Fast or Frivolous 2018: How consumer brands are evolving, accelerating and evaporating

The Backstory

Fast or Frivolous? How consumer brands are evolving, accelerating and evaporating, our flagship report from 2017, charted the rapid changes—but also continuity—that the internet brought to the consumer economy. Before the internet, the playbook for consumer brands remained largely static, with incremental improvements such as catalogs, but the digital revolution gave rise to a new flurry of activity and distribution methods. Thanks to a the digital point of entry, which requires much less capital and resources, the number of brands flowered exponentially.

But even though the landscape changed, the fundamental process of doing “good business” did not. The maxims, “don’t spend more than you make,” and, “don’t grow too fast,” should have continued to guide consumer brands, but many batted these adages away as antiquated and no longer relevant to their digitally-native philosophies, particularly given the abundant influx of venture capital funneled to digital brands, totaling billions of dollars—a level of financing that legacy brands did not raise. Subsequently, many digitally-native brands grew too fast and spent too much—some have since shuttered, while many others struggle to stand out, stay afloat or find suitable exits that make money for everyone involved in the business.

2018 has been one of the more transformational years in the consumer economy, largely affirming the path Fast or Frivolous 2017 anticipated brands to follow. First, while the rise of new digitally-native brands has not slowed, more are diversifying their channels into offline spaces. Witnessing this return to traditional avenues, we saw the peak of digitization in 2017, and that increasingly, digitally-native businesses are returning to the multi-channel sales strategy that brands have always used, in which ecommerce, retail and wholesale all play a role. As more traditional brands devote greater attention to selling direct-to-consumer as opposed to wholesale and offline retail, multi-channel businesses will grow more uniform, regardless of whether a brand started online or offline.

This report is both a follow-up of Fast or Frivolous 2017—a continued exploration of what the brands featured in the original report have faced over the course of the past year—and now an ongoing annual survey of the consumer brand landscape.

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Altruistic commerce or commercial altruism? The benefits and limitations of philanthrocapitalism

In today’s hyper-globalized and -politicized world, more consumer product companies are seeking to align with initiatives that ameliorate society and the world, either at inception or later in their life cycle. Whether environmental sustainability, social justice or technological democratization, for-profit companies incorporate elements of the nonprofit world into their business models—at least on paper.

But regardless of the sincerity and impact of their socially-minded missions, for-profit companies are inherently driven to generate as much revenue and profit as possible, at the expense of everything else. This report questions the sincerity and effectiveness of their social missions, outlining the inevitable tradeoffs that for-profit companies make in order to both run their businesses and give back to society.

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Digital utopianism: Facebook, OLPC and Tesla’s grand visions and debatable impact

While consumer goods companies have more recently taken on a mission of environmental sustainability, the tech industry has been a forerunner in “changing the world,” or so it purports. But while Silicon Valley has unabashedly embraced a goodness doctrine, numerous companies have come under attack for HR scandals, environmental damages and half-baked social initiatives. Attention to the internal dynamics and external effects of tech companies—most recently with Uber to Facebook—has exposed more vividly the tradeoffs these companies make, sometimes to the detriment of society, in spreading their innovations and generating revenue.

Facebook promotes the internet as a human right, but only when it controls the web.

The “Doing Good” Index: Technology, Socioeconomic

Facebook first launched Free Basics, an internet package for developing countries, in 2013. The idea behind the program was that internet is a human right, and Free Basics set out to provide it to a greater population, allowing mobile users to access Facebook and a certain number of other websites free of data charge (basically, Facebook would be the internet for these users).

Facebook sold the idea to local mobile providers by pitching them the “freemium-to-premium” model—that customers would eventually buy data, if they first started accessing it for free. By August 2016, Free Basics reached 42 countries, almost half of which were on the African continent. On Facebook’s Q1 2018 earnings call, Zuckerberg announced that almost 100 million people now have access to the internet thanks to the service.  

But Free Basics did not exactly solve the problem Mark Zuckerberg first identified. Most users turned to Free Basics only when they had run out of data, but preferred full access to the internet when they could afford it. Additionally, only 10% of Free Basics connections came from a new internet user.

But more importantly, the program did take the long-term into account. Zuckerberg promoted Free Basics as a “human rights mission” that provides underserved populations with the internet, but in doing so, he advocated that a Facebook-centric internet was more important than helping other countries develop internet infrastructure indigenously and exercise decision-making on internet-related issues. Facebook partnered with local mobile providers, but the program inherently deprived the governments of developing nations of the opportunity to create their own mobile service infrastructure and work with local companies to do so. Its range of sites wasn’t simply limited, but curated—some critics condemned Zuckerberg of digital colonialism, or of “offering hungry people half a loaf of bread.” India also rejected Free Basics, arguing in favor of net neutrality (the idea that the consumer should decide how he or she uses the internet, rather than a company), and other countries such as Myanmar have voted to shutter their Free Basics programs.

One Laptop Per Child wanted to donate laptops to underserved kids, but failed to provide the necessary educational training.

The “Doing Good” Index: Technology, Socioeconomic, Education

The nonprofit One Laptop per Child (OLPC) was established in 2005 to create low-cost, low-power laptops, funded by members of companies such as eBay, Google, Marvell Technology Group and Quanta. At the time of launch, a laptop cost an average of $1,000 and the nonprofit wanted its own version—“the green machine,” or XO Laptop—to cost $100 and be both mobile and durable. The goal was to create a laptop that required so little electricity to function that a user could wind it with a crank and extend internet connection to others.

OLPC received a glowing review from then-UN Secretary General Kofi Annan. In 2006, the nonprofit struck a deal with the Taiwanese computer manufacturer Quanta, announcing that by the end of the year, it would ship 1 million laptops to seven countries each (Quanta was also considering building a commercial version of the laptop). By 2007, the nonprofit collected $600,000 in sales for Mexico, Uruguay and Peru, though this number was vastly lower than its original estimate of $5 to $15 million.

In 2010, however, the price of the XO Laptop still hovered above $200. Many of the laptops broke down within the first two years of operation, and more importantly, the nonprofit focused little on providing technical support and teacher training to the very populations it sought to help. Peru, for example, ordered nearly 1 million laptops, but children found them difficult to use, their schools lacking in consistent electricity and their teacher lacking in support.

On an existential level, OLPC also failed to identify whether it was a hardware startup, a tech company or an educational initiative—the latter of which was OLPC’s original intention. OLPC also received sharp accusations for its “one-shot” approach—the idea that simply sending a child laptop was enough to provide them a new world of educational opportunity. As one critic put it, “We already knew that kids could learn to use computers… What the project did not demonstrate is that kids could use computers for learning.”

Over time, it became clear that OLPC’s desire to build a wide-reaching nonprofit empire as fast as possible was more important than 1) creating a product that would last and 2) establishing an educational system that would help realize the full potential of its products and overarching vision. OLPC’s desire to grow to a great size compelled the nonprofit to meet with top state officials and over-promise on price and product, leading to its own downfall. Though many heads of state inquired as to whether they could produce the laptops domestically, which would help activate their own economies and allow OLPC to focus more on educational initiatives, the nonprofit chose to manufacture its hardware in China, where the cost of production was cheaper. In the end, the Zamora Teran Foundation, a nonprofit founded by the Nicaraguan banker Roberto Zamora, acquired OLPC in 2015. Today, the organization is keeping the OLPC mission alive and working on a new laptop model, though it has slowed growth considerably in order to provide both technology and educational infrastructure to recipients. Other OLPC projects are still operating, either through governments, nonprofits or private entities, but at a smaller scale than the original founders intended.  

Despite the pitfalls of OLPC’s business model and ultimately, its ability to effect change, the initiative did inspire a boom in cheaper, education-oriented laptops, including Intel’s Classmate PC, which it has sent to Mexico and Brazil for $200 to $400. (In fact, the Libyan government once cancelled an order of 1.2 million XO Laptops in favor of Classmate PCs.) Overall, OLPC’s narrative points to the difficulty in balancing healthy business practices with a realistically achievable social mission. Had OLPC focused on the educational aspect of its project instead of on fast growth, perhaps it would have been better equipped to realize its goal and create a successful business venture with a bigger impact.

Tesla envisions an environmentally sustainable future, but needs to come clean about its own impact.

The “Doing Good” Index: Technology, Environment

Even when for-profit earnings are poured into social enterprises, the social impact itself may be dubious or much more complex than an entrepreneur lets on. Elon Musk landed $160 million when eBay purchased his company PayPal, much of which ended up at Tesla, his electric vehicle, lithium-ion battery and solar panel manufacturing company. Today, Musk is building a Gigafactory—the largest factory on earth where all of Tesla’s batteries will be made—with plans to break ground for more locations in the near future. But while a simple Google Search on Tesla surfaces hundreds of laudatory articles about the environmental sustainability of Tesla’s products, each stage of an electric car’s life comes with environmental impacts.

Electric vehicles operate approximately 30% more cleanly over the course of their life cycle than vehicles with internal combustion engines. Parts of a Tesla’s lithium batteries are recycled upon expiration, portions of their rare metals recaptured. These batteries can also serve as energy storage containers themselves, capable of sending energy back to the grid and offsetting a portion of the environmental cost of production.

However, with electricity as their fuel, and this fuel tied to the local electricity grid, the cleanliness of this energy ranges. Only in the best case scenario does a grid utilize majority renewables like wind and solar—far from a guarantee, since energy comes from a range of other sources, from natural gas to nuclear power. Additionally, the metals that make up a Tesla’s lithium batteries are mined, often in environmentally deleterious ways; a typical mine contains only 0.2% rare metals, meaning that 99.8% of what is extracted (and now contaminated with chemicals used in the mining process) is poured back into the earth. As electric batteries grow in prevalence, they have the potential to put major strains on utilities grids, demand for which needs to be coordinated to prevent maxing out. About half of a battery’s emissions stem from electricity used during the manufacturing process. However, an EV will make up for this energy used within two years of operation—perhaps even faster if its grid uses majority renewables. Tesla’s trade off is embodied in this incongruity: The company believes that transitioning the automobile industry to run on sustainable energy sources is worth the deleterious effects of mining the rare metals found in lithium batteries.  

The recycling process itself, which requires separation of electronics and other waste, is quite laborious, making it unprofitable in the U.S. In addition, few companies can currently carry out this recycling process. For this reason, companies often turn to countries like China, which has no minimum wage. This further perpetuates systemic socioeconomic disparities, as large private companies maintain highly centralized wealth at the expense of cheap and outsourced labor.

If Tesla and electric vehicles more generally continue to grow in popularity, recycling facilities will grow in prevalence in the U.S. and become cheaper to operate. In turn, Tesla’s beneficial impact on the environment will expand. However, in order to realize its long-term plan, Tesla needs to make as much profit as it can right now so it can pour that revenue into making the next vehicle model and improving the car’s performance, benefitting both consumers and the environment.

As of now, electric vehicles make up only 1% of car purchases and lack the necessary charging station infrastructure. Most current Tesla owners have long-duration chargers in their personal garages or at work so their vehicles can juice up all day (there are also “destination chargers” at hotels and other locations like wineries, where the Tesla consumer might want to take a road trip), but the company considers expanding its charging options to be “the last barrier to sales from the general consumer.” More recently, Musk has stated that he is open to allowing other EV manufacturers to use the Tesla charger network, which would help reduce fossil fuel emissions at a faster pace and grow the EV market in a more sustainable way. Still, Tesla is taking a financial bet—what if it pours millions into Tesla-branded infrastructure, but then fails to sell enough cars to make up for the money spent?

This is not to overarchingly condemn Tesla’s attempt at forging a social enterprise, or to identify the company as an antagonist to environmental sustainability. Solar panels are also composed of metals that are mined harmfully, as are traditional fossil fuel-operating cars. Not to mention a car that runs on a higher percentage of renewable energy is better off than a car that uses fossil fuels. But looking at environmental impact, it’s necessary to judge a consumer item not solely on the effects of the final product, but on the effects of each part that makes up the whole: What it took to make the final product, how the final product operates now, how it will operate over time, and what happens to it when it expires or is discarded by the consumer.

For these reasons, Tesla provides a useful lesson about sustainability, both in terms of business health and the environment: that sustainability is about transparency. Though Musk recently tweeted that he was planning on taking the company private (he later rescinded this intention), Tesla is still a public company about which the general public knows very little. As David Abraham, author of “The Elements of Power,” writes, “We need to invest in the science of understanding the impacts of the products that we’re making.” Consumers and investors should understand what it takes to make the materials that enable their green choices—how decisions are formulated, what tradeoffs are made and what the pros and cons are to each. Tesla or not, transparency should be a main goal for any company, especially one that claims to lead with corporate social responsibility.

For-profits versus non-profits and the rise of philanthrocapitalism

Today’s rise in for-profit social enterprises diverges from the traditional path consume product companies have taken to “do good”: philanthropy. Traditional philanthropy is distinct (and criticized) for its timeline; it occurs only after great wealth is accumulated rather than as a company grows. With mounting expectations that for-profit companies will do more throughout their life cycle than simply sell products and make money, traditional philanthropy is increasingly seen as working backwards, when for-profit companies should be “doing good” every step of the way, i.e. paying it forward.

More entrepreneurs are now pivoting to a new model of charity called philanthrocapitalism, which folds philanthropy into for-profit business practices. Philanthrocapitalism views capitalism itself as philanthropic because it powers innovation and creates products that improve life, offered at increasingly lower prices. More entrepreneurs are embracing philanthrocapitalism today, guided by the impulse to control where their capital goes; instead of contributing to charity, they use the capital to accelerate economic development. The idea, according to Michael Porter and Mark Kramer, founders of The Center for Effective Philanthropy, is that “businesses acting as business, not as charitable donors, are the most powerful force for addressing the pressing issues we face.” Still, critics point out that philanthrocapitalism takes dangerous steps in privatizing social policy.

The line between for-profit and non-profit companies appears to be blurring more than ever before as buzzwords like “transparency” and “corporate social responsibility” continue to circulate. B Corps, for instance, are for-profit companies “certified by the nonprofit B Lab as voluntarily meeting higher standards of transparency, accountability, and performance.” But as as for-profits take on elements of nonprofits, it’s all the more important to question the intentions and potential impact of any philanthropic donation and any social initiative attached to a for-profit business. Investigating how for-profit companies balance generating revenue and fulfilling a public good helps to elucidate the level of authenticity in a business’ purported social mission.

Intentions and caveats behind for-profit altruism

Though their actions may be guided by the impulse to generate as much revenue as possible, for-profit companies don’t exist in a vacuum. Their decisions and actions, whether within the company, throughout its supply chain, or in the hands of shoppers, have wide-reaching and reverberating effects on employees, consumers, society and the planet. Though it is in a company’s best moral interest to reduce its carbon footprint, provide broad employment benefits, stand for equal rights and create products that improve life without causing detriment, there may not be a financial incentive to do so, especially in the short-term. For-profit companies also are legally bound to make money for their shareholders—a task that has nothing to do with society at large.

At the same time, consumers are demanding more than ever that companies behave transparently about their internal corporate culture and dynamics, their environmental sustainability efforts and ethical sourcing, and their attention to socially-minded projects, whether or not this mission intertwines with or exists outside of the business’ fiduciary health.

This trend is particularly strong among the newer crop of digitally-native brands, from Warby Parker, whose Buy a Pair, Give a Pair program offers affordable glasses and operates a training program for basic eye exams—to Bulletin, a startup retailer that gives digital-first, female-led brands accessible shelf space, hosts events to empower women, and sends 10% of all profits directly to Planned Parenthood of New York City. As consumer perception increases in importance—a survey from 2014 found that only 24% of respondents said they trust the federal government to “do what is right”—companies may be more incentivized to self-regulate and proactively address public issues. If anything, doing so may ensure that more customers open their wallets.

An investigation into for-profit companies that take on a social mission unveils two main ways of “doing good”:

  1. Companies do it as they grow (as they climb the mountain).
  2. Companies (and their leaders) do it after accruing a large amount of wealth (once they have reached the mountain’s summit).

Because there are so many avenues to give back to society, each company establishes at least an implicit hierarchy of “doing good,” determined by their founders and leaders; one may claim that amassing great revenues and then donating millions to charity later on is the most effective form of philanthropy while another may decide it’s more efficient to start giving from day one. In each situation, there are tradeoffs to make based on how the company applies resources to a public good versus pours revenue back into its product business, at what point in a company’s life cycle it decides to give back, and how much giving back affects sales. Any given social initiative may mix and match from a variety of benefits, whether socioeconomic, environmental, technological, societal, educational, etc.

Despite the intentions behind altruism, it always comes with caveats. For for-profit companies, it’s always a risk—alignment with a particular issue can hurt a business, even lop off a section of its customer base. For-profit companies that take on a social agenda are not immune to criticism, no matter what cause they endorse or how they give back. Some critics also decry these companies as hypocritical, masquerading a nonprofit ethos when they still exist to make a profit, and then producing self-aggrandizing advertisements.

Anand Giridharadas, author of “Winners Take All: The Elite Charade of Changing the World,” calls it “fake change”—“change the powerful can tolerate. It’s the shoes or socks or tote bag you bought which promised to change the world. It’s that one awesome charter school—not equally funded public schools for all… It is impact investing—not the closing of the carried-interest loophole.”

Not only are donations often only small cuts out of a for-profit company’s revenue, but the very existence of some of these companies has also resulted in or exacerbated many of the problems they seek to address through altruistic means. Given endemic issues with charity and other forms of humanitarianism—fields that cannot, unfortunately, escape corruption—there’s logic to the argument that both nonprofit and for-profit companies alike might be able to “give back” more effectively simply by improving their own business practices. For for-profits, this may mean paying employees higher wages or reducing carbon emissions in their supply chain. For non-profits, it comes in the form of refusing tainted funds from figures or entities that are incongruent with their mission, or pouring the maximum donations into their public programs. In 2014, for example, a joint investigation by NPR and ProPublica found that the Red Cross’ overhead expenses were much higher than it professed.