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The Jason & Scot Show - E-Commerce And Retail News

Join hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at Razorfish, and Scot Wingo, Founder & Executive Chairman at Channel Advisor, as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
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Aug 10, 2018

EP140 - Stripe Head of Stripe Issuing, Lachy Groom

Lachy Groom is the head of issuing at Stripe.

Stripe is a payment processor that provides a set of tools to help businesses accept payment online.  Their clients include Warby Parker, Wish, and Target.  Lachy was the 30th employee at Stripe, he leads Stripe Issuing which is an end-to-end platform for quickly creating, distributing, and managing physical and virtual cards.

In this interview, we cover Lachy's background, the range of Stripes services, the state of online payments, mobile payment best practices, digital wallets, and marketplaces.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 140 of the Jason & Scot show was recorded on Friday, August 3, 2018.

http://jasonandscot.com

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Transcript

Jason:
[0:29] Welcome to the jason and scott show. This is episode one, forty, being recorded on friday, august third, two thousand eighteen. I'm your host, jason retail, g, goldberg. And, as usual, i'm here with your co host, scottwingo.

Scot:
[0:43] Hey, jason, and welcome back, jason's got show listeners. Well, jason, one of our favorite topics on the show, and certainly something near and dear to your heart, is payments on dhere in two thousand eighteen.
You cannot think about payments without thinking about one of the top payment companies out there.
Stripe we're very excited tohave on the show, laki groom, who is the head of Stripe, issuing here with us today, he is employee number thirty, and we're excited to have you lucky. Welcome to the jason scott show.

Lachy:
[1:15] Thanks very much for having me.

Jason:
[1:18] We're super excited, and i'm eager to jump into payments. But before we do, one of things we always like to do on the show is, have our guests give a little bit of a background of their career and sort of how theycame to the role.
And particularly in your case, it seems like Stripe was still a very small, entrepreneurial company. When you came to them. So could you. Could you give us the kind of ah, the version of your career project progression?

Lachy:
[1:43] Sure so i i started seven in online development startups things of that nature pretty young my my granddad actually taught me html when i was a kid,
which got me pretty fascinated with the internet and from there i had a,
i started a business creating websites for friends and family and that sort of just,
just grew into servicing clients around the world on di i got started in and sort of something tangentially related to payments when i started a company called card nap which is a was a gift card marketplace,
on dh ii build this side out in australia it looked pretty similar to a company called plastic jungle here in the u s,
and it was just a nightmare to set up setting up this marketplace where i had to accept payments and pay people out manage inventory in and verifications and and so i ended up pivoting that business to be something elsethat it didn't really have a lot of those complexities.

[2:41] Ah and and from there that that really just kicked off my fascination with with startups and tech and so i knew i wanted to move out toe,
san francisco and had had a few friends that walked it Stripe didn't really understand this whole,
developer tools thing until they explained it to me and explained how starting my business back in australia could mean so much simpler if something like Stripe have existed ah and that that began my my joanie it'sStripe as one of the,
first few business high as high, initially focused on on one of our products, a product called check out. Then i moved in tow.
International expansion, where i helped Stripe launch, and singapore, australia and new zealand, hong kong, on bit of the rest of europe. And from there, i i worked on partnerships and,
our co payments product, walking with all the different credit card networks, building our copayment acceptance infrastructure.
And after doing that for a few years, i got fascinated with the whole other side of of payment acceptance and the credit card networks.
Which is, is sort of where i've landed today, issuing cods. And instead of making in payments, rather than focusing just on accepting them.

Jason:
[3:47] Very cool on dare you talking to us today from san francisco from the bay area.

Lachy:
[3:52] I am, yeah. We just moved into it new office here and talking to you from from san francisco.

Jason:
[3:59] Well, congratulations on dh for listeners that aren't super familiar with Stripe, can you give us, ah, kind of the the high level overview of aa. What you guys doing where you sit in the eco system?

Lachy:
[4:10] Sure, so fundamentally, we're a global technology company. We build,
economic infrastructure for the internet, so we work with businesses of all sizes from from brand new startups to public companies like sales force and facebook who all you Stripe teo to power some,
some part of their economic infrastructure,
and accepting online payments, managing their businesses online,
you've got millions of customers and over one hundred hundred or so different countries that used Stripe to start, run and scale their business,
on one thing that we've really being focused on is just reducing the barriers to entry for starting a business and then subsequently growing it in scaling it especially internationally.
Andi, we fundamentally believe that we're still in the early days of the internet's potential on we're seeing people you Stripe to build the kinds of companies that couldn't exist ten years ago.
New models like online crowdfunding or undermanned aps e commerce marketplaces really high growth companies with a broad appeal on dh. We build that the tools that allow them tio stop those kinds of businessesand scaled them out.

Scot:
[5:16] Very cool. Let's was kind of jump into some payments. Just topics that that we've covered on the show would love to hear what you guys are seeing out there.
There's been a lot of innovation around, you know, touchless payments. So, you know, google pay, apple pay and those kinds of things. If my memory serves me right, you guys were like one of the first folks to reallykind of support.
You know, those platforms, how are they doing? And he thought, son, on where that's going?

Lachy:
[5:43] Yeah, i'm i'm a huge fan of these kinds of payment methods, i think it is if you've got an iphone and you're paying with apple pay it's almost the perfect payment experience,
you know, there's been some, i think some hitches with the new face i'd method, but when it was touch idea and you just press that one button to pay, i thought that was, you know, it's almost perfect.
You don't even need to think about the payment experience, which is is our real aspiration to make payments fade into the background.
It shouldn't need to be this this thing that consumers think about on dso for may, apple pez i think it's had an even bigger impact on purchases online than purchases offline,
we we work with with a bunch of companies that have the apple pay flow is a core part of their e commas floor, their mobile check outflow,
and i want one of those companies insta cot, which is a a marketplace here in san francisco and throughout the rest of the u s for purchasing groceries, they see their customers check out,
i think it's around fifty eight percent foster with apple pay on so it's just the these kinds of methods really simplify the payment flow, so it's something that we're, we're really bullish on the trend that we're seeing.

Jason:
[6:53] Yeah, that's. Awesome on dh. I have seen some similar stets, stan.
Ah, there definitely is. Ah, sort of universal, axum, that if you have a lower friction, check out option b it apple pay or samsung pay, or even the payment ap.
I built into the ah, the many of the web browsers now, which i know you also support that.
Not only do people check out faster, but just conversions higher. They have much of us abandonment, and so they literally make more money.

Lachy:
[7:23] Yeah, we receive that across a bunch of different uses where they're seeing typically double the conversion rates with when, when a consumer uses a method like apple pay, they don't need to go fetch that creditcard number.
It's. Just ultimately, great for businesses and that's, an area that we try and focuses. How come we reduced the friction to improve the the conversion rate?

Jason:
[7:45] Yep, and so at the risk of alienating the apple pay team, which in all seriousness, i know our listeners of the show apple pay is awesome.
The traditional knock on apple pay is, obviously the whole world doesn't use or have access to apple pay right like that, you know, ah, a minority of users are carrying an apple device and, you know as good as apple.
Is it an upgrading everyone there's still a lot of deployed apple devices that aren't apple pay compatible and so it's like the traditional knock wass it's, a great conversion tool for this very affluent, high spending,
ah, subset of the market but it's now feeling like even if it's not apple pay, but samson payer our microsoft pay or google pay or pin and a p i,
you know, we're trying to get to a critical mass where the overwhelming majority of shoppers have access to one of those easier payment things, that's becoming much more you.

Lachy:
[8:42] Yeah, absolutely. And as you mentioned with the payment request a p i it's now really coming to browse isas well, with quick ways of checking out on dh.
So now that i think pretty much every major phone manufacturer has, one of these methods were seeing it at least come to ubiquity in terms of the gaps that are adopting it. And now, it's, really just driving the consumeradoption and getting those cards into those wallets?

Jason:
[9:05] Yeah, and tell me about had this right like a if i built an e commerce experience and i used ah ah, an older school, more traditional payment gateway, i program my own check out flow.
You know, i'm i'm doing some sort of interface to that. That payment gateway and then some new technology comes to the market like, ah, the payment, a p i ah, my developers have to go in and update my checkoutflow.
And so, you know, that's got to get in the road map and it's competing with a bunch of other priorities, and it might take a while before i support it, but one of the benefits ah, to Stripe clients is,
that they're they're actually using a Stripe check out follow.
So when some new payment system becomes available and you guys jump on supporting it quickly,
that propagates toe to a large part or all of your your users basically instantly do what do i have that right? Or am i over selling you?

Lachy:
[10:05] Yeah, you were gonna hire you on our honor and our team to describe it to our customers, so we have a bunch of tools and what we focus on his building tools to make it quick for much ensign developers to reactto these kinds of trends.
Before apple pay existed, people didn't really imagine apple pay what would have existed, and so it wasn't is easy thing for them to comprehend, adding, and so what?
Well, we're focused on building is things that they can effectively drag and drop in.
One thing that we find is that margins are businesses they really liked to control their checkout experience, it's something they generally feel, ah, just a lot of protectiveness over, and so what we give them is the ability toadd that,
really, seamlessly, there are options where they can they can effectively outsource that checkout experience to us, and we'll continuously update it with the with the latest payment methods that we see here if they'reexpanding the new countries payment methods of different countries.
So we kind of have two pots, one is where you just want to drop in something like apple pay and then not need to do any other work beyond that, that little update and the other where will continuously update thecheckout experience.

Jason:
[11:11] Got it. And is it fair to say, like, in my mind, sort of the original market positioning, whether this was, ah, accidental or intentional, is, you've always been the really developer friendly option.
And so it feels like, like you guys turned up in a lot of experiences because the product manager left it to the developer, toe comp something up.
And you guys had this, you know, you know, great fbi examples on your website, and the developer would grab your sample code and get it implemented quickly. And and that that was probably, you know, sort of one ofyour original conquest strategies for getting a lot of customers.

Lachy:
[11:46] Yeah, that's, that's absolutely right. When when Stripe got started, there was no easy way to accept payments online. And it would be a developer that starting this company and they would be the one that pickedthe payment solution. And they would want the easiest one to get up and running.
But increasingly, we're seeing larger companies come to us for the same.
Where there, glad your company's heir increasingly recognizing the developer leverage that that they have the scarcity of engineering resource is and the importance to pick the solution that will allow them to move thequickest and react to trends like apple pay.
And i think apple really is a great example that where if you're running on a legacy, stack may take months and months to get this this into the market.
Where is that nimble start up competitor? Or, you know, even even a larger company that has ah, better engineering tools or developer tools can get it out in the market in time for launch.

Jason:
[12:39] Yeah, absolutely. And i'll fully say, i am, ah, still super disappointed in the percentage of e commerce sites that don't support the payment. Ap. Which, to me, seems like a big myth, sort of.
But going your point about, you know how resource constrained for developers. So many of these sites are.

Lachy:
[12:58] Yeah, it just doesn't make any sense that that there, they're not adding these things. It's leaving conversions on the table. Top line revenue on so it's.
It really holds customer companies back, not having.
I think the best developer tools out there. It's, it's, similar trend with eight of us, where companies have gone from,
on premise, hosting or building their own data centers, recognizing that if you have a provider like kws, he'll just be able to move so much foster it puts you on on equal footing.

Jason:
[13:27] Yeah, for sure and it's funny like at the moment. So we talked a lot about mobile e commerce on this show on dh.
For years, we've been talking about this thing called the mobile gap, which still exists, which is essentially,
ah hey, way more users are shifting from desktop browsers to mobile browsers, it's the majority of traffic on most big sites now, but the conversion rate on those mobile devices is is poor compared tto desktop.
Maybe it used to be a third and now it's approaching ah half and like i look at that ah, apple pay, but certainly the payment fbi as ah as well hanging fruit.
Ah, to improve that mobile gap and then i you don't now have this macro thing, which is admittedly more work and not necessarily ah exclusively, you guys.
But progressive web aps is another huge tool in that arsenal, and a very small number of e commerce sites have successfully got in that stuff done yet, like, do you guys see those kind of mobile trends?
And are there any other mobile trends that.

Lachy:
[14:30] Yep, we see the same thing.
We we we continuously review the largest e comma sites on.
We did a recent review of the top hundred commerce sites globally, and seventy two of them had greater than three, errors in there. Check out flows, things that could really easily be improved, to reduce friction for theirconsumers to pay them.
And a lot of those areas were mobile related. One fifth of those sites made mobile check out significantly hotter by not having a numerical keypad for entering credit card numbers.
Almost half of them didn't have order phil correctly. Setup it's little things like that, where you just you just give up, you try and you know, you decide. You'll wait until you're back on desktop, and then the punch is neverreally ends up happening.

Jason:
[15:16] Yeah, and it's and i have to admit, like being a practitioner in the space. It is like a huge pet peeve of mine. It's like nails on a chalkboard when, like developers, don't get their input masquerade and you get thewrong wrong wrong keyboard for input.
I'm a big fan of them. Ah, predictive type ahead for address entry and stuff like that, and you know you still, ah, don't see that. Enough. So it's it's crazy, but it's. Ah, not surprising that you're you're seeing similar similar.

Lachy:
[15:46] These things, really on hard to build it's just it's, kind of crazy that everyone has to do it themselves, and so on.
Area, we've focused, is how do we build the tools such that everyone is on equal footing.
Everyone gets the lessons of the best practices and were positioned really well to know what converts well, what,
what consumers like, and so that that's that's been a big area of focus for us in the past few years is,
how do we take all the learnings we have developed from, from servicing millions of bill's businesses around the world and applying those toe aah, letting businesses have the right defaults from the get go.

Scot:
[16:23] I recall one thing i wanted to talk a little bit more about. I'm the marketplace guy on the show and there's been an explosion of marketplaces on and started with products.
And now we're seeing a lot around what i would call on demand services. And i know that's an area where you guys do a ton, tell us about some of the things Stripe does around marketplaces.

Lachy:
[16:43] Yeah, we got we got started with marketplaces and number of a number of years ago ah and then,
the way it happened is pretty interesting because before that Stripe was if you're accepting payments from customers on we didn't really focus on what you would then do with those funds,
on we started to get some pretty interesting requests and one of them was from from lift its must've been five or so years ago,
where they had this request to add multiple bank accounts to their Stripe account,
and we're scratching our heads wondering what they were looking to do that we found out that they had this process of cutting checks to pay their drivers and they were wondering why khan strategist automate that potlike they do with with our our daily payout,
on that seem to be a pretty common problem amongst a number of thie marketplaces that used Stripe at that point in time they had all these back office operations and they're all doing the exact same thing and it seemedlike a real opportunity for us tow,
really simplify that providing a pea eye for it and.

[17:42] Fundamentally automate it on so that was something we began doing about five years ago wade called that product Stripe connect and we internally we call that the payments platform for platforms it z,
marketplaces and platforms you Stripe connect to accept money and then pay out to third parties and we provide everything in the middle.
To do that compliant, lena. Handle the tax, reporting the identity, verification and onboard and compliance with the different regulatory laws.
And ah, pretty much everything you need to do to manage a marketplace online as it relates to the movement of money.

Scot:
[18:22] Wrinkle. And then i couldn't help but notice your title now has card issuing in there. And, you know, one of the challenges you have in these kind of digital and physical marketplaces is if i send you mentionedinsta card earlier.
If i send ah ten ninety nine shopper to go buy some groceries for a customer, i'm going to need to pay the grocery store. And you know that that quote, unquote, shopper is going to want to come out of pocket for that.
Is that kind of what's going on with the card is sure thing.

Lachy:
[18:52] Yes, that's, exactly right there's a there's a bunch of different use cases that that Stripe issuing consult and fundamentally, it is infrastructure, like the rest of stripes products on its infrastructure that relates to money,movement, and so instant cult.
To use that example, they have that store of funds that they have taken from from customers that they need to move to ah, grocery retailer that they don't necessarily have a contractual relationship with and and the bestway of doing that is with the credit card.
And so what we're providing to companies like this is an a p i to issue cod's both physical and virtual, and then dynamically control the span.
So, for example, insta kat would know exactly when a sort of a shopping session is taking place, and they would only want to authorize transactions in that window.
They would know exactly which store it's happening out, and they're on.
Lee wants approved transactions at that store, and so we give you or the customer complete flexibility on on how they use those cards and what what transactions can go through them, but again, fundamentally it'sinfrastructure and that's one use case of,
of many that we could support.

Jason:
[19:59] That's. Awesome. And it feels like, ah, marketplaces air, really expanding, like, certainly internationally. But even here in the u s, we're getting more marketplaces and a wider set of use cases from marketplacesalmost every week.
Are there any surprising trends or particular learnings that you would want to share with new entrepreneurs that are getting into the marketplace model?

Lachy:
[20:21] Yeah, there's, you know, obviously two sides to a market place, you've got your your bias and your cell is on.
We focus on both sides on the on the bias building tools, tow service.
Those customers, things like apple pay make the transaction experience incredibly easy on then on the cellars with that Stripe connect product is talking about but one one interesting thing way we've discovered recentlyfrom our data.
We have thousands of market places that use us and, you know, obviously not all marketplaces grow at the same pace.
We found that market places with higher seller retention rates generate much greater revenue than the others. This may sound obvious, but it's, in contrast, to buy our attention higher. Bio retention isn't really associate idfrom from our data with significant revenue increases.
Way saw that increasing seller attention by one percentage point predicts ten x more revenue than the same one percentage point increase.
Ah, in buyer attention, i thought this was a pretty fascinating stat.

Jason:
[21:21] Yeah, that's. Always a challenge for entrepreneurs. Is, is.
How do you grow these marketplaces? And you put all your resource is on the the seller side or the the buyer side? Or ah, scott likes to advise, like you couldn't need to balance it, right?

Lachy:
[21:38] Right, right. But it's it's really highlights you need think about how you retain sellas and you know what, what to sell is care about.
One thing that we've found they really care about is the speed of their payment, so they're they're delivering value on a marketplace and then they need to get paid on dso one one area we've focused there is, how can wereduce that payout cycle?
No, i get paid every two weeks, but as a competitive advantage on one of these marketplace marketplaces, how can you bring that down?
And so, with a partner like lift, we built a product called instant payouts on so they can get paid out right after they complete ah, right.
And now, over fifty percent of of lifts drivers take advantage of that instant payout functionality on dh so that veterinary where we liked folks, is well, where the one of the ways in which we can help platformsdifferentiate,
toe better service, they're they're cell is not just the bias.

Scot:
[22:32] Very cool, sir. Pivoting off marketplace is a little bit.
You talk to the very early part about international on dh.
You have, ah, cool international accent. So this ties in with your accent against what are some interesting international payment trends.
You guys, we're seeing you read all about it, ali, pay and and what's going on there. And, you know, china has a lot of really interesting things, curious to see some of the the trends you're seeing internationally.

Lachy:
[22:57] I think one of the most interesting things just a top level is how hard it is for market places to expand internationally,
there is there is a whole different regulatory environment different payment methods is your highlighting both on the acceptance side and on the pay outside on so it's,
it's i honestly find a pretty impressive any market place that has managed to build infrastructure to take them from one country to many just because of all of the complexity involved in that expansion and i i think that's,
that's just so hard to understate the power of that,
on so it's it's you know it i love it is a consumer of something like uber where i can use it in the u s and then go to a different country and it just works out of the box the same app and so it's really impressive theinfrastructure that built,
in the in the background but in terms of payment methods you know money is money is oddly cultural on dso we're seeing in every country we go too and we expand into,
is an entirely new set of payment methods that we have tto have to deal with and soon in the us obviously everyone uses credit cards on dh in france it's the same over eighty percent of online purchases are credit cardsbut for,
neighboring germany it's less than twenty five percent and they use something called sepa which is effectively just a bank transfer.
So if each of these new countries, marketplaces or retailers have to think about how they accept money from their consumers, and and we can just take this. U s centric view of credit cards and debit cards dominate.

Jason:
[24:26] Very cool. A lot of companies, yourselves included, sort of started on the digital realm accepting payments online. But we've seen a number of them sort of extend to physical payments and sort of omni channeluse cases. Is that something you guys are doing as well?

Lachy:
[24:41] Yeah, and, you know, i think there's there's more than just a sort of the point of sale devices there we see a lot of,
like when you think of something like lift, fundamentally, you're you're operating with a real world service, you're you're getting into a car, and so what is ah, on online payment, what is an offline payment anymore?
And they've solved that by the having the payment experience just happened in the background.
You don't even think about transacting there's no, no riel time exchange of information with each ride that takes place or transaction on so that's an area where we really try to push the businesses that air.
Welcome with Stripe think about how to make payments fade into the background, but obviously with with retail transactions, and we work with companies like shopify and we'll be parka who have ah, store they'rethey're they're merchants have storefronts, and so,
we power point of sale systems for them as well, but fundamentally it's about unifying those systems and so it's a single system with stripes, they can look at customers online looking customers offline ah, and make it asseamless as possible.

Scot:
[25:45] One thing that's kind of nursing as a sow, one of one of the atmosphere on fire and one of my companies was was kind of a platform play, if you will, are tools for developers,
sometimes it's, hard to kind of, you know, ask you figure out when to stop, have you guys so, like on the marketplace example,
you could go into helping marketplaces recruit sellers, you could go into you kind of hint, you know, said that you do a little bit of verification,
you could even go into, like, background checking of drivers or something like that.
How do you guys think about how deep you want to go? And then, like, no, we stop here, and this is kind of where this is the platform. Anything above it is not us. How do you guys think about that?

Lachy:
[26:23] It's a really good question on dh you know, i wish i had some framework i could just give it to you, but fundamentally we talk to our uses, what water, the common themes of problems that they're all having on,and,
then we do our best to solve them.
We generally don't go into super niche use cases on sort of solved just for one vertical.
We like to look at the problems that pretty much all marketplaces were having or in the case of subscription business is pretty much all subscription businesses are having and then build software toe,
to the extent that is useful for sort of the eighty percent and then where those nuances come in for maybe a very vertical ized business,
they build that lost twenty percent that's really specific to their business or the needs of those customers.
And this is where we try through the ap eyes that we build to make it generic enoughto handle that wide variety of use cases, and just really folks on the infrastructure is maybe that's.
One way of thinking about what is infrastructural thus is sort of what sits on top of the infrastructure.

Scot:
[27:24] Cool one topic that's in the news.
A lot lately is. Security is kind of interesting as an e commerce guy, i think it's interesting that, you know, the variety of hacks read about now are kind of happening out on the physical point of sale system.
It seems like, but i know a full disclosure at my current companies. Fifty we use Stripe and one of the reasons we love it is on my previous company. We went out, we had to build out that whole pc. I stack ourselves.
Andi, i i love that we could just use Stripe and, you know, we don't even see the credit cards. You guys take care of all that, and we just kind of, you know, we get pc i compliance, quote unquote, for free.
What, you give us a little a little blurb about security in today's world, and you know how Stripe looks at that and any trends you're seeing there.

Lachy:
[28:10] Yeah i mean you've kind of set it all we really try and make security cool feature of the Stripe offering that again something folks don't need to think about it's just a strong default,
on and there's all this talk of token ization in the payment schemes are the payments walled these days but it's something that Stripe did from the get go,
i think a lot of people think about Stripe score innovation as developer tools i think of it,
one of the really important ones that got us to where we are today is that that pc i shielding that you're highlighting there we had the concept of a token since,
the beginning of Stripe where we would we would store there's card details and and the merchant or business owner wouldn't have tio,
and that was that was about eight years ago that we started doing that and so security is court of the dna off Stripe it's something that we think about in each new product that we launch because it is your highlighting itsomething that distracts from delivering a product to your customers,
building that pc i vote that isn't necessarily directly beneficial and if someone else khun solve that problem even better you can focus on unsolved ing the problem that they came.

[29:20] I think very broadly hackers will often talked at the weakest link in a chain stitch together many providers in in a long chain so there's many weak links that you can possibly target on dso.
We're focused on when folks use us, you've gotten and twin solution for, for all things security. You send the card numbers directly to Stripe.
We only provide one time use tokens to ma agents, and i think that really reduces the surface area, especially in an online payments.

Jason:
[29:48] Yeah, it's. Funny. I talk a lot about trust and, like there's, a lot of evidence that consumers still have a huge trust. Graff gap with, with online experiences, even from very well established businesses.
And it's. Always ironic to me that fewer customers trust typing that payment information into the token eyes encrypted browser than they do, handing it to the minimum wage clerk at the store that has a skimmerunderneath her death.

Lachy:
[30:16] Yeah, i mean, for good reason to a lot of folks not trust the retail is that they're paying not because of any bad intent, just because it could be so easy to to breach these legacy systems.
As we saw, with many of the breaches that have come to light recently on so that's an area, well, we really just try and focus and make sure that their aunt ways of ah breaching Stripe much is by providing them the besttools possible.
But it's it's, obviously so hot. And i think one of the really mind boggling things is.
How can these small businesses have the kind of security that these large mega cops have?
Ah, and even these large mega collapse air getting breached. And so the more we can do to democratize security tools are best practices. I think it's, a really worthwhile place for us to continue to focus.

Jason:
[31:06] Yeah, that is ah, on awesome area of opportunity and that's going to be a great place to leave it. Because it's happened again, we've used up all our allotted time.
S o. We certainly appreciate having you on the show if listeners have any questions there, encouraged to go to our facebook page and posting comments there, and we can continue the dialogue, as always.
If you enjoyed today's show, we sure would appreciate that. Five star review on itunes.
Gosh, really appreciated you being on the show today. If wisner's wantto contact you directly, can they find you on twitter? Or lengthen or what's your preferred method of contact?

Lachy:
[31:46] Yeah, i'm pretty active on twitter it's, twitter, dot com slash laki groom on it's. My.

Jason:
[31:53] Perfect, and we'll put that in the show. Notes. Ah, and so, until next time, happy commercing.

Aug 7, 2018

EP139 - B8ta founder and CEO Vibhu Norby 

Vibhu Norby is the founder and CEO of b8ta.  b8ta is a software-powered brick and mortar retailer designed to improve the customer and maker experience. They help people discover, try, and learn about new tech products while empowering makers with a simple retail-as-a-service model that puts them in control.

In this interview, we cover Vibhu's background, how he came to the idea for B8ta, b8ta's retail partnerships (including Lowe's and Macy's), their unique marketplace dynamic, their experiential retail as a service offering, their recent fundraising success, and Vibhu's vision for the future of retail.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 139 of the Jason & Scot show was recorded on Wednesday, August 1, 2018.

http://jasonandscot.com

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

 

Transcript

Jason:
[0:26] Welcome to the Jason and Scott show. This is episode 139 being recorded on Wednesday August 1st 2018.
I'm your host Jason retail geek Goldberg. And as usual I'm here with your cohost Scott Winslow.

Scot & Vibhu:
[0:42] Jason and welcome back Jason's Ghosheh listeners. Jason I don't know about you but I've been on pins and needles this week no we have a special guest tonight.
You and I are both probably the biggest gadget geek ever and we have a new favorite store and it's pretty exciting to have someone from that store on the podcast.
There's a company that we have talked a lot about on the podcast so I'm hoping longtime listeners can kind of guess what we're talking about here.
The company is beta and that's B the number T.A.
Beta is such a unique company. I don't want to get in the middle of describing it to everybody.
I want to kind of leave that for our guest who is the CEO and founder of b8ta, Vibhu Norby.
Thanks for having me. I'm so excited I've been listening since the first episode.

Jason:
[1:37] We are we're thrilled to have you.
And I do think Scott and I are the target market for your concepts. We'll get to that in a moment.
But before we do normally we'd like to start interviews is get a little rundown from our guests on their career progression and what led them to their current role. And in your case.
Beta is not your first cool gig. So definitely want to share that with the audience.

Scot & Vibhu:
[2:10] Yes so I I grew up programming,
and fell in love with computers and software when I was an early teenager and sort of joined a series of startups and then end up leaving to do one of my own.
And we got funded by Y Combinator and then raised a couple of million dollars from,
some investors and that we were making a social network for the phone and back in 2011 when snap chat and a bunch of these guys got started and we didn't make snap chat.
So the company didn't totally work and we we found a home at Nest a few years ago.

[2:53] At the time when they had one product and were just starting to think about launching multiple products and so there I joined as an engineer and brought my whole team and company over.
It was sort of an acquisition. And that was where I got introduced to retail for the first time really from the brand side.
Nest was a really pioneering company. A lot of ways we were were really introducing the idea of smart home to the consumer not just the Nest Learning Thermostat and doing that was complicated. It was a complicatedproduct.
We also really love retail because a lot of the team had come from Apple and understood the value of retail beyond sort of sales.
And so we used we used retail as a as a place to store and make people aware of the product and get them hands on and that was what the genesis but actually I want to talk about the first time I talked to you Jasonbecause,
it's kind of you know four years ago I actually didn't know very much about retail and so when I was trying to learn about the first thing I did was like you know basically typing like who who to follow about you knowin retail,
and your name came up and I ended up falling on Twitter for a bit.
And at a point when I wasn't sure if I should we should actually do beta.
I called him LSU and is like hey can we get a call I want tell you the idea that working on and just get your feedback and so we got on the phone. Do you remember this.

Jason:
[4:20] I totally remember this. I wasn't sure you wanted to disclose it.

Scot & Vibhu:
[4:25] Yeah. So we we got on the call and I was like hey you know this is what we're thinking about doing.
We don't know much about retail what we understand the problem.
And I think you said you know this is like been done a lot,
or it might work but you'd be much better off if you could solve this other problem that I have which is that people are not buying chewing gum anymore because they're looking at their phone and they're checking out atthe supermarket.
And I was like oh that's that's interesting like I me think about they actually spent way too much time thinking about how to get people to buy chewing gum after that conversation.
But I'm very thankful that we decided to move forward with this. Remember that.

Jason:
[5:05] Yeah I totally do. I might slightly I don't.
I'm not sure I necessarily tried to completely pivot you. But I'm also glad you stuck to your guns.

Scot & Vibhu:
[5:17] If you ever saw the chewing gum problem I'm not sure what.

Jason:
[5:20] No no. I feel like there still is an opportunity as the world moves to auto replenishment for for you know all of those consumable items like you know impulse purchases are likely to go away.
So if there's any entrepreneurs out there with a clever idea you know we've got to we've got to figure out how how we're going to do impulse purchases in all digital purchases path.

Scot & Vibhu:
[5:45] So spoiler alert but I think we should put a gum station in every beta Boom problem solved.

Jason:
[5:51] Yeah that that's one way to go. The part in conversation I remember us talking about though which I think we should come back to later is the role of other retailers in your concept.

Scot & Vibhu:
[6:09] Yeah. I mean you have I think if I remember you had suggested that we should talk to some other retailers who were pretty focused on building something for ourselves on the software side.
But that opinion obviously change in the last 2 1/2 years.

Jason:
[6:25] Yeah I was gonna I mean that you probably got the sequence right.
But I think I feel like I mentioned that,
there would be potential interest in some established retailers and partnering with you or potentially funding the idea you had and at that time,
as any entrepreneur you were you were laser focused on crushing all the traditional retailers and doing it all yourself.
And so I think that's that's how you started that.
You may have progressed since then. So one other thing before we jump into beta hardcore though is you were at Neste pre Google right so you were actually acquired by Google is that do have the timing right.

Scot & Vibhu:
[7:08] That's right. Yeah. Very shortly after I joined,
and it was you know the acquisition was I think we learned about it like January 11 2015 14 and then it closed in February and I had joined just four months or five months prior to that.
But it was the company was at an inflection point when I had joined and it made a lot of sense.

Jason:
[7:33] Yeah for sure. I feel like a super friendly product to everyone now but,
if you go back to that Genesis you original concept was sort of,
what with a smart thermostat look like if Apple were to design one and when you guys want that first product it was one of the original digitally native vertical brands right.
Like you you made this product that you were predominant you were selling direct and partnering with retailers on it required a bunch of education because no consumer knew they needed it.
And so I feel like there was a big retail education play in it which is of course interesting.

Scot & Vibhu:
[8:15] As funny. I mean we didn't see it that way at the time.
And even it took even after we started the company I didn't realize that but every single Early Stage Harbor company was a DnD VB as you noticed,
because they were selling the product direct and and that and the advantage that a lot of Harbor companies have relative to other types of,
DNA BS is that they always have the users contact information because most of them have an account sign up as part of the onboarding process.
And so it sort of they're sort of natively by default dnt Bebe's.

Jason:
[8:59] Absolutely.

Scot & Vibhu:
[9:02] Yes. Let's let's jump into beta so let's start at kind of the the origin story.
Anything kind of tell us how you got that idea and maybe kind of tell folks what how you describe it today.

[9:21] Sure. So I don't think any good idea is sort of,
a singular eureka moment maybe it is but for us it was a lot of different kind of influences came together to create this.
The the biggest the biggest thing for me was working at NASA and,
understood and sort of seeing this disconnect between how we as a brand and as a supplier to stores thought about are the value of our presence in their stores versus the value that a retailer saw.
And the presence in their stores and that disconnect is is incredibly fundamental and incredibly hard to fix.
And so you know as a brand we wanted stores to be education point for customers.
We needed a scalable way to get our product Nest thermostat in the hands of customers.
And and we felt that you know when we came into a store we wanted to present the product in a beautiful manner kind of let it let it live like a hero product there.
We never came into a store without uncap or display or you know something that was sort of taking the product out of the box.

[10:45] And and in order to do that you know we end up spending a lot of capital a lot of time you know deploying a lot of people into the field to sort of ensure that like every time we had our product out there that cost.
And when a customer saw that it was presented beautifully and and frankly retailers back then and it wasn't that long ago. But you know how fast things have changed in this industry.

[11:10] This was not a totally common idea for them I think they had an Apple shop and shop and maybe a few of their large brand partners but to allow of any new company to come in and build a cool experience wasn'tnative to their business.
And you know they their business model of retail is really set up to to be the end of the supply chain the store right.
They've got a buyer they figured out that this is a product they want to bring in. This is how many units they want to get.
They think they can sell and the store is sort of like this the warehouse with a pretty face as a retailer wants described to me and you know for us it was the start of the consumer journey. And so.

[11:54] This basically what happened is I learned about this because I had asked our Head of Retail who's now my co-founder Philip RHA UB and he had a retail analyst.
I asked him why we weren't in more stores. You know we were in Target. Apple Best Buy Home Depot Lowe's.
And I was looking at our sales force.
One of the bucket in sales force and I just noticed like hundreds of retailers from you know globally who are asking to get its products in their stores.
And I was like This is a you know an amazing opportunity.
And he said well because we don't see retail as a surprising pivot you want to make sure the products are presented well and so we just can't,
give away it to anyone who asks and that was like you know that that gave me this aha moment that maybe there was,
a way to fix that.
At the fundamental level for a retailer.

[12:53] But but you know we.
You know I sort of sat on that kind of learning for a while and then I got more involved the retail team at NASA when they asked me to build a training system for associates inside of other people's stores.
And you know when I started working with the customer support team on trying to figure out how to,
address you know sort of this you know when a customer buys a product at a store but then they call,
our support center and then you know where we said that customers should they return the product and I realize that like a retailer like a brand like Nasz never wants the customer to go back to the store.
There's all these kind of weird things that I was finding out and I wondered if you know if we were having these issues that probably means that every other supplier in Best Buy.
That is like us like GoPro for example or Fitbit at a similar stage was probably having a similar similar fundamental issues.
And and you know if we were building sort of code bases and processes to solve this and they were as well that that's a very inefficient use of all of our resources.
So beta was this idea to create a retail platform from the ground up that supported a customer experience as the primary use case for the store.

[14:20] And supply chain as a secondary or test Cherry use case.
And then we I mean it is really that simple honestly we just want to we didn't you know the business model kind of came around later.
You know if you're if you're going to separate yourself from the supply chain use case of a store then you can't buy the product and so it kind of made sense to rent space to companies.
But yeah the disconnect was the genesis.
And as it turns out like you know now nowadays anytime we find a disconnect between,
two parties that are doing business you know a customer brand or a brand and a retailer or a retailer and a customer we think there's an opportunity to deploy business new business models or software to fix it.
There's but anyway that's that's a bit about the company but we can talk more. Yeah. So.

[15:19] Maybe this is a good place to start. How big is speed of just kind of from a store footprint perspective.

[15:27] So we have eighty two stores that we managed today and own operate 70 of those are inside of LOEs so we have a quite large partnership with them around smartphones.
We've got a store with Macy's inside of their flagship store and we've got,
13 actually I think 12 owned like kind of flagship in line stores or kiosks inside of malls.
And in terms of the scale of people we about 350 people that work inside of these stores and we're at our per post office call so I've been in Palo Alto is kind of what you would think of as the flagship store,
flagship for us we have.
We have a number of flagship. So we just we just mean any kind of any store that has our flag our logo on it that it was our first store.
That's actually a very unique store none of our stores look like that today it was it was built on a budget in a woodworking shop.
Beautifully done. But but definitely a one off. So the newer ones are fancier who's that Congressman.

[16:42] Yeah we spend a lot more time in designing them. It's the series a store the Series B stores are much nicer.
The Up series is this the series a sort of the best and then you start to realize that you've got to build a business and that every single thing that you see in the store has to be cut from a tree. Yeah.

Jason:
[17:02] Yet it's all the timbre turns in all the hardwood turns into a particleboard is basically what happens in other curves.

Scot & Vibhu:
[17:09] 100 percent is exactly exactly right cool.
The way I've described it is it's kind of a you know Apple Store like kind of feel with seems like about 2000 square feet there.
And but you know literally hundreds of different kinds of products you can interact with mostly in the kind of gadget electronic category.
It's not fun because you come to the folks that work there are super helpful so if you had an idea of what you wanted they were ready to leave bailable.
But I thought my experience was just kind of spinning like two or three hours and they're just kind of touching everything and trying it out and learning about it.
Is that kind of how you think about the old experience at this point is that a decent description.
Yeah. So each store is about 25 100 square feet features that are 120 different brands.
You know maybe 130 different products.
Every price out of the box and it's a real live working demo.
Like we when we get a new product in a store we actually take like the first one out of the shipment and just take it out and set it up like we were a customer.

[18:20] There's a lot of space between the products. It looks like an Apple store although that wasn't the intention it was really designed around actually or analytics system and how overhead cameras capture information.
But you can definitely spend two to three hours in there because everything that you're seeing is kind of a one of a kind.
Interesting thing that you probably haven't seen before and these are complet.
You know the price to carry the tech products are complex and and they were hard time to understand.
And so you know having really good staff is super important to us.
I think two to three hours is definitely way above the average visit which is about 15 minutes.
But the average customer only usually look at about a third of the assortment on a given at a given time.
So but we have a tremendous amount of customers who kind of see it like a museum they come and they look at everything one by one and want to make sure they don't miss something.

Jason:
[19:25] And it's funny because in one way I would argue you're sort of the the opposite of an Apple store in that,
there's not a lot of surprise and delight moments in an Apple store anymore.
They actually used to carry more third party products than there was a little more variety but my sense today is you know exactly every single product you're going to discover in the Apple store before you walk in there.Right.
So it's it's most people that walk into an Apple store are walking in with some kind of mission in mind.
Like they're either coming for service on an existing product or they're coming to buy a product that they already know about and know that Apple has there or maybe they want to see it and make a final determination inin a big way.
I would I sort of feel like your story is the opposite.
I'm not likely to know. I know the kind of products you're going to have in your store but I'm not likely to know exactly what you have and I'm almost certain to discover some products I didn't know about.
And so to me it feels much more like a sort of serendipitous discovery moment for the shopper versus a specific mission in mind a moment like I might have at Apple is that.

Scot & Vibhu:
[20:37] Yeah. So the data proves that out for sure. So 70 percent of the products at a average customer season are store they're discovering for the very first time.
So and actually on the other side of that and Apple and Apple stores about 70 percent Apple products.

[20:55] Oh you're probably 70 percent Sandras seeing something that you you definitely saw before.
But we have two types of shoppers in our store. There is there is the shopper who kind of wanders into just be surprised and be delighted by everything that people are making in the world.
But we definitely serve a use case for a lot of our brands of high quality demonstration.
So a lot of the company and you can if you if you like google some of the companies that we have in our store you can see when you go to their website they have a store finder and the store finder is just pointingcustomers to us you know saying hey if you want to check this thing out in person.
This is the place for you to do that and we love those kind of visitors because they come in for one thing and we give them that amazing demonstration experience that you know no one else could give except for beta.
But of course while they're there they'll find a bunch of other things that maybe,
they didn't know about and that's that in terms of a percentage of traffic about 40 percent of our traffic is driven by the brands that individually use case but in a mature store for us that that that tends to go up and up.
So basically like if you lived in Palo Alto once you've been to the store once and you've seen everything are a couple times the next time you come,
back is because you saw like a prophet on the Internet that you were interested in trying out first and then you'll come in for that specific thing and try it out.

Jason:
[22:21] Yes. That makes perfect sense. It's funny because I imagine as people get more familiar with this door that you definitely could have some sort of mission shoppers and it it sounds like one way,
they might find you is through the product manufacturer's website.
But you do now have your own Web site as well. And that's another discussion you and I had when you first launched you didn't have your inventory online.
And I mentioned that like in the long run customers that became familiar with your store would want to be able to see what kind of products you were carrying before they made a visit.
So now that you apparently took that advice and so now I'm going to ask a terrifying question.
Has that had any value or are you finding that that you do have perhaps a subset of your shoppers that that shop your website and then decide oh cool you've got a new a new kind of product in stock that I want to go see.

Scot & Vibhu:
[23:18] Yes so funnily enough we I mean I think we specifically avoided doing an e-commerce site for a while because we wanted to stay focused on on stories which was our kind of unique value prop for brands.
And we also didn't want to do e-commerce that we didn't have something to offer that was special and we act.
We launched e-commerce in August officially last year.
So it's been one year to date in that time period.
It's gone from obviously zero percent of our sales volume of products to almost 20 percent today.

[23:55] So we've had a lot of growth there. I think you know what we learned more than anything was that our associates in the store needed a place to,
can point shoppers to who maybe wanted to do more consideration or you know had some kind of education like they were traveling and you know the product shipped somewhere you know.
And and so it serves an essential function.
Are our sales associates. I would say more so than customers.
We don't like buying from beta dot com is not better than buying from Amazon.
If you're a Prime member for example so we're not trying to compete for every single sale but it's been an effective tool on the store side of the business.
I would say we built the entire platform in-house for a reason which is that we have a lot of really cool things coming down the pipe that,
will give us at least some advantages over maybe shopping on Amazon or from the brand's website that we can uniquely do because we have a lot of stores.

Jason:
[25:04] Nice. And just a clarification.
I like that to me is exactly why I was suggesting you have the inventory online was sort of as an adjunct to your sales process.
Not so much that you'd capture a ton of sales via e-commerce but that people would wanna know what you had in stock before they visited the store or or people would want to do that final consideration after the store.
So I'm glad to hear that. That's providing some benefit to you.
I get that you're you know nobody wants to our Amazon Amazon so it probably doesn't make sense to just try to compete with their exact customer experience.
But one of the things that I perceive is also true and I'd be curious to hear from you is I do think it's possible for you to be selling products before they're likely to show up on Amazon.
So I do think there's some early stage new new products that you know where manufacturers reach out to you as early experience and they may not be distributing through Amazon yet.
Is that true or does everyone go to Amazon Day one these days.

Scot & Vibhu:
[26:16] No that's totally true. And in fact it's not just that they come to us.
You know before Amazon but they also come to us after Amazon a lot of brands that we work with.
They start selling there and they don't necessarily get what they want out of that experience and it was a bit more control they want more data and they'll come back and you know will be sort of be one of the onlymultibrand experiences that can carry it.
We also have a lot of international companies that don't have a,
local distributor or as a Web site where you can you can buy from here and so there are a lot of cases where we are the only place you could buy that wasn't necessarily our strategy initially but,
you know more and more I think that will be a focus for us.
The other interesting thing is I think you know.

[27:07] When you sign up with beta as a brand,
your entire experience of managing your stores with us and deploying content and training and materials is all through our dashboard.
And so we've found that companies don't want to have to sort of manage all these different silos of of you know information and marketing information.
And so our our our system allows a company to sort of make a change once in it and that content reflects everywhere in-store online,
in our accounting backend in our checkout you know everything all at the same time and that's for the right type of company at an early stage that's actually better than even selling on their own website.

Jason:
[27:52] Yeah. And I think that teases something that's unique about your model that we haven't totally covered yet which is you are not a pure traditional wholesaler where you just,
go discover some product you want to sell the people you buy a thousand of them at a wholesale price you mark them up to retail and sell them to someone else.
You're actually closer to Scott Wingels favorite thing a market marketplace right where you're essentially providing a platform and you're letting manufacturers,
leverage your platform your drive you're generating traffic and then you're letting them sell to do that traffic through your platform. Do I have that right.

Scot & Vibhu:
[28:37] Yeah we're actually a two sided marketplace and it's it's hard to see from the outside because we look like a kind of technology store brand.
But on the inside you know brands are subscribing to space in a store.
But we also work really closely with landlords and on that side they're competing through lower rents or things like you know funding for store build outs or you know marketing.
They're actually competing for these brands dollars and our store is sort of the glue that that brings those two together.
And so you know across our every store of ours is different because companies that sign up with us they can choose where they want to be and they don't have to be in every everywhere if they don't want to.
And they can also in every store sort of price differently and so you'll oftentimes you know you might see a company that is you know maybe moving from store to store or trying to figure out the right markets for themto be in.
And what really makes their decision is how good the data is in that in that spot and what and what the economics look like and that's driven by the landlord in our case that you know we didn't.
Again a lot of the stuff we didn't really see going into it we were just like we wanted to solve this really central problem that brands had.

[30:00] But it's evolved to look more like a marketplace on the business model side than any other type of retailer today.
And I think that you know just I can anticipate your next question but I think that's where we started getting interested in working with other retailers because you know there are effectively some of the largest landlordsin the country.
And and I think as we export our model further we knew that square.
Good square footage was going to be the thing that the supply side that sort of drove a lot of the demand.

Jason:
[30:37] Yeah and I want to come back to that in a bit. It's even it's good square footage with high buying content which is even more exciting.

Scot & Vibhu:
[30:44] Of yes. Yeah.

Jason:
[30:45] But the so one of the things that I'm always curious about.
So a brand has to want to work with you. The economics have to work. They have to see the benefit. You know they likely they have to have a product that requires some storytelling or some demand.
And so there's a bunch of factors that would make a brand want to work with you.
But it probably wouldn't work for you to just accept any brand that wanted to work with you. Right.
So you know you wouldn't want to end up with a bunch of brands that just were struggling to sell their crap.
And so therefore were were willing to you know be a tenant in your store and sell their stuff.
It does feel like you have a curated assortment of cool gadgets that people like Jason and Scott Wingo would like to buy.
So like I guess I'm I'm curious how you work that curation in a in like a traditional retail model of curation is easy the merchant decides what they're going to carry and what they're not going to carry.
It feels like your emergence if you even have a of merchant sort of has a harder job because they have to both decide what they want and then it has to be an appealing model for that stuff.

Scot & Vibhu:
[31:58] So we actually philosophically are anti-corruption.
We think that a lot of the problems that brought that retailers have encountered over time is is because of their you know quote unquote curation process on the buying side.
The way curation works. And the reason that that the products in the store are actually you know out to be really good is that their business model we chose.

[32:29] Weeds out bad products extremely quickly in the same way that maybe you know an advertiser in an auction system like Google AdWords weeds out bad ads as well.
Basically when you have a product that doesn't resonate with customers they don't want to spend money and so they leave.
And when it comes when a product is resonate with the customers they never want to leave because they're making money.
And in fact they start to expand with us and take over more space and more and more stores.
And we've seen this effect really dramatically in three years of running this model where you know we've built up you know for every 10 companies and maybe you know two or three of those company turns out to begood.
And we've built up a roster of you know the best brands in the world who again have great economics and would never want to go.
But it's important for us to compete you need to bring in new things,
because you know and we don't want to make the choice upfront all the time as to whether that product you know would sell because that you know frankly like you know maybe buyers have some some algorithmic helpand you know spreadsheets all kinds of stuff.
But like you know a lot of decisions are made at the gut level and I can tell you from our kind of internal game of trying to guess what their product going to do well with us.
We just get it wrong so often that it's not even worth trying to be honest with you.

[33:55] I think where we have a couple of of sort of post launch with beta curation moments for example with a product return block and we have an algorithm for that.

[34:06] We take it out. You know if the if the product doesn't have a you know a return policy that jives with ours.
We oftentimes won't accept it but we're pretty open.
I mean we I think to be honest that's what makes us really unique and.
And the other thing is like I think for customers retail can be a decision making tool and sometimes that decision is a negative decision.
This learning that that you don't want this product.
Maybe you saw this thing in mind but you know after seeing it in person it's not for you.
Disserve that kind of function you have to take things to that are kind of on the edge.
So I don't know if you expected the answer but I we we we take this. I mean we've really thought a lot about this and it's it's a big part of our business.
Yeah. I'm intrigued on the marketplace side of building a two sided marketplace.
Seems easy but it's hard because I always tell folks that are starting on it is kind of like rowing if you row on one side of a canoe or a kayak or something like that too much then you just go in circles ChAFTA.
There's a there's a balance you have to fall and there has been harder building this on the supply side which I think you call makers or on the demand side or tussle bit about it.
Any interesting stories there. I'd love to.
I think other marketplace people would love to hear.
Yes the supply side for us is there a state side. On the demand side as the Brandts.

[35:30] So it has been hard. And one of the reasons it's been hard is that we we have grown significantly faster than the category itself.
And so you know we ended up finding a lot of opportunities on the supply side.
You know really early on and so we've we've had to actually really control how many locations were launching every year and keep in lockstep with our best companies.
But the thing is like there's enough there's enough brands out there that are launching every day every week that we've been able to.
We've been able to open stores that are added and grow at a pretty good rate.

[36:16] You know the I think there I think there will be a point in the future that where it's not clear that you know opening another store is best for all of the brands.
But you know so far so far it's been working and it hasn't been as much of an issue as maybe you would think.

[36:39] Another interesting challenges like where do you stop. We all kind of like as a soccer guy your practice.
You know you like to solve customer problems.
I have this problem of where stuff.
So I imagine it's kind of interesting. So on the brand side you guys have done a really cool job of you know I can be in five stores in California and then I can kind of like you give me this life cycle that I can use right allthe way to.
You know I think you call it store open concept flagship when I looked to your site you have this kind of like model that I could even see on the soccer side.
You know if someone wanted to start selling on on Amazon there's no reason you couldn't like you know launch them there you know.
So. So that's interesting and then you know maybe you can almost become their PM.
You know there's there's because like you said earlier you've got their product data.
They've started with You Can you be you know is that an interesting place to go or do you start there and then on the landlord side.
I imagine you guys are you know generations ahead of a lot of these landlords on now to think about Dhara why are these things what's resonating with their customer.
So I can see you going deep there too. How do you think about those aspects.

[37:49] Yeah we we actually I mean we've we've talked about projects like that a lot.
But we've I think the opportunity that we have stumbled upon is really in physical retail becoming.

[38:07] Experiential rather than supply chain focused.
And I often started to to think that you know experience for retail is a third channel.
It's a new channel you know compared to maybe wholesale is the first one and an online as a second because it doesn't cannibalize your,
or other channels you're the focus is different you're capturing customers at maybe a different part of the of their lifecycle.

[38:40] And so.
For us we think about growth really on three vectors I would say.
One is on the contacts where one might find products.
So today we have like you said we have owned stores and they come in different flavors. We have that flagship in line.
We have the open air format and then we have this full store as a service product that we launched called built by beta.
And then you know in other contexts there's Lowe's. We just added Macy's as a big partner for us. And maybe you can imagine others as well coming down the pipe.
There's environments so these are the different ways that a brand might want to represent themselves in the physical world.
So you know we started with a two foot display that was the only option that companies had.
And then we we started adding more options you could take forefeet you could take a table you could take a room you could take half of the store you could take a TV,
you know create a whole store and and then on the on the third vector you have,
product categories and we've been really focused on tech for a long time but I think if you watch us closely especially if you watch our product assortment over time we started to to bring in other things like apparel andcosmetics and and so on.

[40:04] I think those each of those three vectors is is is growing for us and we're we're exploring them as far as we can take it.
But we've I mean I think you can. I think one day we we've imagined sort of building that that software distributions system that you're talking about,
but the online experiential retail opportunities is such a fast growing category that,
we'd be remiss not to to see how far we can take this. There.

Jason:
[40:38] Very cool. And you you mentioned something in that answer I want to drill into a little bit more of the built by beta program.
Real quick you guys have like I mentioned that right from my perspective you guys have built a platform you engineered a lot of the pieces yourself like as opposed to a lot of retailers go out and buy,
a POS from company eBay and they buy you know gondolas from Company B.
You guys built the digital signage system for the stores and a content management system that the that the brands have access to to publish content to those digital signs you you build your POS you alluded earlier to thefact that you have.

Scot & Vibhu:
[41:18] Training system.

Jason:
[41:19] Yeah. Training for the sales staff. You alluded to that,
detail the in-store analytics package that's not just purchase analytics but actual browse analytics so you're you're watching shoppers flow through the store.
So you're using that in your own stores and obviously in your shop in shops in Macy's and was,
built by beta is you selling that whole platform of tools to another brand that wants to have their own branded store is that right.

Scot & Vibhu:
[41:56] Yes so as I mentioned like experiential retail is a different channel and what we realize what we noticed you know in sort of trying to find the right tools to build the business.
We notice that everything has been subtly architected around the store as a sales channel as a place to get a box out the door.
And and and you know as it is as one example a lot of the companies that we work with don't see the first purchase from a customer as the as the last time they're going to make money from that customer.
Right. They are thinking about it as a customer acquisition cost but they maybe have a subscription package or accessories other things that they are or are you know consumables that they think are going to drive longterm value from a customer.
And the typical In fact every single point of sale system in the world today,
does not support a customer or checking out and adding on a cloud subscription or does not support a customer or checking out and adding on accessories or or other sort of options like that.
And so we we you know in order to serve the brands that we work with the best we had to we had to think about those challenges.
And we ended up just sort of building a lot of the pieces ourselves.

[43:17] But that that kind of example I mean that's just one of many many things where like the existing tools out there are just not good enough for this new channel thats being created.
And so when we you know I think as Scott was mentioning before like this this continuum of like you know a company is the way we are.
The ideal path for a brand with us is that they start with something small in a handful of stores that they think are really good.
Maybe a display is two feet and as they find success though maybe take out a room and build something thats a,
more custom and and a bit more of an experience and I think we started to hear from some of our our our best customers are especially our large customers that,
maybe a room inside of our flagship store wasn't enough and they wanted,
a much larger kind of representation.
And so we said Well of course like why not like we can easily take a lot of the stuff that we built and help other companies.

[44:18] But the store just like we have. And I think even the business model that we have was useful in thinking about this because,
when you are a new brand opening a store and maybe your vertical brand and you sell a few products but you don't have that many.
It's actually hard to figure out like what your store looked like and what other like should you bring other third party products in there like you know should you have like you know a product duplicated. You know 20times in the same space.
So our business model actually helps companies who deploy stores with us,
find other brands that that may want to participate in their ecosystem and so they in effect.
The the people who consume our platform on that side also kind of plug into this marketplace as a supply supplier.
And so it's a unique product I don't think anyone else has ever worked or built a turnkey storefront that has staffing and build out and all the things that you need included.
It's I mean we launched in April it's super early but you know we've there's a couple of.

[45:34] But you know definitely a lot of interest on that saw from companies across categories not just in tech.

Jason:
[45:39] Nice in my remembering right. So I feel like I read something about him. There was a TED store that may have permanently or temporarily opened using built by beta. And then I think you guys did a net gearcompany in stores right.

Scot & Vibhu:
[45:56] Yeah. So we. So we launched it at TED. TED had asked us to come in and build the store with them.
So that was that was a really cool experience for us.
But yeah the net net your flagship was the first one that we announced and is live today in San Jose at Santana Row.
So basically it's it's a it is it's a Netgear store it has their signage.
It's got you know their logo on the receipts it's got their logo on the bags and on the employee's shirts.
But behind the scenes we've actually we're actually running the store so it's our people they're on our payroll.
We designed the experience with them and then we worked with them to find other third party products that would be sort of merchandise around theirs.
But it's the first time that they've ever done something like this before.
They've typically I mean they're gigantic company but they've typically,
you know a wholesaled to Best Buy and a lot of multi-brand retailers like that and like a lot of enterprise company a lot of large companies they had been thinking through,
this transition that's happening from wholesale direct to consumer and they don't want to miss out.
And so you know in in that when you become a direct to consumer brand you start to think about retail differently.
And I think we were we really worked with them to define the first version of the beta to be honest with you.

[47:18] But they're just one of many companies that are going through this right now. This transition very well girl.
It's kind of like experiential retail as a service. So everyone you know you have to have as a as a service on your name these days that is exactly how we talk about it.

[47:37] Very cool that is a good time to pivot. Fellow entrepeneur so I love to talk about the nuts and bolts.
I was looking on base and it said that you guys have rates 38 million.
So progress on that and you have some really good blue chip investors like Khosla Ventures Comcast and then some strategics like me.
And there I imagine it was kind of fun. Two or three years ago when you started pitching VCs on a retail concept because you know every headline is about end of stores and mageddon and whatnot,
but you've restarted it. So I'd love to hear a little bit about that journey there.

[48:13] Yeah. Yeah. We've we've raised a lot and in a short time frame. So what I'm going to say it doesn't sound authentic but it's true.
It wasn't easy to raise the money. I think we you know in our seed round we must have approached about 75 investors and a lot of them didn't even want to talk to us.
They didn't believe in brick and mortar the kinds of things that we heard about stores were apt to be honest with you were ridiculous.
We we you know I think retail is kind of interesting in the sense that like everyone thinks that they know it because they shop in stores but very few people actually understand the dynamics.
And we definitely face that a lot.
But as as time has gone on I would say each year of our company the environment has gotten easier and easier for brick and mortar are concepts.
And you know in this year Larry you've seen a lot of direct consumer brands getting funded and a lot of that a lot of funding is going into opening stores.
And so I think our business case has been validated increasingly so.
But you know a couple of years ago when we started it was definitely like you said like the headlines were just not good and a lot of people based there in vestment decisions on how the group is thinking.
And that was probably a mistake.

Jason:
[49:41] And we're coming up on time but I want to ask this question because you guys you know you guys have developed some interesting category leading experiences up to now.
Do you have a vision for where experiential retail is going.
Like if we jump in a time machine and move forward like five years what's awesome experiential retail environment going to feel like that as it is it just a slightly more polished version of,
what we're doing a day or do you see some significant changes.

Scot & Vibhu:
[50:14] So we were not a gimmicky company. So I don't you know we don't think a lot about how the store experience itself is going to change.
But I would say that if you look at a macro level every.
I mean you know this as well as I do but every bad retailer is going to go out of business.
Between now and like you know 2040.

[50:34] And they're you know a lot of them are going to be replaced by these new brands who are you know getting to a point where stores start to make sense.
You know brands that sort of online. And and I think when you walk into a mall in the future really five years from now,
it will primarily be a bunch of kind of direct to consumer and vertical brands taking up the space there and,
I think that's great for customers because those products are better.
They resonate with a different audience than maybe the typical traditional retailers that today occupy a lot of square feet,
and and frankly like the business model these companies are using kind of naturally lends itself to better customer experience in the store because there's certain no conflict of interest between you know what a customerwants and what what the brand wants like that.
These brands don't care whether that customer buys the product right there and then they they think about the store for lots of thing for customer service for learning for for events all things that people love.

[51:46] But yeah we don't have a lot of insight into what the store will look like but I can tell you that if we have something to do with it a lot of stores will be designed around analytics and data and data capture.
And so they'll probably look a little bit more like our stores than than not.

Jason:
[52:05] Yeah I hope you're right on that one. I know you and in the show you know at the beginning of the year we do this prediction show.
And I feel like I used to do a prediction every year that retailers would get more serious about their in-store analytics and I keep losing on that prediction.
So I would I would love your help in making that one finally be true.

Scot & Vibhu:
[52:26] Well it will be true by NEC and by just by companies these retailers going out of business and being replaced by new ones like us.

Jason:
[52:34] Yes yes. Although that cooling takes a little bit of time.
But it's happened again. We've used up our allotted time serve if listeners have any questions that they didn't get answered during the show.
We encourage them to jump on Facebook and ask questions and we certainly feel free to reach out to you you know to the extent that any of them are,
focused on your business and of course if this show is valuable to you we sure would appreciate if you jump on iTunes and give us their five star review.

Scot & Vibhu:
[53:08] Thanks for joining us. And where can folks follow you online if they want to learn more about either what you're up to or beta.

[53:17] Site. I look at every e-mail I get. So definitely email me via B.H.
You made a dot com or you can follow me on Twitter.
But to be honest with you I just tweet about beta. So if you if you want that that's the best place for Beta news.

Jason:
[53:34] Nice and Until next time. Happy Commercing.

Jul 31, 2018

EP138 - Amazon Q2 2018 Earnings Hot Take 

This episode is a hot take on Amazon Q2 2018 earnings

  • Amazon Q2 Earnings Highlights
    • $52.9B, which is a 39% y/y increase
    • $2.98B in operating income
    • $21.8B in Free cash flow, less $11.4B in capex, $6.2B in lease repayments = Net $4.1B Free Cash Flow
    • AWS had a material acceleration up 48% y/y constant currency and profits were $1.4b
  • Amazon Web Services – came in at $6.1b – 49% y/y growth (an acceleration from last quarters 48% growth)
  • North America – $32.2B up 44% Y/Y, operating income of $1.84B
  • International  – Revenue increased to $14.6B (+21% Y/Y) for a $0.494B loss
  • Marketplace
    • 53% 3P by Unit sales
    • 3P Growing at 55% (constant currency)
    • Wingo GMV estimate -> 1p – $37.6b/ 3p – $71b = $108.6b GMV
  • Amazon Ad Business – grew 129% y/y  to $2.19B
  • Increasing likely Amazon becomes first $1 trillion dollar company

Jason & Scot will at eTail East in Boston next week.

Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 138 of the Jason & Scot show was recorded on Monday, July 30th 2018.

Join your hosts Jason “Retailgeek” Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

New beta feature – Google Automated Transcription of the show:

Transcript

Jason:
[0:25] Welcome to the Jason and Scott show this is episode 138 being recorded on Monday July 30th 2018 I’m your host Jason retailgeek Goldberg and as usual I’m here with your Tahoe Scot Wingo.

Scot:
[0:40] Hey Jason are welcome back Jason Scott show listeners well last week the big news in e-commerce was Amazon 2nd quarter results but we didn’t get a chance to cover it live because you were down under.

Jason:
[0:55] That I was I was in the future in Australia.

Scot:
[0:58] I know he’s not wild you you cross the time zone when you go there and then you lose a day when you come back so yeah it’s very strange.

Jason:
[1:07] I assume I’m now even.

Scot:
[1:09] Yeah if you if you keep going though One Direction you’ll either turn time backwards like Superman to or I don’t know if you’ll arrive younger than when you left.

Jason:
[1:21] Yeah I can certainly use that but I’m not currently that’s not a nephew and I’m currently experiencing.

Scot:
[1:27] Cool before we jumped into Amazon’s second quarter deep dive give us some highlights of what you saw in Australia and you know
since we’re theming on Amazon here let’s start there Amazon has launched in Australia and I imagine that the Aussies are really fired up about that.

Jason:
[1:44] Should I feel like that is the big change last disruption in the local retail Market I would also I also feel like the.
The sort of recovery from the global financial crisis has changed circumstances in Australia a little bit but it said it’s an interesting Market.

[2:04] For me it felt a little bit like a Time Warp like I was going back in time a couple years in retail.
They’re they’re not as over stored as we are so malls are still like a pretty popular concept like they don’t have too many into the overwhelming majority of malls or sort of the equivalent of what we call in a mall here.
And that’s a a growing in popularity shopping concept there in fact like there’s a premise that the.
Traditional department stores in in Australia are suffering a little bit because people are choosing.
Two shot multiple manufacturer stores in the mall versus going to a department store but overall.
It’s a timer for two reasons number one is Scott and I think you already know it’s an odd Market in that a lot of international retailers.

[2:57] Didn’t protect their IP rights in the early days until entrepreneurs from Australia would travel abroad they would see some interesting retail concept.
And they would bring it an unlicensed version of it tossed really on their own so you’ll see lots of familiar brands for North American Choppers like Target and Kmart.
Woolworths but they’re they’re not and The Branding may even feel very similar to what you would expect in the US.
But they’re not in any way related to or associated with the North American companies and in some ways it’s a Bizarro world so.
Like you know Kmart is probably more vibrant in Australia than Target for example.

[3:40] Which feels a little bizarre for anyone that you used to North America where that’s that’s definitively not the case so
to the retail Brands it takes a little bit of time to get your head around because they’re familiar and yet for him and then
you know I think it’s dorkly the market just hasn’t had a lot of competition like most of the Australian retailers have had to compete with each other but there’s not a huge number of them so they.
They don’t have direct overlap like you don’t tend to have two or three brands with the same product assortment in the same price point so i q no U tend to have.

[4:13] A retailer in every price point or a category killer in the in the category so you have like an office works.
As the category killer for Office Products but they don’t have.
A direct competitor like like Office Depot OfficeMax have a Staples here for example and then until recently the the currency exchange rate really sucked in so you didn’t you also didn’t have Australian consumers.
Shopping internationally via e-commerce and so really those consumers were kind of locked in the to the local choice there’s no they’re not a lot of international retailers in Market there’s a lot of international Brands and Market but not a lot of.
Wholesalers of other people stuff inside so I would argue that the market just didn’t involve really fast and now you got Amazon coming in there
I’m which is a big disruption and you have much more favorable exchange rate so you have.
Australian consumer shopping tomorrow in Hong Kong and and shopping pesos in in the UK and doing cross-border Commerce and things like that so suddenly there’s a lot of competition suddenly they’re all getting much more heavily disrupted and they’re all trying to figure out a lot of the digital things and Omni Channel things
that retard you know we’re more likely to be struggling with you know 2 to 5 years ago here in North America so it’s it’s it’s going to be interesting.

Scot:
[5:36] Yeah so Channel advisor full disclosure we have an office in Melbourne and it’s a good region for us
Amazon coming has been great for us the one thing we’ve seen a ton of is there’s a lot of Chinese Imports and Australia and it frustrates Australians because they have this weird kind of this is kind of topical because the news did this weird thing where you can sell anything and Australia for $1,000 and under and there’s no tariff
but then Aussies can’t sell the China without
Tara so there’s like this huge disadvantage and it really always frustrates the third-party sellers I know they’re that anything can come into the country for under $1,000 without any kind of a
there’s just some guy text benefit almost like they don’t pay Australian tax on it or something and but then they always had a hard time exporting out of Australia so
did you hear anything about that or.

Jason:
[6:29] Yeah so I feel like there’s a number of those sorts of things and
and you know I was really really is part of Asia is it is you know there’s it’s very International population and so there there’s a lot of Asian expats in Australia and said there’s
there’s it you know it’s it’s not just proximity to the good deals like there’s a lot of Asian brands
did it appeal to a big chunk to the local market in Australia,
alright are multi-generations in Australia there is this strong sort of national pride thing so I always feel like.
They’re they’re very there they’re more opposed to Outsourcing jobs and their there more favorable to.
Meeting RC Brands and products then some other markets in all markets we see.
That that does kind of stated preferences you no go away when.
When there’s economic pressure so I’m not saying Australians won’t buy cheap goods from China but I’m just saying,
they maybe put a little more weight on the local stuff then do Americans for exam.

Scot:
[7:44] Call the other thing I’ve noticed in Australia is pretty much everything will kill you did you run into that at all.

Jason:
[7:49] I was aware of that but I did not run into that I did not see any vocals boxing with kangaroos.
They’re made they’re probably were venomous spiders but I’m happy to report I didn’t see them which is all I care about like I just want to die in my sleep and not be scared the bejesus beforehand.
And I was I was mostly in Melbourne and Sydney which are you know big Metropolitan City so I I imagine the density of things that can kill you is more skewed towards public transportation in Alaska Critters.

Scot:
[8:23] House on the Gold Coast in like a I thought I’ll go to the beach for half an hour or something and it like every other sign was like no warning Riptides warning sharks warning
life threatening jellyfish poison manowar’s warning piranhas like
ever in Australia.

Jason:
[8:43] No I think it I think it was Jim that fact that there are there are like more deadly species in Australia than anywhere else and I think that’s particularly like the snakes in the venomous spiders and then is you mentioned a lot of the The Aquatic Life.

Scot:
[8:56] Yeah they couldn’t tell hundred percent if they’re yanking my chain but the folks in the office for telling me there’s a venomous spider that hangs out in toilets
and like all Australians when they go to the toilet they will actually do a visual inspection for this spider because it will actually bite you in the bum and it can kill you if which is like a terrible way to got.

Jason:
[9:14] That’s why I don’t know the weather know this but either they were totally yanking your chain or my house were much more happy for me to die.
I was not worried about that although I did Quinton Henley I did look in every toilet because I was I was constantly making videos trying to get some that were flush and counterclockwise in it yeah.

Scot:
[9:33] Nice but still have to put those on the action.

Jason:
[9:38] Exactly yeah the toilet videos yeah I’m pretty sure it’s like cow tipping.

Scot:
[9:43] Cool any other exciting Australia highlights.

Jason:
[9:48] Nope I mean people are super nice I had a ton of great conversations with retailers and I do think they care a lot about the customer experience and they care about winning in this
certavite in competitive market that there now in butt
you know just circumstances they they haven’t had the impetus to change quite as quickly as as some other market so.

Scot:
[10:11] Well let’s jump right into the big amazon news with the Q2 Deep dive.
Amazon news your margin is there.

[10:34] Also serves a lot to go through so we’re going to contact what I call a peel the onion approach and start at the macro-level and then look at the different lines of business with an Amazon
we’re going to look at the cloud segment the add business
and then the US and international retail businesses as well as the third party Marketplace that’s a lot to cover so let’s jump in
from a macro standpoint the big story of Q2 was the bottom line.
And in fact the top line was a little bit below and the analyst estimates and part of that was due to there’s a lot of rule changes going on in the world of accounting.
Which is causing every company a lot of Heartache intimate with this unfortunately there’s this new accounting principles 606 which is making a.
We visit how they look at their different things so Amazon had to move some stuff from 1 P to 3 p which creates a revenue headwind because in 3p they only count about 10% of the revenue because it’s their Commission
CNN 1p the count a hundred percent so in fact Amazon actually missed the top line so usually if that happens you see this whole you know crater going to stock
but then that didn’t happen here because what happened is operating income blueway expectations so it came in at.

[11:52] 2.98 billion so that’s the third quarter that operating income was over 2 billion and it was just too shy close at 3 billion you know what would that be 2 million short short of that.
That’s a 375% year-over-year increase in operating income and then every segment Amazon reports on improved their profitability as well and will cover that as we get in
that represents a 5.6% margin and expectations was for 1.7 billion so this was 77%
above expectations which of these numbers is you know 1.2 billion dollars more than while she was expecting in his truck that is meant.
Amazon is I kind of caught this stair step effect so Amazon will.

[12:39] You know don’t don’t climb the stair and profits will go down and what they’re doing is
this business is very capital expenditure heavy right so you have the big capex is fulfillment centers which are not cheap and data centers which are also not cheap so Amazon and Fortune asked both because
derp derp those are the two core pieces of what they’re building so you can imagine the phase where they’ll build like 24 filament centers in 20 distribution centers and
the look massively unprofitable but then as those come online and they optimize them and they get
capacity then Revenue starts to kind of the the capex stair goes sideways and profit starts to climb and then Amazon will kind of go through another phase of of harvesting.

[13:28] Prophets and then after that they’ll say oh we need more data centers and fulfillment centers and I’ll have to kind of keep chewing away at it so we’re one of those Cycles now
I’m that that we’re kind of harvesting investment and what’s interesting is as they’re climbing the stairs every time they take a breather
the possibility is going up pretty materially and they’re doing it again such a big number you had so you normally people would scoff at a 5.6% total margin but they’re doing it against a top-line that.

[13:56] Massively large so 3 billion dollars works out of the bottom of that equation which is which is pretty incredible so
so that was kind of everyone was pretty kitty about that to see if they know they haven’t level in a very long time.
And then there was there’s a nursing backdrop that happened you were not show you sounded like you picked up on this but there’s this this whole kind of thing that’s been out there called Fame
search Facebook Amazon Netflix and Google and Google had pretty good results
obviously Amazon did and then Netflix kind of had a little bit of a
bad results at there they miss their subscriber growth number and then Facebook had a really really
really bad week last week so they
they had that kind of guy on their conference call so their revenue and profits missed an egg on a conference call and it essentially said look we’re going to reset expectations of Skyway
on Washington caught kitchen sink order the stock was immediately down 20% and unfortunate that kind of held there so there was this whole thing coming in so it’s kind of interesting to see Amazon really kind of printer.
A quarter and blow errands expectations.

Jason:
[15:11] Boxer to put the F into Fang if you will.

Scot:
[15:14] Absolutely yes Google kind of mess it up cuz they change their name to alphabet but everyone still calls it thing but it’s it should be either fan or whatever.
Santa hat
the another kind of interesting tidbit here subscription Services which is where Prime lives are there’s a couple other subscriptions on there that you can buy but that is primarily Prime Revenue.
That accelerated to 55% year-over-year growth which was good and then longtime listeners the show will no operating income and revenue are the measuring sticks that most other companies use but Amazon really uses.
Cancel that is a lagging indicator and what they really focus on is as more of a Ford indicator and it kind of has to do with the stair step.
I love you and I’ll G I introduced that’s free cash flow and what free cash flow does is it it kind of is an earlier way.
To the counting rules to kind of predict where.

[16:12] Profitability is going to come in so let’s let me kind of walk you through that I’m going to try that this always gets a little confusing so I think I’ve tried to boil it down here so when you when you just take what I would call.

[16:23] You got to go to this waterfall right so the top of the waterfall you have just pure free cash flow and that was about 22 billion dollars massive amounts free cash flow.
Then they go and they invest more Catholics right because Amazon is Never Off This treadmill of investing in capax just the.
So this quarter they invested only 11.4 billion and capex just hilarious because that’s probably more than.
People are spending in like last 10 years for like most retailers but that’s that’s so is a light investment quarter.
Do only 11.4 billion that leaves you with kind of 10.4 billion in free cash flow after the capex Investments then they’ve gone out and they have
you know some of these things that they buy they buy outright and other ones they leased land and what not to try to smooth out.
Cash outlay for data centers in fulfillment centers along with more with Revenue comes in so they have 6.3 billion of that they paid back in the quarter so really when you get all that out the cord which is free cash flow without lease.
When you take out least principal repayments was 4.1 billion so those are kind of the end of the metrics Amazon spends a lot of time thinking about what you could argue is.
That biggest number I gave you that 21 billion is really what Amazon focuses on because you know if you kind of go to this.

[17:45] Take a region like the United States there there’s they’re getting to the point where they really don’t have to go that many more fulfillment centers in it and in fact the profitability of the North America really kind of
pop this quarter will talk about it because of this they’re essentially it saturation so when you get saturation with some of these things that free cash phone number.
The top of that waterfall becomes the number because you pay off the cappex
pay off at Lisa’s now you’ve got all these fulfillment centers they’re producing Pan the free cash flow flows all the way to the bottom line so over the long-term you should see that gap between about the three billion dollar operating income in the $22 free cash.
12 close as a market matures that’s what gets Wall Street so.

[18:28] Not terribly excited about Amazon is these free cash flow numbers are are pretty amazing
and Amazon while they’re investing yeah I started that 21.8 billion + free cash flow and ended up with 4 there’s a lot of investment in there like 17 billion dollars with an investment
when there’s a day where they’re not making those Investments this is just going to eat a massively
kind of cash generating business which was funny we talked about it a lot on the show there still this overwhelming belief out there.
That either a olive Amazon is a profitable or that be the retail business is sustained just by the cloud business none of that’s true the retail business on its own as profitable.
Especially in North America and international it’s still losing money but that’s because certain markets specifically India
Scot amount but I think it’s pretty safe to assume there’s markets like
the UK and Europe for their probably look a lot like the US they’re pretty mature but then there’s a lot of markets and I including Australia even yeah I bet Amazon isn’t profitable in Australia so.
Just want to make sure we just spelled the you know that that whole incorrect urban legend at Amazon or its retail business are not profit.

Jason:
[19:40] Yeah for sure and Scott correct me if I’m wrong in this but.
Even if they wanted to keep investing at this same Pace like they’re there is a scale problem right like it is you keep growing that Top Line cash flow that fast like there comes a point when you just can’t make.
The capex Investments at that same.
At that same growth scale if you well some people would even say like the stair-step isn’t necessarily intentionally that they’re taking profits but just that it
it takes them more time to retool and and scale the Investments at the same Pace that they’re there their top line revenue is scaling.

Scot:
[20:19] Absolutely
let me have some you know so the most exciting line-of-business we’ll talk about is ads and you and I both there are in this world the nice thing about ads is it it doesn’t require any cat that’s right so it’s.
It actually possibly could be the most profit line of business that Amazon has and I I think.
Even though Amazon is closing are showing Dollar business
I think there’s probably the could be a joined our business there that a lot of people haven’t woken up to because unlike all the Amazon other businesses it doesn’t need data centers that doesn’t need for Film It Centers and it rides on top of those so it gets this kind of triple flywheel effect.
I’m from those Investments That Amazon’s making.

Jason:
[21:04] Death of though this last reporting. You probably didn’t want ads to be the the dominant source of income you had cuz that that probably dancer Facebook Super Bowl.

Scot:
[21:14] Yen one one sidebar is a kind of thinking there’s been a lot of interesting writing about this if your Facebook and Twitter is also in the same bucket Netflix will go in and it sits on it
stop living subscribers I don’t think those big deal but but the Twitter and Facebook their core bottle is under attack right because you have this whole attention to swinging very far away very far towards privacy with gdpr the whole Cambridge analytica
and you know so they’re core model is kind of under attack were there since Lee saying give us your data for free and we’ll monetize it by selling it to other people which which sounds weird when I say it like that that’s perfect
what you been doing all this time and you know so you have to I have to imagine
somewhere in those boardrooms people like we really need to find an e-commerce leg you know kind of a of Revenue here so I wouldn’t be surprised if we saw Facebooking and
Twitter got a lot more serious about e-commerce Revenue because transactional review is way cleaner from political economy misgivings than than address.

Jason:
[22:22] Yeah for sure and I mean a ton was written about Facebook but I don’t know if you follow John Oliver
he has the Last Week Tonight Show on HBO and he did a hysterical honest version of the Facebook app.
That.
Can’t completely describe an RPG rated podcast but you can find it all over the internet and it’s it’s definitely worth the watch is pretty funny.
But the punchline of the lad is Facebook we own Who You Are.

[23:02] So at the very top line for Amazon the growth was pretty big RightSource 37% year-over-year growth.
On the revenue and you don’t remember
remedy for for for Amazon doesn’t exactly equate to e-commerce DMV because they they do have some other businesses and in the revenues a mix of one p m 3 p but 37% growth.
You know for a company they’re sized you know we always highlight on the show that that the Department of Commerce in comscore sort of estimate all e-commerce growth in North America at about.
A 15% growth rate so you you have
the the biggest company in the space that represents more than half of all the activity in the space and they’re still growing at more than twice the the average growth rate which is pretty scary.

Scot:
[23:57] Yeah a lot of people are starting to kind of wake up to this and you
you pricing all the headlines that you know Amazon what’s half of e-commerce and that kind of thing would which is true but if he Commerce is growing it fit.
15% and Amazon phone at 37% then you know
next stop 65% $0.75 85% 95% so we will later we’ll see
you know
eBay group pretty decently like eight 9% but then we’ll always here from Walmart and Target those kind of guys that they’re growing 30% shopify’s gmv is going 30%
and it always becomes this kind of question of who is who is growing at negative.
And e-commerce to kind of generate this 15% I always come back to that when I when I when I start to hear all these things come out of the quarterly reports I don’t have a great answer for that we’ve talked to folks.
Animal I believe the numbers are wrong out there and they don’t trust at 15% so we’ll leave that two listeners kind of decide.

[25:03] The glass little thing on the top level here is at Wall Street.

[25:11] You’re very quickly says wow that was great cue to tell me about Q3 so it’s very much a show me show me kind of a world there
I am the do that through guidance so Amazon’s guidance for Q3 was a little light on revenue and I think that this again was due to this kind of
Optical news from stuff from 1 P to 3 p but then the prophet guy that gave to Wall Street was wildly ahead of their estimates and this is why you see that
world of Wall Street you called us a beat and raised quarter that’s essentially what Amazon did is they not only did they being cute too but they all the analysts had to scramble and go out and say
the whole world of profitability Amazon has changed
what does that do for our bottles and minute is models are built off of operating income and free cash flow so you know I saw I saw price targets out there
2020 120 200 I think the highest I saw was 2300
I remember right around 2000 is when Amazon it’s $10 so yeah this is the kind of momentum here that that’s pretty interesting to see if this is what catapults Amazon there I don’t think I quite get there
but you know when Q3 comes out I think Amazon all indications are from third parties out there that they had a Blow Away Prime day.

[26:33] That could be if they were kind of being raised and 2/3 on top of this and especially on the bottom line then we could get that $20 by Lucy will have to July.
So probably be.
August 28th 23 or October 22-23 is probably when they’ll announce Q3 and I bet
that maybe when we kind of see the first trying to our company.

Jason:
[27:01] Yeah and that’s a great reminder to me that we need to get started on the trillion-dollar sound effect that will need for the podcast from them.

Scot:
[27:08] Yeah yeah I’ll have Jeff on he’ll be a big celebration party.

Jason:
[27:12] Exactly I know he keeps asking but that maybe would be the occasion to finally let him on the show.
So one of the businesses in this number is of course the Amazon web services and
you know if e-commerce is doing pretty well against its competition amazon-web-services is doing even better right and is you is you mentioned you know one of the two common myths is that this is the only profitable part of Amazon that’s her to carries the retail part
as a reminder like this service want and really had like a 7-year Head Start before they developed any serious competition and today you have.
Microsoft and Google in particular you know fighting hard to catch up.
Spencer literally 7 years behind and I think there’s a Warren Buffett quote you know something to the effect of you really don’t want to spot Jeff Bezos so 7 years head start on anything.

Scot:
[28:06] Yes all that was great.

Jason:
[28:07] Which is a pretty good quote so you know again the circumstance going into this is.

[28:14] That Amazon web services is way larger than all of their competition combined and so normally you’d expect.
That’s great but it should probably be harder for them to keep growing at this pace and the bad news for the competitors is they did keep growing at that pace and in fact there
their rate of growth is still slightly accelerating so
so they had like 6.1 billion in in revenue for AWS that’s a 49% year-over-year growth.
Which is an acceleration of of 100 basis points from q1 and you know that puts them at like at 24 billion dollar.

[28:55] Run rate.
And the operating margins are getting better so so operating margins for the quarter went up like a hundred 20 basis points
you know so you got margins improving on a big growth when you’re already like the.
The huge market leader in so that’s that’s you know pretty impressive and for sure those profit margins.
Are much higher than you typically see you in any kind of retail and certainly higher than we see an e-commerce or or Amazon so you know they’ve there pretty consistently in the
20 to 25% operating margins for the for the last three years on on Amazon web services which is
much more healthy Marge and then you’re going to see you in a in a retail bit.

Scot:
[29:45] Yeah as a is a super geeky a fellow Super Geek guy I saw one analyst it did this kind of cool kind of.
Thinking on this
Amazon discloses some of the work load data so work load and growing at 49% workloads I think we’re going at like 60 70%
so what’s happening is they are getting
better at optimizing the data centers and handling those workloads with less capex imagine some that’s Morris law that kind of kicks in their butt
yeah I’m sure there’s some technology to I’m sure they’re getting good at your how do you spread these things across the field
data centers you know how do you buy more commodity Hardware there’s a lot of rumors that they were going to compete with Cisco because they
build your own network they do software kind of networking Stratus
infrastructure instead of Hardware so they were so they they were able to handle a tremendous amount of workload growth convert that into Revenue but then
increase margins more efficient
inside of the data center layer there in end of cloud services they’re providing they’re also seeing really good you know there’s this whole family of things people can use an and you know on the conference call they talked about they don’t get specifics but they said they were very pleased which means.

[31:08] Yeah it kind of Amazon body language must have been more than 10% kind of a thing you know of cloud customers expanding into some of these new Services they have so they have a lot of new scheme was database Technologies bi.
Call center Technologies and machine learning and Ai and they still seeing a lot of customers expand into those things which is which is new needs more Revenue per customer as well.
I bet they don’t really totally disclose that.
On your Warren Buffett quote one analyst had a clever thing it’s not funny they run out of superlatives here so he essentially kind of said I mean dang they they added an Azure I would just Microsoft clouds and a Google Cloud platform just in the last year so they you know
they’re just like every quarter they had like four or five JCPenney’s on on the GMC side there they’re laughing those guys so bad that they’re
yep there you go over your number added kind of just you know the year of your growth exceeded the two top competitors which is crazy.

Jason:
[32:12] Yeah yes it it’s pretty scary.
And I hesitate to even call it a stumble the one slight bit of negative PR I’ve seen lately has to do with one of those AI Services they have a facial recognition service and there was a little bit of a stir
somebody use the Amazon facial recognition search service and ran it against Congress and it said Miss identified like a hundred and fifty of the congressman as.
Criminals and like I’m not sure anyone did the fact-checking like it’s possible that that just true it sounds like to me but.

[32:49] I’m assuming from the articles that that was a mistake like that really has nothing to do with Amazon web services it’s kind of the state of the.
The technology in the databases that all these guys used to train facial recognition.
But I did see them get some slightly negative Buzz there and then of course it is interesting retailers the one segment where you would expect.
Ews to have a little bit of head winds because Amazon is such a successful retailer if you are another big retailer that’s fine cloud services.
It wouldn’t be surprising to see them you know Skip Amazon even though they are the dominant player and we are starting to see that a little bit like it was more of a press release than.
Then any actual activity but on Friday this year Walmart announced a big partnership with Microsoft Azure for data services and I you know I presume that was designed to.
Somehow take some of the steam out of prime day which.
Unite I would argue wasn’t wasn’t very successful and then I know Google Cloud platform Services just had their annual conference and one of the big announcement today or was that that apparently for some time Target has been.
One of the main tenants on Google Cloud platform services so so it is too we’re starting to see some of the big retailers adopt some of the other class but your point like.
And not in the overall economic picture it’s it’s not making you in that tiny little dent.

[34:18] So moving on to another business that’s not as big as Amazon web services but pretty interesting is the emerging advertising business on Amazon and so you know what is regular listener I don’t know there’s a bunch of different formats of
of marketing opportunities that sellers can buy on the Amazon platform to improve visibility for their product in so that that generates
advertising revenue for Amazon in
Scot keep me honest here but they they want that Revenue into a kind of miscellaneous bucket they call other revenue and I I think we’re all.
Largely assuming that the bulk of of quote-unquote other revenue is this ad business but it but there are some other pieces of.
Of Revenue in that bucket as well do I have that right.

Scot:
[35:09] You do and it’s kind of confusing so they they give you some tidbits on revenue and break out ads inside of other and then like I mentioned subscription services but because those things aren’t going quote material part of Amazon’s business the SEC doesn’t require
to break him out
and that in their entirety so ads end up being in North American International but AWS is all the way out because it’s pulled out as its own kind of operating its own p&l if you also unlike line business ads
we only know the Top Line we don’t know the profitability I think we all assume it’s probably.

Jason:
[35:43] It’s hard for it not to be very profitable yeah.

Scot:
[35:46] What is the extent there is no expenses psych are there are you at the traffic in the it just kind of like almost pure profit I would imagine so so yeah you’re right.

Jason:
[35:56] So that so the number for that other Revenue grew a hundred and 29% so so she use year-over-year growth and I think cow and came out and said that their estimate for the annual revenue from this advertising service is now
8.6 billion in for 2018 and you know when they start a forecast that out there there forecast says
forecasting that that could be a 37 billion dollar business by 2023 which is the acceleration over.
Over their previous estimate from just a couple months ago.

Scot:
[36:35] Yeah that’s a Facebook so this business will grow to be a Facebook by 2023 in 5 years and he had to nudge their numbers up because it’s outperforming what what they’re saying they’re so.

Jason:
[36:46] Now we used to say.

Scot:
[36:48] An Amazon fashion day could pull that in a year you know someone for years they could have added a Facebook.

Jason:
[36:52] Yeah now generally when people tell that story they remind you that that that’s a 2017 or 2018 Facebook and the 2023 Facebook will probably also be a lot larger
but that’s may be less obvious this this week than it was last week so that is certainly interesting
not really related to their their announcement that there is other data out there to just sort of highlight.
What at what an interesting business this is you know if you’re doing a search on Amazon platform.
By definition you have really high purchase intent so the ads on that platform.
Are are likely to have a directors are much more likely to have a direct response then adds on almost any other other advertising vehicle.
And so you know Merkel consolidate the data from other clients.
Every quarter and they publish this this great compendium of a marketing stats and they would they were talking a little bit about the efficacy of like one of those signature ad formats on Amazon which is the Amazon headline search ads there’s an ad.
It shows up at the top of a search and they’re saying that like comparing that to a Google pla which is one of the the most Commerce friendly.
Appointments on Google that Amazon headline search get 42% more clicks and convert 3 1/2 times better than Google play so that’s.

[38:18] You know partly a definition of the of the shopping traffic than Amazon gets versus the more you know browsing and in general information traffic that the Google gets butt.
You know if if their revenue gets anywhere like Amazon or Facebook’s advertising Revenue it’s.
Its Revenue that has a much clearer Roi for the ad purchaser.
Then some of that that the ads that are purchased on the other platforms where you have to believe that influences eventually going to translate to purchases.
So I think that’s that’s super interesting,
and then you know somewhat in line with the other digital ad platforms like Google and Facebook is becoming increasingly clear that Amazon’s very interested in fostering a direct relationship with the big ass fenders and they’re really trying to bypass
the traditional agencies so you know I work for one of those agencies like that’s you know definitely not good news for that sort of old app Revenue stream
for the big big digital agencies as it increasingly seems obvious that you know if there’s only a handful of these big digital advertising platforms they make themselves really friendly today advertisers that you know they can make it difficult for the
for middleman to add much value.

Scot:
[39:38] Free Colts those are the that’s the cloud in the ad highlights Witcher are in a driving substantial
beats here and then let’s dig in the retail side 2 on the third-party side
revenue from third-party seller Services grew 36% year-over-year which is down slightly from which it was about 40% of year ago so you know just kind of scale kind of slowing down I think
but again you have third parties are growing 36% year-over-year is not too shabby in a world of 15% and in fact when you think about it if third
prettiest girl.

[40:15] That fast then overall online sales for Amazon were about 18% first party is growing for a bit slower so the third party part of Amazon is growing substantially
Amazon does report the unit volume mix and the unit volume mix hit a new high water mark and Q2 of 53%
it was interesting it it kind of when you look at it overtime at q117 and it kind of this equilibrium of 50% and it stayed in that range all the way through 2017 and then here and
2018 it’s really kind of started to ramp up I think some of that was a couple things so I think
Amazon always loves for 3p to go through FBA if possible cuz that’s the best user experience and it
so I think Amazon and in 17 had vastly underestimated the the popularity of FBA with third parties
so they built a lot of fulfillment centers globally in Parsippany us to kind of catch up so it feels to me
it didn’t seem time they had some policies to kind of help drain some of the slower moving stuff out of a PA so I feel like the kind of used 2017 as a catch-up to get.

[41:27] APA right sized again counties in that stair step method ology profits took a hit from that and now we’re really seeing
creepy ramp up because I think there’s a lot more room in that PA to drive things
I do my own proprietary analysis of this and one I kind of peel apart the quarter
I end up with first party at 37.6 billion 71 billion for third-party so third-party is getting to be almost as twice as big as first party
so it’s your time looking at.
6030 Castle Cliff there I mean 6535 and I have three pgmp growing at 27% and 1p growing at 12% so this move between one p3p delete this a little bit
but adding those together to get 108 billion dollars of gmv for the quarter
which I think is the right way to think of Amazon and that puts them at a you know north of a 400 billion gmv run rate.
Which is essentially the size of Walmart we can compare Amazon’s GMB to Walmart retail sales which I think is the right comparison there.
On the US side to side Jason or you want me to jump into that.

Jason:
[42:43] Sure I’ll hit the top on and you can add any any color but
North American revenues continue to be really strong so that there were 32.2 billion for the quarter that’s a 44% year-over-year increase and I I think that basically hit the Wall Street expectation
but they you know again you don’t improve the operating margin I think they beat their.
Their consensus estimates for the operating margin so again
fast expected grossing growth in North America and North America has been properly 17 consecutive quarters or.

Scot:
[43:31] Yeah but I’ve lost track to being sweet.

Jason:
[43:34] Yes but so it’s something something in that range.
Where you at we’re going to call it a 12 consecutive quarters of profitable growth in North America so going back to
positive profit in North America so that’s you know going back to the
the sort of old wives tale that they’re not profitable the retail business in North America on its own is a profitable business it’s growing robustly it’s not super high margin as.
You know most most retail is not super high margin but there’s not very many retards in North America
that it wouldn’t take the last the last 11 quarters for for Amazon’s business so North America is a very robust retail business.

Scot:
[44:28] Yeah and if you look at the operating margin for that segment again operating margin is really a
trailing indicator free free cash flow would be better but they don’t break it out by a segment cuz you’re not required to file SEC but it improved from 3.7% bottom line profitability 5.7
in Washi parlance that’s a 200 basis point increase which is pretty material on a quarter to quarter so you’re really starting to see them.
Squeeze some some benefit there. Some of that is coming from the ad Revenue so that again the ad revenue does getting mixed into this North America piano
AWS isn’t cuz it said separate Simon so it is in their hind it’s helping
but it’s maybe a third of the profit comes from that business.
But I don’t think it’s fair to separate that because those two things are very much more intimately connected than AWS is essentially.

Jason:
[45:24] Yeah and that I mean reminder that the ad business wouldn’t exist if they weren’t retailer driving a bunch of traffic to that site to shop for Stuff.

Scot:
[45:35] You want to do International.

Jason:
[45:37] No I’m going to toss it to you for the cool accent.

Scot:
[45:41] Yeah yeah thanks crikey so.
On the international side if there’s any kind of blemish on this quarter it was International and then maybe the Top Line kind of being a little light but I think people kind of get the Top Line being of 1 Peter 3 p move and it is.
Truck drives Rockville police they’re okay with it so he International Group 21% year-over-year was largely due.

[46:08] A launch last year sometime that there anyways I’m so they had a tough comp in in a Wall Street.
ABS line but so is a little bit of white on the top line from what people were expecting it again on the bottom line it was good it was pretty strong so International has a loss so it is
she won the last was 4.2%
and then this quarter it was 3.4% so again kind of a really nice quarter-on-quarter Improvement but this is clearly a part of Amazon that’s losing money and
yeah for those folks that really want to find a piece of you found it so the international business of Amazon’s losing money right now it is improving its profitability pretty dramatically quarter-on-quarter so and Q4 it was down 5% in a lost 5% and then
yeah back in the 2017 it lost as much as 7% so it’s really kind of cut the losses and half in less than a year and you know I think we’ll see this at this kind of pace you could see International get profitable.
If you stretch get there in 18 but maybe by mid 1990 you know if Amazon opens up
Brazil in a more serious way there’s a lot of countries that are not in and or they do some Acquisitions so they’ve added some things like sukur that.
Could make it kind of go negative again they they will do that because I see it is as such a big opportunity.

Jason:
[47:30] Yeah and I would just remind people of your thinking about this in terms of a traditional retailer very few
retailers that are wholesalers of other people’s stuff that sell third-party product had been very successful at expanding internationally so lots of retailers have success in their home Market
they say hey what time you getting getting saturation here we should expand in some other markets to grow our our total addressable market and they start opening stores in other markets and more often than not they fail utterly
or at the very least aren’t profitable and so like I would argue if you pull
Brandon manufactures out that sell their own stuff the the majority of retailers International operations are unprofitable and some much more wildly so than Amazon right I think an Amazon case what we’re still seeing is
is an investment that hasn’t paid off yet but there’s you know every reason to believe that it could just be early in the investment cycle and I
I think that compares favorably to a lot of traditional retail competitors.

Scot:
[48:35] Yeah and the last thing here you know what Amazon is really good at is seeing something work in one market and rolling it out rap play the others I don’t know I haven’t tracked person where they are on the ad but I’m sure like in Australia they don’t have the ad platform active yet because they’re trying to get third parties ramped up
but you know what you can Dad is there seeing the ad platform work really well in North America I’m pretty sure it’s it’s.
Parody Future parody in England but I don’t think the rest of Europe is really been aggressively sold that
and then countries like India you know where the the type of a model this kind of hybrid ad and Marketplace model is is much more prevalent in Asian Alibaba really kind of
I read this whole concept you can see you know you can see International almost getting prop on the back of
rolling that ad platform out in a in an aggressive way and getting it into all these countries where it’s not and then getting it penetrated more intended the countries where it already is an English and whatnot so that’ll be interesting to watch.
It could even further because they don’t kind of tell us the breakdown of of that other line you’re my bet
be it’s probably 80 or 90% North America and very small International and I would imagine the international side to be as big as a North America side
just kind of just naturally so that ad business we could be vastly under sizing that add business even that kind of like that’s Facebook scale that the people are saying.

Jason:
[50:04] Yeah and I I mean I would argue that the ad business is as robust as it’s getting it’s still pretty immature even in North America so there’s there’s certainly lots of room there
but you know this this whole metaphor of a flywheel like the one downside of a flywheel is it’s hard to start pedaling in the beginning until you get the momentum right and.
Why can’t a lot of these markets they’re still doing that initial pedaling like in Australia they really just want Prime so you know
a lot of the synergies that that all of these different systems than Amazon launches that ultimately turn into this you know Juggernaut platform ekosistem.
You know aren’t in play as much in some of these new international countries as have already played out in North America and so like overtime.

[50:50] They look those things could get fired up you know they can pour gas on Prime sign ups and in Australia for example.
And
Scot it’s going to shock you but it does happen again and we have used up all of our allotted time we are at minute 50 of our 30-minute highlight show if you want to continue but it was all valuable stuff and I know all the Whismur stuck with us
so if you want to continue the conversation or do you want to know what Scott would have talked about it I gave him 10 more minutes
you can jump over to Facebook and drop us a question and we’re happy to have a dialogue there as always Aviv that this episode was helpful to you we sure would appreciate it if you jump on iTunes and give us that 5-star review.

Scot:
[51:35] Next to join us are one we are going to be at Etail and Boston ETL East sews drop us a message to Vitas Facebook as whatever your preferred method of communioncation isn’t would love to meet up with some are there.

Jason:
[51:49] That would be awesome and until next time happy commercing.

Jul 20, 2018

Industry News

Amazon Prime Day

Listener Questions

Joan Abrams asks: How important are progressive web apps going to be for retailers? Any retailers doing this really well yet?

Julie Acosta asks: Any updates on multi-touch attribution models/partners - who’s doing online/offline (brick & mortar) right?

Upcoming Events

  • Jason is doing retail visits in Australia July 21 - 29.  Ping him on twitter if you’re there.
  • Jason and Scot will be doing shows from eTail East (8/6 - 8/9 in Boston)

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Episode 137 of the Jason & Scot show was recorded on Thursday, July 19th 2018.

http://jasonandscot.com

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Transcript

Jason:
[0:25] Welcome to the Jason and Scott show this is episode 137 being recorded on Thursday July 19th 2018 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scott Wingo.

Scot:
[0:40] Hey Jason and welcome back Jason Scott show listeners Jason how is your summer going.

Jason:
[0:48] It is going traffic I am just starting sort of a.
A heavy travel session for me so I just got back from San Francisco and I leave on another trip tomorrow but I I feel like the big news this week is I read that spiffy got some new fun thing so congratulations.

Scot:
[1:08] Thanks yeah so for listeners that may not know so I started Channel advisor 2001 move to exact chairman in 2015 moved over 250 full-time I kind of,
experiment with it in 2014 and overlap there and yeah it's been fun so we are on demand Car Care started with car wash with added oil change and now even have some products on the market so we have a cool iot device called spiffy blue that you
plug into your vehicle and there's a companion app that tells you all that's going on with your car.
A passionate about
Digital Services I think that's kind of where the future is going so decided to put my money in time where my mouth is and we just raised our second round this week so it's good to get that behind us so we can keep servicing customers.

Jason:
[2:03] That's awesome and you keep expanding in the cities to right right right you where are you now.

Scot:
[2:09] Get 1/5 we're holding firm at 5 right now cuz we have this explosion of Fleet business so e
we started out really with optispark with consumers at office parks and Residences and then we added oil change it unlocked Fleet so we we've been
kind of adjusting as much Fleet as we get on our plate and it will be adding more City suit store in Raleigh Charlotte
Dallas Atlanta and Los Angeles now.

Jason:
[2:35] Awesome I'm kind of sad because I am assuming that the climate in Chicago means I'm not going to be next on your list.

Scot:
[2:42] Yeah we've identified our first 50 cities and unfortunately Chicago is not in the first 25 but will eventually get to you.

Jason:
[2:51] Not I will be waiting or I'll just move I'll just get so frustrated at my lack of spiffy then I'll move.

Scot:
[2:56] Yeah yeah there's stairs five markets for you to retire to that maybe we'll get you there.

Jason:
[3:02] Nice I like the thought of retirement.

Scot:
[3:06] Couldn't you just in San Francisco at the NRF retail Tech any interesting things you want to give us a trip report on there.

Jason:
[3:14] Yeah you'd be happy too so there's an interesting show interruptus had this show for a number of years and it's mainly been focused on the CIO and CTO.
So they sort of had a private party for a number of years I think for a long time it was.
Permanently located in Half Moon Bay then it may have moved around a little bit so it may have gone to Laguna Niguel one year and San Diego last year.
But there was also a digital merchandising show that that that shop.org put on,
MN that shows been retired and see what they kind of done with interests Tech is they've expanded the temp to include all the,
the digital Business Leaders and have more more overlapping content for cio's and business leader so I would,
I'm not sure if that interests agrees with this definition exactly that I would characterize this is sort of the second year.

[4:10] Where this the show has a broader scope in and I think it was interesting content and I think I think all of us that attended.
Got a lot out of it so it was two and a half days.
In San Francisco of pretty jam-packed content and it's a you know it's a smaller venue with smaller group so it's much more intimate like you basically have an opportunity and network with everyone else that attends and.
You know it's it's it's more what I would call a a conference then like a big exhibition show it.

Scot:
[4:47] What were some of the key takeaways.

Jason:
[4:49] Yeah it's a different number different topics that they're too many speakers to go over everyone one that I was practically looking forward to is Katie Finnegan,
so she runs a store 8 for Walmart which is Walmart's incubation lab and.
She I think she she was the founder of the couple startups that Walmart Acquired and she kind of laid out their methodology and it's it's interesting to me because they're there been a bunch of retailers that I've had internally incubation labs in.
I think it's fair to say on the aggregate that they haven't actually been that successful.
And the Walmart one you know is is these are wholly-owned LLC so if you Walmart is essentially going to acquire you and then incubate you and sit in there all kinds of.
You know questions that come out you know what is the exit look like for the the founders in the management team and you know how to define answers work and what are the success criteria and all those sorts of things so it's kinda interesting.
I think Katie is like pretty realistic about the track record of retail incubation Labs insert you know she she was pretty candid about.

[6:06] Where where they felt like they had the problem solved and where they thought like you know they're still open questions to be answered and she she kind of painted this maturity model and you know she highlighted several several.
Companies that are in the story labs and where they are in that maturity model and so the.

[6:27] If they're six stages of maturity you know,
the most mature thing they have is this jet black which is kind of at the third stage of maturity.
Which is this kind of um concierge personal shopping service and delivery service in New York City and some most of what they have is even earlier than that.
So that was interesting was interesting to hear her thoughts about incubation in general and then some of the specific initiatives Walmart had.
You know a bunch of gas from the show we're speaking they're so so Billy May who's the the CEOs or the table was on.
A panel talking about.
How how to prioritize technical initiatives within the company Rob Schmaltz who's been on the show from Talbots did a did a couple of channels.

[7:25] The John Nord Mark has been on the show for his iterate.
Incubation lab he brought in a couple of the companies in in his lab to kind of talk about new.
New companies and there was also some the VCU that had some of their companies and so.
There is kind of some interesting startups that we got to hear from and chat box there's a company called Shadow research.
And there's a ton of newer Marketplace aggregator called hinge to which you may be more familiar with I wasn't super familiar with them.

[8:09] As you well know you know tons of interest in traction in the in the marketplace space going on.
And in the very last speaker sound pretty interesting and.
I think I think we need to get him on the show so it's a it's a guy named Peter Schwartz who's a futurist.
And I think he's got like a boondoggle job for salesforce.com so he's the head futurist for salesforce.com.

[8:40] The listeners may be more familiar with Peter Schwartz his work he's the main character that the Matthew Broderick character was based on in the movie War Games.
So he was like literally a young hacker that broke into some government databases and he was a consultant on the movie War games and several years later he as a futurist he partnered with Steven Spielberg to do.
Paint a picture of what the future would look like for the movie Minority Report so all those famous scenes of.
You know facial recognition triggering customer have ads inside the Gap in The Minority Report where ideas that that he put together.
It's got a ton of fascinating stories he said when we were brainstorming Minority Report we thought we were,
we are thinking about what the future would look like in 2040 or 2050,
and he's like basically everything that we had in that movie like is now here and it's 2018 so he's like you know we may have gotten some of the ideas right but we were way wrong on the.
On the timer iser.

Scot:
[9:48] I love those two movies Joshua spoiler.

Jason:
[9:54] Exactly exactly so he was interesting and it was silly but he's like.
He's an older gentleman and he's like I'm 72 years old on the oldest employee at Salesforce and the irony is not lost on me that the oldest guy tells horses responsible for the future.

Scot:
[10:12] What did he predict.

Jason:
[10:18] Yes so he we talked about a bunch of things.
We talked about Ai and that's an interesting one because I feel like there's kind of two camps I think there's people and maybe Elon Musk is in this Camp to think.
The AI is super dangerous and that the Killer Robots are coming and Peter Schwartz was like that's not what's happening with the AI that we have now and heat you know he made his Arguments for why.
We we like we really aren't making very fast progress on General AI that has sort of generalized intelligence that could become sentient.

[10:52] But he did talk about a bunch of the risks with the kind of AI that is emerging and he talked about like,
you know in the near future when all these AI,
algorithms are deciding like what medicine what Medical Treatments we qualify for and whether or not we get credit and all these things you know will there be.
Transparency about all those decisions and what rights are we having and things like that so is his POV on on.
Hey I was a little less like.
Daunting and then some folks and we talked about the future of work you had a lot of folks that think that like all the jobs are going to get eliminated by all this Automation and that you know we're all going to be sitting around without anything to do and again he kind of felt like that.
That wasn't likely to be the case cuz he kind of talked about how hey you may not have a lot of people sitting in truck driving trucks around that he envisions is future we're just like we have all the Air Force drone pilot sitting in Las Vegas.

[11:53] Fly the planes over Afghanistan and then go home to their families in Las Vegas that you could have a ton of.
Truck drivers that are moving trucks on it you know through the commercial residential streets and then getting them on the highway where they drive autonomous way and you know it.
Some some data points to support his his hypothesis is that.
Lots of New Jersey jobs emerge to replace the jobs that tend to go away.

Scot:
[12:20] Nursing school any other highlights.

Jason:
[12:24] Those were some of the stuff that they jumped out to me there are a lot of like sort of topic-specific stuff so you know topics about Big Data topics about how.
To hire how to structure Innovation and companies you know so there there was a little something for everyone in their butt butt.
I feel like those are those are some good highlights and I was a little distracted through the whole thing because I feel like there's some other e-commerce stuff going on at the same time.

Scot:
[12:57] Yeah it's been a busy week in the world of e-commerce and and since we're coming off Prime Day 2018 we thought we'd jump in the news and start off with.

[13:25] Yes let's start off with the prime day got off to a rough start with I know you were tracking that and I saw you at least quoted two or three times out there in the Press what what did you make of that.

Jason:
[13:36] Yeah so I mean I'll start out by saying I was completely surprised and caught off guard I feel like
Amazon has had a shockingly good record of reliability on all these peak days and so if you would have asked me up front to like make a bed on,
on which retailers were likely to suffer an outage during up a peak event I would not have picked Amazon so I was,
someone surprised that they had this outage right off the bat while to talk about like what the impacted the outage was and forms of hurting,
the revenue hurting their Prime subscriber is hurting sales of there their first party products.

Marker 01

Scot:
[14:16] Yeah what when does Herzing is it on Twitter

Marker 02

[14:21] people discovered that if you use the smile you no interface where you anything you buy donates money to a charity and I had previously set that up and I was able to go through smile I was are down for
are the first four hour but I was able to go to smiling and get it to work which
to be made it feel more like a networking thing I never know what happened but it was unusual to me that there were were little slices that were working.

Marker 04

Jason:
[14:46] Yeah for listeners that haven't been responsible for sort of peekaboo ability like I'll highlights.
Prime day is is perfectly designed to be the worst case scenario for a i t system standpoint right like you're number one we have,
all of this traffic coming at the same hour right like so you had this huge Peak which if you're really worried about up time you would try to do something to spread out that demand more but even worse.
With all of these short-lasting deals and all the personalization on the Amazon site very little of the of the Amazon Prime day experience can be cashed,
so you know they're all these things that you like where you would kind of compromise the customer experience.
To make it easier to load on the servers if you were really worried about availability and and Prime day is a perfect storm of like all the all the best customer experience practices that are you know.
Extra challenging for the it guys and so so obviously you know it it did come to bite them somehow this year.

Scot:
[15:54] Yeah well we'll see if they'll get better that's the thing you weren't about Amazon this when they take on the stuff that they learn a lot and then they they get better.

Jason:
[16:02] So I'm one thing that I'll be curious about him hopefully some of some of our friends that are.
Marketplace hours on the site maintenance may be able to share some insight here but if you were a prime deal that had one of those early slots and you were disrupted.
Like I'll be curious to see if Amazon does any kind of make good for for those vendors or they just missed their window or or how they're handling that.

Scot:
[16:27] I tried it with three or four people not specifically about this outage thing and they had deals going at that time and they said that there are deals sold out in,
but even faster than I thought they would so so it's weird it does seem to be and I saw a heat map that showed there was only certain cities were impacted so it's it's kind of an anomaly to me,
to my knowledge AWS itself wasn't down so,
yeah it's definitely specific to Amazon's phone usage of their infrastructure which kind of points do your data thing or some kind of an internal just their Network
just there their slice of the whole AWS Network it is kind of a mystery.

Jason:
[17:07] It'll be interesting to see if any more info weeks.
A side note I think we're also some reports from Amazon Flex drivers that the flex app was down which I like also sort of boron my my theory that maybe there is some product data problem.

Scot:
[17:25] So despite all that they estimates are out that they did about 3.5 billion
and I believe that's up from 2.4 last year Amazon doesn't release date the Allies frustratingly give you like little clues of how the day went,
I'll talk in terms of
growth in unit numbers ish kind of things so those are all estimates of how big it was it was 6 hour
first longer this year social apples and oranges and that comparison and then you and I were kind of talking in the
pre-show in The Green Room the virtual Green Room that it's in more countries this year for sure Australia is its first year at Prime day so hopefully they had an exciting time down under you can go so I report cuz you're going to Australia soon settle be exciting you can kind of
tell us how they felt about prime day.

Jason:
[18:14] Exactly just to answer your question I booked a trip tomorrow.

Scot:
[18:18] Good good thinking my advice is to make sure you download a lot of movies.
And then yeah did you happen I know you like live on top of a Whole Foods or something like that did you happen to go into a whole foods during the prime day excitement I know a lot of people were
we're trying to take advantage of some deals are there something where you could on Prime day you got $10 off in the store and online if you wanted that day.

Jason:
[18:44] Yeah yeah so I did not get to take advantage of myself I do live in very close proximity to A Whole Foods but I was of course down in.
In San Francisco so I didn't get to experience it first-hand but all the reports that I've seen is,
it probably was very favorable in the whole foods that like you know the the month leading up to it that they had really like done a good job is starting to roll out Prime benefits and so they kind of trained a bunch of the.
The whole food choppers that would also Prime members till I get the Whole Foods app for Eddie and you know
arguably some of the best financial deals that they offered work you know you you if you gamified everything at Whole Foods you essentially could get $30 in extra.
Extra cash which is you know on I'm not significant amount of purchase it so that you know that that was pretty substantial.

Scot:
[19:35] It's like 2% off my average Whole Foods check out.
A couple of observations from my side on Prime day.
You know that the sales every noise focuses on the sales but I've kind of come to believe that that yeah that's part of what Amazon is going for there but they're real benefit you know they're probably out ways so it say it is three and a half billion
the real benefit comes from the the juice that flows into the ecosystem elements that Amazon has because of.

[20:08] Prime day so it's the first of all you have a bunch of prime sign up so they don't reveal that obviously but they in the past they said things like you know
tens of millions of sign-ups for Prime day in those kinds of kinds of numbers this year there, as you point out leveraging that Whole Foods intersection so so if she reports that say prior to that position there's only 40% overlap there between Whole Food Shoppers and Prime
members so that that's like a huge audience that they can get over in the prime they're obviously focused on that
I also saw a report that they they announced a million connected home devices were sold on the show here a week then I would.

[20:47] Pat ourselves on the back with an early on this that we felt like,
Echo and all of its Associated devices Alexa power devices that were really big opportunity for Amazon and now they're selling a million units in one day
36 hours is pretty amazing another one that we've been pretty early on it is talking about the ads that that we think,
Amazon ads are going to be pretty big and we're seeing you have cpgs and Brands really spend a lot of money there everyone I talk to at a brand head
really dialed up their ad spend during Prime day so so that's a really,
kind of cool Catalyst that Amazon has for getting people to really come on to that platform experience it on a day that's pretty crazy and hopefully you know from the Amazon site at least get addicted
kind of tangentially do that before Prime day one of the when I think the smartest Wall Street guys on this is John Blackledge accountant he has raised his ad number for Amazon just add number 236 billion in Revenue over the next five years.

[21:53] So that that's almost like the quote on Facebook
I am a size scale business that he believes Amazon will be building over the next five years obviously that's Facebook today in 5 years Facebook will be bigger but just trying to get a little scale to it
because that's a just kind of insanely big number.

[22:11] There is some last couple things kind of around this idea of the ecosystem the benefits and aside from the sales third-party sales were reported to grow 89% this from cnbc's numbers and orders were up 69% so
how it was you know it in some years we seen Amazon,
Prime day the traffic gets absorbed by kind of the Amazon first party and owns products and private labels and that kind of stuff this year they did a really good job of splashing it all through the marketplace so
so we saw anecdotally talk to a fair number third-party sellers that just had a very robust Prime day and there's that CNBC data
and then singing Brands it was interesting to see the brands that participated so you had by participating.

[23:00] Spotlight on that home page of deals so you saw a lot of this around
why is offline so it was Under Armour Wrangler Champion Columbia Calvin Klein Adidas and Reebok and then interesting Lee it's also who didn't,
play so Nike to my knowledge I never saw them and I've read a lot of the the reports of folks that track
this pretty closely they did not participate in Prime day in a meaningful way Skechers Haynes Converse and Ralph Lauren so
so those are some other interesting kind of aspects of prime day to think about is yeah the sales are good and you can't sneeze it over 3 billion dollars
but I think they're real benefit it was probably another 5 or 6 billion comes from these ecosystem impacts.

Jason:
[23:48] Yeah for sure and I don't know if you saw it I thought it was actually from the Amazon press release but one of the things that they did claim is that it was the biggest day,
single day ever for Prime signups so they added more people on Prime day than they ever had before which isn't surprising.

Scot:
[24:06] Yeah so your guess the last highest was last Prime day.

Jason:
[24:09] Oh I think they did say that again that last year so I think they they exceeded last year's already good numbers on Prime signups just sort of highlight in your point.
Another thing that they put in the press release it's also kind of fun is they like,
the Highlight the best selling on Amazon products and every country which hours I think it's always interesting to just look at the trends there,
so I think I'm almost across the board in every country that the prime products the Amazon products are the best seller or so the fire in the.
The echo stuff but not on Amazon stuff in the US and Canada the instapot is the the best selling item,
and there's a bunch of other countries where,
the best selling item is kind of high ticket consumer good so you know there's some countries were TV sold particularly well the video game platforms were really good sellers in a bunch of countries.

[25:13] Yes I'm like.
Expensive SD memory cards were big sellers in a bunch of countries but then what's interesting is there's another whole set of countries,
that have like 3 different shopping behaviors and you see like.
Everyday essential consumer consumer packaged Goods being the big sellers right so so like you know some some food item or something like cleaning soap or something like that right and so you know there is
kind of bifurcation of the countries where where I feel like you know their grocery shopping is still predominantly.
Brick-and-mortar and they use e-commerce for all these these high-ticket items and then there's you know countries where all the shopping is it shifted to e-commerce until you see things like laundry detergent being the,
the best prime day item in Japan for.

Scot:
[26:09] Yeah they sold over 300,000 of those were they called cooking pots that's crazy.

Jason:
[26:14] Yeah the instapot is a crazy phenomenon in and of itself online and offline but but yeah it's up it's a fast mover on Amazon.

Scot:
[26:24] It was also interesting to see what other retailers John Prime day there I think it's kind of funny Amazon has them kind of Anna
a check kind of a medium Checkmate kind of position do they ignore it or do they participate do they mention Amazon what what did you see there.

Jason:
[26:40] So tender retailers have sales and to me it's a no-brainer that you should have a sale on Prime day like I think it's it's so in the ethos of e-commerce Shoppers now that it's a shopping day
that you really missed out if you didn't have some promotions to push people over the edge and I would argue especially since that first hour had this outage if you went to Amazon and you had a glitch,
you're one click away from buying something somewhere else and so you know I think other retailers could definitely,
not to the same level as Amazon but you know there definitely is a halo effect for the whole whole e-commerce industry and you know without naming any names I can tell you,
I had probably half a dozen clients that had their their top sales day of the year on Prime day and so.
It is absolutely a big shopping day that has a broader effect than just Amazon I think the interesting strategy is.
Do you call the back to school sale do you call it you know Cyber Monday into like you know do you just have it be a promotional day or do you overtly.
Yum Soda counter program.
The Amazon and call it Prime day like you know that potentially could help you from an SEO standpoint but you know you're also sort of.

[28:03] Promoting your competitor and acknowledging their success in and you know psychologically you're celebrating their birthday ironically enough.
So I think we saw some retail delivery over it we had prime Day sales and some details though it'll more more subtle about it.
And then when the outage happened I think you know what's going around on Twitter that like Office Depot sent out sort of.
A smart aleck email you to telling Shoppers that is.
They're tired of looking at pictures of dogs that they could come shop on on Office Depot and I have to be honest that just feels like tempting fate and in sort of kicking a monster that you don't want to kick.

Scot:
[28:47] Yeah yeah it's like doing live demos it just Murphy's Law is just begging begging for attention when you do that.
Call any other Amazon things you want to cover before I move on.

Jason:
[29:02] No I think those were all the sort of big things that jumped out at me.

Scot:
[29:11] Cool so it was a couple of weeks dominated by Amazon but in the anonymous on side you know one thing I wanted to talk about is kind of the biggest news and marketplaces that's really gone unnoticed
we talked about a little bit on the show but I wanted to try to Circle back is in
you know some confusing marketing but the Google within the Google Express system they have
this new offering called a c I forget about it shopping action and it's essentially where you can buy things so to mobile kind of AD unit.

[29:46] We're supposed to be at Marketplace we can check out right on the Google page so so that's interesting and you know they are adding a ton of retailers to the program and I guess it's a little self-promotional but but
side of the channel visors are partner of theirs and a large number of those folks are coming through our connections into that new market place so
I know Google is Steve always been flirting with the marketplaces and she feels like they've got a little more religion on it this time I kind of feel it this is the time of year one
everyone's really kind of ramping into you know
Q3 obviously but then you know here as we get into the end of Q3 will be Full Throttle talk about holiday so that's going to be I think one of them interesting things to watch this holiday is how serious does Google get about this
plus we seen some retailers like Urban Outfitter has launched the marketplace you know there's there's a bunch of other things that are going on out there so
why really interesting things going on under the radar in the rotor marketplaces that I think they're just getting
hot not not like covered or talked about because of all the exciting stuff Amazon's doing with things I promise.

Jason:
[31:00] Yeah yeah for sure and I do think the Google offerings are
there still is a little confusion out there because there are kind of a couple different Commerce statuses that you can have with Google so so obviously you know Google still has this Google Express system where they at where you get they'll accept orders from.
A bunch of retailers and then like a Google employee will actually pick up that order from that retailer and deliver it to you and I think as you pointed out there's been some recent traction with new retailers joining ecosystem.
Like separate from that other they can they can be married together is this Google shopping actions which is like.
The most low-friction way Google has ever had to actually buy a product out of a Google promotional spot right and so you know I think.
Originally launched as a pilot and and you know it was kind of hard to get in the program now they've opened it up.
And I think we're seeing lots of people for certain types of products.
Take advantage of those Google shopping actions I still feel like the industry needs a little more expertise around that.
Offering um I'm always surprised how unfamiliar people are with it and then there's this even weirder status there are.

[32:21] Unique Partnerships from retailers with Google to be able to sell products through the Google home device and so Walmart and Target for example,
are not in Google Express at the moment but they are selling their products through the Google home Echo System until.
You know between all that your you know I think there's more Commerce activity in the Google echo system than we've ever seen before.

Scot:
[32:47] Yeah yeah it's largely not getting talk about Skylanders I guess in some ways it actually gives Google some space to go and experimenting and I have like a thousand spotlights on them
well well all this Amazon stuff happening so we had what we have been
I had a very busy summer so we are a little delinquent and getting to some listener questions so we have a little bit of time here on the podcast and want to jump into a couple of them that have been lingering out there and
Jason I get to kick back and relax on these cuz they're both for you
so first we have Joan Abrams and Joan ask how important are progressive web apps going to be for retailers are there any retailers doing this really well yet so maybe,
let's make sure we started the Top Gear what's the progressive web app how does that differ from a native web app or a responsive site and all that kind of stuff and then you can jump into the importance and then any retailers that they are doing a great job.

Jason:
[33:47] So great question so Progressive web app is a slightly unfortunate name cuz it makes it sound like.
This is an alternative to a traditional Native app.
And well it potentially can be that I would argue that it's much more than that essentially it's a set of standards for a way to build a mobile web experience that runs natively through the web browser.

[34:14] And they been supported by by Google Chrome which is very important mobile browser for some time.
But they were very poorly supported or not at all supported in Mobile Safari which is the next usually important mobile browser,
and so what exciting is as of the last iOS released there's now. Port for Progressive web apps in both Chrome and Safari,
which is essentially the bulk of Shoppers on mobile and so there's a bunch of.
Tools that you can use to build a website and then there's this feature called remote workers which essentially gives you,
the capability to add.
Native app like functionality to the web experience and have it even function offline so have it work even if you don't have,
I'm connectivity so for example.

[35:19] Google can have a Google Maps or Gmail experience that lets you,
you know. Calculate directions in in Google Maps or or you know reading compose emails even if you're in airplane mode,
by leveraging use these remote workers and what's super important and unique about Progressive web apps is,
did the really designed to be performance efficient and so by following the the the the pwa standards you end up with a mobile web experience,
it's much faster and much more responsive than.

[36:04] Traditional responsive mobile web designs were into the site performs much faster and it can have a richer future set it can essentially have,
almost all the features that you can have in a native app and so one thing you could do with it is build a native app that didn't require the App Store and that.
That is a huge thing because a lot of customers don't know how to download apps from the app store or they have app fatigue and if your retailer and your bill all these cool functions in your amp,
Nobody ends up using them because apps have such a small reach but you have you put the same features in your mobile web experience using pwa,
you know anyone that goes to your url like instantly has access to all those things and so it's a great alternative to spending a fortune on building a native app,
but it's also just the best way to build a mobile web experience and because the performance is so much better.
We're seeing that the early retailers that have adopted Progressive web apps are are really killing at their their mobile site so much faster they're getting much higher conversion rates.

[37:13] And so it's I would highly encourage any retailer to put on the road map right now that they should be.
Redoing their mobile experience as a progressive web app and I have to be honest because most is building a proper response to.
Mobile site and they feel like they did a bunch of work and they want to feel like they're done now and not too many of them are thrilled to hear that they need to start a new project to build it over using a new set of Technologies,
but the but the retailer the early retailers that are,
are are getting really good results and so you know it it really should be kind of high on your on your your roadmap particularly as all your customers are shifting the mobile.

Scot:
[38:05] How do you,
so I know we obviously write a lot of this stuff at spiffy so we have you know you have Swift and Objective C for a native app and then there's a lot of interesting JavaScript,
turn based libraries for writing kind of a responsive sites that were even app so I react in those kinds of things what what do you write a progressive web app.

Jason:
[38:31] Yeah. So it is a JavaScript like framework,
much more constrained and specific set of libraries so so often when you're
you're jumping JavaScript you can you can pick you know all these different development Library sets and only you know small subset that have been Highway optimized not allowed to be used in npwa is but it's it's mostly sort of JavaScript style development environments.

Scot:
[39:03] Are there any retailers doing a really awesome job at it that you want to highlight.

Jason:
[39:09] So there are they like again,
it it hasn't for the most part been the huge retailers that have completely embraced.
The pwa jet like there have been some retailers that have done a pwa,
like as a separate stand-alone site in a in a
replace an app in addition to a mobile website but says some of the retailers that have gone full pwa and got some really good results one of the biggest retailers out there to my knowledge this done it is is West Elm
and then there's some in a smaller specialty retailers I think Tommy Bahama I think Snapdeal is full Progressive web app now,
I think Payless has a progressive web app some of these are fixed it Sweet Frog so they never had a good mobile site before and this is the first one Willie Pulitzer Lancome,
some some folks like that and so if anyone any of the listeners have a favorite Progressive web app retail site I would love to hear about it as well.

Scot:
[40:17] Yeah so what's up pic on West Arm so just to be clear you don't just download their app right you just go to their website and you're going to have a much more responses or how much more
mobile friendly experience then then if you there previously shipped is at.

Jason:
[40:35] Exactly you go to westelm.com right interview go to West Elm,
dot-com on a desktop browser you're getting a desktop experience if you go to that same URL in the mobile site you're getting a mobile version of that experience in the mobile version you'll get from West Allen is a progressive web app and I,
I'm compelled since you're calling me out on it to highlight that.
The West Elm one may not be in full deployment yet so I think there's some may be testing going on so if you go to westelm.com you may or may not get the progressive web app version.
There's a different URL you can do to guarantee that you get the the West on the pwa version which is I'll put the link in the show notes but it's.
Mobile - beta. Westelm.com and that kind of bypasses the testing guarantee you get the pwa version but they shared some some public data from there,
they're beta version that that's in this A B test and the.
That the folks getting the pwa version of The Experience are spending 15% more time on the site and there are spending 9% more Revenue than them folks that are.
On the traditional responsive-design version of the site so so pretty meaningful.

[41:53] Non retail sites there's a ton of of big sites that have moved to Progressive web app,
and across-the-board the performance metrics though the page weight and the load times and the time the interaction are wildly better for Progressive web apps and whenever we see those performance numbers go up,
bounce rate goes way down and engagement goes way up so you know I think there's both.
A big lesson about performance from the General market and I think you know we're now starting to see some some pretty tangible retail results.

Scot:
[42:27] Colt Express or some super-secret Insider information there what do you when you go to a Retailer's site on mobile is there some kind of way that you're seeing its Progressive web app is there is there some tell her or are you just speak he's going to have to know.

Jason:
[42:41] Not a very convenient one like I mean the old but you literally have to either go view the source and you could there some Telltale headers that would tell you that it's a progressive web app.
Or there are now a set of tools on their companies like ghostery and built with their frankly not that convenient to use on mobile that they're much more convenient on desktop Adele sort of,
scan the site you're on and give you a report of the the underlying technologies that are being used for that side and they'll both tell you if you're if you're on a pwa site like the only the big user experience tell,
is if you're not in an app and your your get your given like a full interactive site even without,
activity then it's a pretty safe bet that you're that you're benefiting from the pwa site.

Scot:
[43:35] Coop's so last question in this comes from.
Julie Acosta and the question is a two-parter any updates on multi-touch attribution model Sim partners and who's doing online offline right.
Gold attribution question.

Jason:
[43:53] Yeah I do love a good attribution conversation so so pretty like there are you know and ever increasing number of,
specialized tools that that do multi-touch attribution models,
but what has me most excited is much better tools for doing multi-touch attribution are,
starting to evolve in our standard analytics packages so I to my mind I apologize to my friends that I've met him in a w I feel like the,
Google analytics implementation of multi-touch attribution is maybe a little further ahead but,
IBM Adobe and Google all have multi attribution models built in in Google's case that used to only be available in their expensive premium paid product and now it's,
it's made its way down to the free version and the big evolution in these multi-touch attribution models is,
you used to have to come to pick a model so you can say.

[44:55] Hey I'm interested in a weighted model and this is how it works or I'm interested in first touch or I'm interested in last touch or I'm interested in that decay model where every subsequent touch gets less weight.
And you had to kind of manually specify model and then you could use the Analytics tool to look through the data with that lens now multi-touch has become sort of machine learning enabled,
into a century the two will tell you which multi-touch model from which amongst the the.

[45:30] The pool of multi-touch models the name given to a support,
best fits the data set that you have so you can actually use machine learning to sort of refine the multi touch model that you use for your particular data,
and you know you can you can Embrace that for your Enterprise and so that's pretty cool.

[45:51] Multi-touch is a slightly complicated word because I would argue there's kind of three versions there's there's online to offline which is.
You know hey I saw some digital ads on Facebook and Google and then I walked into a store and bought something so how do I you know attribute that in-store purchase to those those digital touch,
I'll call that multichannel,
there's multi-touch like a I saw an ad in Facebook and then I saw an ad in Google and then I saw add-on,
Abercrombie & Fitch and then I bought the shirt like how you know which which of those three marketing Vehicles gets all the credit or most of the Creditor how do you do that that's kind of.
The most traditional version of a multi-touch that the tools are designed to support.
And then there's Multi-Device like hey I started on a tablet and then I moved to a phone and then I will definitely made the purchase on a laptop.
How do I do a tribution across those devices and So my answer before it was mostly based on.

[46:55] Digital multi-touch for multi device we're starting to see some interesting Solutions.
Adobe in particular has this interesting Co-op model where they they're building a shared database amongst all the people that use Google Analytics.
Of all the device ID that they ever see and when you have a user on a particular device you can go to The Coop and say what other devices does that same user use and so you can use this kind of share.
To identify the same user across multiple devices historically only the.
The digital tools that are most likely to have the user authenticated can kind of recognize the same user across devices and so Google and Facebook have a huge advantage over the rest of the world.
In Multi-Device attribution.
And then online offline we're also starting to see so much better tools interesting Lee both Facebook and Google that want to you to spend more money on digital advertising.

[47:56] It's very important to them that you be able to understand online and offline attribution because,
a lot of the purchases that you make after seeing or digital ads are in a store and so they've actually built some pretty good tools that you can upload your offline data into,
and then do online offline attribution so we're starting to see that a lot more commonly but when you ask which retailers are.
Are the kind of best-in-class doing it right it's the retailers with an unfair advantage.
And so it's REI that has 95% of their purchases coming from Members so they have.
Capture of that that email address of that member number every time you do a transaction online or,
in-store it's Sephora where 95% of their customers are in that customer Affinity program,
and they're able to do very effective online and offline attribution it Starbucks where we high percentage of the transactions are being done with their Mobile payment at go system,
they're doing the best job of online to offline,
and you know that the more traditional retailers wear a lot of the in-store purchases are not Animas you know that they're all getting better at doing online offline attribution but they're only able to do it for a much smaller set of their data.

Scot:
[49:11] Well thanks to John and Julie for asking those questions I think we're caught up on listener questions we we regularly post he's over on our Facebook page so just go to Facebook and search for Jason and Scott show or go to Jason and Scott. Calm and you'll see a direct over to there
yeah.

Jason:
[49:30] Awesome I got before we sign I did want to highlight a couple upcoming opportunities to meet some listeners.
So we we looted to it earlier in the show but I am leaving Saturday for a week of retail visits in Australia.
So I have a bunch of meetings booked with retailers in Sydney and Melbourne but if you're a listener that happens me in Australia be sure to ping me on Twitter sometime in the next weekend if it's schedules permit I would.
Love to meet up but I'm I'm really looking forward to learning a lot more about that market and sharing some of.
The warnings that we've had in some some more mature Amazon markets that maybe we can share with.
With Australia which is the newest Amazon market so I'm looking forward to that trip that's going to be fun and I know my family is looking even more forward to having me be gone for a week.
And then early next month August 6th through the 9th you and I are going to be live and in person together at the eat a least show in Boston.

Scot:
[50:40] Yeah it's going to be a lot of fun we will go and I plan on wearing since we'll be in the the the Founding Father home well I'm going to wear a white wig for that one side of the exhaust.

Jason:
[50:52] Yeah and it's and it's made me a person knows I just wear a white wig anyway so that'll be the normal for me.

Scot:
[50:56] Look for the two founding father type of sport or triangle hats to.

Jason:
[51:03] Exactly and with that it's it's happen again we've used up our a lot of time,
but if you have any further questions or we got something wrong on this week show we'd love to hear about it so,
let's keep the conversation going on Facebook or Twitter and as always if you got any value out of this show and you want to reward us the best thing you can do is go to iTunes and give us that 5-star review,
if you really didn't enjoy the show the best way to do that is visit Scott in person at his home and give him your feedback that's appreciated as well.

Scot:
[51:36] Yeah absolutely will thanks for joining star Buy.

Jason:
[51:39] Until next time happy commercing.

Jun 29, 2018

Amazon News

Industry News

Supreme court rules in favor of South Dakota in South Dakota v. Wayfair, Inc., et al.  The ruling effectively overturns the previous Quill Corp. v. North Dakota precedent and opens the door for all states to require e-commerce sites to collect and remit sales taxes to states.

  • Amazon stands to be the biggest winner in the ruling.  Amazon already collects sales tax on all 1P sales.  Amazon will now be able to charge 3P merchants 2.9% to collect tax for them.  Amazon 1P will be more competitive with 3P and other e-commerce sites (eBay, NewEgg, etc..).
  • Small E-Commerce sites and marketplace sellers are the biggest losers, as they will now need to collect sales tax (and likely pay a 3rd party to do it on their behalf), and navigate a multitude of complex out of state sales tax laws that are likely to emerge.
  • All eyes turn now turn to Congress, to see if they will pass a law to clarify/simplify the sales tax collection issue on behalf of small businesses.

Listener Questions

Alex Volakis asks: Should others try the Warby Parker school bus store concept. Who do you think would benefit most from it?

Amit Agarwal asks: Do customers like bundled products or do they like to create their own bundles? What are different merchandising tactics used to sell a collection of products?

Jill Dvorak asks: Any leadership or managing through change tactics. at the corporate level to infuse more nimbleness in established brands?

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 136 of the Jason & Scot show was recorded on Thursday, June 28th 2018.

http://jasonandscot.com

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Transcript

Jason:
[0:25] Welcome to the Jason and Scott show this is episode 136 being recorded on Thursday June 28th 2018 I'm your host Jason retailgeek Goldberg and as usual I'm here with your co-host Scot Wingo.

Scot:
[0:40] Hey Jason welcome back Jason and Scott show listeners.
Well Jason listeners that are paying very close attention will notice we took a little bit of summer vacation off so we haven't really podcast for last couple weeks
but it's exciting to get back to it and we have a lot of news report on and some analysis of some big things that happened in e-commerce of the last couple of weeks
plus we've had some listeners very patiently waiting some for with some questions that they wanted to ask us so that's going to be rude the real focus of the show tonight.
So let's start off with some.
Amazon news your margin is there.
It wouldn't be a Jason Scott show without some Amazon news and there is no shortage today we're going to go through kind of the cream of the crop here so that the big one is and I know you've been on pins and needles Jason like I am is when is Amazon Prime day
well it has leaks and it looks like it's going to be July 16th to 17th
and like last year they're going to do kind of the day of the half of deals so I'm pretty excited I've been saving some of my Gadget money on the side and I'm going to be watching carefully to see what's offered this year.

Jason:
[2:04] Yeah I am right there with you it's it feels like
as the as it gets more and more in French do not do the deals and stuff get better every year and I think there's been some interesting evidence that it's now starting to have a meaningful impact on back-to-school that people are literally.
Like planning their back-to-school spend around Sunday.

Scot:
[2:25] Yeah any gadgets on your wishlist or I think you already have every flavor of the Amazon Echo if it's cracked but anything not that you don't have.

Jason:
[2:35] So to be honest of the stuff that's currently available I there's nothing on my wishlist so I'll be.
Curious to hear if there's some deal that usually it'll be a deal on something that entices me or something that's relatively new released there are some new fire products that I don't have
but I'm not sure I really need to add him to my repertoire.

Scot:
[2:58] Got it I I save all year for my little accessory cables so I'll probably be buying like
20 iOS cables and USB C use and we go to those like crazy at my house so this is my time of year when I stock up on all that good stuff.

Jason:
[3:14] My wife thinks I have a hoarding problem with those things and I like but I'm not smart enough to wait for the deal so I you know I get my eyes I would be the one customer that would do the subscription service from anchor.

Scot:
[3:26] Yes I Do by a lot of anchor product on Prime day that's like there the juicy stuff I keep an eye out for.

Jason:
[3:32] Yes and I'm a little OCD about it I like I have much cooked my cables color coded so I got all my lightning cables are red and All Nite Nite my USB or black so I can.
Easily visually identify what I need.

Scot:
[3:50] Brickell there was a big acquisition today I know that you're probably excited about cuz we've talked about this category on the show did you see that one.

Jason:
[3:56] I did I did and I have to go back and check our predictions but I think this is even one of my predictions for the air which I'm so excited about.

Scot:
[4:05] Darn it.

Jason:
[4:07] Yes I I thought you might not have considered that but there today Amazon announced that they acquired a company called pillpack and this is a 1 billion dollar acquisition which is not the biggest obviously with with Whole Foods but
on the bigger side of the Acquisitions for Amazon and pillpack is a male fulfillment Pharmacy.
They specialize in custom packaging so their primary customer are.
Dogs that have chronic conditions and have to take multiple prescriptions daily and pill pack make these.
Custom packages of their particular caplet so you get this right you know nicely old.
Baggy of the pills you're supposed to take everyday and so that simplifies life for a lot of people that have to take a lot of medications.
And it is a good customer experience and arguably.

[5:04] It is in and of itself a nice way to reduce friction and improve the.
The prescription processed but I think the reason most people are are super interested in the Amazon acquisition is less because of their unique Twist on mail-order prescriptions and more the fact that.
This is Amazon buying a licensed Pharmacy and jumping into the pharmacy space with two feet.
We've seen them sort of toad it before course they they made an investment in drugstore.com many years ago and last year they got a bunch of.
Medical equipment pharmaceutical licenses in a bunch of states which allowed them to sell like.

[5:47] Oxygen dispensing equipment and gloves and a lot of the the medical equipment but this is now giving them access to actually fill.
Prescription medications and so you know a lot of us have been speculating that this would be another industry that Amazon would attack.
And you're as usually happens with these things with Amazon.
That you know I think they're market cap went up by you had ate the investment a billion dollars their market cap went up by like 15 or 20 billion today depending on what time you looked,
and the big pharmaceutical companies Walgreens and CVS
lost about 15 billion dollars in market cap today and it was kind of funny I think Walgreens had an investor call today and and that you know that.
That the Walgreens CEO at you know actually other the phrase that we we make fun of on the show all the time,
that he's not very worried about Amazon that pharmaceutical Pharmacy is much more complicated than all the other categories Amazon's tackled and it'll be much different.

Scot:
[6:50] I'll never figure it out just like a apparel and what Macy's said there they can't figure it out return.

Jason:
[6:55] Exactly return Macy's is positive the returns are too complicated and all the apparel companies are positive that everyone wants to try clothes on before they order on them.
And not excetera excetera usually a Bad Bet there are complications to the pharmacy but I would argue that that Amazon is very good at solving for complications.
And then just a couple other sort of interesting Snippets around the acquisition there are rumors that that.
Walmart was the primary acquire of pill pack and the Amazon swooped in at the last minute with a higher offer and sort of.
Stole pill pack out from under Walmart.

Scot:
[7:40] Do you know if I know Amazon with myself registering in a bunch of States just go back to them into all the us or you know.

Jason:
[7:51] I don't think so but I think he'll pack has only certain states that they had access to and there still is a pretty big bear you're like like still having the pharmaceutical licenses one thing but really,
be a hundred percent in the pharmacy space you also need all the insurers.
To agree to partner with you and light accept your.
Your claims against all the various insurance companies and so what would a lot of the traditional pharmacies think is the big barrier to Amazon is the Amazon doesn't have those.
There's deals with all the insurers and so you know.
Not sayings on can't cut all those deals and they probably will but that's potentially a multi-year process and so a lot of people are speculating that the day 1 Amazon would focus on
the subset of the pharmaceutical Market that's paying out-of-pocket for for medication either because they're under uninsured or because the.
Because they have some limitations or restrictions on the insurance that make them want to pay out of pocket and then you know there's.
I got some speculation that Amazon would would even acquire an insurer which would then of course let them be the Fulfillment partner for that right and there's.
There's that you know there's a separate initiative the Amazon is doing with Warren Buffett.

[9:19] Yeah around revamping Healthcare and and you know one of the the speculated outcomes of that is a potential new insurance product that could potentially partner with and with Amazon Pharmacy.

Scot:
[9:30] Yeah they just announced the CEO for that energy so seems like it's getting some momentum there for those who didn't listen to kind of our predictions for the year maybe you know what
what's this mean for a CVS or Walgreens near us a Amazon successfully
can compete on the pharmacy side at least the pill dispensing are those things convenient enough still or do you think that this is a problem.

Jason:
[9:57] Yep so here's what's interesting so that the traditional drug stores that are Walgreens and CVS is.
Their whole business is predicated on foot traffic coming in to fill prescriptions in so the.
Like they they don't tend to be super price competitive on all the over-the-counter products that they sell in the store and they don't tend to be a destination for any of those products for very many consumers but what happens is you going to get your Lipitor and you realize.
That you need some snacks or you need some tissue paper or you need some Advil or whatever the case is while you're in the store.
And so have a significant number of customers no longer need to visit Walgreens to pick up their prescription.
The Walgreens brick-and-mortar model literally doesn't work like there is not a like another compelling reason for traffic to go in those stores.

[10:56] And so you know either that would you know put Walgreens in huge distress or Walgreens would have to sort of find some way to reinvent their their retail space.
And you know most most of that analysts look at those retailers and say hey the big Investments those guys are making these are in insurance companies and they're really their their plan is to sort of pivot from being a brick-and-mortar retailer to being a.
A healthcare provider that's not tied to brick and mortar.
And you knows we talk about a few times on the show Amazon doesn't have to capture 50% of the pharmacy market or anything like it you know if they can take a a 10% or 15% and in the traffic of those stores.

[11:38] Like that probably put them over a Tipping Point that makes those doors not profitable and so it's.
A very material threat to traditional drug stores.
Whether Amazon successful or not if a bunch of consumers just decide that it's better to have their Pharmaceuticals delivered to home.
I'm in there many companies trying to do that then you know that puts that same stress on those drug stores,
it's been interesting the kind of traditional mail order pharmacy hasn't really gained a lot of momentum so there's a insurers insurance companies drive people to mail order pharmacy and there's a percentage of.
Consumers there get their stuff VIA mail order at the percentage of people that use my order has actually shrunk a little bit in the last couple of years and so it'll be interesting if.
Amazon can come up with a new enough experience or these custom pill packs are a big enough value-add that they,
you know permanently change that that consumer Behavior which will you know really put a challenge in the drugstores and I I would expect to see a ton of drug stores close.

Scot:
[12:44] It just sounds so slow mail delivery.

Jason:
[12:47] Yeah and maybe mail is the wrong word right like I mean you know you can imagine all kinds of same-day fulfillment centers like at the moment.
You know people tend to get get the home delivery of
prescriptions when they're tronic things that you take you around right and when you you know God forbid you're sick and the doctor calls in a prescription or you go see a doctor and they call in a prescription that you pick up like those are the things you're more likely to walk in and
and get that but of course there's no reason that pharmacies couldn't.
Prepare those those meds or Amazon you don't own pharmacies couldn't prepare those meds and deliver on in 1 hour to your house.

Scot:
[13:26] Yeah yes so it could be a cool Prime thing like Prime Pharmacy where yeah Auto refills the pharmacies I deal with like they never called the doctor and do stuff right so Amazon consult a lot of that stuff so.

Jason:
[13:41] There's a ton of friction in
current experience that like we as consumers are just learn to deal with that that you can imagine someone like Amazon taking out of the experience and and make it game changing like in the in the same way that Uber disrupted the taxi industry.

Scot:
[13:57] Cope well that was one of your predictions of one of mine was about Amazon delivery and today there was an announcement about that sort kind of kind of
even on this I guess
Amazon sent out this really interesting effectively up a call to on chores to build delivery capability that that Amazon will then leverage there as we've covered on the show a lot there
the really worried about the capacity out there in the network they're building their own direct this is really what I would consider a call to arms for entrepreneurs to build a 1099 kind of delivery Network
yeah I talked about going out starting a business for a minimum of 10K
wish you the vans that are Amazon branded uniforms and then they talk about how and their models of doing this.

[14:43] You can make up to $300,000 in profit a year that's pretty interesting in.
A little unknown thing is FedEx Ground did this they had
they had a lot of 1099s their individuals and then there was some kind of a court thing that happened where that was deemed
did they should be employees so they world all that up into businesses so when you see FedEx Ground delivery out there it is a it is a 1099 Network it'll frequently say you know
FedEx Ground operated by and they'll be some little LLC brand they're kind of small down by the door.
Doubt they have built a similar, Network so
this is going to be interesting to see how Amazon build this out if they're certain areas they're targeting and then also what this means for the flex drivers which is more of an Uber individual kind of a thing there's a lot of work
a lot of
people believe the Uber 1099 model is at risk that that same kind of litigation will happen that they're actually should be treated as employees this would
Guild Amazon another kind of an option on delivery if that were to happen to the flex driver thing too so so kind of covers several basis I thought that was pretty interesting.

Jason:
[15:55] Yeah and I in my mind I could imagine.
That it's easier for Amazon to enforce and Achieve certain service levels with these.
Individual with his business operators over the 1099s i e you know it's like you can require these businesses to buy these Amazon branded trucks into wear Amazon uniforms and things that are like,
less convenient and economically viable to impose on individual 1099 work.

Scot:
[16:32] Yeah I should have mentioned it but one of the things they're going to provide is the software so there,
I can give you all the software needed to run a business like this I think it's from an acquisition they did that they have kind of been using internally or maybe as part of flex and now they've there they're part of this whole deal is they will give you the software
which is kind of a clever way for them to have visibility into the SLA is right they can kind of see if your using their software in the cloud presumably they be able to see you know how you're doing against LA's
the required to use their software because they didn't want to be able to see them.

Jason:
[17:08] Yeah I mean I read through the whole program and to me it feels exactly like franchisee model like I mean they've they've completely template eyes the whole business they they give you all the processes and software like they literally have like.
The Dead
training program down in the hiring recommendations for these businesses and they have the whole economic model is it like they essentially say that like hey you know depending on how quickly you scale
you're going to make between you're going to net between 70k and 300K a year in this business.

[17:48] Anything else about the Amazon do it by the way what
I just found someone interesting the Amazon delivery was this big plans PR thing and they had a bunch of media to Seattle and they you know gave the media all the story under embargo and so
you know today was the big announced a and they got a bunch of press over that over all that and then it
it feels like I kind of got stepped on when they announce the pillpack acquisition you know which they did none of this pre-press planning for.

Scot:
[18:20] Yeah yes sometimes the best plans going to get
Crush by that the dip The Pride react to Walmart into that position was on its own timetable that they couldn't control and it just kind of unfortunately probably landed on the same day happen sometimes.

Jason:
[18:36] Another interesting thing that came out last week is
at age does this evaluation of all the top advertisers every year and a surprise,
appearance on the top 10 list was Amazon as the fourth largest Advertiser in the United States
so they're spending more on Advertising then folks like for GM and they're the retailer that spending a listen advertising so they're actually spending more and advertising than Walmart it.

Scot:
[19:10] Yep that's interesting it's funny because it's for you know for the longest time basil said they would never really do marketing cuz they prefer to put all that money into shipping fee and you know that that word of mouse with mouth was the best marketing but then once they came out.
With Kindle they had to really kind of start doing some marketing In and Out imagine if you looked up the bulk of that is going to be around Alexa.

Jason:
[19:34] Yeah no I think that's I think that's why Fair they develop a bunch of owned Brands and they've they've had the market to support those owned brands.
But I do think you know that and they've kind of had them float on this they are also investing a lot more in Performance Marketing for just a core retail business at the moment then they.
They have it in the recent past said so you know you leveraging Google products and things like that to drive more traffic to Amazon.

Scot:
[20:03] Another interesting Amazon news piece this is kind of more internal facing but I think listeners will find it
pretty fascinating it was a little bit of clickbait so that you know the article came out of Bloomberg and it it showed one of the the Kiva warehouse robots and it said you know
Amazon's robots are moving for the warehouse to headquarters which kind of you like what are they going to deliver pencils or what's going on
what's really happening is as we've reported on the show we had to Andrea lay on and she was telling us about some projects they had internally where an AI World very frequently negotiate with indoors and they call it this whole hands off the wheel initiative,
there's several layers so that there's there's vendor negotiations but then there's also you know on the first party side.

[20:52] Putting machines against humans to see who can piss pick the best products to put on Amazon and buy.

[21:00] And at the same time you also have the marketplace side of Amazon
so what's happening is it looks like they're squishing all this together now the guy that ran the third-party marketplaces moved over to a new project that's on an ounce Peter Pharisee so they wrapped up
the marketplace and the 1pt mused to be very despair teams you I would go to Amazon in
in meetings and introduce people across his team so it was funny and it looks like the Common Thread there is less peep
so more machines can imagine these categories because they effectively do a better job more machines doing negotiations
and less people and then this kind of integration of 1p and 3p
I think this is good because we found a lot of vendors get really confused and mixed messaging from Amazon where they'll go to one team in Amazon the go to the marketplace apparel team and say hey we want to do X Y and Z in those say you know oh no you have to do this that the other and then the one p team will get a whole different answer so I think this ultimately be good and you're the 3p team the three-piece cider Amazon
bigger than the one piece side so
I think it'll be great to have a lot of that DNA kind of mixed in there and you know there's a downside this Automation and
can be pretty frustrating to companies that are used to the old school you know having going to.

[22:23] Bendle and chicken someone's hand and showing them the products and those kinds of things this is
essentially you can stay home and chat robot and have the same outcome of the Amazon now so you know it'll be interesting to see how vendors net out on this change but it did
pretty interesting the automation you know what they at least according to Amazon's data has beat out people is as it comes to merchandising and negotiating with Thunders.

Jason:
[22:50] Yeah for sure who the things are interesting to me about that merger I do feel like there's a way when they were more siloed in which sellers could potentially take advantage of this I was so I do think they're brands that,
wanted to sell 3p on Amazon didn't want to be one piece hours because they wanted to control their own pricing like in in principle,
if you're going to be a three-piece seller on Amazon Amazon has the right to like also be a one piece seller but a lot of,
Brie and seemingly fell between the cracks there and we're able to be pure 3-piece hours without being bothered by the 1p guys and there's a lot of speculation that now that one p m 3 p r kind of merging that
like you know that Aunt Amazon going to be a lot more purposeful about who can be a 3p seller without without Amazon having the option to be a one piece hour.

[23:46] So it'll be interesting to see how that plays out,
and then that's the thing that I chuckle at with the hands off the wheel I think it's a super app metaphor if you're a very big seller on Amazon
you do have a a human contact and you have this personal relationship
and I think what's funny about that is it's exactly like the the safety driver in the autonomous vehicles like
you know it maybe makes you feel better that there's a guy sitting in the driver seat but he actually isn't touching the steering wheel and so you can have all the good conversations and take him to dinner and do other relationship building you want.
But at the end of the day it's the computer that's deciding you know what the the terms of your your trade relationship are with Amazon.

Scot:
[24:35] Summary of some of the Amazon highlights over the last couple of weeks
biggest news item is our very own Supreme Court in the United States got involved in e-commerce and I know you have a lot of interesting insights on this one so I'm anxious to hear your thoughts about what happened there.

Jason:
[24:57] So this is a case that the Supreme Court heard several months ago and they they ruled I guess this would be the last week now.
The actual case the Supreme Court ruled on is called South Dakota vs Wayfair Overstock and do egg and a lot of people sort of shorten it to South Dakota vs Wayfair.
And essentially South Dakota passed a law that said we're going to require sell sellers.
To collect sales tax when people in South Dakota buy goods from them even if the seller doesn't have.
A presence in South Dakota and that there's actually a precedent.
Based on a ruling the Supreme Court ruled on in 1992 that South Dakota can't do that right like there's this.
President called quill which was confusingly enough it was actually quill vs North Dakota.
That the Supreme Court ruled on a 1992 that essentially said.

[26:03] In order for a seller to be required to collect sales tax for a given State they had to have a physical presence in that state to establish Nexus and so a lot of.
Pure play online retailers.
Based on that rule like avoided having a presence in big populated states so that they didn't have to charge sales tax in those States.
And it actually determined where Amazon's corporate headquarters would be when Jeff Bezos was starting the company that.
President was already in place and so they they pick Seattle because it was a good techhub that didn't have a huge population and wouldn't be a huge customer base and avoided.
Having a presence in States like California that would be huge customer bases and in the early days of Amazon.
Amazon was super restricted with their employees they wouldn't let their employees you know do business travel to the states they wouldn't let the campus recruiters like go to the the job fairs in the college dates because they were there being super careful too.
Avoid establishing a physical presence so they could have avoided paying taxes.

[27:11] Into this this the Supreme Court in this ruling essentially reverses that quill precedents and so so so now it's going to be possible for states to pass a law that essentially require.
I'm all us out of state sellers to collect sales tax and remitted to the the states.

[27:34] And you know there's a couple of interesting things in that first of all.
You are a ton of the media you know I was writing about how what a big win for Mainstreet this was and you know how was a blow to Amazon and.
You know that the national retail Federation you know kind of claim though it was a victory for retailers and in tax fairness and all these things.
The reality is in my mind the biggest winner in this deal is Amazon and the reason I say that is because.
Amazon is already collecting tax Amazon gave up avoiding that Nexus a number of years ago.
They're collecting tax in every state that has attacks and the reason they do that is they wanted to put distribution centers everywhere and they wanted to put Prime now centers everywhere and they just found it.
Was better for them to collect the taxes then to have all these impediments on where they could have a physical presence.
So this actually makes Amazon more competitive with other online pure plays right so it it it actually makes Amazon more competitive with Overstock and Newegg and and like all these.
Visa vertical specialty retailers like a faucet that you know specialize in plumbing fixtures in our aren't collecting tax.
So it helps Amazon's 1p business be more competitive.

[28:52] That detect the sales tax that Amazon isn't collecting is from 3-piece hours who have the option to collect the tax or not and most don't.
And so this ruling is going to require all of Amazon's 3p sellers to collect tax which is actually going to make Amazon's 1p business more competitive with the 3p business so that's a win.
Also Amazon charges a 2.9% fee on all sales.
In order to calculate and collect tax for those 3p seller so this is a huge new service fee that Amazon is going to start collecting from all their Marketplace vendors so that's a.
A big win.
This ruling makes Amazon more competitive with everyone else and really doesn't hurt Amazon's competitiveness.
In any meaningful way.

[29:47] Which is which is interesting and I would argue a lot of the the the media and info Scott wrong when they when they first heard about this announcement.
Who's probably getting hurt by this is a lot of the small sellers right if you are a a a small business that's primarily selling via 3p on Amazon and eBay.
You know your your cost just went up and potentially.
There are about 12,000 tax jurisdictions in the US and so every one of those jurisdictions in theory could now pass a law that says you have to collect their tax and they can each have their own rules for the tax.
And So It Goes could be a huge burden to the sellers.

[30:32] Track and calculate these 12,000 different tax laws and so you're not allowed to have to cut the tax but you have to pay a bunch of money to collect the tax.
Properly and that is a potential big burden for the small sellers.
I would argue there's very few small brick-and-mortar retailers that aren't also trying to sell online and aren't also trying to ship out of state.
So you know when people talk about this benefiting Main Street it's only benefiting the dinosaurs on Main Street that haven't figured out how to launch a Shopify site yet right.
And so so it is going to be a potential burden on a new small businesses.
And what's going to be most interesting to watch now is that the South Dakota version of the tax law is a very mild version of the law.
It essentially says that all the different cities in South Dakota can't charge their own individual taxes that that dumb.
We're going to have a Statewide system that's easier for businesses to comply with.
And it'll also says that the state can't collect taxes retroactively so no one's going to be on the hook for their sales over the last 5 years but.

[31:44] Any new state could now pass out a more aggressive version of the law
it has more burdens for the the small business and that even tries to retroactively collect taxes for The Last 5 Years
and it's it's unclear based on the Supreme Court ruling weather
whether the states will be able to get away with the more aggressive version of this wall so that it's it's kind of going to the tech
e-commerce taxes into a little bit of chaos while this all plays out and you know I think.

[32:15] Everyone's hope which seems like a long shot is that what what could really simplify all this is it Congress sort of enacted a
a lot the clarified what what how State should treat the taxes and Congress could pass a national law that essentially say is all the states have to,
you know follow the same system in charge the same rate and there's lots of draft of these kind of laws there was one that was drafted a couple years ago called The Marketplace Fairness Act
and it could allow all the states to collect sales tax but dramatically simplify the process of collecting those taxes for all the the online Sellers and protect all the online Sellers from retroactive taxes and things like that so
like the right thing to do for our economy would be for Congress to pass a law but it you know it seems like
there's a lot of partisan stuff going on in Congress and you know doesn't seem like there their they're passing a heck of a lot of common sense legislation at the moment.

Scot:
[33:19] Another interesting win for Amazon is there's a fair number of people that don't use at ba because
Amazon just parked around an FBI and if you're one of these companies that's really you know of a carefully watching where your Nexus is you can't say to Amazon
you can't say two things you can't say I only want my product Cindy's FBA facilities you also can't say you know where is my product right now so I can make sure that I'm tracking where I kind of I could have Nexus or not so presumably this
get rid of that both objection and now you might as well just use that Paso another win for Amazon is FBA if we're going to go to a world pretty quickly here which seems like what you're predicting where every state is charging some form of tax.
The NFPA is another enough was going to get more users because it's going to be enough there are no negatives for for doing that around Nexus.
How do you say so if I may say I'ma an eBay or an Amazon Seller today what do I do do I need to start,
cutting taxes out there one should start that right now like what's the action item on.

Jason:
[34:30] Yeah so at the moment you're only on the hook for the state you have a physical Nexus and and South Dakota.
The each state has to pass an out-of-state tax collection law in order for them to then put this burden on on sellers
and there are a number of states that have laws going through their state legislature right now
and so you like your your immediate action is that you you do need to start you do not have a tax liability in South Dakota based on this ruling
but you can anticipate
didn't very short order all the states are desperate for money so of course they're all going to pass along some of the legislators are in a position to do it real fast summer going to be slow and and complicated
the burden is going to keep going up and almost you know certainly
the the way that most sellers are going to have to do this is you're going to have to pay a third party to calculate
and remit all these taxes on your behalf and so that's another big winner in this is
companies like taxjar and vertex and Olvera and those those companies that help businesses calculate and remit sale.

Scot:
[35:44] Yeah now,
physical stores the taxes get down to you know literally the municipality so you could be in you know Secaucus New Jersey and they have a different apparel tax there's a tax on shipping but then certain there's no food tax or something that you cross into another area
and the taxes are all different do you think this is going to get that complex or are you to the municipalities going to try to take there
local tax structure in Buckhannon National kind of for that City kind of.

Jason:
[36:16] So here is going to be the balancing act all the municipalities would have like to pass their own laws so Secaucus would definitely like to have their own tax collection law and have their there sales tax laws imposed on all out of
the jurisdiction Cellars the thing that's going to keep them all from doing that is that there's a
a clause in the the the.

[36:45] Though the prevailing tax laws that says
States cannot put an undue burden on cross-state Commerce.
And so the argument is going to be that it every municipality have their own set of laws and Secaucus has a tax holiday on this particular day and doesn't text food and all these different things
the bat is going to trigger the Commerce Clause and and put an undue burden right and so part of the reason that the Supreme Court said they ruled in favor of South Dakota is because the law is was very carefully written to try to minimize that
the the bird and right inside they don't date the it explicitly does not allow individual municipalities in South Dakota to have their own tax laws like they are there there's a Statewide
tax system for out-of-state Sellers and so it knows.
Supreme Court rule on any other than the South Dakota version so if Secaucus now pass is a really you know burdensome law and again Secaucus could also say and you owe is taxes for The Last 5 Years of sales.

[37:58] Then you know someone's going to be able to litigate that and say it's a violation of the Commerce Clause and that potentially could make it back to the Supreme Court and you you know,
the Supreme Court could choose to hear it or not and they could you know essentially say hey the South Dakota version is
we going to bed the more you know arduous Secaucus version is not legal and so you know every States going to have to balance how aggressive they want to be
you know with with how much we go Jeopardy they they they want to assume you know in case these things get where to get it.

Scot:
[38:36] Yes it feels like it's going to take like 5 to 10 years for this all the sort out and it's kind of a
kind of a boring Plumbing topic but I think it's important for listeners cuz a lot of articles I read we're super confusing and I think you did a good job of summarizing.

Jason:
[38:50] One last point that just was kind of sad I give you actually listen to the
the oral arguments in the case like the justices were asking really good questions how expensive is it for a small business to calculate their tax liability if this if we rule in favor of South Dakota
how you know how much is incremental cost is is that going to impose on Wayfair bright and.
It was really embarrassing,
how little tangible information the lawyers in both side of this case had and how e-commerce works and I I say that like.
If your lawyer like arguing a case before The Supreme Court that is like the Superbowl of
litigation right and you'd expect like the most prepared best teams and yet you know it it's felt like the
the level of preparation in knowledge about how digital Commerce work you know was was pretty pretty lacking in the justices openly expressed frustration that they couldn't get.
You know clear answers to who you know some some reasonable questions about this so it you know it's further further evidence that,
you know the economy and Technology are way way way ahead of the legal system.

Scot:
[40:08] Oh I nominate you to be a expert for the next to supreme court hearing on this.

Jason:
[40:13] Yeah I would make myself available that would be a pretty awesome gig.

Scot:
[40:19] Yeah and you get to wear a suit how fun is that.

Jason:
[40:21] I I have done some federal expert witness stuff in the you know I am willing to wear a suit for the the fees that you're able to charge as an expert witness.

Scot:
[40:31] Cool that that kind of wraps up the news section of the show and let's transition into some listener questions.

[40:44] Question question question question question.
Alright get the echo turned way up on that one our first question is pretty Technical and it comes from a friend of the show Scott Silverman this one goes back you mentioned this kind of
in a phrase recently sniffing the tires Scott wants to know what do you recommend is the best technique for sniffing tires.

Jason:
[41:15] Hey Scott I totally appreciate the question
sort of two-party answer if you are a casual Tire sniffer I think what you want to do is just you know get down on the ground get your nose is close to the tires as possible and you know really just sort of
in intake the the fumes but if you're going to be a serious professional Tire sniffer what you really want to do is
get the hydraulic jack and raise the car up to nose level because that actually
allows a lot more oxygen under the tires which which you know helps more molecules get in your nose and really get you the whole bouquet of the tire.

Scot:
[41:56] And of course it's important to take the vehicle for a spin before you do this you get that like nice fresh smell.

Jason:
[42:03] Yeah you do want the rubber warmed up absolutely great point.

Scot:
[42:06] Our second questions comes from and I'll do a blanket apology there's some last names in here that may be a little tricky but I'll do my best this is from Alex Velasquez and he asks should others try the Warby Parker school bus tour concept and who do you think
would benefit most from it I had no idea what this was so I figured this was a good question for you.

Jason:
[42:27] Yep so this is one of the early marketing tactics at Warby Parker did I think they actually did this before they open the formal store I'm so they I think they may be
were using their corporate headquarters is a showroom but essentially what they did is they bought an old school bus decked it out
and started driving to events and venues and things
and letting people try on their glasses and it was a super effective marketing vehicle it's sort of a mobile pop-up store if you will
and so in general I would say those kinds of things are a great tactic particularly for e-commerce business is what
you know you feel like you'd benefit from a physical presence so I got a pop-up store avoids a lot of the costs of
permanent rent you know which a lot of the times of the year the traffic in that that store is going to be low so you can do a pop-up just around Peak times and instead of it being fixed to one location the idea behind this bus is you could send the bus to a lot of different locations
so there you know what be purchased per ticket clever and they've done a bunch of versions of since the school bus
so they continue to use that tactic I do think it's a good customer acquisition and brand building tactic.

[43:45] The there's actually a retailer that's been doing it much longer LL Bean literally have a.
A bus built in the shape of their iconic rubber boot that they drive around and let people try on boots and kind of build their brand.
Do that and they send it to outdoor festivals and stuff where where people might be interested in the boots so I think it's a good tactic.
A lot of Brands could potentially benefit from it but the brands that would most benefit from it.
Is if there's a a physical a or experiential element to the kind of products you're selling,
so that it's not only are you building your brand awareness but you're also helping people you don't get that tactical experience so if you're selling.
You know food and and you going to give people a chance to try it or you're selling apparel that gives people a chance to try sizes or.
I feel the textiles are or you know things like that are particularly going to benefit from these kind of mobile pop-up store.

Scot:
[44:51] Cool and thanks for the question Alex.

Jason:
[44:59] So I think the next question is from vomit.
A gyro and thanks God for just claiming that were massacring names do customers like bundled products or do they like to create their own bundles what are different merchandising tactics used to sell collections of product.

Scot:
[45:19] Yeah this is this is a good one you know it it kind of depends so.
I like a system where the consumer has the you know a fair amount of power and convenience and they can choose to either buy a core
product and its Associated add-ons and you have any Commerce system that is smart enough to kind of recommend the right things you know so it's not kind of recommending
these things that are kind of random but they're frequently bought together. Which is a feature that you see on Amazon all the time
now one tactic where this comes up a lot is in the world of marketplaces where.
Frequently you'll be selling where you see this the most is in digital cameras this is
kind of case study of this so what you see is you go to Amazon and you search for you know a Canon D40 which is a common camera
and you know the tops quc is that core camera body SKU.

[46:18] But then what a lot of people do is they will create a new skew by creating unique bundle.
And I'll take a camera a memory card a set of lenses and a bag and a variety of things and I'll create a new skew a new Ace in in Amazon parlance and that is you can kind of a.
You should have separate from the competitors for that Coeur Camera.

[46:43] The be there for you know when consumer searches for Canon D40 if you've done this right you should have a pretty good shot at showing up higher level and then see
you can effectively have a price that is much just submitted Lee discounted for that bundle and you're effectively hiding
you know the discount in the margin by obfuscating it to the consumer making it harder for them to price compare so some things now
you know this whole truth holds true for other marketplaces like eBay and Walmart eye center now the downside of this is Marketplace in her wise to the store frequently kind of challenging these things and saying you know
does a bundle really make sense what are you doing here are you kind of ruining the customer experience.

[47:33] So I've seen that used in it as a merchandising tactic there on your own website to
I don't think I've seen as we have a child as we have this very clever skateboard a Cellar and they've come up with a couple private labels like their own wheels and things like that so when they they take a deck and skateboarding you have the deck which is just sold without wheels and and the the other pieces there and then they
they take some private label stuff or owned brands do use Jason's language and it does create this kind of unique bundle that then isn't available anywhere else,
and they can do a lot of relaxing things with pricing on that because they can't really change
do the map the price but when they put their wheels on there they can offer this bundle that that is never more competitive anything else out there because they have
got a known brand on the wheels and they have more margin and they can pass it on to the consumer so those are some of the things that come to mind for me Jason anything you want to add on bundling.

Jason:
[48:31] Yeah I would just say like the there are two similar but different things in my expenses,
in different circumstances consumers want both so so every
e-commerce platform uses a different vernacular but, binocular would be bundles versus kits right and so in this scenario a bundle
could be.

[48:56] A set of things that are recommended to go together right so shop the look you you one quick button and you add the blouse the pants the belt and shoes.
But all four things get separately added to your cart and then you could edit the cart you could get two pair of the the blouses if you wanted and you could delete the shoes if you already had two shoes for example so it's,
a shopping convenience to put related items together
you know in and apparel is a common version of that like in crafting it could be a kit or project I got all the.
All the items you need to make a sweater or something like that in food it could be by the recipe to get all the ingredients for a particular dish.
But you know of course the customer might already have salt so you you know the customer could take salt out of the cart after they.
They bought that bundle in a kids are often.
Hard coded things that have to go together so it's one skew it shows up as one line item in the car you can't edit it.
If any of the items in that cat are unavailable then the itin.
The kid is unavailable in the order we get back ordered and things like that and so there are certain types of products.
That lend themselves to kits and to your point.
If you're going to have a special price on the the multiple item configuration than you probably want that to be a kid because you wouldn't want customers to.

[50:25] Then delete three of the four items and still get a special price.
But in some cases you just want to make it easier for people to buy multiple things and have a higher overall cart and then there's.
A lot of nuances in the kits are they.
Hard-coated manual kits what you would often cause static it where you know the skews are permanently tied together are there Dynamic kits that are built by recommendation engines or things like that are there
customizable kids you know that have different options that customers can pick via VIA attribute type selections and
and so it is super complicated thing and it is one of the things that can differentiate some of the e-commerce platforms from the others is
their support for a broad range of these different options vary wildly
and then when you throw in the ability to offer promotions on top of these bundles or kits that can get super complicated and so that you know
if you know that that's a core part of your business that might drive you to select one one eCommerce platform versus another because it might have better support for the
that the particular model year use.

Scot:
[51:35] Is anyone using AI to solve this like.
Yeah I think I need Amazon's is kind of a group thing I'm sure there's gotta be like 10 AI vendors out there trying to solve this kind of Phoenix recommended product.

Jason:
[51:51] Yeah and I mean this man takes get tricky like I would argue that the
the Panic recommendation vendors that have been around for 12 years like they're rich relevance in a certain is like they're there heavily AI base solution so it's almost like.
Saying it AI recommendations versus not as kind of a difficult distinction to make the,
that most of the product recommendation product that I'm aware of the you know are going to be closer to you. The most common model is
they're going to recommend other products and you have to click each product separately to add it to the car
they may offer bundles which is one-click ordering right in in Amazon does bundle the recommendations the right so right below the main product information on the product detail page
there's always going to be up by these bring three things together which is you know it's the AI base recommendation engine is putting the three things that you most want together and you can choose to add one two or three of those things to your cart so that just that
S Mart Convenience that Amazon's done to try to get the aov up that's the company that's the best example of using AI to actually create
schitt's if you will is probably going to be Stitch fix right because they send one skew to your house which is a fixed with five items in it and they're primarily using AI to select which five items they send to your app.

Scot:
[53:18] Wrinkled her next question
comes from jeweled work and she a skinny leadership or managing through change tactics and then over on the Facebook group I asked for clarification on that if I gave her a couple choices there and she said
you're more at the corporate level so let's assume you're one of these Brands that's been around for a hundred years this is very much in the news right now where allottees activists are going into the established Brands and brand houses and shaking them up and you know really getting agitated they're not doing enough direct-to-consumer you seen folks like Campbell's down 30 40% due to all these changes happening and you know I heard your question is essentially
how did these companies become more Nimble you know you've had this guy a hundred year plus world where the consumer didn't change very much and now they're changing constantly.
What what do you recommend a brand do to get more nipple.

Jason:
[54:13] Yeah it's a great question Jill and the real answers if I had a perfect recommendation
I probably wouldn't be bothering to do this podcast cuz it would make my job so much easier that I'd be you know waiting on an island somewhere because it is a huge challenge in general you see digital native companies are much better at being agile and nimble
then big established Brands and it just so happens in my practice I mainly work with
big established Brands and they all struggle with being at a a speed disadvantage
TD small companies and the one exception is you know that the giant company Amazon is annoyingly.
Add jolyn and Innovative despite their their size in the fact that they're you know now 20 years old.
So two things to think about here the first is like a big question always comes up is.

[55:07] Ivory Tower Innovation versus Grassroots Innovation right so you know Ivory Tower would be,
let's set up an innovation lab right you know your target let's set up an innovation lab you know your Minneapolis wet set up at univation lab in
San Mateo California and let's hire a bunch of people whose only job is to be Innovative and let them come up with all the new ideas.
And if you're a store manager in Minnesota you know it's not your job to be Innovative right and so I having a dedicated focus on Innovation the hope his bees Innovation labs.
Can can be more efficient you know there was a huge Trend in retail towards these labs and.
Target Nordstrom Zappos Walmart you know all we're opening opening these stand-alone labs.

[55:56] While some retailers definitely still have these Labs I would argue the trend is a little bit against the stand-alone lab so we've seen a lot of the retailers including Target Nordstrom.
And a post move away from the dedicated Innovation lab model and so the alternative is.
Create the ability for Innovation to come from the the main line Grassroots employees right into the the Marquee example of this is not a retail for me it's it's a Doe B and they had this clever product called.

[56:29] Process called the Adobe Redbox and essentially any employee at Adobe that thinks they have a good idea for a new.
Product or process or or service at Adobe can apply for this thing called in Adobe red box and it's a Innovation kit.
And it's all the tools you need to sort of prototype your idea and get it to a level where you can present it.
288 sort of jury of Senior Management at the.
Add Adobe and so it you know it's pretty clever it has things like a debit card in it that you can use to buy you don't web hosting services and it has.
You know I'm feeling codes you can get to you know provide to some of your colleagues have them help you with certain things.
And said that the idea is to make it easy for anybody with a good idea anywhere across the the organization to pursue that idea.

[57:30] And so it the moment I see more retailers trying to Foster Innovation through.
Providing processes and tools to their main line employees than I do the Ivory Tower but I certainly seen both work and I've seen both fail.
The biggest advice I give to Legacy clients.
To succeed in Innovation is not so much where that Innovation sits in the organization it's how The Innovation is approached and here like I highly recommend.
Serta imitating the Amazon model right so you know Amazon famous we have this to Pizza teen model in the the premise behind that is.
Hey any project we do we're going to narrow the scope such that it can be performed by you know a team no larger than could be fed by two pizzas.
So that could be you no one four digit software developer or you know it might be six or seven people in your department.

[58:31] But the idea being.
The way to do Innovation is not to do some Grand pilot that has to integrate with 37 Legacy systems and has to get approval from 18 different departments and requires a team of 40.
And you know by the time you you get an experience to live you will spend so much money and effort that you know if if the experience isn't successful.
You know you you passed your company of Fortune and even if it is successful like the the business probably you know shifted from the time you started to the time you finish.
The most successful Innovations are when you can you know find gorilla ways to do things scale at and make the the.
Hiwot as independent and distinct from the rest of the organization as possible right and so to me the great example of that is.

[59:23] Amazon Prime now,
you know when they said like hey we want to deliver stuff in one hour they didn't say all right let's get a meeting together with the leaders of the Fulfillment center and figure out how we carve off some space in the Fulfillment center and figure it out we,
change all our software in the Fulfillment center to support this one hour delivery and do all these things they they got some guys that said hey we're going to buy our own you know even though we own all this stuff,
we're going to buy our own building for this pilot and we're going to write our own software and we're going to just keep things as simple and independent as possible get the experience out there in front of the customer as quickly as possible and learn from the customer,
which elements of our idea are valuable and value by the customer and which ones aren't then we're going to refine it from there and only after we've.
Proven The Innovation and unrefined it are we going to figure out how to integrate it into the rest of the Enterprise so I really like that sort of.
Independence and you know we highly encourage a lot of these big Legacy Brands to sort of adopt a more agile.
Business process so we talked about ad Joel a lot as a development technique technique but it really can be a a business process and you know sort of isolate these these projects as much as possible and make an independent initiative.

Scot:
[1:00:40] That's awesome so I'm up I come out at from a startup
bad guy perspective I'm on my 4th company I started and like you have worked with a lot of Brands and I think the step a lot of them get wrong is what I would call buying soda
I'll start doing something kind of innovative like selling director something and then the VP of sales will say woohoo oh hey wait a minute what are we doing I've gotten upset
Channel partner that's upset wrestling direct and then doll the panic in the unwind the whole thing
so before you go down some of the steps you recommended you know I think.

[1:01:17] The key is got to get complete buy-in from the whole management team that this is going to be something they're there once committed to a book that I I
now that kind of started this discussion is the innovator's Dilemma. This is kind of a must-read for people interest in this topic in this by Clayton Christensen I will put a link in the show notes and you know what does essentially does it talks about,
how do companies get in this position and why and then it has some cases of the very few companies that have gotten out of this position so it's really
important to get that buying from everybody because if everyone's not bought in you'll get this whole failure cycle of trying to do something really Innovative as a brand and then it gets squashed by people that really aren't bought in and then
you know there nothing too happens and companies that are large and older is
a lot of ideas get squished because what I call exception base management where you come up with this idea and then to what is start to happen to edge cases well you know
what if you know a you know what if this isn't profitable what if this and that the other and that.

[1:02:25] Becomes you just get kind of stuck in tar with that you have to have to get everyone bought into taking some risk that the company's also not used to Basil's has a really good letter on this stuff about it Amazon where they have
commit to disagree is kind of thing you know so so you know we disagree but let's try it and see what happens like why not try it.
Go try something and
to that and there's really good book Jason mention you're taking some of these ads all kind of Concepts out of software development putting them in your company one of my favorites is called Lean Startup sat is geared towards when you're starting a company but I think big companies can learn a lot there and it kind of educate you on the languages start upset you know
Facebook kind of famously has said go fast and break stuff and that's really kind of craving orientation towards not worrying about the exceptions and guessing
put something out there
and take a little risk and then see how customers react to it and then course-correct quickly so the answer to you know what is what you know maybe not and.

[1:03:30] We won't know until you try so you got to kind of get your culture oriented towards trying stuff rapidly,
iterating versus kind of a 18 month cycle of planning and hand-wringing and getting every little detail done and then putting something out to be agile yet to be able to put something out and fail
I go over and over again the case study there for Amazon that's classic is the fire phone you know they they put a phone out there there's a million reasons that would fail and it failed Jason I think they're the only people that have one
but if they didn't fail at that Fire Phone
they would have never done Echo because they really wanted to be in the platform World they realized the failure the phone that that was going to be at and then they went all in on Echo and.
That is part of the culture they have is it's okay to fail just going to do it quickly and inner eight and learn you can't just kind of like digging infinitely deep hole.

Jason:
[1:04:23] Yeah that's great advice.
Scot we have a few more a great listener questions but I actually think we are going to have to hold them for our next show because it has happened again we've used up the an hour of our listeners very valuable time.
And so if you enjoy the show we certainly would appreciate that that five star review on iTunes if you have anymore questions or follow-ups on these questions please do jump on her Facebook page and drop us a line or hit either of us up on Twitter because we will pick up the remainder of these questions and any new ones in the next show.

Scot:
[1:05:03] Thanks for joining server buddy.

Jason:
[1:05:05] Until next time happy commercing.

Jun 18, 2018

Chuck Davis is the CEO of Prodege (Swagbucks, MyPoints, and Shopathome), a leading rewards discovery site.  Chuck was the first President of E-Commerce for the Walt Disney Company, former CEO for ShopZilla, former CEO of Fandango, and is a former Shop.org board member.

Don't forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 135 of the Jason & Scot show was recorded on Tuesday, June 5th, 2018.

http://jasonandscot.com

Join your hosts Jason "Retailgeek" Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.

Transcript

Jason:
[0:25] Welcome to the Jason and Scott show this is episode 135 being recorded on Tuesday June 5th 2018 I'm your host Jason retailgeek Goldberg and as always I'm here with your Tahoe Scott Wingo.

Scot & Chuck:
[0:40] Hey Jason in welcome back Jason Scott show listeners,
Jason will real fortunate to have with us this week would I consider to be one of the Statesman of digital and e-commerce truck Davis,
Chuck and I overlapped on the shop.org board for a little bit there and get to know each other and we've been trying to get him on the show for a while and finally all the moons and stars aligned and where,
excited to have Chuck on the show today welcome Chuck thank you I'm glad to be here thanks for having me.

Jason:
[1:09] Entirely our pleasure,
so usually won't have gas on I like to sort of memorize the the key digital places they've work so that I can you introduce your background of the audience but in your case that was impossible I couldn't remember all the cool places you had work.

Scot & Chuck:
[1:25] Yeah I don't know about that but I am you want me to jump in on that.

[1:32] Okay well I'm 22 years in digital following a publishing career so the 22 years of digital.
You know I think it's better to start off in the beginning I started at time Inc and I I was,
on the life monthly magazine that was briefly alive after the weekly went out of business and it was very important part of my career because,
weekly life Saturday evening post look all went out of business because they had one Revenue stream they really had two but one they gave away in that would circulation maybe they were getting $0.10 a week but they were getting a dollar a week and add Revenue,
and when television came those Publications went away cuz he Advertiser switch to TV so on my first job at life,
I learned there had to be two revenue streams they should be 50/50 and I went on a Sports Illustrated next.
And you'll remember that from the football phones and sneaker phones and helping with Michael Jordan videos who was the first big,
video purchase at the NBA at ever seen 400,000 I think on my first phone call they had to create a video to Vision the next day and then moved on a TV Guide,
in Radnor Pennsylvania which was the biggest magazine in the country at the time it was 14 million circulation,
and while I was there Netscape went public and all of a sudden that man it was opening day for a new industry called the internet.

[3:03] And other than AOL CompuServe in Prodigy there were no employees in this new industry so as soon as there was a browser I I had five.
Offers in the internet within 90 days of.
Netscape going public and I called 1 800 Gateway in ordered my first computer,
I mean things were moving very fast then and and I think the logic was will Chuck and get eyeballs to a publication that no one really needs maybe he can get eyeballs to my website.
So there were a bunch of startups in Northern Cal and I landed a Disney in Southern Cal to start their e-commerce and that word e-commerce had not been invented yet.
So a Michael Ovitz was President he had been there 11.
I was only there is present for 11 months and he says Chuck who knows if this internet thing as a fat or not but if it's a fad will find you another job of the Walt Disney Company,
so I hopped on a plane went back to Radnor Pennsylvania told my wife while we could do the start up north or we could go to Southern Cal and we could.
Get a job at Disney and if the internet's a fad will have another you know will still stay they'll be something else there.
So that's why I started my internet 22 years ago and my first job and.
Launch Disney Store we lunch Disney Travel ESPN came into the fold 6 months after I got there so I launched an ESPN store in NASCAR Store.

[4:35] Then infoseek I bought by Disney and we had all these go product I got to eat product groups and my concept was learn from a big company.
And then.

[4:46] I should do that smaller company thing but when I jump off I should know more about technology so 40 years after Disney I went to bizrate which became Shopzilla.
And that's where you know me from Scott because I was on the shop.org board there and that was an interesting time because the industry was building up from the o.

[5:10] Oak rash and that took a few years to build up and all of our companies of the board members were suffering at the same time.
At the same time the industry was including shop.org and which was a not-for-profit that went significantly negative at that time but.
What we found with bizrate after a series of cuts.
Are their business started hockey sticking and it became a comparison shopping site and did really well in the ew Scripps company bought that in 05.

[5:44] For over 500 million dollars so that we were working with all the retailers we had research that helped guide the shopping decisions for the consumer to know who to trust to buy online cuz at the beginning of the internet.
No one trusted.
Anyone online and Dad the credit card wasn't deemed to be safe I'm not even sure if purchases online recovered at the beginning of the internet anyway after Scripps bought Shopzilla.

[6:14] I went to Fandango which was in the same building and West LA Fandango have 35 employees it was.
It was kind of paused wasn't clear where it was going to go and quickly we scale back company and.
Comcast bought it and I stayed on and.
For another 40 years or so and that all worked out really well that was backed by tcv in Palo Alto.
And I became a venture partner with tcv and I eventually found the founder Joseph Garlits of Swagbucks.
And the parent company is called Protege with Addy Protege and.
And Joseph and I became good friends and I became his chair Herman and.
He said he wanted me to be the CEO and you never raised outside money and it was already a big company without money and I said you you don't have to have outside money you've already gone through the hardest part.
And he wanted to do it and so tcv came in on that deal to that's our only investor that is the company of that today that's what we're going to talk about,
so I presume we're going to talk about it a little so Protege is a reward consumer rewards platform.
Where consumers have learned about 250 million dollars on the Swagbucks site and almost 550 million on the three protists.

[7:45] Dating sites in free gift cards and we do this on our site from consumer shopping.
Where I'll learn a commission and I'll share that commission with the consumer who will get points and redeem those points from free gift cards from basically all the Merchants Online plus PayPal.

[8:08] Also from filling out surveys and sharing their opinion and from watching short-form videos that have ads on them.
So those are three main businesses and we have 3 brand Swagbucks.
Shop at home in my points the last two Brands we acquired over the last that's a couple years is that what you wanted to hear.
Perfect yet I wanted to just take a little bit in the past just cuz I'm curious I'm I'm I'm a huge user of Fandango.
Tulsa Lil Bit about that stint in. I love the little ad with the paper bag people just that was that created during your tenure it was but let me tell you the best story for Fandango so I started there as chairman.
And I was chairman of Shopzilla and they were same building as take the elevator up and down,
I was facing myself out of one company and phasing myself into the next company and about 1/2 year later I became the CEO and on my,
first day is a CEO again we only have 35 employees at Fandango but a couple guys fat me down.
Are they came to my office to Tech Guys and they go Chuck they're only like 5 of us who write code and we just and we know you have lots of things you want to test.
But we also know that we need you to know that we're also here part-time really because we're working on a secret project with Apple.
And I go well I don't understand am I paying For You full time but I'm getting you half time and they go that is correct and I go on that quite sure.

[9:43] This is a good idea is it a good ideas it's a good project you're working on does Fandango benefit from this they go what we're not quite sure and.

[9:53] And I said was it a bad project cuz I'll get our lawyer and I'll get you out of this and they go well we're not quite sure about that either now pause that thought for six months so that was July of 06 January of 07.
My Blackberry is is vibrating so much.
I figured someone was calling me and there was no one on the phone it was I was getting so many bbm's remember that that was a text message before we had text and and.
They were saying Chuck turn on.

[10:27] Turn on CNBC Steve Jobs is presenting at macworld he's showing this new product called an iPhone and he's buying movie tickets on Fandango.
Tell my team built the first app for the first iPhone and a CEO I didn't even know it was coming that's how secretive apple apple is and that did help Propel Fandango new excited we're all using very much.

[10:53] Brickell.

[10:54] Is it also in your background you did a stint kind of with TCB which stands for tech technology crossover Ventures they're one of the story to VC firms out there in the Bay Area and I know that they are involved in your current company,
are you still active with those guys so what's that relationship like.
PCV is a great company and has great funds and I've known them for a long time I was fortunate enough to Jay Hogue found me he was on the board of Fandango and brought me in,
to be his partner on that.
And then that Pat a happy outcome and and then afterwards he asked if I would be a venture partner with tcv that helps sit in sourcing deals and coaching current Founders Inn,
and just helping in the industry it did Girardi are all around and having someone on the inside is in a bad thing to do having a great.
Growth Equity company like tcv has been fabulous for me,
we brought them into Protege and they are the only investor in this company so I'm thrilled Jay Hogue and and.
Maiorano board were thrilled to have them both and it's been a great relationship both ways.
Well Jason I know is chomping at the bit to talk loyalty so I'll turn it over to him on that side.

Jason:
[12:20] Scot is fascinating and.

[12:26] But you just got matching loyalty but I'm not sure why I think of Swagbucks first and foremost as a loyalty program right like you're you're really.

[12:35] A traffic generation program for for a retail site right like you I would partner with you.
Predominantly to get more new Shoppers to my site that that are already cut in the Swagbucks a ecosystem do I do I have that right.

Scot & Chuck:
[12:52] That is right and that's not dissimilar from what you know from my days at bizrate Shopzilla that there's a lot of lead generation that that comes from our shopping channel we.
Transacted or LED two transactions of over 500 million dollars last year in our shop Channel.

Jason:
[13:16] Wow that's that's awesome and when I think about that like traffic jam versus loyalty like you know most people in they say loyalty they think of this traditional.
Sir points for purchase program and in the hope is.
You know if I get a bunch of points with Best Buy that that's going to let you know Anchorage people to want to use those points at Best Buy so that you know Best Buy will keep keep that customer loyal and it.

[13:41] Like there's a lot of talk in the industry like these days there's a lot of fatigue with those kind of programs because.
Consumers have so many are members of so many of these different programs that that none of them necessarily Drive loyalty but in your case.
They're those customers are building value that they can use anywhere they want right so that it doesn't have that same fatigue Dynamic that.
A Retailer's branded Welty program might have.

Scot & Chuck:
[14:09] One of the highlights of our whole platform is we have a horizontal platform versus a vertical so not only can you shop.
Are any of the e-commerce sites out there but you can fill out surveys and watch videos and earn points from that.
And redeem those points for shopping at your favorite retailers too so I think you have to look at it like an ecosystem.
That everyone put something in a wreath,
Taylor gets listed here they wait to see which customers come points are earned those points are usually redeemed to go back to that same retail or sometimes I'll go to other retailers.
In the end everyone's happy cuz everyone's getting a good mix of incremental orders.

Jason:
[14:59] That that makes total sense and I I feel like even when we were looking at single retailer Affinity programs.

[15:06] Like one of the characteristics of the best ones is they always.

[15:10] Rewarded orange insanitized behaviors in addition to shopping so you might get you no points for buying but you might also get points for you know being a loyal.

[15:20] Customer and wearing their clothes out in public and sharing them on Instagram or introducing new customers to the brand or things like that ends in so it feels like Swagbucks has many of those same,
same characteristics and I'm assuming behind-the-scenes that that means like to other constituencies you have RR.

[15:39] Clients that want to do market research and are willing to pay.

[15:42] To get your your user base to answer those surveys and and clients that want to find eyeballs for their advertisements and are willing to pay to have have your your users watch those videos is that is that right I do swear to have.

[15:55] Three can sit you and seizes its customers the retailers the the the researchers in the advertisers.

Scot & Chuck:
[16:03] We have at least three we we.

[16:07] Transactive it on 25 million surveys last year and we had six billion video views so those areas are very large also but we also have,
just your run-of-the-mill everyday search powered by Yahoo on our site.
So when you do a search result every end sample you got a reward for that also we also have games on our site on channel in our play area.

[16:36] So yeah there are many ways to earn what I think separates us from other sites that might only work on shopping is where a fun place to go.
You you're going to be surprised with something new everyday.
And we take a lot of pride in that we want to be fun we want to be rewarding we wanted to be a place you want to go and you want to be rewarded for your time.
Your engagement is worth something and we want to make sure you get rewarded for it.

Jason:
[17:06] That that makes perfect sense it now I think I understand hopefully the listeners understand the ecosystem you know I'm always curious to ask all the entrepreneurs on the show is how do you get.
What is your customer acquisition strategy how do you get customers into that echo system for the first time.

Scot & Chuck:
[17:26] And one of the unique things we do is we've got a referral program or a member can introduce another member.
And we will give the introducer 10% of the points from their friend for life.

[17:43] So if I introduce you and you start playing and then shopping and filling out surveys and watching videos and you earn points.
The company is going to give me 10% on top of what you earned as a reward for life.
For that introduction I made so there's almost a buddy system built in,
where I'm going to keep track of you and let you know of new areas that I liked on the site and vice-versa you're going to close that loop with me and tell me tell me how much fun you had and how much you learned in the past month.

[18:17] So that's one way we bring people in another really Innovative way.

[18:22] That is fairly new is we launched a trivia app called swag IQ and this is.
This was created I'd say in March April and we get.
Tens of thousands of people coming on every day 8 p.m. eastern Time 5 p.m. Pacific and we have a 10 question game and what's unique about Swagbucks.
Is we have our own currency is called SB and one point equals one penny it's $0.01.
So we can give points out or sbe's out every time you got a question correct on our 10-question nightly trivia game.
You don't have to just be the grand prize winner to win $2,500 or whatever that days for word is you're getting rewards all along the way and that has a strong following that.
Introduces people to our currency who then come to the site to shop.
Fill out surveys and share their opinions watch videos and search through Yahoo so it's all related so yeah we've got interesting lead-gen.
Opportunities and an execution across our platform.
Brickell and this is interesting to on the last episode that Jason I had we are going to the Mary Meeker deck and she had a section about China and you're a big thing in China right now is this intersection of kind of shopping and entertainment it sounds like you guys are.

[19:58] We're kind of bringing some of that to the US any other interesting kind of,
bottles you seen at that intersection especially on the how do you how do you bring entertainment into the e-commerce and shopping piece.
You know you brought up that's by the other the other question ago and we did a whole swag IQ episode last week.
That had to do with that spy that Best Buy had an electronic circular.
On our site of different promotions going on in their in their store,
and we had an entire game to tie in Best Buy two to the survey rewarding our customers for,
for looking at the circular and getting familiar with the different specials going on in the store so there's many new innovative ways to cross-promote e-commerce,
to cross-promote customer acquisition and to be engaged in a fun way.
It's interesting at a theoretical level because you know we're as consumers were giving our quote-unquote R-value away for free till I use social media companies and you guys are kind of.
Actually paying for it which is you know which is interesting because you you're obviously seeing you know the the government come in and got,
a look at what's happening there and in a lot of consumers are upset they didn't realize what they're giving away and you know how much how much is kind of going along with that data where is you guys are making a much more clear kind of value proposition I think.

[21:36] Well we like to think so too but the real.
The real rubber meets the road moment is when we have a live screen in our lobby of our office here in El Segundo which is by.
LAX to the Los Angeles airport and our lives screen shows.

[21:56] Depiction of the United States and shows who's redeeming a card in which city at that moment for which retailer and how much money it is.
Do we have done something like this at Fandango or people are buying movie tickets but what this does is it shows the total number of cards card value it's been redeemed since Inception.
And when I came in this morning we were at 541 million dollars of cards that have been redeemed,
and just watching that grow everyday is a heck of a lot more fun than seeing the billboard in Times Square showing how many people have died of cancer or in the more current way. What the national debt is per person in the US,
this is fun people like earning rewards and the rewards just power the whole system of e-commerce,
cool it was switch gears a little bit when we talk to retailers a lot of them have kind of had their quote on quote mobile moment which means more than half the traffic's kind of coming from mobile and Buy Mobile I mean smartphones imagine with an interactive platform like yours you you kind of crossed over that,
how many books are in writing to you guys to the extent you can disclose things through mobile vs. desktop and any other interesting mobiletrans you guys are seen.

[23:15] You know we've got very different channels on our sites as some work better on mobile than a mother's friend since the video channel called watch.
Watching videos remotely like that or odor or in a mobile way is very good but a lot of people like that stop to so-so for surveys or answer channel does very well on mobile.

[23:43] People get to see me,
get a bigger picture online on the desktop so it's the same thing with e-commerce some things can be transacted quickly on mobile and others are better on desktop so I can't give you numbers but I can tell you that.
Many fat most consumers migrate back and forth and were there in all areas.

[24:07] The swag IQ game is is it mobile.
Is basically a mobile game and that allows me to play anywhere I couldn't play last night we had two games last night I played the first game and made it to the 8th question before I got tripped up.
I think it was a nice I got ripped out that was the furthest I'd ever gotten and we had a second Flash game 45 minutes later and I.
I want to make sure I didn't have a car accidents I had that running in the car on the way home but I did not play it to dangerous but I'm at least able to hear it and hear the question.

Jason:
[24:44] Yeah I almost want to suggest that you use the GPS to disable the the the trivia game win when the phone is moving it auto speeds.

Scot & Chuck:
[24:56] You just log off I do just log off so I can focus on the road in California that's an important thing.

Jason:
[25:03] Yeah for sure and are you finding like so I like a lot of.

[25:07] That the activities you have are sort of endemically mobilelite what is you mentioned are you finding that that's primarily the.
The platform that new customers are coming into on like the majority of the new customer acquisition on the mobile platform is that growing faster for you than the the desktop.

Scot & Chuck:
[25:28] Now that's a good question and you could steer what users you get if your sophisticated in your in your customer acquisition efforts you can buy for Kate,
your mobile customer acquisition efforts and give them a mobile experience and your desktop,
customer acquisition efforts and give them a desktop experience and the N acknowledge that there's going to be migration across the two,
but the primary way that someone comes in it's probably a good predictor and the economics as you know are different from Mobile in four.
stop so I can just tell you that we play in both and we mark it to both and we get organic from both.
And I think it's important to keep track of.

[26:16] And obviously the mobile metrics for this industry let alone my company have are getting better all the time the screen is definitely smaller.
So so it's it sometimes harder to get the message for a partner so that's part of the.
Constructive tension that is there between what the consumer wants and what the partner wants,
because they might want for Real Estate so all of that is a constructive tension and we make sure we have great products and both.

Jason:
[26:54] Yeah and that gives like a common challenge that the guests are seeing is you know.

[27:01] Increasing percentage of their other user bases are are becoming predominantly mobile.

[27:07] Which generally good thing you know people certainly happy happy to see that but.

[27:13] It it does feel like in most cases it's slightly harder to monetize that mobile traffic so for eCommerce sites like the conversion rate in the HOV from mobile devices tends to be lower than desktop and as you mentioned in that in the advertising platforms there's just less.

[27:28] Less pixels that can be ads and so you know it's time for us to monetize I think Mary Meeker in her deck even highlights that like.

[27:37] The the one kind of advertising that sort of wagging consumer.

[27:43] Eyeballs is mobile that there's sort of a gap between you know how many consumers are moving to Mobile and how many advertisers are moving a mobile site after I got the challenge we all have two faces.
More bar users becoming more mobile and it being slightly harder to monetize those mobile users.

Scot & Chuck:
[27:59] Yeah it might be harder to monetize but I'm just speaking as a general industry trend,
and but the retention or the time spent,
on mobile is probably more so if you go back to the metric from early days in the internet of pageviews so I know is somebody irrelevant now that would be Alien video but time spent.

[28:23] Could be more on mobile so if you're making less.
In your example of advertising per page view you're getting many more page views.

[28:34] On mobile because the customer likes the likes operating that way right it's their favorite way so.
So I think in total.

[28:46] The companies can make more money on mobile just for more usage even though they're making less per,
moment were / transactor / / screen.
Or Percy p.m. from something that is on a smaller pixelization.

Jason:
[29:08] Yeah I know that's a that's a great point because you know I think the worldwide Trend there's already more mobile more minutes being.
More digital minutes are on mobile devices than on desktop devices and of course that's only going to grow because you got that mobile screen with you.

[29:25] 24 hours a day and all those other screens are with you can serve we left so I that I got I think that's a great point I want to change.

[29:33] Slightly to the topic of personalization because it strikes me,
you guys get a very detailed view of your users over time so you see a lot of their shopping behavior and what their individual purchases are but you also see a lot of these other consumer Behavior you know when they're when they're using your games when they're watching your videos when they're taking your surveys all those sorts of things,
that seems like a super valuable source of consumer Insight do you use that too.
Change to the customer experience at all I might like will the the offers that I see when I come to your site be personalized based on my past Behavior or is that something you're thinking about.

Scot & Chuck:
[30:13] Certainly we know what people like and don't like,
and where they tend to spend more time and there are many ways where we use that information to give a better experience to the consumer but we've got a long way to go.
We've got a long way to go and most of our customers.
I like bouncing around and and engaging in different channels on our on our site so.
So that makes it in the increasing challenge because should I be showing you more sites to shop on that I think you would like or.
Have I noticed you fill out a survey 2 days a week and I want to show you we've got.
Some surveys I might be right up your alley based on the consumer products you've you've answered before so there's a real estate play.
As there always has been and how much should be personalized horses how much is standard or that day's daily promo.
That's an inherent tension that I think is healthy within an organization you might have some partner who needs.
Need something,
blast it out to as many people as possible in a day and then the question is do you show that to someone in it and have it override personalization and many times it does so,
I don't want you to think that the whole world is fully personalized yet there's a lot of data we could help.

[31:47] Give it a better experience but it hasn't taken fully over where where everything gets down to that level,
Brickell describes what you feel this ecosystem and it's kind of has elements of a Marketplace as well and we kind of started Market places with traditional Market,
places like the eBay marketplace now we have coyotes hybrids with Amazon which is retailer with a third-party Marketplace and then even you can Skype I think of uber and Airbnb is a Marketplace when I talk to people,
adult marketplaces one of the interesting challenges is it's almost like buying your building 2,
two businesses simultaneously and getting that right on the supply side of the demand side can be tricky is that been a challenge for you guys how do you guys think you think about yourself as a Marketplace.
Well certainly I've I've been in Marketplace environments before cuz bizrate Shopzilla was a Marketplace and.
And we have elements of that heater to where we do need to make sure demand and Supply can be evenly met as much as possible but.
I will tell you this I've enjoyed being in businesses that don't have warehouses.
I got nothing against warehouses I work with lots of companies that have them but the marketplace business,
helps me focus on what I think we're good with and what we're good with his matching up the right consumer with the right products to be shopping for or or seeing on our site.

[33:28] And therefore I don't have to worry as much about the distribution or the logistics of a warehouse nothing against that it's just,
to your point a Marketplace still is very different it's getting the right traffic to the right place to meet the right demand.

[33:47] What's what's the most surprising thing you guys have experienced as you maybe a product you would have never thought would be popular or any any interesting consumer insights you can share.

[34:00] Well there a lot of deals that come on that do really well we have charity deals at do well or you could sponsor a different.
Different things there we saw a lot of razors.
Write Dollar Shave has been a nice partner of hours and and we're happy to see that that's always a lively one I think the the one of the pleasant surprises has been.
The Innovation to keep coming one thing I've learned is you can't be static in any business for long.
You know we're in jog here businesses so they change so quickly so if someone on my team as a great idea.
Will often let them try it.

[34:49] So that's how we launched swag IQ 3 months ago someone wanted to do trivia game we have our own spin on it we have our hose to come in in the afternoon now we're getting in the theme.
Games we had a baseball game a couple nights ago for the first day of the NBA playoffs NBA Finals we had an NBA Finals trivia game which was pretty interesting and and.
We will just keep growing we will keep innovating we will keep coming up with new areas are consumers tell us what they want to see they posted on Facebook they tell us directly.

[35:28] The employees here,
tell me what they want we use an outside firm to to capture all of the employee ideas and we review the Mineral Company meetings each quarter and I'd say close to half of them we end up unimplemented.
So and if we don't get enough.
We wonder why everyone has been submitted one per quarter cuz there's always things that could be better and having that philosophy I think is very important and having the openness to just keep trying keep.
Keep tinkering keep launching new things while scaling and sticking to your mission and making sure you're true to it.

Jason:
[36:09] Very cool.

[36:11] You know Chuck one of the things we always want to make sure we take advantage of when we have someone that that has a deep digital experience like yourself is kind of get your view of where you think it's all going like,
do you do you have a clear idea what you think the future of e-commerce is or what what you know some of the big big trends.

[36:31] To think about now are for the next 3 to 5 years.

Scot & Chuck:
[36:35] I think it's hard I think it's hard to really 10 it because it changes so often like I never knew scooters were going to be so big and in the last month I've learned that.

[36:46] Bird the chest when just raise the rent,
had a billion dollar valuation its 13th month and and things like that that are just out on the sidewalks of Santa Monica had no idea that these businesses got so big,
so they're going to be a lot of new things that come up that none of us have ever thought of and I would say.

[37:13] I backed the question up a different way if you were 22 and getting out of college today I would recommend if you were my kid you make sure you get into something.
Along this digital Revolution this is a time where.
Brick-and-mortar has been laid but we have no idea how tall this building is going to be or how wide it's going to be or where it's going and you want to be there to be in this industry to live it breathe it.
And have a great journey cuz it is one fun way to go and it wasn't always this way in Prior Generations the grew up in.
Went to factories in and lived in the world wasn't changing as quickly as it is today.

Jason:
[38:00] Chuck that is terrific advice and that's going to be a great place to leave it for this week because once again we've used up all our a lot of time but if folks have questions for for chukar want to learn more about Swagbucks,
will will make sure we include that the company information in the show notes and will continue dialogue about the show on her Facebook page so you're welcome to go there if you have questions and as always if you enjoyed this episode we sure would appreciate that,
five star review on iTunes.

Scot & Chuck:
[38:29] Chuck thanks for joining us if people are are you a Twitter or LinkedIn her or is there a certain way if you have business. You put them out there I think it's probably the best way to find me.
Do you want to do that Chuck Davis protege.
P r o d e g really really appreciate you taking time out of your busy day to share your thoughts with us and hope you have a great day.

[38:57] Thank you guys thank Scott and Jason.

Jason:
[38:59] Until next time happy commercing.

Jun 6, 2018

Episode 134 is a recap of Mary Meekers "Internet Trends 2018" report, and the weeks news.

Industry News