Jul 15, 2017, 9:58 PM ETConference Presentation, Fireside Chat, Presentation

How 'Going Direct' Changes Everything: for Brands, Retail, Marketing, and Advertising

Core Thesis: A fundamental shift termed "Direct Response 2.0" is dismantling historical barriers between brands and consumers, moving marketing from a "guessing game" to a data-driven, direct relationship model.
Historical Barriers: Brands previously faced "walls" created by retailers (e.g., Walmart, Macy's) and mass media outlets (e.g., TV networks, Time magazine), which obscured consumer identities and purchase behaviors.
Disintermediation Trend: While retail formats have shifted (e.g., Amazon replacing Borders, Netflix replacing Blockbuster), the intermediary "walls" largely remained until recent technological developments.
New Intermediaries: Current digital intermediaries like Amazon, Facebook, and Google have replicated traditional walls, controlling access to consumers and data.
Investment Thesis: Andreessen Horowitz identifies three specific trends emerging to bypass these walls: crowd-based social commerce, promotional transparency, and experiential shopping.

Soylent Case Study: The company transitioned from a controversial Kickstarter pre-order to a thriving business; Andreessen Horowitz led the Series A round after the initial $750,000 raise.
Tesla Model 3 Launch: The company secured 300,000 reservations generating $14 billion in indicated demand within one week without spending on mass media.
Data Acquisition: Tesla gained the name, identity, and payment credentials for every single consumer who pre-ordered, enabling direct communication and a debt raise of over $1 billion based on demand.
Xiaomi Pre-Orders: The Chinese smartphone maker registered over 3 million users for the Mi 5S and 5S Plus in a short timeframe, generating billions in demand at a base price of roughly $300.
Beta Brand Model: An apparel company allows users to vote on product concepts (e.g., "yoga jeans" received 4,359 votes); production only occurs after reaching a minimum vote threshold.
Consumer Benefits: Pre-orders provide early access, foster a sense of belonging ("movement"), and allow consumers to influence product development through voting behavior.
Brand Benefits: Companies can mobilize communities, pull forward future demand, predict exact production volumes, and eliminate mass media ad spend.

John Wanamaker's Quote: "Half the money I spend on advertising is wasted," a problem that persists despite the internet's evolution, as most CMOs still rely on traditional media tools.
Traditional TV Decline: Audience for traditional TV viewing excluding streaming has plummeted, with a 38% loss among 18-to-24-year-olds over one year.
Primetime Erosion: Total primetime viewing audience has dropped from 14–15 million to approximately 4 million over the last few decades, despite US population growth.
Cost Inefficiency: As audiences shrink, Cost Per Mille (CPM) rates have exploded, offering smaller reach for higher costs without verified conversion data.
Reach Argument Invalidated: The traditional justification that TV offers unique "reach" is undermined by Facebook and Snapchat aggregating similar audience sizes.
Instacart Solution: The service provides CPG companies with granular data on individual purchase history from every visit to local grocery chains.
Targeted Promotions: Brands can execute performance-based, friction-free loyalty programs (e.g., targeting specific users who buy competing products like Coke with Pepsi promotions).
Measurable ROI: Marketers can track long-term behavior changes to determine if specific ad spend influences loyalty, moving away from "spray and pray" tactics.

Shift from Search to Discovery: Traditional e-commerce (Amazon, Google) focuses on the bottom of the purchase funnel where consumers know exactly what they want and search for the lowest price.
Margin Compression: High price transparency at the bottom of the funnel forces retailers into price wars, eroding brand margins while Google captures ad revenue.
Double Marketing Costs: Brands spend at the top of the funnel to generate interest, while retailers spend at the bottom to capture the sale, leaving brands with diminished returns.
Pinterest Strategy: Pinterest and Instagram are positioned to influence the "explore and discovery" stage of the funnel, diverting users from price-comparison sites.
J.Crew Case Study: The retailer uses Pinterest to publish future style guides, allowing fans to get early access while providing the brand with real-time signals on which designs are trending.
Data Feedback Loop: High engagement ("heat") on specific pins indicates production viability, while low engagement allows brands to cut orders before manufacturing.
Direct Communication: This model facilitates two-way communication between brands and consumers, replacing the "spray and pray" nature of traditional magazine ads.

Art to Science: Marketing is transitioning from an art form based on guesswork to a science based on data, targeting, and prediction.
Skill Set Shift: Traditional marketing teams requiring skills in mass media buying (e.g., ABC, Vogue) are being replaced by teams focused on direct marketing and optimization.
Optimization Focus: With measurable data, marketing budgets can be treated as optimization problems, identifying exactly what works and eliminating wasted spend.
Future Investments: Andreessen Horowitz expresses enthusiasm for companies like Pinterest, Instacart, and Tilt that enable these direct-response trends.