What’s a Digitally-Native Vertical Brand? Only the Future

It’s not E-Commerce, it’s V-Commerce

A V-Commerce brand, or digitally native vertical brand (DNVB), meets four criteria:

  1. It’s primary means of interacting, transacting, and story-telling to consumers is via the web — desktop and mobile. In almost all cases the V-Commerce brand or DNVB is born digitally.
  2. It’s a brand, and that brand is vertical. The name of the brand is on both the physical product and on the website. It requires the commercialization of an E-Commerce channel, but that channel is an enablement layer, it’s not the core asset. It’s not E-Commerce, it’s V-Commerce.
  3. The digitally-native vertical brand is usually maniacally focused on customer experience and on customer intimacy. The experience tends to be three-part bundle of physical product, web/mobile experience, and customer service that collectively become the brand in the consumer’s imagination.
  4. While born digitally, the DNVB rarely ends up digital only. This means the brand can extend offline, eventually. Usually its offline incarnation is through its own experiential physical retail or highly selective partnerships. In nearly all cases of partnerships, the brand controls its external distribution versus being controlled by it.

As an investor community, too often the DNVB is compared to a typical E-Commerce company. If a typical E-Commerce company is a frog, at birth a V-Commerce brand does look a lot like a tadpole. But it doesn’t end up as a frog. The difference is profound, and it requires an appreciation the role brand plays in inspiring people, speaking to them, and shaping their choices, and an insightful understanding of how different the economics and growth trajectories are.

It requires venture investors to look more closely at the downstream math of a V-Commerce company versus an third-party E-Commerce purveyor. That differences in the unit economics are so meaningful that you can hardly compare the businesses. Apples to oranges. Just because they both have LTV and CAC ratios does not mean they both have the same potential value to the consumer in the medium to long run. The third-party stories are flashier at first on the top-line (more brands!), but the long run winning strategy may well be more focus (building a brand monotheism). The channels are often commodities that rise and fall quickly (Fab); the brands have a chance at being long-standing proprietary assets (Bonobos, Warby Parker).

The E-Commerce company is a channel; the V-Commerce company is a brand. The E-Commerce company has low margins; the DNVB has high margins. The E-Commerce company can grow unbelievably fast; the DNVB can grow fast, but as a brand, must also be built incredibly thoughtfully.

While third-party E-Commerce requires you to compete against a grizzly bear called Amazon, creating a DNVB gives you an opportunity to combine the growth of being an E-Commerce company with the margins of being a brand, and with a proprietary selection of merchandise where you control distribution and your own destiny. Moreover, when done right, aka where there is some differentiation in the core physical product itself made possible by the V-Commerce nature of the model, the DNVB can provide a better overall experiencethan consumers have ever seen before. These V-Commerce brands or DNVBs can begin to turn entire industries on their head. Their strategy creates a brand loyalty impossible to create in the commoditized world of “channel.”

In the history of V-Commerce brands, it’s incredibly early. The net promoter scores are off the charts. There is still a lot to prove still on profitability. We are in the first decade of a multi-century macro trend where retail is re-organizing from around the automobile to around the smartphone. Vertical brands were a huge part of the last era of retail (Zara, Ikea, Gap) — the offline one — and now they become the driving story in the future of digital retail.

The moving parts in the shifting retail landscape are right in front of us to see. What may not be appreciated is that the best opportunities may accrue to entrants rather than existing players. The creation of the V-Commerce ecosystem becomes a profound opportunity for investors, entrepreneurs, and consumers alike.

The $1B acquisition of Dollar Shave Club, I believe, is just the beginning.

Next up: the encyclopedia of V-Commerce brands.

Originally, this article called these brands Digitally-Native Vertical Brands, aka DNVBs, exclusively. As this acronym was cumbersome according to a lot of people including Inc. Magazine, I awaited a better idea from the internet, and one came thanks to Dan Scinto. While it has also been used for virtual commerce, it never really took off. So perhaps V-Commerce is less of a mouthful, and it can be understood that V-Commerce is an umbrella term for all DNVBs.