The Facebook of ecommerce
As we all know, the internet changed how we chose what to read. It removed the old bundles and aggregation systems and created new ones, and those new systems result in different things being read in different amounts and from different kinds of publishers. It seems to me that much of this is going to happen to retail. The current bundles and aggregation models will be split up and people will choose in new ways, and that will remake at least some brands in the same ways that publishers have been remade.
Once everything is online, ’How do you get people to look at your content?' is actually a very similar question to 'how do you get people to look at your product?' For products as for journalism, there are things that can cut through - that people will deliberately and consciously go to - and there are very-low-volume items in the 'long tail' that will be surfaced though search. But then there is a broad middle of more-or-less commodity, more-or-less undifferentiated choices that depend on distribution and aggregation to be chosen. That particular story is perfectly well written, but it’s read because it’s in that magazine and that magazine is bought because it’s on the rack, and now people don’t come to stories like that anymore. And equally, that particular product is bought because it was ranged and placed at eye level, and now it's not going to be being bought like that either. Today, those stories get their traffic, very often, from Facebook - Facebook recommends stories it thinks (based on its machine learning model) you might like. There's not really an equivalent for products.
Amazon in particular and ecommerce in general is good at search. Amazon, very obviously, is Google for products. It's good at giving you the best-seller you've heard of or the water filter for your fridge (the long tail). It's not so good at the things in the middle. Amazon is great at selling you what's on the table in the front of the bookshop, and at selling one copy a year of a million or so obscure titles, but it's not very good at showing you what's on the shelves at the back of the bookshop. It's not so good at selling the mid-list - things that you didn't know existed, or didn't know you wanted, before you saw them. It does have a recommendation product, but it's not clear how well it works, and indeed an interesting question for Amazon is how far it can grow before running into categories for which its commodity merchandising model doesn't work so well. (Even in print books, Amazon's market share only reached a quarter of the market after 20 years of ruthless execution).
More broadly, it strikes me that 15 or 20 years ago people used to try to distinguish in ecommerce between ‘high touch’ and ‘low touch’ products, on the basis that it would be easier to buy online things that you didn’t have to touch first. That was true up to a point, but it turned out that many fewer things were ‘high touch’ than we thought, while same-day delivery and free returns are eroding much of the rest: we’ve now reached the point that it’s not clear that there is anything that cannot be bought online. But actually, the real barrier now is often not touching it, but knowing about it. These are things where a lot of the role of a physical shop is curation, recommendation and demand generation rather than logistics: the shop shapes your choice but it also tells you about things you didn't plan to buy, and you can't search for things you hadn't thought about. Some of these products might not get bought at all if you hadn't been shown them - you went in for one book and came out with ten. How will that work online? Without that, we'll have more of the polarisation one can often see in ecommerce today, between bestsellers on one hand and the long tail on the other with the middle squeezed.
So, someone needs to do the demand generation - to tell you there's something you might want. That might be physical retail, or advertising, or media - the fashion or home magazine or the book review, online or offline. Indeed, some online brands are creating their own print magazines (for example, ASOS and Net a Porter), or creating physical retail to show the product and build awareness, but where you order online. It can also be the brand itself: there's an interesting case study in Walker & Company (an a16z portfolio company). The founder spotted an under-served market in personal grooming products, but also spotted that it was now possible to reach that market online without necessarily going through all of the barriers that traditional large-scale physical distribution would place in the way of a new brand, at least at first.
However, there is clearly also an opportunity to do this at massive scale, for many people across many products - that's kind of the point of the internet. From that perspective this is not a particularly solved problem. Google doesn't do demand generation. Etsy, ProductHunt and Pinterest (the latter two both A16z portfolio companies) are building solutions from different directions, and a great many people trying to replicate some form of the boutique model online as well, as I suggested here - to create some kind of specialist curation. As machine learning ripples out across the tech industry, entrepreneurs will probably also find entirely new and better ways to answer 'what would I like'. That might include Google, indeed.
That kind of scalable automation, though, could also go in completely the opposite direction for some things - away from any kind of decision at all. You put an Amazon Dash on the machine, or perhaps it can measure what you’re used and re-order by itself, and so you in effect subscribe to the product, and once done you’ll probably never bother to change brand. Or, say to Siri or Alexa or Google Assistant ‘Hey, order some more soap powder’ and the same brand is added to your next delivery. (And in both cases your choice of channel is just as now locked in as your choice of soap powder, once you've set the default.) Either way, an impulse purchase in one of 2 or 3 retailers you might have stopped in at, based on real-estate portfolio on one hand and eye-level placement and brand equity on the other, shifts to auto-renewal or a natural language parser.
Given that P&G and Unilever's combined ad budget is larger than the global revenue of the recorded music industry, this means that subscription soap powder could be a much bigger deal than subscription music. What will you have to pay to be Google Assistant's default choice of dishwasher tablets?