I’m going to get a lot of pushback on this one but I’ve started to think it’s basically impossible for any large ($20mm+), 100% ecommerce brand to be meaningfully profitable.

By the way, I don’t just mean DTC ecom–I mean any brand selling online including through Amazon or other online retailers. And I’m not referring to VC-backed businesses only. Here’s my thought process:

Let’s start by surveying the ecommerce landscape. I’ve written about how there are basically no profitable public DTC ecom businesses. Allbirds, Warby Parker, Bark and many others all lose money (though those are not 100% ecom). HelloFresh and FIGS are barely profitable but were unprofitable last quarter.

What about the 800-pound gorilla in the room, Amazon? Amazon has mostly been profitable for the last few years but, famously, all of its profit comes from AWS and marketplace / ad fees. Its first-party retail business where it holds inventory is unprofitable. Other profitable ecom businesses like Etsy and Ebay are marketplaces, not brands; they are not selling their own products.

What about the private market? For the last couple of years my company Agora has been acquiring ecommerce businesses and so I’m able to evaluate the financials of dozens of private businesses each year. Since COVID receded, I have seen exactly 0 profitable ecom businesses with $20mm+ in sales.

Look, there are probably some exceptions and at least some hidden larger profitable ecommerce brands (Butcher Box? True Classic?). But it’s safe to conclude there aren’t many.

Why? I think the fundamental reason is ecommerce reflects what is described in Economics 101 as “perfect competition.” Perfect competition is characterized by a large number of buyers and sellers offering similar products, detailed buyer knowledge of pricing and quality, and few barriers to entry for new competitors. Take a product search on Amazon, for example. Customers usually have hundreds of products to choose from, know prices to the penny, and can gauge quality through reviews. And it’s pretty easy to see if any seller is making meaningful profit with cheap online tools that estimate revenue. Any very profitable seller quickly finds a slew of copycats undercutting their prices, driving down profit.

Notice how this dynamic is different offline. There is a limited amount of shelf space in Target or Walmart and a limited number of storefronts in high-trafficked areas. These physical limitations prevent established offline brands from constantly facing upstart competitors. For that reason, companies like P&G–a house of brands which mostly sells offline–can be highly profitable.

Where does this leave ecom brands? The first conclusion is to avoid growing revenue for its own sake. Smaller brands can often be more profitable in absolute, not just percentage, terms. The second conclusion is to get into retail if you can. There are many examples of profitable retail brands–not so much in ecommerce.