Another blanket article about the pros and cons of Direct to Consumer (D2C) isn’t needed, I know. By now, we all know the rules for how this model enters a market: its disruption fights any given sector’s established sales model, a fuzzy compromise is temporarily met, and the lean innovator always wins out in the end.

That’s exactly how it played out in the music industry when Apple and record companies created a digital storefront in iTunes to usher music sales into the online era. What now appears to have been a stopgap compromise, iTunes was the standard model for 5-6 years until consumers realized there was no point in purchasing and owning digital media when internet speeds increased and they could listen to it for free through a music streaming service.  In 2013, streaming models are the new music consumption standard. Netflix is nearly parallel in the film and TV world, though they’ve done a better job keeping it all under one roof. Apple mastered retail sales so well that the majority of Apple products, when bought in-person, are bought at an Apple store. That’s even more impressive when you consider how few Apple stores there are in the U.S. (253) compared to big box electronics stores that sell Apple products like Best Buy (1,100) Yet while some industries have implemented a D2C approach to great success, others haven’t even dipped a toe in the D2C pool, most notably the auto industry.

What got me thinking about this topic is the recent flurry of attention Tesla Motors has received for its D2C model. It all came to a head at the beginning of July when a petition on whitehouse.gov to allow Tesla to sell directly to consumers in all 50 states reached the 100,000 signatures required for administration comment. As you might imagine, many powerful car dealership owners armed with lobbyists have made a big stink about Elon Musk, Tesla’s CEO and Product Architect, choosing to sidestep the traditional supply chain and instead opting to sell directly to their customers through their website. These dealership owners say that they’re against the idea because they want to protect consumers, but the real motive is that they want to defend their right to exist (and who wouldn’t?). They essentially have a monopoly at their position in the sales process, and they want to keep it that way. More frightening for the dealerships is the possibility that once Tesla starts selling directly to consumers, so will the big three automakers, and they fear that would be the end of the road for their business. Interestingly enough, the big three flirted with the idea of D2C in the early 90’s before they were met with fierce backlash from dealerships. I’m sure the dealership community has no interest in mounting a fight like that again. 

To say that the laws preventing Tesla from selling online are peripherally relevant would be a compliment. By and large, the laws the dealerships point to fall under the umbrella of “Franchise Laws” that were put in place at the dawn of car sales to protect franchisees against manufacturers opening their own stores and undercutting the franchise that had invested so much to sell the manufacturer’s cars.  There’s certainly a need for those laws to exist, because no owner of a dealership selling Jeeps wants Chrysler to open their own dealership next door and sell them for substantially less. However, because Tesla is independently owned and isn’t currently selling their cars through any third party dealership, this law doesn’t really apply to them. Until their cars are sold through independent dealerships, they’re incapable of undercutting anyone by implementing D2C structure.

From Brennan's Blog which is no longer up and running: