The Dropshipping Era of Software

A 17 year old kid in Long Island makes more money than most companies we’ve talked to. How did we get here?

We're in the drop-shipping era of software. It's not immediately apparent, but the transformation that revolutionized commerce is now sweeping through consumer software—and we're only seeing the beginning.

First, a history lesson:

E-Commerce and the Rise of Dropshipping

To understand the current software landscape, let's look at the history of commerce as a proxy. Before 1999, it was nearly impossible for upstarts to compete on the global commerce stage. High entry costs for supply chains, limited access to suppliers, and low bargaining power meant incumbents were the primary beneficiaries of globalization.

Enter Jack Ma and Alibaba. Alibaba’s mission has always been to "make it easy to do business anywhere". By aggregating millions of suppliers, Alibaba enabled smaller businesses and individuals to source products at wholesale prices. This eliminated the need for individually operated warehouses and supply chains, making it possible for anyone to compete in commerce virtually overnight. In the decades since, Alibaba has grown to facilitate over $66 billion worth of goods sold annually in the US alone, serving the majority of the ~24 million e-commerce stores worldwide.

Silicon Valley was among the first to recognize the potential of sourcing products directly from manufacturers and delivering them to customers' doorsteps. Fueled by the disruptive infrastructure of the late '90s and 2000s, the 2010s saw DTC become the "current thing." Breakout stars like Casper, Warby Parker, and Dollar Shave Club attracted billions in capital, boasting growth trajectories that justified software-like multiples—until they didn't. In the post-COVID era, these DTC darlings have either delisted into the hands of private equity or struggle to stay listed. Even Dollar Shave Club, once the golden child of DTC — acquired by Unilever for over a billion dollars—recently announced its divestment to private equity.

Interestingly, during this time, global e-commerce spending consistently broke records year-over-year and is forecasted to continue its upward trajectory. Clearly, consumption isn't slowing—rather, it's accelerating. The difference lies in new methods of getting products into consumers' hands (more on this soon).

So where is all this spending going, if not to the traditional DTC brands? Enter Gymshark: what started as a pizza delivery man's dropshipping side hustle now rakes in over $500M in annual revenue. Gymshark's early bet on new distribution channels—first gym influencers, now UGC style content amplified as ads—propelled it to global category dominance.

There are hundreds of other content and distribution-first DTC companies repeating the Gymshark playbook (HiSmile, Wisp, etc. — you get it). We'll save the argument for/against DTC for another essay. The point is, it's clear: fast-moving, disruptive DTC products focusing on anything but distribution have lost their moats (with Gymshark and co. eating their lunch). The explosion of commerce rails (the real winners here) like Stripe, ShipBob, Amazon FBA, and Oberlo/Shopify has enabled everyone to jump into the game overnight.

What this means for software?

Just as commerce technology rails enabled anyone with WiFi to have a factory, fulfillment center, and economies of scale, the same has/is happening to software development.

Since the genesis of consumer software, infrastructure has been the hard part. Engineering was prohibitively expensive. But with the proliferation of user friendly development tools and embedded players, anyone will be able to compete. And it’s happening across all verticals, one by one starting with the easiest arbitrage.

The app store is already flooded with highly profitable "dropshipped" simple utility products (just search for "White Noise App" or "ChatBot"). Their innovation lies in lean development and heavy investment into distribution.

For the GPT wrapper example, Ask AI by Codeway (NF Client) doubled down on user acquisition through TikTok and Facebook ads. Now it makes millions.

With the emergence of more sophisticated development tools, this infrastructure decoupling playbook is now extending to products that were historically more insulated. For DTC pharmaceuticals with trendy GLP-1s and Times Square billboards, it's Truepill; for consumer fintech, it's AtomicInvest; for privacy and credit reporting, it's our friends at Array—and the list goes on. In the current environment, companies built on these rails feel reminiscent of DTC a decade ago. The obvious and largest for software used to be engineering/infrastructure. But now, even in the early days of Devin and Cursor, the ability to reduce floors of SWE teams to an individual is already occurring.

Just as in e-commerce, enablement breeds competition. And as we all know, competition is for losers (and bad IRR).

How to win

Given consumer software seems poised to follow the path of DTC in the last decade, how can you navigate this shift and come out on top? In our view, there are two viable strategies:

The first strategy is to solve a hard problem and push the the technical frontier—the "V" in VC does come from “Adventure" after all. Think your OpenAIs and Waymos. The second is to embrace competition. Adopting the dropshipper playbook means innovating beyond the technical realm. Instead, the focus is on distribution. Yes, distribution is the new moat.

This is precisely why we started NewForm. In today's landscape, where product-led growth is waning and competition is intensifying, distribution has become more crucial than ever. Curious about how NewForm is helping our partners tackle distribution? Let's chat.