The "variabilization" thesis, in which all parts of building an online brand are essentially variable cost, does not hold true because scaling on Facebook itself has become cost prohibitive.
I think this is largely true, but with one major caveat. Online or "digitally native" is still both the best and most cost-effective way to experiment with building a brand before scaling it. Especially brands built using an existing community, a Kickstarter project, or organic tactics like PR, are able to validate their product-market fit before raising significant capital.
Further, while most online channels are indeed becoming unprofitable, the three significant changes we still believe to be true are:
1. the variabilization of the supply chain (making e.g. manufacturing and logistics easier to access as a small player)
2. the propensity of customers to let digital touchpoints be the deciding factor on the consumer journey - even if that journey terminates offline, and
3. capital abundance, providing higher willingness to spend a dollar per revenue generated (and thus, perhaps, enterprise value) than in previous years.
Of course the latter will depress returns (hopefully just for investors rather than founders), but it still means it's possible today to build rather large businesses in verticals that have previously been ignored as too capital intense. When that music stops is anyone's guess.
Many of our portfolio companies take a blended view of acquisition costs. While Facebook by itself is prohibitive, we see that it can be a cost-effective touchpoint along a purchase journey that frequently can't or shouldn't be attributed to the last click.