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You’ve clearly never worked in direct response marketing. The cost of customer acquisition vs lifetime value of a customer is terrible compared to traditional retail. In 2007, you could print money. In 2023, you’re most likely barely breaking even buying digital ads. The OPs thesis is quite correct. I’ve been in the space for 14 years and have tens of millions, if not hundreds, in DR adspend across multiple platforms / industries.

I've been in the direct response industry as well for a while and kind of at a loss for what to do.

Being a small time app developer and seller of random things. I can't afford these new CPMs, $15 - $50 is a LONG shot compared to 2019 and paying $3-5 CPM.

Mind you I've spent close to $400k between Fb/Snapchat/Tiktok.

What do I do now that these companies have shut me out? Anything I build I can't see a path forward on acquiring customers without say buying email lists or hitting SMS lists. I feel very unfairly screwed.

I think direct advertising for your products is a suckers game. You have to compete against everyone for ad spots, and there's always another company that has better margins who will outbid you.

I've had success with two strategies:

1) Maintaining a semi-popular Open Source project adjacent to my app. The website of the open source project mentions my paid app. It's free advertising that noone can outbid.

2) Word-of-mouth: My app is recommended by users to others. It's also free advertising, you just need to make a nice product...

Is there anything inherent in your products (as opposed to someone elses) that entitles them to an audience?

Nearly perfect competition does imply a profit margin near zero.

I don’t think this is a case of “nearly perfect competition driving prices down so nobody makes a profit” (e.g., you working for a social media company trying to argue how perfect competition this is ;-) ) - BUT potentially rather a case of “monopoly power of social media charging so much for customer acquisition that it drives profits to zero”; so rather a shift in profit from high prices from the manufacturers pocket to Zuck et als pockets…

It's an auction. The buyers are driving up prices until it's no longer profitable.

This is hard core wrong. Only the preferred buyers have access to the product that everyone wants to buy. They negotiate above and beyond the auction system and the platform obfuscates that by making it more difficult for the users who are not preferred and must participate and in the "free market" to tell why their ads perform poorly.

Spoiler alert: it's because they are being sold garbage impressions while being shown "analytics" that make the lay person believe it's their content, or ad, or targeting, or whatever... and not the fact that the platform just pooled all the valuable impressions outside the auction and gave them to a preferred customer who never touched the auction system to begin with.

If that's true, that demonstrates the sellers aren't exercising monopoly power to set prices artificially high. A preferred buyer means someone able to negotiate.

Wow, that I did not know - but totally believe

With only one seller ;-) That’s usually kind of what you call a monopoly. A bit like just a single entity selling oil and then arguing “oh this is a free market because we auction of the oil…”

No?

Alphabet, Facebook, Microsoft, Apple, Tencent, Alibaba, Baidu, Bytedance, Yandex each have more than 1% of digital ad spend marketshare, and none of them have 50% of total marketshare. They compete in many areas too.

I think there are credible Indian competitors growing too.

Theres OPEC, theres Russia, theres Iraq, …

These companies have margins >>20% whereas the advertisers barely break even.

> Theres OPEC, theres Russia, theres Iraq, … These companies have margins >>20% whereas the advertisers barely break even.

How is oil & gas relevant to digital ads?

I was relating an example from oil oligopolies with the Ads market.

Social media making $$$ whereas the companies buying Ads barely breaking even is not equal to an “open efficient and free market” as the initial thread suggested.

There can exist different market dynamics in different sectors?

I'm not really sure why your trying to compare oil & gas with digital ads, it doesn't make any sense. You can't extrapolate conclusions based on the market dynamics of one to the other.

I don’t agree with how you measure market share in order to try and argue that we do not see an abuse in negotiation power by Meta et al.

Here is another oil&gas comparison: OPEC countries aren’t distorting the market in their favor, because oil is just a fraction of the total energy market (e.g., nuclear, wind, solar,…)

> just a fraction

1/1 is a fraction. What fraction is oil of the total energy market?

I still don't see how this is relevant.

I suspect targeted ads are a part of the phenomenon the article is talking about.

Since targeted ads got so cheap, tiny little businesses could buy super targeted social media ads for less money than they could selling their products wholesale at a store. Net result is that they can flood social media with targeted ads for some geoarbitraged thing that tiny startup found on AliExpress decided to sell DTC, and end run around consumer wholesaling and all rigamarole involved there.

The barrier to entry for that is super low. All you really need to be good at then is matchmaking some real niche product you found on Alibaba to a real niche consumer need.

Net result: lower prices, greater net profit for the company, tons of new entries to the game of social media enabled DTC.

> flood social media with targeted ads for some geoarbitraged thing that tiny startup found on AliExpress decided to sell DTC

This is a gem of a phrase. I'm going to use 'geoarbitrage' from now on.

I live in a place full of this sort of nonsense, such as resold Clevo ODM notebooks, overly-cheap 'desktop projectors', overly-cheap TVs, water purifiers, and even air-conditioners. Oh, and the 'advertisers' are typically skimpily-dressed young women barely in university.

I simply refuse to buy anything that isn't European, Korean, Taiwanese, or Japanese for home appliances and electronics.

Brands like Miele, Bosch, Samsung, LG, Sony, Brother, Nikon, Philips, Smeg, Liebherr... They're usually up to 2-3x as expensive as the equivalent on AliExpress, but the quality and service is unbeatable.

Funny, Kitchenaid and Wolf/Subzero are US made and most products I have owned from either are far superior to Japanese/Korean. For instance, my Samsun refrigerator is three years old now and has a poorly engineered ice maker that has been repaired twice, the light for freezer is now working intermittently, and the digital inverter with its obnoxious 10 year warranty sticker on the front of fridge is now is noisier than when it was brought into the house. I continue to use a kitchenaid dishwasher and microwave, 16 and 10 years old respectively, which still look and run amazing.

I never said anything at all about American brands; I simply don't get them where I live much (if at all). My LG refrigerator and dishwashers, Sharp microwave, and LG monitors + TV have all been working fairly well for several years.

That being said, personally dislike American brands but only because they usually advertise and use USC units, which make them hard to wrangle in a purely SI country.

I agree with the whole list except Samsung for appliances, I’ve had terrible experiences with them. I have a guy coming in for the 3rd time to fix my dishwasher - the first time he came in he found out the wrong chip was installed for this model

My mom has an old-ass IFB dishwasher (Indian brand) that has outlived two of my Bosch dishwashers (currently using a Miele). And it was half the price!

Your argument breaks down as soon as there are economies of scale. Gillette can probably buy the same quality as Jeremy's at a better price, because they order larger bulk shipments. That means the new niche DTC companies will most likely be a worse value to consumers than the established big brands.

Also, the article links to a study which found DTC to be 10% more expensive than traditional retail.

> That means the new niche DTC companies will most likely be a worse value to consumers than the established big brands

Umm, I bought a no-name (but Gillette-compatible!) razor last week while travelling due to having left my usual kit at home.

Having used the no-name one for a week, I can no longer see any reason to pay the extra for a razor brand ever again.

As someone that has not changed razor blades in 5ish years, I'll warn that you probably can't generalize how well a razor will work for all skin and hair types. I'm thankful that I don't have issues with mine, but I also don't recommend others change.

Granted, I haven't looked at prices in a long time. I am mostly assuming not insane costs.

> Granted, I haven't looked at prices in a long time. I am mostly assuming not insane costs

I'm not sure what "insane" would mean in this contect, but replacement blades for the no-name Gillette clone I bought are half the price of original Gillette ones.

My week using the former showed that, for me at least, the performance of the latter really doesn't justify its price. YMMV.

I haven't bought blades in 5 years; so I don't have a gauge. I was underlining the YMMV for folks. I remember back when I was a lurker. :)

Economies of scale diminish quickly when overheads are low, which the tooling costs for making razors will be.

It's likely that even small companies are selling enough that these costs amortise to near zero.

That is not a bad theory, but I can't tell you the difference when I try using one of their shavers vs the store brand ones I usually get.

I also cannot tell the difference between that and just buying safety razor blades, though there is a huge advantage (for me) in the pivoting head.

Lol I made absolutely no argument about product quality. All I point out is the underlying reason for a glut in companies selling stuff through social media advertising.

> Does he know how much Gillette spends (saved you a search: 600M/year)? How do they fund that I wonder?

Jeremy’s volume is probably a Gillette’s rounding error. A better question is what is their CAC and CLV - and Gillette’s are probably much better.

I don't think Gillette is worried about market loss to Jeremy's razors. the question is if Jeremy's is a viable business with $800k/month in ad spend, and if they're acquiring customers faster than they're losing them.

Before jeremy's there were other similar businesses with the same business model that weren't anti woke but advertised heavily online - dollar shave club, harry's, etc. They both have the same business model as Jeremy's. Dollar shave club was acquired by Unilever for $1 Billion and Harry's was acquired by Schick for $1.37 Billion. After being acquired both companies seem to have stopped advertising online anywhere near as heavily as they did before. I think Harry's started as a sort of charity buy one give one sort of company so it also had a social aspect to its promotion.

It's clearly a space where there's room for competition and the possibility of getting acquired by a giant company who doesn't want to compete with you. If you have a built in audience of "anti woke" who will buy whatever dailywire sells them, you short circuit a lot of your risk and can focus on growth. The targeted ads at people more likely to be interested is just that, looking for growth. It doesn't mean its a bad business.

My feeling throughout reading the article is best summed up as "Y U mad bro?" He harps on an "anti-woke" razor company

Could be rewritten as 'U mad bro? Y no buy muh razors & own the libs'.

Stubble doesn't care about feelings.