Investing in Mass Market Scale
The Internet has unleashed enormous wealth creation for investors as well as unparalleled choices for consumers on a global basis. Over the last 20 years, we have been witness to newly iconic brands and transformative companies. With a mobile device always available for instant app downloads which are hosted in the cloud and operated by global software tools, brands no longer know any borders. Thanks to the advent of direct communication on a global scale, the world is a much smaller place, a more meritocratic one where the best app can win and leading brands can and do come from any country on earth. Despite the easy ability to click away, brand loyalty is at an all-time high with 82% loyal to product-brands¹.
The US is now no longer the default home of global brands as Samsung, Spotify and TikTok, and many, many others look and feel just like any other company and no one knows (or cares) where the management sits. This has had a hugely positive impact on the Israeli ecosystem where B2C and SMB Tech start-ups have been able to scale (e.g. Wix, Fiverr, Lemonade and Promo from our own portfolio company Slidely) by combining the technological innovation and creativity of start-up nation with local digital marketing prowess. As an early stage VC, we can feel as comfortable investing in B2C start-ups based in Tel Aviv as in New York — our lead investment in Kzenhas 10 global co-investors who did not hesitate to think an Israeli start-up can become the leading mobile wallet for crypto on a global scale. Yoni and I continue to be amazed by credible B2C pitches with aspirations (and skills!) solely devoted to conquering the US market.
At Benson Oak, we believe we are only getting warmed up in terms of building brands and platforms to mass market on a global scale. We are now at the cusp of what Seth Godin terms the 4th revolution — the revolution of marketing². Combining the fast-paced changes of the (i) industrial revolution, (ii) the computer and (iii) the data revolution of email, social networks and GPS, this fourth revolution around marketing allows us to reshape how we distribute, share and engage with others around the globe. It enables us to do this on a mass market scale where the power of brand, network effects and word of mouth marketing circumvent the globe and back in a matter of seconds. This revolution will be community-driven where WE, the people, are the new engines of marketing and will create market opportunities beyond B2C, B2SMB, B2B2C, etc into what we are terming B2M² — business to mass market.
B2M² represents the common component underlying our investment strategy — to support companies that can build and scale their brand to a global mass market targeting consumer, SMB’s and community-driven platforms.
Let’s walk through the evolution of brand marketing and where we are today and where we believe we are headed.
Pre-Internet: Brands were restricted to selling in your neighborhood, advertising on billboards, radio and TV. Scale was via one store at a time and the winning brands were those that could achieve more scale through national TV advertising, catchy jingles, iconic Super Bowl ads and could engender trust through the power of their name as much as the service or product. Brands would cement themselves through spending huge amounts on TV and billboard advertising. Most of these brands were regional with some national and very few iconic international B2C brands. When I moved to Prague in 1994, it was a big deal that Kmart had just set up stores as a major international brand (for the millennials among you, Kmart was BIG back then!). But Kmart couldn’t even beat local brands that were ingrained in pre-1989 times (a few of which we at Benson Oak invested in and later sold to strategics).
Web 1.0: The advent of the Internet served as a new outlet for companies and brands to reach a wider audience. Web directories, categories and corporate websites were the new thing but were still dominated by “offline” brands that took the new online world as a mere extension of the old world. New entrants like Amazon and NetFlix (DVDs through the mail!?) were just an overlooked irritation to the Barnes and Nobles and Blockbusters of the old world.
Web 2.0:Broadband enabled the Internet to pass 1 billion users by 2006. Social networks enabled direct personal communication on a global scale and online slowly started to eat offline (Blockbuster definitely noticed as it went from 84,000 employees in 2004 to bankruptcy within 5 years!). When we were looking to invest in AVG in 2003, no VCs wanted to partner with us wondering “how could a small Czech company with an online solution requiring a download compete with OEM software built right into computers?” Even if it could compete, Microsoft would own the space by integrating directly into the OS. The answer lay in a simple hook (‘it’s free to download and easy to use”) and brand reputation around security (which Microsoft never matched). Network effects served to amplify the brand through word of mouth and business opportunities since consumers brought AVG into their own businesses (mostly SMB’s). AVG scaled to global leadership in English-speaking markets — only later to be bought for $1.5B by another Czech company that had a similar brand rep around free and easy to use for the non-English world.
The Rise of SMB’s: Web 2.0 brands became global companies thanks to the omnipresence of mobile devices and apps that run on global app stores (Apple / Android), simple and cheap cloud infrastructure (AWS), global online payments systems (Paypal / Stripe) and accessible digital marketing at scale (e.g. Facebook). The term “offline” officially entered the lexicon as e-commerce ate retail (the aforementioned Kmart managed to go bankrupt twice — once in 2003 and again as part of Sears in 2018). These tools removed key friction points and enabled businesses to scale both consumer and to a new online category called SMB’s who act like consumers but with more purchasing power. Like consumers, SMB’s are accustomed to buying from brands that provide simplicity, ease of use and trust. SMB Tech market has grown from almost nothing to a $200 billion market in less than a decade³.
And Then Magically Came Web 3.0: Not so fast. I would posit we are now stuck in the Web 2.0 of world and the demagoguery of data has caused growth hacking to run amok. Marketing creativity has stagnated despite — or perhaps because of — all these newfound capabilities. Companies are over-prioritizing KPIs and undervaluing the importance of brand and differentiation. The three horsemen of CAC, LTV and churn determine every action, often at the expense of brand, story and community.Every website now looks the same in terms of design and they all run the same playbook — optimize headline KPI’s by pushing users to sign up and register before building a relationship, inundate inboxes with email offers as if persistence alone will produce sales and pushing for recurring subscription payments which are often times impossibly hard to find and cancel. Marketers are increasingly taking a myopic approach to customer acquisition at the expense of building real stories in which companies connect and build long-term relationships with their users.
Users have truly become the product without really getting the benefit, while social networks have sliced and diced the data for marketers to reach mass markets. However as these same users and consumers are becoming immune to the marketing tricks, their clicks and votes mean less and what seems like brand loyalty on the surface hides the declining LTV and higher CAC behind the scenes which results from a lack of real relationships with users.
The promise of B2M² — the business of selling to mass market customers by building relationships and making them an integral part of your community. The next winning brands will be those that understand their ecosystem, address their needs and create a real community based on mutual trust and the value of long-term relationship — not just an amorphous user base to be acquired, retained and plundered for LTV. These future brands will win trust and loyalty of consumers and businesses by expanding their offering to multiple pain points. These are the businesses in which we seek to invest and support, providing the potential for both world-class returns to investors and world-changing business propositions: an all-in one place to promote anything (Promo by Slidely), the place for SMB’s to secure financing solutions (Lending Express), the marketplace for education content (Spitball), and a single Talent Solution platform for the hospitality industry (Harri).
The very best brands will be those supported by a community where loyalty is earned and contributions are rewarded, providing value to whatever service is offered. In our version of the Web 3.0 world (whether decentralized or not), mass market scale will enhance the transformative Web 2.0 methods of digital scale and brand promotion with community and trust as the new central drivers. Why the community? How will communities drive brand power and mass market scale? Stay tuned for more on that in our next post.
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Akimbo, a podcast from Seth Godin; This is Marketing