Who Wins and Loses in the New Direct-To-Consumer World

Lou Doctor is one of the sharpest e-commerce entrepreneurs that I've met in the last 20 years and I was excited that he offered to speak at our first StatBid Summit.  His presentation didn't disappoint and it was one of the more memorable of the day.  Lou paints a very bleak picture for Google and e-commerce retailers that are simply reselling other people's products.

Transcript

Lou Doctor:         First of all, thanks Shilo, for the invite and opportunity to talk to everybody. I'm here to talk to you about who wins and loses in a direct-to-consumer world. I'll bitch and moan a little bit about Google. I'll complain about Amazon and basically talk about the tombstone of the US reseller channel, because it's pretty much over.

Lou Doctor:         I think someone pretty accurately said it when they talked about the barriers to entry in e-commerce having been lower than ever, but I also feel like the barriers to success in e-commerce are higher than ever, so we're dealing with all of this. I started in e-commerce accidentally with my 12 year old son, selling bicycle tires at the San Francisco Grand Prix in 2000. 

Lou Doctor:         That became Bike Tires Direct, which became Darts, Sleep Direct, Billiards, pool tables, blah, blah, blah, so we built a network of e-commerce sites, which last year did about 100 million boot-strapped ourselves. We talked about the damage that's going on in retail. By degree, the mall is kind of dead. These retail stores are struggling. 

Lou Doctor:         It's getting uglier and uglier, kind of out there. It doesn't look like there's anything in sight, but I think you have sort of step back from the whole thing and look at the history of the channel, at the beginning, think about middle America in the 1850s with the train coming into town delivering goods to the store. A person went to the store and bought them. 

Lou Doctor:         The resellers played this key role about bringing these goods from distant places to the town you lived in. When we sat this morning and talked about Amazon, it was a little bit like the US Chamber ... the Chamber of Commerce of every town complaining about the Walmart that was being built outside of the town and you can see this whole thing that's happened. 

Lou Doctor:         The channel as we know it, has been under continuous siege for 150 years. Sears, when the first Sears catalog came out, people thought that was the end of all stores, like basically that one catalog was going to end it all. I'll say that since things have been changing for 150 years, the last 10 have been very profound. Amazon has literally changed everything. There's never been a one stop shop for everything. 

Lou Doctor:         With over 400 million asons, I think the number is more like 500 million. Amazon has truly organized the world's product information. That was the job that Google set out to do. They broke their brand promise. They did not organize the world's product information. They let Amazon do it and that's really changed everything for everybody, I mean everybody in this room needs to know that it's unstoppable. Brands did not see this trend coming. They built sales organizations around the VP of Sales.

Lou Doctor:         That person basically built an organization with all this regional emphasis. They signed up tons of resellers in all these towns and then they lost sight of the fact that a lot of that product was floating back into Amazon and back around so that the demand that was created by brands is now being filled by fulfillment by Amazon, regardless to whether people are buying it from Amazon, they're buying it from broke resellers or they're buying it from brands themselves. 

Lou Doctor:         I think the future is direct-to-consumer because the brand has to own that demand and Amazon simply becomes an extension of the company's website. I can tell you for a fact that Google did not see it coming. The last five years where the majority of product searches now do not take place on Google, they start on Amazon and they stay on Amazon, is a very ominous sign for every reseller in America. 

Lou Doctor:         I think Google has done more for Amazon than Amazon could have ever done for itself. Shopping is a profoundly fucked up thing. I just can't say it enough. It just is horrible. The fact that we have to manage hundreds of thousands of negative keywords for keeping our products from appearing where they don't belong, is just insane.

Lou Doctor:         Whoever did that just needs to be taken out in the back and realize like, "This is not working." Then I think even the whole definition and comparison shopping doesn't mean anything. I mean, who doesn't know what MAP means? The fact is you can't comparison shop anymore. Any brand that you want to buy probably has a MAP policy and probably forces everyone to sell the product at the same price, so the whole interface is just flawed for what people are looking for. 

Lou Doctor:         Then that enters the Amazon world where like on Wall Street, I can tell you everything works until it doesn't. Everything goes up until it goes down. Amazon has had this virtuous cycle of the stock of going up and more people becoming believers. Amazon drones delivering stuff for Christmas last year, I mean, are you freaking kidding me? There were thousands of articles. Amazon has 20 times the of number news articles as Walmart. The press is just eating this stuff up. 

Lou Doctor:         They get billions of dollars worth of free press every year and it's because the stock price keeps going up and every monotonically increasing instrument generates true believers, and it's just sucked up a lot of people into the belief of this whole thing. Then AWS Prime and Whole Foods, these are all just cover stories. 

Lou Doctor:         The cover story is so you can't tell what business Amazon really is, so you can't figure out like, "Are they a Cloud provider?" or ... but the reality is if Amazon was competing for customers like we compete for customers, they'd be losing money on every sale. The reality is that basically Amazon's fulfillment costs keep going up. Google is not going to change people's shopping behavior by making tweaks to their algorithm. 

Lou Doctor:         They need to get on television and tell people to start shopping on Google, that they're wasting money shopping on Amazon, plain and simple. All the millions of dollars we pay them, have to go into changing consumer behavior with more than just algorithm tweaks and I think as far as Amazon's kind of like the weakness in their armor, it's only reality that stands in Amazon's way. 

Lou Doctor:         Amazon's fulfillment costs keep going up because distribution centers the size of cities are inherently inefficient. You have ship stuff to yourself inside of an Amazon distribution center, to marry it with the other item in the order and that's incredibly expensive. At the end of the day, my business has always been about demand and fulfillment because I try to have a product on the shelf that somebody wants to buy from me when they're searching for it, but the world is changing to demand creation, so resellers are deteriorating, so now we're looking at brand advertising.

Lou Doctor:         I'm just going to wrap up on this. The NFL thinks I want to buy a pickup truck. I don't to buy a pickup truck. For 20 years, they've been marketing pickup trucks to me. I'm never going to buy one, so until that changes, I think you can tell that advertising in America is broken, but I will also say that when I look on Facebook or Instagram, I get a much more targeted set of products that are more aware of what I do want to buy. 

Lou Doctor:         I might buy a catalog. I don't think I will. I might buy some billy club for some reason, because they must think I'm scared and I'm probably going to buy socks at some point. So the reality is I think we're in an era with this micro-targeted advertising that's very powerful if you are a brand and you know how to harness it. 

Lou Doctor:         I think the key to this whole thing is the shift of direct-to-consumer brands. If you're a brand that isn't counting on 50% of your revenue being sold direct-to-consumer, then you're not planning for the future, because your channel is basically falling apart as you ship into it, so you're going to have to own those customers and you're going to have to do it through social media and interruption advertising.

Lou Doctor:         I think the presentation about the television one was great because I think there's so many digital marketers that forgot about traditional media now that we're all having to get back into it because we're forced to get back into it because search marketing isn't working anymore.