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What’s a DNVB? Only the future

Digitally native vertical brands (DNVBs) are up next in commerce

A digitally-native vertical brand meets four criteria:

  1. It’s primary means of interacting, transacting, and story-telling to consumers is via the web. In almost all cases the brand is born digitally. Hence the term digitally-native.
  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.
  3. The DNVB 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 brand 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 DNVB 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.

It also requires venture investors to look more closely at the downstream math of a DNVB versus an third-party e-commerce purveyor. That difference in the unit economics is so meaningful that you can hardly compare the businesses. 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).

Furthermore, 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 made possible by the DNVB nature of the model (and this is the key thing entrepreneurs get wrong in starting DNVBs the world doesn’t need), the model enables a better experiential bundle than consumers have ever seen before and can begin to turn entire industries on their head. This creates a brand loyalty impossible to create in the commoditized world of “channel.”

In the history of DNVBs, it’s incredibly early. We are still 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), aka 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 is not appreciated is that the best opportunities may accrue to entrants rather than existing players. The creation of the DNVB becomes a profound opportunity for investors, entrepreneurs, and consumers alike.