This piece by Ben Thompson titled, Email Addresses and Razor Blades, might be the best thing I’ve ever read on modern-day business strategy.

I strongly encourage you to read the post and/or listen to the associated podcast if you’re interested in this sort of thing.

The piece highlights Harry’s Razors and their efforts to disrupt the razor blade industry with an online direct-to-consumer (DTC) model.

By selling online directly to the consumer, Harry’s was able to disrupt the razor blade value chain created by giants like Proctor & Gamble and cut out retailers that leveraged their shelf space to take a ~40% margin. By selling online and leveraging highly efficient, targeted advertisements via Google and Facebook, Harry’s could pass a lot of that 40% back to the consumer, dramatically undercutting the incumbents and scooping up lots of market share.

Thompson points out that this margin quickly disappeared via Facebook and Google ad auctions. As DTC companies flooded to these ad channels, the prices went up and up and up, erasing the 40% margin, and bringing the razor blade market back to equilibrium. Now, Harry’s and other DTC companies are pivoting into brick-and-mortar and the FTC is raising anti-competition flags. Nobody wants to compete with P&G, but that might be a lot better than competing with Facebook...

The broader lesson here is that is it so crucial for companies to deeply understand the value chain associated with the product they’re delivering and how that value chain is changing over time. The macro conditions that allow new entrants to earn a seat in the value chain can be the same conditions that take that seat away.