
Dollar Shave Club and the Disruption of Everything - dwaxe
https://stratechery.com/2016/dollar-shave-club-and-the-disruption-of-everything/
======
AnthonyMouse
> Value Destruction

These words, they are not what is happening.

Value is the thing the shaver gets from having a razor. P&G doesn't get any
value from giving you a razor, that's why you have to pay money to get them to
do it. You have to transfer some of the value you get back to them in cash
form.

If razors now cost 25% of what they used to, there is still exactly the same
amount of value in existence. There are the same number of razors and the same
number of dollars, only now more of the dollars stay with the customer.
Probably there is _more_ total value because at a lower price people will buy
more of the thing.

This may be more easily confusing because we have become used to measuring the
economy by stock prices. But stock prices are a measure of the _inefficiency_
in the economy. They're a measure of the return on capital. The amount more
that companies skim off the top between what the customer pays and what was
necessary to produce it.

A company that makes products for $5 and sells them for $5 may have a
negligible stock price while creating an enormous amount of value. A company
that buys products for $1 and sells them unchanged for $10 may have a high
stock price while creating no value at all.

~~~
marcosdumay
I like the term "market destruction".

I'm sure there's a name for that somewhere on The Innovator Dilemma, and if
somebody finds it I'll gladly change my usage. But yes, calling it "value
destruction" is stupid.

Anyway, It does not change anything on the overall idea, but your last
paragraph is not really correct. If the company added no value at all, it
wouldn't be able to sell the product. It may add value in distribution (yes,
there is such a thing), or even just branding, but it better add more value
than the price of the product, otherwise, people just won't pay.

~~~
random28345
If you can create "value" by creating a market, what happens to that "value"
when that market is destroyed?

When trepanation went out of style, it destroyed the market for skull-drills,
and destroyed the market for hole-in-skill-drilling service providers. While
you can argue that there was value to the consumer in not having a hold
drilled in their head, it was still a net loss to any shareholders in
companies that provided trepanation products and services.

~~~
marcosdumay
You create value by creating something people want.

If doing something people want creates a market, value went up. If doing
something people want destroyed a market, value went up.

If you destroy a market by bribing a government and prohibiting a product
people want, value went down.

------
estefan
For the last few years most programmers I know have thought everything has a
technical (app-based) solution. But those easy wins are gone now. This is the
next trend in tech - upending existing industries by using tech to drive
efficiencies.

Start looking for "real stuff" you can improve with tech, rather than just
software/apps that're hard to defend.

~~~
onion2k
_Start looking for "real stuff" you can improve with tech, rather than just
software/apps that're hard to defend._

To that end, I often recommend that developers go and find jobs outside of
traditional software businesses for a while. If you spend a few years writing
code for a publishing house or an oil company you'll see more of the
challenges that affect those businesses that you can apply software to. If you
spend your entire career working in a software company it's unlikely you'll
realise that these problems exist because (generally speaking) software
companies have already realised they're a problem and addressed them.

~~~
petra
Does one really have to go work there for a few years? Aren't there other ways
of immersing yourself deeply ?

~~~
fergyfresh
Is there another way of immersing yourself deeply in Spanish without going to
a Spanish speaking country? Not really. It's the same concept really, it gives
you an entirely different outlook on things. There are complex problems out
there that a lot of people in big companies still don't know that can be
solved with software.

Also to say no apps or games will be able to hit it big... Well, just look at
Pokémon Go.

~~~
Chris2048
would Pokémon Go succeed if it wasn't based on an already popular franchise?

~~~
daveguy
Probably not. Niantec's previous augmented reality game, Ingress, was not even
close to as popular, despite having most of the same gameplay characteristics.
Working with the Pokemon franchise was a brilliant move.

~~~
enraged_camel
It's not just the popularity of the franchise. The game would not have worked
nearly as well with, say, the Star Wars franchise.

The reason it worked is because Pokemon itself is about traveling to different
places and finding rare pokemons. That's literally the app - there is 100%
congruence.

~~~
tjl
Like you said, it's about travelling and finding Pokemon. That's what kids who
saw the anime and played the game wanted to be able to do. Pokemon GO delivers
on that desire.

I think it also helps that Pokemon GO simplified the experience from Ingress
which makes it more accessible to a wider variety of people.

~~~
daveguy
I agree with both of you. I didn't mean to imply it was just any random
franchise agreement that made the difference and that there were no
improvements to gameplay. The integration with the pokemon world and improved
game play accessibility are two things that made working with that franchise
in particular brilliant. Working with the Star Wars franchise would not have
been brilliant. Although with the success of pokemon go I expect there will be
a lot more themed games in the future.

~~~
tjl
I think the success of Pokemon GO will open up people to the possibilities of
AR apps and hopefully, we'll see more apps that use AR and the GPS in
innovative ways.

------
AznHisoka
The article seems to imply Dollar Dhave Club succeeded with the help of AWS. I
don't get it. These guys aren't Google. It's a simple static site with a few
dynamic forms. Anyone could've built that easily in 1998, let alone 2006.

~~~
akie
It's not a "simple" static site, and I'd be very surprised if it was "static"
either, because there is guaranteed to be a database backend (how else would
you track orders?). The frontend is written in EmberJS, probably with some
fancy javascript backend.

~~~
michaelcampbell
I can rewrite any actual static site in Ember. That doesn't give it some
magical dynamic properties it didn't already have.

I _suspect_ what he meant was that it's not a site that requires or makes use
of any client side wizardry. Even if it does, it certainly doesn't need to -
it's a web fronted database; a CRUD app.

------
shubhamjain
The profound effect of this disruption can already be seen happening on a
smaller scale if you observe the marketing space in the recent years. Small
brands can now compete without fat advertising dollars. Content marketing is
becoming more relevant than ever. I recently got in touch with a small
marketing agency which is publishing interviews with athletes for one of their
clients, a sports sock manufacturer.

You don't need billboards, flyers or TV ads to drive awareness, you can
leverage free and paid marketing channels to build your business without
burning loads of cash. Marketing today is less about budgets but more about
how you can effectively execute on various parts of digital marketing - social
media, content, paid ads and SEO. I can guess it will be a big win for
consumers in the upcoming years; not so sure about incumbents.

~~~
jknz
Once BigBrand will have realized that billboards and flyers are not effective
anymore, BigBrand will redirect its money towards the new channels: I guess it
will be a big win for google and facebook.

I am not so sure it will be a win for consumers once most available content
will be biased ("sponsored") by BigBrand money. To prevent such nightmare we
need laws to force some kind of transparency on sponsored content.

~~~
sp332
There are already laws and regulations on sponsored content. The recent
PewDiePie et al. fiasco even made it to HN.
[https://news.ycombinator.com/item?id=12086047](https://news.ycombinator.com/item?id=12086047)

------
Freak_NL
At the risk of being considered overly pedantic; is offering a better product
in the marketplace to the detriment of your competitor called 'disruption'
now? Isn't that exactly how the free market is supposed to work?

~~~
ZeroGravitas
As the article explains, the product is actually worse, but much cheaper, and
in absolute terms it's "good enough" since the better product is over-serving
its market.

This is pretty much the textbook definition of disruptive innovation.

~~~
Bartweiss
Is it "disruptive innovation" though? It's textbook competition, and textbook
efficient markets, but the product is exceedingly similar, and the
subscription model isn't what's causing the shift. This just looks to me like
competition in a formerly-monopolized space.

~~~
fisherjeff
I think his article actually uses the term disruption a lot more aptly than
most others. The implication is that the entire business model of these major
conglomerates is now threatened. The cushy budgets P&G, et. al., have used to
their great advantage for the last 70 years now look vulnerable when faced
with competitors with business models like DSC's.

------
aleem
The razors-as-a-service model was the big win here. Microsoft moved office to
subscriptions. Apple now sells iPhone via a hardware subscription. Amazon has
product subscriptions and on-demand buttons you stick on your washing machine
that you can press once for a refill.

Gillette doesn't do direct sales so it misses out on subs. It must rely on
retailers to execute subs. If Gillette did subs for $10 they could greatly
impact their "base" dynamics, essentially: low churn, consumer inertia,
recurring and predictable revenues, direct channel to consumer for marketing
and cross/up sells, streamlined billing, etc.

~~~
ececconi
Gillette actually does have a shave club although it is quite a bit more
expensive. It's called Gillette Shave club...

[https://www.gilletteshaveclub.com/](https://www.gilletteshaveclub.com/)

~~~
ceejayoz
That seems like a pretty blatant trademark violation.

~~~
nommm-nommm
Errr... No.

"Club" has been used to describe subscription products for as long as I can
remember. Columbia House/BMG's mail order CD business were called record
clubs, for example. There was (is?) also the Book of the Month Club and plenty
of other "X of the month" clubs that probably existed way before the world
wide web.

Perhaps "joining a club" sounds more positive/marketable than "subscribing to
a mail order service."

------
arafa
I'm quite surprised there's been so little focus on the shaving experience. I
really wanted to like Dollar Shave Club. I went with them early. Their prices
were great and I really enjoyed their marketing.

But after trying most of their razor models for months, they were far worse
than even the Mach 3 razors I had. It was painful to shave with them, the
handles had a bad design, the lubrication strips weren't working, etc. Maybe
they're better now, but I get several months (or more) out of Mach 3 razor
cartridges. I don't pay much at all for them and have little incentive to
switch.

~~~
fluxquanta
I thought the same thing when I tried Harrys (which is a "higher class"
version of the Dollar Shave Club's model, yet still cheaper than buying brand
name razors). I also dropped over $100 on a nice electric razor and hated it.

Finally, I spent about $40 on a nice stainless steel safety razor and 100
blades for $11 on Amazon. Each blade lasts me probably 2-3 weeks of shaving
every other day. It's a bit more time consuming and it takes a little practice
at first to keep from getting nicked, but it's worth it in the long run. I
find it sort of funny that I'm most satisfied with one of the oldest,
simplest, and cost effective shaving systems.

~~~
pxlpshr
Safety razor is the only thing I recommend to people looking for a high
quality shave. However, I also make sure to emphasize my best analogy which is
that of driving an automatic vs. a manual car.

It's cheaper to purchase a manual and you gain more control, but the average
person will lose convenience and speed. It takes practice.

------
aorth
The article highlights Dollar Shave Club's 2012 introduction video[0], which
is funny and fantastically frames the reality of the razor market. I don't
know why I missed this a few years ago...

[0]
[https://www.youtube.com/watch?v=ZUG9qYTJMsI](https://www.youtube.com/watch?v=ZUG9qYTJMsI)

~~~
puranjay
That video has to be the most profitable marketing campaign in terms of
investment vs. reward. It single-handedly built DSC's initial customer base
and its brand. And all while making people laugh.

------
Mendenhall
I dont see this as "disruption", they wisely competed in a space with a huge
mark-up on product cost. Something like this wouldnt work on an already lean
industry.

~~~
URSpider94
This is actually the textbook example of "disruption" as described in The
Innovator's Solution. The generally accepted definition of disruption is
capturing a market from an incumbent by introducing a product that meets most
of a customer's needs at a much lower price and/or higher availability.

The beauty is that the big players are structurally unable to compete, because
they have baked in a high cost structure and are dedicated to serving ever-
higher customer needs (think five blades).

~~~
Mendenhall
Thanks for that definition and its context, I was unfamiliar with it even
though I have seen the used often. I viewed it perhaps in a more old school
way of simply exploiting their weakness of those baked in costs. Your
definition helps me understand more now how the term is used,I appreciate
that.

~~~
tjl
One problem is that people often misuse the term "disruption" to mean
different things.

------
alaskamiller
If Gillette was Apple and someone else decides to buy up Chinese-made tech
gadgets, throw it into a USPS Priority box, give up margins as marketing, and
create a quirky new brand would that also yield a similar result in 4 years?

Also, there must be quite a lot of ad agencies up and down Madison Ave
laughing out loud because in their monthly pitch sessions to P&G they must
have offered something similar to DSC on a silver platter for much less than a
billion dollars.

~~~
mikeash
Apple locks in its users far more than razor companies do. A Gilette customer
can switch to DSC at basically no cost. They're buying razors regularly
anyway, so they start saving money the moment they switch. The only question
is how well the new razors actually work for the customer.

For an Apple customer switching to the Apple version of DSC, first they're
probably dropping a significant chunk of money to switch. Yes, the Apple-DSC
will be cheaper, but phones aren't a consumable product the way razors are, so
there's also the possibility of just spending nothing and keeping your current
Apple phone. Then if you do make the switch, you lose all your apps, you lose
the ability to iMessage and FaceTime your friends, you lose easy access to
your iCloud photos and notes, and more.

~~~
Grishnakh
One big difference here is that if you decide to dump Apple, you can resell
your overpriced iPhone on the used market to get a good portion of your money
back. You can't do that with razors. The main problem with dumping your iPhone
is, as you pointed out, all the software and online services you might be tied
into. That's where most of the lock-in is. People who avoid all that crap are
in a much better position because they can switch phones easily at any time.

------
waynenilsen
For anyone that is curious DSC resells
[http://www.dorcousa.com](http://www.dorcousa.com) products

~~~
neonhomer
It's interesting, comparing the Dollar Shave Club 4X to the Pace 4 Cartridges
it's actually cheaper on DSC. Plus it's handy that it automatically ships.

[https://www.dollarshaveclub.com/page/checkout/product/4-blad...](https://www.dollarshaveclub.com/page/checkout/product/4-blade-
razor) [http://www.dorcousa.com/pace-4-cartridges-
fra1040/](http://www.dorcousa.com/pace-4-cartridges-fra1040/)

~~~
taneq
It's generally poor form for a wholesaler to sell direct at a price that
undercuts their distributors. That's what 'recommended retail price' is about.

------
maroonblazer
What seems to be missed in this analysis starts here:

> That worked as long as P&G’s other advantages in technical superiority,
> advertising, and distribution held, but were they ever to falter, it was
> eminently viable to sell cartridges for less and still make a healthy
> margin.

For Dollar Shave Club there was no real technical superiority, and AWS
disrupted the distribution. Is drafting off of others' technical innovations
replicable? Sure, but you're not alone. AWS is a resource now available to
almost anyone. Are "viral videos" replicable? Hardly. DSC hasn't even managed
it themselves.

Until someone disrupts creative direction then the kind of disruption referred
to in this article is a long ways off.

------
jokoon
Honestly I really start to wonder if big TV ads for already popular products
really make a difference in sales nowadays, or if it's just a matter of
"sitting" the dominance of mainstream, known products.

Because you can start to question how ads work, and if big companies are just
wasting that money to maintain the "classic" media system.

~~~
blahi
TV ads have never been about sales promotion baring informercials in their
early days (it isn't about promotion nowadays for them either).

------
nosuchthing
Surprised there's no mention of the safety razor renaissance..

Nickle shave club.

~~~
Grishnakh
Yep. I jumped on that small bandwagon around 4 years ago, and though the
initial learning curve was a little steep, I stuck with it and I wouldn't go
back. My total cost for 4 years: around $35 (I think) for a premium Edwin
Jagger DE razor handle, and about $8 for a 100-pack of Derby Extra blades
(which I've only used 75% of so far in 4 years). That's just over $10 per
year, and about 3 cents per day. And most of that cost is in the razor itself,
which doesn't wear out. So over 10 years, I expect the total cost per day to
be around 1.5 cents.

------
pbreit
I had trouble getting past the "shockingly low" valuation. Gillette is a
terrible comparison since leaders earn premiums, Gillette's distribution is
unparalleled, included awesome brands Duracell & Braun and makes its own
products.

DSC is a mediocre brand that primarily resells a crappy product at cost.

------
wldcordeiro
Speaking of disruption, I really hope Robinhood's business model catches on
for individual stock trading. It's absurd that most brokers still charge $10
per trade and makes it very restrictive for people trying to just get in. The
parallel with Dollar Shave Club's rise hopefully pans out.

~~~
honkhonkpants
Interactive Brokers offers $1 commission and an API, and has been doing that
for 40 years.

~~~
wldcordeiro
Hmmm, wasn't aware of this broker, I'll have to look into them. May be nice to
diversify across both services for my stocks and hold an IRA with IB. Thanks
for the tip.

------
codecamper
Or is it a sign of an overheated stock market where traders are looking for
positive signs of anything positive and are willing to pile in money to
established players who are "adapting" to these new, incredible models of
razor distribution.

------
ivv
If Unilever wanted to get into the shaving business they would've bought Dorco
and not the distributor. The $1b is for the mailing list to which Unilever can
upsell Axe and Dove for Men.

------
sage76
I don't get this acquisition. They are in losses and there is no intellectual
property to speak of.

A somewhat funny video and a mailing list are now worth a billion dollars?

------
brianpgordon
> That’s exactly what had happened with the Mach 3, Gillette’s previous top-
> of-the-line model: Gillette increased blade and razor revenue by nearly 50%
> with basically no change in underlying demand, easily making back the $750
> million it cost to research and develop the razor

That number is staggering. How can that possibly be right?

~~~
dsr_
"research and develop", in this case, means:

\- artistic renderings \- engineering diagrams \- material choices \-
marketing research \- prototypes \- test groups \- safety inspections \- more
prototypes \- supply chain gear-up \- packaging decisions \- artwork \-
translations \- international marketing research \- factory conversion \-
tooling, dies and stamps \- training \- safety inspections \- package
production lines \- advertising campaigns \- distribution tuning

and then Gillette can start producing and selling them.

By comparison, DSC picked a manufacturer, asked them for some tweaks, and set
up a fulfillment and reshipment operation.

------
JumpCrisscross
> _According to the traditional way of measuring marketshare Dollar Shave Club
> only has 5% of the U.S.; the discrepancy is due to the massive price
> difference between Dollar Shave Club and Gillette_

So what fraction of shavers use Dollar Shave Club versus Gilette?

~~~
macintux
Directly above that snippet:

> ...leading to Dollar Shave Club capturing 15% of U.S. cartridge share last
> year.

Seems like a pretty good proxy for customers. Astonishing, I'd only vaguely
heard of them.

~~~
rconti
Then, of course, cartridge share presumes Gillette and DSC uses consume
cartridges at the same rate.

Why not just compare actual user metrics? I guess it's hard to figure out how
many people actually use a store-bought razor; not as hard in the online world
(though it may be proprietary information to DSC).

------
bambax
> $1 billion for a 16% unit share of a market dominated by a brand that cost
> $57 billion is startlingly small

Indeed! By that (disputable) metric, it's 9 times too small: 57/100*16=9.2

------
limeyx
Cue this now becoming the "$20/month shave club"

------
JackPoach
Yes but... While Gillette dominates several international markets, Dollar Save
Club may be hard to 'localize'.

------
importantbrian
The real disruption will come when the non-bearded come to learn all the joys
of not shaving. Then we will be reading on the front page of HN how Dollar
Beard Club disrupted DSC and Gillette.

~~~
darryl42
Or switching to old fashion Dual Edge (DE) razors and blades where the blades
are $0.10 each.

~~~
xenihn
I've tried :(

My skin and facial hair suck. The only razors I can shave with comfortably are
Gillette Fusions. I know that they're incredibly overpriced, but the big
package from Costco lasts me a year. I still get some mild irritation
occasionally (even on the first shave with a fresh cartridge). I'm considering
some form of permanent removal for my facial hair because it looks terrible
and I will never grow it out under any circumstances.

~~~
Grishnakh
You tried DE and it didn't work? I'm a little surprised. Men have been using
DE razors for generations (they first came out in WWI). Are you sure you just
didn't give yourself enough time to learn to do it right? Also, there's
different blades out there, and different razors, some more aggressive than
others. Many recommend getting a variety pack of blades and trying them all to
see which work best for you, and many have serious preferences for the razor
(handle) too, because their design and the distance between the safety bar and
the blade can have a huge impact.

