Transcript: Direct-to-Consumer Companies & Long Tail Opportunity in AI (Above Average Newsletter)
Read the full transcript of The Startup Project, episode #69, where host Nataraj Sindam reads from his Above Average Newsletter. This episode analyzes the collapse of direct-to-consumer (DTC) companies due to high customer acquisition costs and explores the untapped long-tail opportunities in AI for small developer teams. Discover why low CAC is the true indicator of product value and where the next wave of AI innovation will come from.
2024-02-13
Host: Welcome to 50th edition of the Above Average newsletter. Your biweekly source of above average takes on the business of Big Technology, written by Nataraj Sindham.
Host: Topic one, what's with direct to consumer companies? What's common among all these companies? All birds.
Host: Brilliant Earth Group Peloton, rent the runway. They are all public direct to consumer companies whose stock is down ranging from 80 to 95% in last couple of years. If you are direct to consumer company, the best time to go public was in 2021 when the pandemic has fueled an e-commerce spending spree.
Host: Once this is over, the markets realized a lot of direct to consumer companies have no path to profitability and have unsustainable business models.
Host: So what can we learn from what is happening with direct to consumer companies? When you are willing to spend on high customer acquisition cost, CAC, you can create a short-term non-profitable direct to consumer company, even when industry dynamics don't support it.
Host: If you spend enough amount of money on Facebook and Google Ads, you can sell any decent product. VC money was used to subsidize CAC. That is clear.
But that stopped and these companies are not close to profitability and a lot of them are on the verge of bankruptcy.
But if I am an investor in such brands, the one thing I would look for is that the product innovation should reflect in my customer acquisition cost being low.
Host: If you are not able to get very low customer acquisition cost on your product or brand, then technically you are not creating value with your product. Your customer acquisition cost reflects whether the product or brand is actually desired by the customer and if the industry dynamic support it or not.
Host: Topic two, where is the AI opportunity? It's easy to see big funding rounds in AI for foundation model companies and think AI is all about fearsome foursome funding, Jeffrey Hinton's ex-students or ex Open AI employees.
But I think the real opportunity in AI for next couple of years is in the long tail of building specific narrow application that solve small problems that were not possible before.
Host: There is treasure trove to be exploited by teams of one to three developers to build SAS applications which can generate millions in revenue. LLMs are a superpower for full stack application developers. If you want to build something and are looking for such ideas, feel free to reach out to me.
Host: Topic three, 100 days of AI experiments. AI is going to impact us all.
So as part of 2024's first 100 days, I'm going to spend one to two hours a day learning, experimenting, reading and tinkering with the latest AI models, products, and content. You can follow along by following me on Twitter or here on my blog.
My goal in this 100 days will be focused on what new things we can build using AI and what to expect from AI in future.
Host: The series is also published here on Hacker Noon. If you're listening to this and have not subscribed to the newsletter, please go subscribe. Till next time, stay above average, Nataraj.