Member Exclusive   //   February 8, 2022

DTC Briefing: One year after iOS14, startups are still struggling to adapt

This is the latest installment of the DTC Briefing, a weekly Modern Retail+ column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. More from the series →

This is the latest installment of the DTC Briefing, a weekly Modern Retail column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. To receive it in your inbox every week, sign up here

Nearly one year ago, Apple made a huge update that hampered direct-to-consumer startups’ ability to target new customers with personalized ads — and even the biggest players in the advertising industry are still struggling to adapt.

Last week during its fourth-quarter earnings call, executives from Meta (the company formerly known as Facebook) said that they expected that iOS updates would cost the company $10 billion in revenue this year. CEO Mark Zuckerberg said that as a result of the iOS changes Apple “less data is available to deliver personalized ads.”

Meta has long been the go-to growth engine for direct-to-consumer brands, with startups spending as much as 80% of their advertising budget on Facebook and Instagram. But that changed with the iOS14 update in particular, which rolled out last year and meant that apps like Facebook had to now ask for users permission to track their browsing activity outside of Facebook. 

One year later, DTC startups are still trying to figure out their new marketing strategies in a post-iOS14 landscape. Some startups have been able to minimize the damage from iOS disruptions by ramping up ads on TV, podcasts and other channels. But, DTC brands that are just starting out are still in search of a new go-to growth engine. And all are trying to find new ways to measure the effectiveness of digital ads.

“Nobody I know has hit a point of acceptance, but personally found other ways of understanding the data better,” David Herrmann, an independent media buyer, told Modern Retail in an email.

How much brands have been hurt by the iOS changes depends in part on how reliant they were on Facebook before the iOS changes, and what types of products they sell. In order to get a better sense of how companies have adapted to these changes, one year later, I spoke with executives at two DTC startups at very different stages. 

Mid-Market DTC brands are accelerating their move away from Facebook
Rachel Brown, the SVP of marketing at direct-to-consumer furniture brand Floyd, said that she was already working to minimize her team’s reliance on Facebook before the iOS14 update rolled out.

But, the changes made over the past year, “has left us feeling like the future of Meta might just be a black hole for advertisers,” Brown said.

Before 2019, Brown said that Facebook ad spend made up close to 80% of Floyd’s marketing budget. In 2020, that dropped to 60% and now this year, Floyd expects roughly 25%-30% of its ad spend to go toward Facebook. 

Brown said there were two main factors driving Floyd’s decision to dedicate less of its advertising budget toward Facebook. One, it became more difficult for Floyd to track the effectiveness of its Facebook ads following the iOS14 update because — coinciding with the update — Facebook got rid of its seven-day attribution window.

Essentially, as Facebook got less information from Apple about what other sites people were visiting after they left the Facebook app, Floyd could not as effectively track whether or not people purchased a product seven days after viewing one of their ads.

Meta, for its part has rolled a host of new tools that to help brands measure the effectiveness and optimize ad campaigns in new ways, like a Conversions API, as well as Aggregated Event Measurement. “Advertisers worry they’re not getting the ROI they’re actually getting,” COO Sheryl Sandberg said during Meta’s fourth quarter earnings call. “On this part, we’ve made real progress on that underreporting gap since last quarter, and we believe we’ll continue to make more progress in the years ahead.”

Still, these changes hurt Floyd, Brown said, because “Floyd — and furniture in general — tends to have a longer sales cycle than most DTC products.”

Additionally, Facebook ads were getting more expensive, something that was happening before the iOS14 rollout, as more people simply advertised on Facebook. Brown said that Facebook CPMs hit a high of $25 — on par, in her experience, with the costs of other advertising channels like podcasts,

Brown said that over the past year —  aided by Floyd raising a $15 million series B in April — the company has been testing more marketing channels, and will invest more in offline ads, as well as CTV and linear TV this year.

She said that Floyd has also started using new attribution software to get a better sense of what’s driving purchases as Floyd is marketing on a greater variety of channels. Additionally, that Floyd has placed a greater focus on improving metrics like repeat purchase rates. 

Brown said that Floyd has taken these steps to “not only [combat] iOS14, but also ensuring that Floyd isn’t endlessly vulnerable to tech changes.”

New DTC brands are still Facebook-dependent — but TikTok curiosity is growing
Immi co-founder Kevin Lee launched his protein-packed ramen brand in January of last year, right as the iOS14 update rolled out. 

Immi said that many of his company’s angel investors are marketing executives and that as he was getting ready to launch his brand, the advice he got from many of them was that Facebook still should be one of the first places he advertises. 

“Facebook and Instagram, as much as a brand wants to avoid them, those are the channels that really have an inventory of scale, and you have to make those work at a bare minimum,” Lee said. 

However, the iOS14 update made clear the perils of relying too heavily on Facebook — as well as spending too much on ads without a clear path to profitability. 

Lee said that while his company is still young, his marketing mix is changing month-to-month. In the fall, roughly 80% of his company’s advertising budget went to Facebook and Instagram. But, this month, it’s roughly evenly split between Meta and TikTok. “TikTok ads now definitely feels like Facebook circa 2009,” Lee said.

Herrmann echoed Lee’s sentiments and said that TikTok is the channel his clients are most interested in testing. But, it still has yet to surpass Facebook as the first paid advertising channel they test. 

Lee said that additionally, Immi has placed a greater emphasis on reaching metrics like breaking even on first purchase more quickly, and prioritized hiring graphic designers instead of working with an external agency. That way, Immi can test a greater variety of ad types more quickly, he said, while the amount of data that Facebook is able to send back to brands is still in flux. 

“I think we basically realized that the only way to survive and thrive in the post iOS world is to invest in building out a pretty serious creative team internally,” he said.

Another launch case study: Couplet Coffee

As the iOS14 update has made it more difficult for brands to measure the effectiveness of digital marketing campaigns, some new-to-launch DTC brands are also trying to hold off on launching paid advertising for as long as possible.

One example is period care brand August, which my colleague Maria Monteros wrote about this week; August is investing in TikTok, but not through paid ads. Rather co-founder Nadya Okamoto is doing most of the posting about August on her personal account, by becoming more of an influencer herself. 

Another example is Couplet Coffee, which is formally launching its Shopify site this week after a soft launch in 2020. Couplet Coffee is an LGBTQ and women-owned coffee brand, that wants to make the coffee space more fun and inclusive, according to CEO and founder Gefen Skolnick.

“I just wanted to prove all of last year, should Couplet exist?” Skolnick said. She did that, she said by doing limited-edition drops with queer artists on products like unique glasswear and French presses, which she said always sold out within an hour or two.

“I am personally investing a lot more time, money and effort into community,” Skolnick said. This included hosting queer art shows every couple months where people can buy Couplet coffee in small batches. Partnerships have also been a key to helping Couplet slowly build brand awareness — dating app Bumble’s new New York cafe now carries Couplet Coffee.

Still, there’s only so long that newer brands can hold off on paid advertising, and Couplet Coffee, will start testing out paid advertising within the next couple months, likely starting with TikTok, Skolnick said.

“I’m taking a slightly slower [approach], but I’m kind of anchoring my brand in something,” Skolnick said.

What I’m reading

  • The drumbeat of bad news continued at Peloton this morning, with the at-home fitness brand announcing it was cutting 2,800 jobs, or about 20% of its workforce. ​John Foley also said he was stepping down as CEO.
  • Over the past two years, Flexport founder Ryan Petersen positioned himself as the go-to supply chain expert, explaining what was causing port congestion in a way the average person could understand. Now, Forbes looks at what’s next for Petersen and Flexport
  • Nike is suing StockX over the resale app’s plans to sell sneaker NFTs, claiming unauthorized use of Nike’s logos and products. Footwear News looks at how this could be the first of many NFT-related legal disputes.

What we’ve covered

  • Mall-based brands like Gap and Abercrombie are having a renaissance on TikTok, where teens feature their hoodies and tees in vintage hauls.
  • Like DTC brands, resale apps like The RealReal and Rebag are increasingly opening stores to acquire new customers.
  • Why the battle between one-click checkout startups Bolt and Fast is heating up, particularly on Twitter.