(Preview) Nike’s Lessons on the Internet, Why Nike on Amazon Makes Sense, Meta and Anduril and Silicon Valley History
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Hello and welcome to a free preview of Sharp Tech. I think there's a really interesting analogy between Nike and what happened with streaming, where you had all these entities with basically this sweetheart position where people just subscribe to cable because that's what they did. They sat down, they turn on the TV and they watch something.

Like you were just there. That is actually an amazing position to be in. And now they're in this situation where people have to actively go and subscribe and they have to go and find your app and they have to go and watch a show. And it's all this intentionality on the part of the customer that you're going to need to encourage. You're going to need to get them ads and then you have to keep them as customers. You make sure they don't churn like all the they they.

we're so jealous of Netflix and its multiples that they pursued this model that Netflix did because they were a startup and

It's the same sort of thing where you have an incumbent with actually a very enviable position throwing it all away because they're jealous of the new entry. That's kind of like what Nike did here. It's the same Hollywood arrogance. It's like, okay, other people are succeeding online. Well, we're Nike. We're going to go online and we're going to dominate in that space. And lo and behold, the story has been a lot more complicated, at least for the last two years.

But they are still Nike. Everything was great. They are still Nike. And so Amazon, like, they're going to cut off a lot of the third-party sellers. They're like, look, nope. You're going to get stuff from Nike. That theoretically helps with potential counterfeit issues when Nike, you know, was sort of concerned about before. And it's interesting. Like, you could sense...

The strength Nike was in in 2017, 2018, where they're kind of dictating terms to Amazon. Now, today, Amazon will help you out and, by the way, help us out. So we sell, you know, we have higher throughput on the inventory that we're holding. But by and large, the the balance of power, I think, is much different in this regard. But the funny thing is, and to answer your question.

this might be the right strategy all along, right? The people, I mean, that's the thing that's interesting because I've talked to you about brands online in the past. And you said like, the goal is to be a high enough end brand so that people will seek you out directly. And,

And you don't have to go through Amazon. It depends on your product. Because they don't want to deal with Amazon. Yeah. Well, and I mean, you wrote about this earlier in the week. And that's what sort of piqued my interest in why I wanted to talk about it. Because it occurred to me as we were talking about sports leagues going to streaming and another risk that you've highlighted in the past, not earlier in the week when we were podcasting, but like...

The other risk, once you become dependent on tech companies for distribution, they will eventually extract their pound of flesh from that sort of arrangement. And so that would be a risk for Nike here. And I'm sure they're going in eyes wide open. But you wrote that at the end of the day, competing online is so hard.

that just trusting companies like Amazon, Facebook, and Google may be your best bet. So explain that take. Well, I mean, I did...

It all depends. You have to understand yourself and your brand when it comes to things like Amazon, right? So when I'm talking about being so high-end that people seek you out and jump through hoops to get you, that's good for luxury objects, like relatively rare purchases, right? So there's categories where cost is sort of immaterial. I have a friend in one of these, and he's got – there's just –

It's a one-time purchase. People do a lot of research. They're going to go out and find you. You're not dependent on like a Facebook ad springing like a thousand dollar purchase, right? It's like, you know, people are thinking about this and they're going to go out and do it. And if you have that, why wouldn't you just gather it all yourself? Why would you hand it off to Amazon? If you go to the other extreme. And so the other companies that I talked about in this update, I referred back to an old article I did about P and G and Amazon.

Like consumer packaged goods like laundry detergent and deodorant and things along those lines. You know, I always talk about, you know, what are you a red spice man or it's not red spice. Yeah. It is red though. Whatever. Close enough. You do what I was talking about. So the those sorts of things are.

The consumer is not going to jump through hoops for you. They want to just go to the aisle and buy it or they want to go to Amazon and buy it. And Amazon's made tremendous progress in these spaces through increasing the throughput. This is where the 24-hour or one-day shipping makes a huge difference and be able to turn this stuff over really quickly. If they're going to hold this in inventory, they need to get a lot of throughput. And by the way, if you go there for –

the great thing from Amazon is you need this stuff all the time. So you're going to always be there purchasing. And then you might buy some more stuff. It's a tale as old as time. Why is milk in the back of the grocery store? Cause you have to get it all the time and then you're going to buy other stuff along the way. And so Nike, I think was thought of themselves too much as the Uber luxury brand. And the reality is they're probably closer to consumer package. Good. Uh,

And part of that is maybe self-inflicted where they're not what they used to be. And there's sort of more competition in the space. But there's a spectrum there. And they're not deodorant, but they're also not high-end, one-time $1,000 or $10,000 purchases where you don't need advertising because the zoomers would do a lot of research and go and find it. They're a lot of a I need shoes purchase.

And in that dynamic, you need more help from retailers. And so the fact- It's interesting too, because I also think the dynamic changes once you are selling online. Like if you're in a store, you're featured. And if you're on a website, you are commoditized. That's right. And so, well, this is where I think- People are choosing by price. This is where I think they actually, for Amazon, I think brand advertising is the answer. Where you have to reestablish what you want if you're Nike is-

the entry point that matters is the Amazon search box. And you don't want people to type running shoes. You want them to type Nike running shoes. And, and, and like it's brand is counterintuitively really important to

In like, so there's parts of e-commerce where it's not important at all, where if you're in the direct response world and you're just trying to make, so, oh, I never thought about this product. That's interesting. You're not really paying attention to what product it is at all. Like, like the gazillion things we all buy on Instagram and then regret later. But in this case for Amazon as a channel brand, super important, but what you're not going to get is people typing in.

Nike fly zoom XYZ 37 forever. Like you could do that and get it, but, but having a gazillion sort of models, and this goes back to the product bit where you're going to have a gazillion models and you're going to micro target them. And if people go to your website and get them, that's not an Amazon strategy. And Amazon strategy is people search for Nike. They get Nike. There's a selection there. They choose one and they buy it and they buy it because it's cool. And,

And they buy, yeah, they don't even think sort of otherwise. And so I think Amazon is compatible with a general CPG approach of owning shelf space, building a brand,

And so, again, just all about knowing your product and where the sort of channel makes sense. So in this case, yeah, I think going to Amazon makes a lot of sense. Is Amazon going to try to make you dependent on them and then just demand ever lower prices and that we get a price match everywhere and it's going to be super painful? And then Amazon brand manager is just going to squeeze, squeeze, squeeze, squeeze. Is that going to happen?

Yes, it is. Sorry, Nike. You put yourself in this position. That's the cost of these last five years.

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