The Shift from Advertising to Commerce

Franco Varriano
    
April 19, 2021
   .   
8
 min read

Previous posts on this blog have only just scratched the surface on how the evolution of technologyparticularly the internet—has begun to impact society.

But the most obvious shift is one that's happening now: the move from advertising to ecommerce.

Let’s backtrack for a second. When the internet launched, there were two significant problems:

i) Low user numbers;

ii) Lack of trust because it was such a new and unfamiliar tool.

As a result, online advertising was the default business model. Just as a potential customer would look at a billboard or poster in the physical world, online ads would promote a product and then the conversion (AKA a purchase) would happen offline.

Rex Woodberry, a venture capitalist with Index Ventures, writes:

"The first decades of the internet have been dominated by ad-based business models. When the internet was new, people weren’t yet comfortable transacting online; ads let the major internet sites remain free and accessible to anyone"

Today's internet landscape looks much different.

What seemed like a radical new direction only a few months ago now feels like an inevitable destination: the rise in ecommerce for not only businesses and brands, but individual creators and entrepreneurs, too.

The internet (and internet culture) is evolving towards these individual creators and entrepreneurs (as well as other forward-thinking brands) who are building their own niche and audience of passionate fans. These fans are eager to buy directly from creators online.

Source

That shift from advertising to commerce is huge, and is going to have a significant impact on entrepreneurs, creators, and modern brands.

Battle of the brands

“The viable companies of tomorrow are the niche brands of today.”

- Web Smith, Founder, 2pm

Before diving in, it's helpful to understand the distinction between broad brands and niche brands.

A broad brand is one that benefits from a wide recognition: Coca-Cola, Amazon, GeneralMotors, and the like. Each has plenty of brand awareness but may or may not be deeply loved. (Apple is an excellent example of a broad brand that is adored, as we briefly explored in the context of cult brands and fans).

A niche brand is not necessarily small, but it is, as the name suggests, quite focused. In the communities where they are known, these brands spark deep passion and loyalty. Consider: Glossier, Peloton, Lululemon, Tesla, and others.

Source

Web Smith writes about the difference between the two:

"There is a sharpening contrast between two main paths to growth and monetization. [...] One optimizes for reach and the other optimizes for depth, one optimizes for volume and the other focuses on brand equity and cohort utility."

Niche brands are the business model of focus for creators and entrepreneurs.

The first generation of niche brands were the pioneers of this online only model: digital natives like Warby Parker or Bonobos who championed a direct-to-consumer sales model. These brands reached their specific target market through affordable new channels like digital ads.

Next came the companies who developed products for an audience they had grown and communicated with via a specific channel (a community group, for example). These audience interactions further shaped their strategies and products, and these brands had a knack for media in multiple forms. This group includes the likes of Away, Barstool Sports, and internet celebrities like Casey Neistat and Marques Brownlee of MKBHD. Within consumer apps, we saw the fast rise of Instagram and TikTok.

Today, we're seeing the success of many more personality-led businesses.

These businesses are run by creators and entrepreneurs who transform their perspectives, tastes, and experiences into brands.Consider new Gen Z celebrities like Charli D'Amelio; writers like Tiago Forte; Nathan Baschez and his group the Type House and Every; entrepreneurs like Amanda Goetz (House of Wise) or Helena Price Hambrecht (Drink Haus).

Today's creators and entrepreneurs are increasingly turning to digital platforms in the hopes of creating a niche brand of their own. They practice  The Law of Linear Commerce.

Linear Commerce is where audience-first principles are leveraged in order to build a strong community. In this model, products are the secondary step. That’s a departure from previous business models where products were created first and then mass marketed.

But once again, niche doesn't have to mean small.

While a new creator or brand might start with a tight-knit group of passionate fans, their primary objective is to expand into mainstream consciousness by fostering or tapping into the desires and "niche" mindset of a wider audience—replicating the success gained more organically with early adopters.

As well as creating an incredible bond with their audience, niche brands develop two more important benefits: first party data and trust.

All about trust

As mentioned off the top, one hurdle faced by the early days of the internet was a lack of trust. That's why advertising was adopted.

Over time, people got more comfortable with the idea of the internet. Bigger brands emerged with guarantees and policies that mirrored what customers would find in the "real world." Things started to shift.

Early technologies like iPod/iTunes catered to our desire to buy single songs versus entire albums and built early-stage familiarity with the concept of an unlimited streaming model.

COVID-19 has undoubtedly accelerated the shift in trust from the real world to a digital one. Customers and businesses (including those who previously preferred a brick-and-mortar shopping experience)were all but forced to embrace ecommerce.

Just look at the adoption of ecommerce in North America in the first months of 2020:

Source

Now, the ecommerce space continues to evolve.

Younger generations who are truly digital first have dramatically different tolerances, tactics, and sub-cultures than previous generations.

Consider:

Younger consumers (both Millennials and Gen Z, but especially that latter) want to #SupportLocal. They care about individual creators and entrepreneurs (as well as modern brands—see our article on The Paradox of Mass Personalization).

Here are some important trends to keep in mind:

  • How much time this new generation spends on social media watching micro-influencers and creators who are more relatable (versus a big brand or celebrity influencer).
  • The shift toward social commerce and "shopataiment", specifically with apps like PopShop Live where customers not only make purchases but also feel a personal connection to the creator/streamer/entrepreneur host.
  • The rise of side hustles and alternative asset ownership in things like sneakers, digital collectables, and other products and experiences in the physical or digital world.

The next generation will continue to dictate the direction of the future of the internet, culture, commerce, collaboration, creativity, and so much more.

What’s next?

There's an undeniable shift towards creators, entrepreneurs, and forward-thinking niche brands that have taken the time to build strong, interconnected communities of passionate fans. This next generation of business favors depth over reach.

As the internet continues to shift from its origins in advertising and big, broad brands towards the niche brands of creators and entrepreneurs, the latter will need new tools to power the way they operate.

One thing is for certain: this new generation will expect more personalized products, experiences, and outcomes from the creators, brands, and collaborators with whom they engage.

They will want to incorporate their many interests, talents, ideas, identities (all data points!) as creative building blocks that can be used to express and enhance the experiences they undertake as a community.\

Creative Layer sees a huge opportunity to create truly personalized products that this next generation of creators and fans will shape together!

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