I listened to Harry Stebbing's second interview with Rebecca Kaden at USV a few days ago. It's a great conversation. If you're anywhere close to direct-to-consumer investing, it's a must-listen.
A lot of it echoes our DTC investment thesis. But she had great clarity on what she calls "the Amazon 'kill zone'" and it's something that we've been thinking about a lot.
As European investors you're often disadvantaged by geographical and network distance from the internal strategic and tactical conversation at the FAANGs. So we listen closely when someone like Rebecca Kaden, or Jeremy Levine, or Kirsten Green, talk about their evaluation of what's a priority for Amazon.
As a commerce investor I am in awe of what Amazon has done and is doing. The speed with which they're starting and scaling businesses. Their courage in shutting down things that aren't working. Their maniacal focus and execution prowess.
A common trope is that Amazon has won by scale. Like Rebecca we think Amazon also, and perhaps more so, has won by executing many different things incredibly well. It's not just logistics, it's selection (merchandising/assortment), convenience, price, trust. More than 50% of product searches are now on Amazon in the US. When you know what you want, you don't search Google. That's a massive, massive change in the consumer economy.
In the functional, utilitarian way of shopping, no startup has an advantage over Amazon. If this is what your product maximizes - utilitarian price/value - forget going direct. Go on Amazon and seek to build a moat elsewhere. If your segment is or becomes big enough for it to matter to them, you have a problem you should address now.
So what's Amazon not good at? Where do startups have an edge? Because Amazon certainly has structural advantages in scale, capital, data, and probably people.
Right now, it looks like the advantage lies in "the other ways in which people want to shop." Whether it's through their friends, by following an influencer, by falling in love with the narrative of the brand, by joining a community of like-minded, passionate individuals for whom the brand is their joint expression of belonging.
That emotion is not "Amazon" at its core.
Extending this "authentic emotional connection" micro-thesis a bit, it suggests a playbook that looks fairly different from many of the DTC brands that we're seeing in the market. Most important, perhaps, is the experimentation at the early stage that looks at what helps people fall in love with your product. What gets them to not just want to join, but want to build your community? As Rebecca notes, what causes them to set up Facebook groups, ask for swag, refer their friends, come back to buy again and again?
Beyond Amazon, this throws into doubt the whole idea of building mainly on paid acquisition. Forgetting the point for a moment that companies that need to continually acquire customers at low to medium AOVs don't make for good-margin, capital-efficient businesses, paid acquisition may actually muddy the early data that would help you do more of what consumers love about your brand.
That's a powerful point by Rebecca and one we're planning to emphasize more in our DTC thesis.