There has been a lot of excitement around new AI tools that are supposedly going to make it much easier to start and operate DTC businesses. Unfortunately, I think these tools are eventually going to make it harder to run a profitable DTC business.

Since ChatGPT exploded onto the scene, everyone and their mother has launched their own new generative AI tools. DTC software providers are no exception. Last month, Shopify launched Shopify Magic, which they describe as “a suite of free AI-enabled features … to make it easier for you to start, run, and grow your business.” Basically, it’s AI tools that allow you to do things like automatically write site content or generate email copy. These tools seem helpful and I definitely see how they could lower the costs of running a DTC site.

Since iOS14 nuked ad effectiveness, Meta has made massive improvements in ad delivery based on enhancements to their AI / machine learning algorithm. Exhibit A here is Advantage+ Shopping Campaigns. These refinements do actually appear to have boosted ROAS and, at least in the short term, have lowered marketing costs for brands.

Unfortunately, I do not believe the introduction of tools which lower short-term costs will lead to a sustained increase in brand profitability. Why? Because AI productivity tools may lead to lower costs for you…but also for everyone else, further reducing barriers to entry and increasing competition.

Consider the Shopify AI tools. It’s true that not needing to spend time writing reams of copy for my brand’s emails seems nice. But now it’s much easier for anyone in the world to start a copycat business–especially if English isn’t their first language–because they don’t need to worry about the cost of hiring a copywriter. Increased competition will inevitably lead to lower prices and profitability. By the way, you can plausibly argue that this dynamic is at play with Shopify itself: it massively lowered the cost of starting a DTC brand…leading to unending competition between millions of DTC brands.

For brands spending on Meta, higher return on ad spend is great. But, of course, it’s becoming increasingly clear to everyone that Meta ads have regained much of their effectiveness, leading to greater spending on the platform. Unless consumer usage of Meta grows commensurately, this will necessarily lead to higher and higher bids and, eventually, declining ROAS and profitability. Incidentally, this is exactly what happened with Facebook ads between ~2012 and iOS14.5’s release in 2021.

To the extent AI tools truly make it cheaper or easier to start or operate a DTC brand, the real winners are clear: First, it’s consumers, who benefit from the proliferation of brands with lower costs who are therefore able to offer even more niche goods at lower prices. Plus, of course, it’s the AI tool providers like Shopify and Meta who become increasingly indispensable to the brands. The brands themselves? Not so much.