Podcast with Kiri Masters

"Kiri Masters: ... you have such a rich perspective on where the bodies are buried in e-commerce and looking out into the future. You can only really do that with a good understanding of the past." (about me)

Recently I was interviewed by the amazing Kiri Masters for her ECommerce Braintrust podcast. I think those of us who have been in ecommerce a long time often have a different perspective. Sometimes it's a negative as I can miss a lot of things.

More often, though, I think it's a positive. You can have history with the actual players making these decisions. You understand why a company got into the business, the decisions they've made, and how they fit together. You start to build a picture of how a company makes decisions over time, and what some of their structural issues might be.

This can help you as a business owner because it helps you think about what's next in a clear way.

Transcript:

Speaker 1 (00:02):

This is the e-commerce Braintrust, a podcast about building momentum online for established consumer brands. Join our hosts and their expert guests for high level conversations about e-commerce strategies, trends, and innovations. Access our Braintrust and boost your brand's e-commerce potential.

Kiri Masters (00:24):

Hello, and welcome back to the e-commerce Braintrust podcast. I'm your host Kiri Masters and today I'm joined by Rick Watson from RMW Commerce Consulting. Welcome to the show, Rick.

Rick Watson (00:37):

Thanks so much for having me, Kiri.

Kiri Masters (00:40):

RMW Commerce Consulting is a boutique strategic e-commerce consultancy based in New York City. Rick provides advice and guidance to firms across the e-commerce industry, primarily in the areas of direct-to-consumer operation build out for investors in the C Suite, B2B marketing for software and service firms and overall strategy regarding e-commerce marketplaces. You're one of my favorite people to follow on LinkedIn.

Rick Watson (01:09):

I'm flattered by that. Thank you.

Kiri Masters (01:12):

Truly. I'd like to get into, in a minute, some of the controversial things that you might have brought up recently, but before we get into that, tell us a little bit about your career background and how you came to be a e-commerce marketplace maven.

Rick Watson (01:33):

I started early is the quick answer. I've been involved in the e-commerce related companies for approximately 20 years, getting my start one of the first few employees at a company called Channel Advisor, which was one of the pioneers in the marketplace industry. Going back to '99 is actually when I started. So being a technologist, I actually helped develop the first versions of Channel Advisor software and worked with a lot of their initial customers for the first 10 years of their existence and so really seeing that company work with eBay marketplace before they had an API, for instance, work with Amazon and I'm even embarrassed to say it, Yahoo auctions-

Kiri Masters (02:24):

Oh gosh.

Rick Watson (02:24):

... before Amazon had a marketplace.

Kiri Masters (02:29):

Wow.

Rick Watson (02:31):

So seeing that going from Channel Advisor, being five or 10 employees to 2010, when I left there, I was running the product team. You really get to see the evolution of the industry over time and working with really industry luminaries like Scott Wingo and others there. I was just blessed to be in a good place at a good time and made so many friends across the industry. Building products for marketplace sellers was my first job in e-commerce, so I got to be friends with so many different sellers. So that was kind of the start. From there. I moved from North Carolina to New York City and I was recruited to basically build out barnesandnoble.com's third-party marketplace. So I basically hired a team there and we had, at one point, over 100-

Kiri Masters (03:28):

And which year was that?

Rick Watson (03:29):

This was 2011. This was back when the Nook and the Kindle we're still fighting on different things.

Kiri Masters (03:38):

Interesting.

Rick Watson (03:40):

Barnes & Noble was already very far behind, but they saw selection as something that they could push on, in particularly, categories that were not books because they know they needed to get more into e-commerce. They know that they needed to expand their assortment, but their warehouse could only ship things that were shaped the size of a book. So basically, one of my jobs was to figure out what is the strategy for this? What categories are we going to go after? Why? And then build the requirements for how the marketplace would function. How would it integrate with the website? How will it connect to their internal systems?

Rick Watson (04:20):

This is before there's no such thing as off-the-shelf marketplace platforms. So everything from seller tools to customer service integration, to fraud detection, to onboarding, to paying sellers, we had to come up with all of this and how we interact with the marketing team, which products to promote, kind of soup to nuts. So it was a very interesting experience being inside of retailer for someone who's with a software company and then kind of moved on to several other companies-

Kiri Masters (04:56):

I was going to say there was no Shopify or Miracle back then. Everything would have needed to be custom.

Rick Watson (05:02):

No, it was a custom marketplace built on top of a custom platform, which was tied into SAP ERP systems. So that gives you some idea of the complexity of the project. So from there, really went through a couple of other mostly startup companies, ran an e-commerce software company, which was focused on drop ship and marketplace sellers. So we powered the e-commerce marketplace. This was a company called Merchant Tree and I ended up being CEO of the company there, although I didn't found it and we powered the marketplaces for companies at the time like Bluefly, Labradoot, Modell's Sporting Goods, PacSun, ended up selling that company about three years later.

Rick Watson (05:53):

So that was a super interesting experience kind of back in the software space. The last couple of years in my career before I founded my consulting firm at the beginning of last year, I was at that the Pitney Bowes Global e-commerce team running the product management group for their cross border division, which they're kind of two big elements of that division, which ships millions of products a year. One is the Pitney Bowes powers the eBay global shipping program, which is quite popular in the U.S. and the UK. Then second, there was a company in New York City that went public in 2015, I want to say, called Borderfree, which was the old 51.com, which worked with over 300, mostly U.S. merchants shipping to all over the world and to 220 markets.

Rick Watson (06:42):

So mostly supply chain, payment services, conversion enhancement services for cross border commerce. So that's how I came to sort of all my perspective on e-commerce and kind of on the back of that, I thought at the beginning of last year, it's like, I've always wanted to start my own thing and it just felt like the right time where e-commerce is going to continue to grow because I'd been in the industry so long, I'm connected to a lot of different people that are interesting that I would love to work with. So that's kind of what I've been up to.

Kiri Masters (07:19):

Nice. It's really clear from your posts on LinkedIn and some of the discussions that you get into with other folks in the industry that you have such a rich perspective on where the bodies are buried in e-commerce and looking out into the future. You can only really do that with a good understanding of the past. So on that note, don't know if all of your opinions are popular, it seems. So what have been some of your most contentious views recently?

Rick Watson (07:49):

It's a good question. I would say in the last five months maybe, there was a very popular sentiment that FedEx was going to get acquired and they needed to find a partner and then who was going to buy them? For everyone, it seemed like the most logical fit was either Amazon or Walmart and I just didn't see it. So originally, I was just sort of commenting. Scott Galloway, who's obviously very famous in the space and has done a lot in e-commerce, he has published a lot about basically FedEx needing to find someone to tie up with, which I don't necessarily think is wrong, but I think the challenge with unlikely people who would acquire Amazon or FedEx, rather, would be, you kind of naturally go to either Amazon or Walmart.

Rick Watson (08:50):

In which case, the problem with that is that first of all, why does Amazon needs such a huge air force for ... which is basically what FedEx is at the core, at least 80 plus percent of the assets, I would imagine, for what is mostly 70, 80%, it's still a North American business. Despite Amazon having global reach, what is Amazon's greatest need? I think they're very clearly investing in North America more than anything else. It kind of felt like they could do that on their own, so why would they need a 40-year-old company to help Amazon? So it just didn't make any sense. I took sort of a little bit contrary opinion that ... and Walmart was another one.

Rick Watson (09:40):

To catch up with Amazon, Walmart needs to acquire FedEx and I just never saw it. Walmart needs last mile delivery and they've kind of missed the boat when Target was investing in that the last couple of years. The last thing that, for FedEx, the whole concept of ground was an acquisition. It's kind of an old acquisition now going back 20 plus years, but it was still kind of bolted on to their network and they've improved it and things. But when you think of the best last mile delivery network in the world, FedEx isn't necessarily what you would think of. So saying, "Okay, Amazon's needs 20% of this thing, but it's going to keep the other 80 ... " It just never added up, in my popular opinion.

Kiri Masters (10:29):

That's a good one. I appreciate that sentiment. It will be interesting. The whole logistics space is just one to watch because it's going to be such a competitive advantage for these players.

Kiri Masters (10:41):

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Kiri Masters (11:46):

Let's move on to the meat and potatoes of what I wanted this conversation to be about, which is not at marketplaces outside of Amazon and what your outlook is for the main contenders. So we have the 800-pound gorilla in the room is Amazon. They're able to throw their weight around. A lot of brands have a fractious relationship with them because they can kind of do what they want. Each marketplace that's really interesting to me seems to have a different take on doing things. So Walmart is, they're much more selective about who they let in, but there's still that sort of mass market feel to it.

Kiri Masters (12:31):

Then there are some brands that I speak with in the more sort of prestige space, who Walmart's just not going to be a fit for them now, or probably for a long time in the future. So there's different types and flavors of marketplaces from a brand perspective and also from a volume perspective, there's a tipping point, I think, where it just doesn't make sense to start investing in other marketplaces until you've got a certain volume taking over on Amazon. But for the brands who are looking to expand, I'd love to get your thoughts on which marketplaces you think are ones to watch from a growth or differentiation standpoint.

Rick Watson (13:20):

It's interesting. I think, by far, in the mass market, the answer is probably Target, actually. I think Walmart has always just been slower with their marketplace than everyone else. Amazon, everyone's already watching anyway. You don't see a lot of other mass market ... eBay is kind of stuck in neutral for the past several years, unfortunately. So for brands, it's good for overstock and that kinds of things in certain categories, but they've had, I would say, worse than the Walmart problem of attracting brands, right, and they've tried many times.

Kiri Masters (14:15):

You need to be invited to Target [inaudible 00:14:17] or for marketplace pulse, I think it was. There's only 60 brands selling on the Target Plus marketplace. So it seems like a very, very, very, very select few invited coming to Target. So what if you're not on there a Christmas card list?

Rick Watson (14:35):

Yeah. To me, it's one to watch. It may not necessarily be one that everyone can get on right now, but I think they're the most intriguing and made some of the smartest investments in retail and e-commerce in the last three to five years. They've definitely gone very slow with their marketplace, but I think it's purposeful because they are trying to avoid sort of the whole fraud and Chinese sellers and too much selection problem on Amazon that causes the pollution of the catalog, the bad search results, the dozens of retailers attacking brands listings that ... all the problems on Amazon that brands would prefer not to have to worry about.

Kiri Masters (15:35):

Do you think that the overabundance of selection, to put it nicely, is really going to be a value point for Amazon or is this just going to continue working more or less in their favor with some bad PR aside? What's your perspective there?

Rick Watson (15:54):

Yeah, it's a good question. It's hard to imagine a lot changing because Amazon is at the point in its life cycle where everything that they do, even that's positive, it's construed as a negative. They're kind of beyond this corporate darling stage in growth and innovation and everyone loves what Amazon is doing. We're well beyond that now. So things like Amazon transparency, Amazon trying to track the supply chain so it can verify the integrity of the things from the manufacturer to the consumer. Who wants to give Amazon more data at this point? So it's almost like, "Let me help Amazon bug your warehouse," is how that's read in the press.

Kiri Masters (16:51):

Right.

Rick Watson (16:51):

So it's very hard for me-

Kiri Masters (16:55):

Why do we have to pay for this problem that Amazon sort of created [crosstalk 00:17:00]

Rick Watson (17:05):

Exactly. Exactly. One of the unfortunate things that I find in the past couple of years is Amazon advertising has got ahead of the consumer search experience, I think. There have been several times where you can look at an Amazon search result and 80% of the page was paid for and that just didn't used to happen 10 years ago at all. You could really count on the fact like when people were used to handicap marketplaces, it was always eBay's search engine was terrible and Amazon's search engine was great. That was kind of the distinction. One of the reasons Amazon's search was so great was that first of all, they tried to sort of build an independent search engine, so I think that sort of helped them from a talent point of view.

Rick Watson (17:57):

Then second, they had the catalog, right? eBay didn't have a catalog. They didn't really know precisely what was on their site, whereas Amazon, they didn't work any other way ever. So they always had a catalog. They always made it kind of hard to set up products because of all the information they asked for, but you also kind of knew why they were asking for all this information, to make the consumer experience better. I think we're, again, we're kind of well past those days where everyone only thinks Amazon is only caring about just the buyer. The fact that anyone can bid on anything and the results seem to get sort of very polluted and people are getting a lot more cynical about it. Put it that way.

Kiri Masters (18:47):

I've heard you also talk about some of these international marketplaces outside of the U.S. and one that sounds really intriguing to me that I don't know a ton about is Zalando. This was one where there was quite a big nicely done PR thing with Nike about Nike partnering with Zalando, which was a sign to Amazon of, "Hey, look, what you could have had if you've just treated me a little bit better, we could have been best buddies here." Tell us a little bit about Zalando, what their differentiators are.

Rick Watson (19:28):

It's interesting. So they are definitely focused in fashion and Zalando, it's not an old marketplace. It's only come up in the last several years relative to their history. So they're a traditional retailer buy-and-hold inventory company across ... started in Germany and across Europe now and they've done a couple of interesting things. One is, so they call it their partner program. Marketplace doesn't always have a good name everywhere, so this is their partner program. They have a traditional marketplace on one hand that has been consistently growing and at a pretty good clip from what I can tell, 20 to 30% a year. Again, they're very focused on just fashion, which is kind of a challenge in our times at the moment, but I think the focus is helpful.

Rick Watson (20:24):

I thought one of the more interesting things they've done in the past year is start kind of a retail partner program where they would ingest the store inventory from retailers across Europe and drive actually foot traffic into the stores for those retailers and take a commission on those sales, allowing those retailers to ship from their stores to Zalando's marketplace customers. So it's sort of a traffic purchase and kind of fulfillment play from what I've read about the offering.

Kiri Masters (21:01):

How does that work on a practical level to drive traffic into stores?

Rick Watson (21:05):

Essentially, in addition to allowing you to purchase online and have it shipped to you from that retailer, they will also just tell you where the inventory is. So practically, that's kind of what it looks like. So it's something you could never imagine Amazon doing, for instance, partnering with other retailers and they're doing it because if you listen to why they're doing what they're doing, it's mostly because they have the traffic that is being unfulfilled. So one of the key things that any e-commerce manager always watches, if you're in merchandising, is the number of times the buyer types something into your search box and you return zero results.

Rick Watson (21:48):

So Zalando actually talked about this in some of their calls and that they have quite a number of zero results. So they have this, when you call it unfulfilled buyer query inventory, just looking for another part of basically someone to fulfill that demand. As you know, that's what a marketplace is perfect for, right? You can expand assortment very quickly. So I think they're testing basically new ideas to fulfill that demand in different situations.

Kiri Masters (22:27):

Wow, that really is sounding pretty futuristic. This is not a marketplace, as you mentioned, but Shopify is making all kinds of interesting moves and again, not quite positioning itself as a marketplace, but certainly as a viable alternative to marketplaces like Amazon and the positioning being you're more in control of your destiny. But the big thing that's still lacking there is the traffic, that internal traffic that the marketplaces get. So without the risk of dating ourselves with this conversation, which we're having at the end of May, who knows what's going to happen within a week from now, but where do you see this heading? Do you see that Shopify will ultimately bump up against other marketplaces as a viable alternative or is it going to be sort of in its own category?

Rick Watson (23:27):

Yeah, it's a good question and it's something I've thought about a lot. I've written about a lot. On the one hand, you have sellers that are using Shopify. They're generally multichannel merchants, right? They own multichannel brands and they want to be other places online, but they also want to have their home base for their e-commerce business. So I would say you have one group of merchants that would say, "Well, if Shopify had a marketplace," let's imagine it, "and they charged me 10% for traffic that I didn't have to drive myself, then why wouldn't I want those extra orders?" So it's sort of like one side of the coin. The downside of that is now at some point like, "Well, how did Shopify drive that traffic?" "Well, they're maybe bidding up my keywords that I am also bidding on."

Rick Watson (24:31):

So from an advertising point of view, there's a little bit conflict of interest there, but I even think that's kind of a minor point relative to a few other points I've heard is as soon as you have a consumer shopping destination with a search engine, now you're pitting Shopify's merchants against each other, which is not something really Shopify is doing right now. They're basically just providing the picks and shovels and tools to allow merchants to succeed. As soon as you get into the case where, "Okay, now Shopify, isn't just about that. It's about the buyer."

Rick Watson (25:12):

It's a very different business. It's a very different company and there's just a lot more conflicts of interest versus which merchants they ... they start to have Amazon style problems with who do they surface? How do you show up? All these problems. Do we do show like, "I'm paying for Shopify and now Shopify's spending money I'm sending them. They're building a marketplace to showcase my competitors. I didn't ask them to do that."

Kiri Masters (25:40):

Right.

Rick Watson (25:41):

So some sellers are very ambivalent about the fact that Shopify might move in this direction on the back of money that they had been taking from brands to power their own storefront. You know what I mean? It's like something doesn't sit right with people about that.

Kiri Masters (26:07):

That's a really interesting way to look at it. I think the simplistic view is that, "Hey, if someone's going to step up and compete with Amazon, that's something that we all want. We all want a little more competition, a little less bullying and that would be great. Let's see who's big enough and heavy enough to step up to the plate." But like you said, there's some unintended consequences in there of that player being Shopify.

Rick Watson (26:33):

Yeah. No, for sure. It's definitely interesting waters for them.

Kiri Masters (26:38):

So we've only got a minute left. What other things are you following along right now that might be interesting to listeners?

Rick Watson (26:49):

I think Shopify is one of the more interesting companies right now. I think on this marketplace topic, their shop app, that's sort of been their rebranding of the arrive buyer tool, which was essentially mostly a tracking helper for buyers, which turns out to be kind of a little bit of a Trojan horse into the kind of discovery from brands you've already bought from. There have been some interesting questions raised about, "Is this the Amazon competitor?" If you listen to their earnings call, they're pretty firm at the moment that they're not going in this direction, but not a lot of people are believing them, I think.

Rick Watson (27:39):

The only way they have to avoid that is they have to not add a search to it and only let you, if you view it as kind of a loyalty program for Shopify brands you've purchased from that's a path that does not result in a marketplace. But almost any other path will result in something like a marketplace if they add any kind of brand discovery or product discovery, right? So that's sort of an interesting thing to follow is what they do with that shop app. The guy who's running that now was the former CEO of a company called Tictail, which was sort of a micro-brand e-commerce site that Shopify purchased several years back, which did aggregate products under one roof. So it's interesting to see if he'll do something different or do the same thing, so ...

Kiri Masters (28:34):

Very interesting. So you've got these sort of markers that you're looking for to confirm if it's going to take over to an official marketplace.

Rick Watson (28:42):

Exactly.

Kiri Masters (28:44):

Nice. Well, thank you again for coming on the show, Rick. What's the best place for people to get in touch with you if they want to engage you?

Rick Watson (28:53):

If someone wants to find me, I have a website, rickwatson.io, or you can find me on LinkedIn if you type in Rick Watson e-commerce, you're probably pretty sure to find me. So those are the best place.

Kiri Masters (29:09):

Excellent. Well, I'll see you around LinkedIn causing a stir, multiple days it seems, and really appreciate what you're putting out. So thanks again for coming on the show.

Rick Watson (29:21):

Awesome. Thanks so much and appreciate your content as well.