Dollar Shave Club: the Power of Social Media and the Cloud

21/07/2016 16:43 | Updated 21 July 2016

Dollar Shave Club, founded only five years ago, has become the most recent name to achieve Unicorn status with Unilever bidding $1bn in cash to acquire them. Yes, Unilever is paying $1bn in cash for a five year old company that is shaving (excuse the pun) market share from Gillette at a rapid rate.

The company was set up by two friends five years ago on the back of a simple idea - why do men pay so much money for razors when the underlying cost of the product is so cheap? They came up with a subscription service delivering five twin-blade razors per month for, yes, $1.

The company's success can be traced back to early 2012 when they uploaded a video to YouTube which was a huge viral success, generating 12,000 orders in 48 hours. They have since had 22 million views and the company has over 2 million subscribers.

This is an amazing story. In the past, two friends might have had the very same conversation at a party. They might even have conceived some of the very clever brand-inverting content in the video (are we paying for razors, or are we paying Roger Federer?). But they would have faced huge hurdles in challenging a mega multinational like Proctor & Gamble (P&G), owner of Gillette. Competing with the marketing budget of a P&G alone would have been impossible, never mind the economies of scale in distribution and manufacturing.

Today, a clever, well-shot marketing spot can be done for a few thousand dollars and undo years and millions of dollars of brand investment at a multinational. In the past, P&G would have used technology to get ahead and create barriers to entry. Only they and their peers could afford expensive deployments of SAP enterprise resource planning (ERP) suites and state of the art Oracle databases. (A minimum SAP contract is thought to be $250,000, similar for Oracle, before considering hardware and staff costs).

Now, we have the cloud. ERP, databases, customer service and support on a pay-as-you-go basis from a variety of SaaS vendors, with direct dealings with suppliers in emerging markets through marketplaces like Alibaba. Although Dollar Shave Club's website is pretty slick, we noticed Zendesk provide their customer support. We would expect them to use a whole suite of cloud providers to power their business model - it is the only way to grow a $1 billion company that quickly.

In the past, we have seen pure internet businesses reach Unicorn valuations ($1 billion). Now, through the power of social media and the cloud, real world companies are achieving the same. Warren Buffett has made billions out of buying strong consumer staples brands on the basis of exactly these strengths in marketing and distribution that have now been turned on their head. The most successful investors of the next decade are going to need a new playbook and every company new and old will need to embrace these new technologies just to survive. There is no better example of the effects of the digital economy on old economy businesses - blink and decades of brand building, embedded marketing infrastructure and long standing relationships can disappear in an instant.