(Preview) Nike’s Lessons on the Internet, Why Nike on Amazon Makes Sense, Meta and Anduril and Silicon Valley History

What’s gone wrong for Nike and why a deal with Amazon is likely the best way forward, the history of the U. S. military and Silicon Valley, and rationale for both sides of the Meta-Anduril partnership. At the end: Some corrections on Ukraine’s drone attack and more thoughts on the future of high-trust trade.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Andrew Sharp?

  Hello and welcome to a free preview of Sharp Tech.

• 0:08Ben Thompson?

  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 watched 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 need to make sure they don't churn. Like all the, they, they were so jealous of Netflix

• 0:50Ben Thompson?

  and its multiples. They, they pursued this model that Netflix did because they were a startup. Like it's like, it's the same sort of thing. We have an incumbent with actually a very enviable position, throwing it all away because they're jealous of, of the new entry. That's kind of like what, what Nike did here.

• 1:06Andrew Sharp?

  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 low and behold, the story has been a lot more complicated, at least for the last two years. Covid, everything was great.

• 1:21Ben Thompson?

  They are still Nike. And so Amazon, like they're going to, 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-

• 2:05Andrew Sharp?

  Well, 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 you don't have to go through Amazon-

• 2:19Ben Thompson?

  It depends on your product.

• 2:20Andrew Sharp?

  Because they don't want to deal with Amazon. Yeah, well, and I mean, that you wrote about this earlier in the week. And that's what sort of piqued my interest and 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.

• 2:51Ben Thompson?

  Right.

• 2:52Andrew Sharp?

  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.

• 3:10Ben Thompson?

  Well, I mean, 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 like, 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? Like, so if you're, you're like, there's categories where cost is sort of immaterial. I have a friend in one of these and he's got like, 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?

• 3:54Ben Thompson?

  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, and things along those lines. You know, I always talk about, you know, you, you, what are you? A, a red spice man or it's not red spice, old spice. Yeah.

• 4:15Andrew Sharp?

  It is red though.

• 4:17Ben Thompson?

  Whatever. Close enough. You knew what I was talking about. So the, those sorts of things, 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, you know, the, the throughput. This is where the 24 or one day shipping makes a huge difference and, 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,

• 4:56Ben Thompson?

  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 a consumer packaged good. Uh, and, and part of that is maybe self inflicted where they're not what they used to be. And there's, there's sort of more competition in the space, but on, there's a spectrum there and they're not deodorant, but they're also not high end, one time thousand dollar or $10,000 purchases where you don't need advertising because the consumers 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

• 5:35Andrew Sharp?

  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.

• 5:47Ben Thompson?

  That's right. And so, well, this is where I think

• 5:49Andrew Sharp?

  Choosing by price.

• 5:50Ben Thompson?

  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. It's 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.

• 6:31Ben Thompson?

  But in this case, for Amazon as a channel, brand's 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 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. An Amazon strategy is people search for Nike, they get Nike, there's a selection there, they choose one and they buy it.

• 7:02Andrew Sharp?

  And they buy it because it's cool.

• 7:04Ben Thompson?

  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.

• 7:49Andrew Sharp?

  All right, and that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharptech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Sir Teccary and the Sir Teccary Plus bundle. Check it out, and if you've got feedback, please email us at [email protected].