September 2nd, 2024: BigCommerce looks like it’s not selling, Shopify hires a new CTO, why technology is not a business differentiator for brands, and are layoffs the order of the day in eCommerce?
It’s September 2, 2024 and this is the Watson Weekly - your essential eCommerce Digest! Happy Labor Day everyone!
Today on our show:
BigCommerce Looks Like It’s Not Selling
Shopify Hires a New Chief Technology Officer
Why Technology Is Not a Business Differentiator For Brands
Are Layoffs The Order of the Day in ECommerce?
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
==
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
==
[PAUSE]
BUT FIRST in our shopping cart full of news….
BigCommerce Is Not Selling, Instead It’s Revitalizing
A new research note from Ken Wong, CFA at Oppenheimer sheds some light on what's happening at BigCommerce at the moment from an interview with their CFO. Here are a few facts uncovered in the research note:
* Most significantly, the company has told Wall Street it is no longer for sale.
* There are still fewer replatforms right now than you might expect, consistent with RMW Commerce research, due to capital constraints and risk tolerance.
* New leadership has increased focused up-market, which means a focus on size of enterprise contracts, not the number.
* Transaction volume is steady reflecting a consumer that is still buying, even if there are category shifts.
* Payment flexibility needed in the large Enterprise market across multiple geographies.
* B2B expected to be a larger grower than the rest of the business.
A few thoughts on the situation:
* While it has been widely reported for years, even by me, that BigCommerce seems a better fit for private equity, now is likely not the time. Private equity requires more profitability and more growth than BigCommerce can currently deliver. A private equity acquisition now would be more of a mercy killing leading to a much smaller BigCommerce, and may not be in anyone's best interests.
* In truth, this is probably not the best market to sell in at any rate -- private equity activity is down, and why do you hire a big GTM-oriented exec if 10 minutes later you sell the business?
You would have hired a restructuring or sale expert instead. Or Brent would have done this on his own. In truth, the market tied their hands in any event, and you are where you are. In any scenario, you need to grow. The company is much better off with the new President than without one.
* There is healthy interest in replatforms in my own customer base, but the road to a business case is slow and arduous. What do do first, why, when, and for what results being the biggest questions that CFOs are expecting answers to.
* There are still only a few scaled SaaS platforms in eCommerce in the mid-market, BigCommerce being one of them. This alone should give them opportunities that others have. Whether you consider BigCommerce or Shopify (the two most popular alternatives), if you are coming from Salesforce your total cost of ownership is going down. And I have seen customers use this as a replatform motivator.
* Management is doing some restructuring and goal updates to reset GTM.
I expect going forward that BigCommerce to become more and more a B2B company, with a tightly-defined B2C ICP focused around payments and other flexibility on a SaaS platform (though Shopify keeps making this more difficult). Over time, a company tends to look more like its largest growth segment - and for BigCommerce that is B2B by a wide margin.
>> closer
[References:]
Our Second Story
Shopify Hires a New Chief Technology Officer
I believe in the last few years Shopify has reached an inflection point, but overall in a good way. Coming out of the pandemic, Shopify tried to figure out a new way to monetize the company -- logistics.
While you have to take big swings, it ended up badly. Wrong people on it, wrong vision, and ultimately while it was a big (big capex) vision -- at the same time it was a small vision. Small margins I mean. A bad combination for a platform.
With the hiring of Mikhail Paraikh who ran a large advertising group at Microsoft, a scaled ML expert, and also ran one of the few scaled search engines in the world outside of America (Yandex).
In technology, these kinds of people (I have spoken with just a few in my 25 year history -- that's how hard it is to find these people) are so rare and so we are only left to speculate what the vision is. My guess concerns these three huge areas.
#1 - Shop App need to take a huge step forward out of the shadows. A scaled marketplace is the one thing that Shopify is still lacking versus its Silicon Valley brethren like Meta and Google and Amazon. Rest assured Shopify will not be in that conversation until this and the next point is solved.
#2 - Advertising. Mikhail brings a ton of ad experience. Where has the ad business gone in the last 5 years? From crafters (manually setting up campaigns) to algorithms (PMax, Advantage+).
The missing gap is not on the platform side, it's on the brand side. No one knows what they are doing, and they can't produce the content or analyze the results and take the next action. The Shopify Advertising CoPilot is here for you.
#3 - Content. With the rise of AI, you would not build a scaled eCommerce platform in 2024 the same way you would have 10 years ago. The challenge is to take a small number of assets and products and multiply them given all the channels and ads platforms out there. Generative AI to the rescue.
Shopify has proved (sadly in some cases) to the agency world that you don't need big agencies to design/build/maintain a website.
I believe the same type of analysis, at much higher margins than their current business, can be applied to both content and advertising.
With the new CTO, Tobi has shown progression. The progression to not hire someone to "take over Engineering" (like the last ill-fated CTO). Instead, filling world-class talent gaps in the team, and the ability to run it at a higher level long-term than Tobi himself.
The ability to hire at a higher level than yourself is a rare skill in business for a manager, and Shopify has proved it's finally going there. The only question now is, when will the resulting AI future materialize?
We are only left to speculate. Other eCom platforms are trying to deal with Shopify stealing all their oxygen. Shopify is not even looking in their direction as far as I can tell.
They are only looking at Meta, Google, TikTok as their future.
[References:]
https://www.linkedin.com/feed/update/urn:li:activity:7234917813763682304/
Our Third Story
Why Technology Is Not a Differentiator for Brands
Even in the post-zero interest rate era, technology innovation is everywhere -- except if you are someone who has committed to build their own stuff. Then all you see are limitations.
* I need a custom user experience.
* I need more attributes.
* I need a custom page with the menu on the right side.
* I need my SEO or tagging a different way.
* I need my page slightly faster.
First of all, do you really?
Second -- the problem isn't that you have unique requirements. The problem is those unique requirements then drive bad decisions you must live with for a decade.
Most people compare the vision of what they could build custom if somehow a miracle happened to what the SaaS vendor has on the shelf now. With no consideration for:
* how much funding all the vendors have
* how many developers all the vendors have compared to you.
* all the conversion rate and QA testing they have done
* the size of their roadmap
* their pace of innovation
But that's not even the most important thing. It's not about the platform anymore folks. It's about the ecosystem. If a platform has hundreds or thousands of apps connected for you, that is a huge enabler for your business that I promise you are underestimating.
Your team cannot maintain these connections. In SaaS software, these integrations are the hardest part. As soon as you have to build ANY INTERNAL ROADMAP for integrating with third-parties post-website launch you are dead.
Remember all those questions I asked about? All these connection points to the software platform you dismissed have their own developers, their own funding, and own roadmap. All of which you dismissed.
You are already falling behind. Do the math, your underestimation of the importance of ecosystem is likely exponentially wrong, not just wrong by a scaling factor. Becasue a strong ecosystem attracts new partners faster.
If you have over 100k SKUs over over $1B in sales, sure let's have a discussion about it. If you have lower than 25% gross margins, fine. You can't afford to operationalize expenses.
But even in those cases, there is still off-the-shelf software for you -- it just probably isn't the most popular brand (Coke/Pepsi) that everyone else is using.
If you are on one of these systems, your platform is burning. Buyers have choices and you are not improving as quickly as your peers. Simplify or perish
[References:]
[PAUSE]
And Our Last Story
Are Layoffs the Order of the Day in eCommerce
This last 2 weeks seem to be the time. CEOs seem to have woken up and chose violence as the answer.
What is it about Labor Day that kicks things into high gear?
The first half of the year is over. Yep we are still screwed.
Time to make changes.
Time to make the donuts.
Those who resisted our call for the Age of Efficiency Nick Kaplan like Kayzer Soze have now shown these men of will what will really is.
Enter layoffs and restructuring. Companies like Shopify which resisted and persisted against hiring ahead of growth have been rewarded. The age of hiring to grow has ended. The age of growth against flat headcount is here.
With dwindling cash, high valuations and dwindling pipeline some companies have entered a new era —
The era of the Asymmetric Bet.
More of the same isn’t enough. Test and learn isn’t enough.
Which bet to make. How to know.
How to divide your portfolio of bets.
If these aren’t natural skills they must be learned quickly.
The time for simple modernization and parity to catchup from old mistakes is past.
CEOs have chosen violence against the business model. The declining market share. The unaligned executives. Boat anchors must be cut loose.
The layoffs accelerated again and more talent on the street.
For the employee the only bet to make is on your self.
For the CEO the bet you make next could be your most important. Or the next boat anchor you cut loose could be the cap table.
[References:]
https://www.linkedin.com/posts/ecommercestrategyconsulting_ceos-woke-up-and-chose-violence-this-last-activity-7231952382740295680-mZNp?utm_source=share&utm_medium=member_desktop
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Amazon To Acquire Perceive For $80M
Amazon will acquire chip maker and AI model compression company Perceive for $80M in cash from Xperi via its Devices & Services division. Perceive enables Amazon to provide solutions for large artificial intelligence models for edge devices.
Second
Trove Acquires Competing Resale Platform Recurate
Trove has acquired competitor Recurate for an undisclosed amount and will integrate Recurate's Shopify and peer-to-peer solutions into its platform. The company also gain 29 new brand partners. Is this consolidation in branded resale or a case of a fire sale?
Link: https://www.retaildive.com/news/trove-resale-platform-acquires-recurate/724324/
Third
Criteo Is Holding M&A Discussions With Skai
Criteo has been in talks with Skai, formerly Kenshoo, about a potential acquisition worth several hundred million dollars. However, as advanced as the talks have been, neither party has determined the outcome. Criteo has a history of using acquisitions to grow its marketshare and wants to position itself as a retail media specialist.
Fourth
Mars To Acquire Snack Maker Kellanova For $36B
Mars has agreed to acquire Kellanova for $83.50 per share in cash, for a total consideration of $35.9B, The total consideration represents an acquisition multiple of 16.4x LTM adjusted EBITDA as of June 29, 2024. Did anyone see this mega deal coming?
AND FINALLY …
Epicor Acquires KYKLO for Supply Chain PIM and Lead Generation
Epicor announced it had acquired KYKLO, a Product Information Management (PIM) and content-driven lead generation solution, for an undisclosed amount. This acquisition enables Epicor to offer better digital experiences to its customers.
Link: https://www.martechcube.com/epicor-acquires-kyklo-for-supply-chain-pim-and-lead-generation/
Today’s final word for the week of September 2, 2024 is <Austin> :
It was such a pleasure giving the keynote at BigCommerce’s BigSummit event in Austin, Texas this year. The event was at Austin City Limits and I stood on the same stage as other greats like Dolly Parton, Ray Charles and Kendrick Lamar. At least I can inherit some of their mojo by standing on the same floor they did and being in the same green room.
If you’re following the news at Bigcommerce, Travis Hess is performing his reset of the goto-market organization. We know the old message of “Open SaaS” is in the garbage pail. What will the new message be going forward, and how will the company focus to stand out? That is the key question. In a world of Coke and Pepsi, can BigCommerce force brands to take the Pepsi challenge?
[PAUSE]
Did you know that RMW Commerce has a brand new podcast? Check out The Watson Weekend for an unfiltered and lively eCommerce chat each week with me, Rick Watson, my co-host Jess Lesesky, and an array of interesting guests and topics. All focused on eCommerce. You can find the Watson Weekend by searching for it on iTunes, Spotify, or Youtube.
We restart for the second half of the year on Friday, September 6th!
That’s all for this week! Till next time Watsonians.....
[PAUSE]
Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is CitizenRacecar. The show is produced by Jose Baez; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
