The Internet and Differentiation

The internet changed everything. It opened lines of communication that never existed prior. It helped relationships form that may not have formed otherwise. It has allowed Permanent Equity to connect with investors, companies, intermediaries, and 'scouts' like never before. But this is all obvious.

What isn't quite as obvious is how quickly the internet revealed the need for (and sometimes the lack of) differentiation for a company's service or product. In the internet era, the cost of search and comparison in terms of time, effort, and money declined towards zero. Let's explore what this means for businesses.

What do direct-to-consumer companies and WeWork have in common? Many of these companies made the mistake of believing that a physical goods or services (retail, real estate) business model + the internet = technology company (with the attendant growth and valuations). DTC companies took the traditional retail model and transitioned it online and voila! - branded ecommerce. WeWork took an old model of subleasing office space, combined it with an online presence and presto! – physical network effects.

But these novel ideas were quickly exposed as indefensible in the competitive landscape of the internet as competitors crept into the marketplace. For exmaple, there are currently over 175 direct-to-consumer companies in the mattress space alone. In WeWork's space, various competitors such as Knotel, Spaces, Industrious, and Regus all competed for the same short-term office users. 

Before the internet, knowledge of competitive products and services traveled much more slowly – word of mouth, newspapers, mailers. But with the dawn of the internet and ecommerce, comparing similar products, services, and companies became instantaneous. The cost of search declined precipitously towards zero, meaning consumers became much more aware of the benefits of competitive products and services as well as their costs. 

M.M.LaFleur, a direct-to-consumer company specializing in women’s corporate and professional attire, seemingly succeeded where others had failed. With $70M of revenue in 2018 (although unconfirmed profits), it seems that M.M.LaFleur may be on its way to brand status. Why? They solved real problems for women – 1) they solved the ‘I have nothing to wear and no time to decide’ problem in a way that 2) didn’t break the bank and 3) looked professional without 4) revealing too much, fitting too tightly, and allowing comfortable movement. And yet, in the age of the internet, even M.M. LaFleur must continue to solve their customers problems and build trust in their products or risk becoming a commodity in a sea of competitors. The NPR story below is well worth a listen for an in depth look at the company.

For businesses to effectively compete in the age of the internet, they must solve real consumer problems in a differentiated manner. Your business must answer four questions:

- What are you offering that your competitors aren’t?

- What can you do that competitors can’t?

- What relationships do you have that others don’t?

- What parts of your product or service allow you to maintain your pricing or underprice your competitors in sustainable ways?

Understanding how your business stacks up against competitors in the age of the internet is becoming more important as the cost of comparison and the cost of starting an online business declines over time. 

Idea burnout: as more DTC brands enter the fray, founders struggle to differentiate (Modern Retail)
+  "The first successful DTC companies mastered customer acquisition via Facebook. The second used those growth hack tactics to “sell a bunch of commodities,” he said. Now, brands are realizing it’s no longer enough to just sell goods online, since there are already so many choices. The businesses must figure out a way to telegraph that their product is superior — or that they offer some kind of service that makes it different from the rest."

How I built this: M.M.LaFleur (NPR)
+ This is the inside story of Sarah LaFleur's direct-to-consumer women's corporate dress venture, M.M.LaFleur. 

What we learned from reading Jeff Bezos' patents (Harvard Business School)
+ "Despite this secrecy, Bezos’ patents offer clues about the technologies the CEO considers important to the company's future. Previous studies have shown that CEO time is notoriously oversubscribed, so understanding Bezos’ patent interests could indicate the areas that are critical enough to merit his individual attention. For example, a cursory reading of most of Bezos’ patents shows that they focus on e-commerce, logistics, devices, and digital content—all core areas of Amazon’s business."

Brooks Sports and Brooks Brothers peacefully co-existed for 4 decades - now they're at war (The Fashion Law)
+ "The Brooks-centric suit is not the first to come about in connection with an agreement between two like-named brands to make the peace. In July, Valentino S.p.A. filed suit against Mario Valentino, arguing that the similarly named brand was running afoul of the co-existence agreement they entered into in 1979 due to the fact that they have “similar names and overlapping goods” and “experienced issues of consumer confusion” as a result." 

Inflation is at historic lows, so why do things seem so expensive? (Fortune)
+ "To dig deeper, you have to look at how inflation is calculated. And what the government measures, versus what the average person paying for housing, healthcare, school and childcare (categories that have grown anywhere from 18% to 65% faster than disposable income) experiences, are two very different things."

The WeWork debacle is a symptom of a much larger problem (Marker)
+ "This is, in effect, the platform fallacy: the idea that a platform business is inherently more profitable than any other kind of business. Amazon struggled for years to become profitable and, even today, makes most of its money from cloud computing, not its retail platform. Uber may never hit break even. Sure, there have been some tremendous successes, such as Facebook, but platform-based companies fail all the time.

The streaming shake-up (PWC)
+ "Once a revolutionary shift, streaming has become commonplace—90% of consumers are watching video content over the internet. Consumers have seemingly settled into their video service portfolios, having curated a selection of services that meets their content needs."

Kickstarter workers vote to form first union in tech industry (CNBC)
+ "Kickstarter United will now be formally recognized by the management after a vote held by the National Labor Relations Board, in which workers voted 36 to 47 in favor of unionizing. It is the first union comprised of white-collar, full-time employees in the technology industry."

Retail workers are trying to escape the merry-go-round as jobs disappear and prospects dim (Time)
+ "Employment in retail in January was down 8 percent from the same time last year, according to new Bureau of Labor Statistics (BLS) data released Friday morning, at the same time, jobs in transportation and warehousing, industries critical for e-commerce, were up 28 percent. Department stores have shed 241,000 employees in the last five years, according to BLS data, and clothing stores cut 67,000 jobs."

The legend of John Holmes Jenkins (Texas Monthly)
"He was a notorious deal maker known for bringing priceless pieces of Texas history back to the state. He was also a suspected forger and arsonist. Thirty years ago, he was found dead in the Colorado River near Austin, and to this day a question remains: Could John Holmes Jenkins have masterminded his own death?"

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