Magento CEO - ‘Amazon changed the game, but retailers should be optimistic’

Profile picture for user ddpreez By Derek du Preez June 27, 2017
Summary:
CEO of eCommerce platform Magento, Mark Lavelle, explains how because of readily available compute power, retailers should be competing on experience.

Magento CEO, Mark Lavelle
Magento CEO, Mark Lavelle

Magento may not have the same brand presence as some of the other software providers selling eCommerce platforms, but it certainly has a lot of skin in the game. What started out as an open source project back in 2007, when eCommerce wasn’t nearly as advanced as it is now, has turned into a global operation (commercialised by Magento), which was acquired by eBay in 2011 and then spun out into its own company in 2015.

With its recently found independence, CEO Mark Lavelle wants to raise the profile of the platform, which already has a very active install base and developer community. Magento’s eCommerce portfolio already powers 260,000 websites around the world, has an ecosystem of 300,000 developers and the number of Magento enterprise buyers currently stands at 3,900.

I got the chance to sit down with Lavelle at Magento’s customer event in London this week, where we had an interesting discussion about the changing nature of retail, mostly driven by the risks and opportunities that Amazon as a leader presents.

Contrary to popular opinion, Lavelle believes that there is still plenty of room for online sellers to complete with the Internet giant - as long as they are competing on experience, making use of cloud computing, and that they own their own technology.

Providing some context for how Magento got to where it is now, Lavelle explained:

Magento started off as a purely digital, commerce open source project back in 2007. And it just took virally because if you think back then, there wasn’t a whole lot of ways to build a website. You needed to build it up from scratch, so this was the first productisation of very powerful tools. It was acquired by eBay around 2011. And at that point it was the fastest growing, largest e-commerce platform in the world. It had developed this really interesting developer ecosystem and it had a great multi-site capability, it was very flexible, it was localised in every country around the world.

Under eBay it got a tremendous amount of second-phase R&D. So we redeveloped the core platform into a digital commerce platform, with full order management capabilities, payment capabilities, more sophisticated enterprise tools. And then in 2015, with the separation of PayPal and eBay - I was an executive at eBay and was responsible for spinning off various businesses that weren’t going to go with those two - and I got the chance to spin Magento out as a standalone company.

We have a very complete end-to-end commerce platform that connects to multi-channel paths to the customer. It’s not just your website anymore, it is your store, it is social media platforms, it’s marketplaces like Alibaba and Amazon. And how to fulfil, the very important experience of getting the product or service to the customer, we have also thought through.

Magento offers the basic platform for free for download, given it is open source, but also offers an enterprise version with support, which is its commercial arm. Equally, Magento operates a marketplace with a number of extensions for the core platform. Lavelle said that often companies will start with the free download, but then upgrade to the enterprise version.

Strategy

Given Lavelle wants to raise the profile of Magento in the marketplace, I was keen to find out from him how he sees its eCommerce platform as superior to the likes provided by NetSuite, Infor and SAP. He said:

Our big point of differentiation is that our clients have access to the source code. They pay us a subscription license, but they can modify and extend that core. They value that flexibility. They can put it in any environment they want. The most popular place to put it is in Magento cloud. The other thing is the ecosystem, those hundreds of thousands of people, and the global nature of the platform, is what makes it so popular.

Lavelle admitted, however, that some companies are still struggling to figure out this transition to digital - often which has very little to do with technology, he said. However, the points that important, according to Magento, are to recognise the changing nature of consumer expectations, to own the technology, and to get the buy-in from the board. Lavelle said:

You make the case first and foremost based on your brand having resonance with the digital customer. They are on mobile devices and they want 24/7 ordering capability, they want to control here the product comes from and where it comes to, and they don’t want to pick up the phone or fill out forms. You have to have that belief.

The other thing is you adopt technology differently. If you believe that the experience of your brand is digital, then you don’t outsource that to a one size fits all solution. You own it. The incredible power of cloud computing has really delivered back to these enterprises the ability to use their budgets for experiences. The SaaS models used to lock the application in with the compute, now buying in the compute is like buying air conditioning and you can spend your money on creating a really unique experience with your brand.

Technology has really not been the problem for a firm that is trying to make a transition to digital. It is usually other things. it is about having support from the top, are you doing this in a silo, is your business strategy the digital strategy, or is your digital strategy off to the side? So the biggest thing they need from us is helping them make the case that these things are doable with Magento. A lot of the firms and the mid-enterprise market have been burned by first generation platforms that didn’t evolve with them, so there’s a little bit of that.

The Amazon dilemma

It’s no industry secret that Amazon has a lot of retailers running scared. The scale of its operations, combined with its automation of processes, its digital experience, and its cloud platform, mean that those with a heavy physical footprint of stores are struggling to keep up. That’s before you even consider the plight of SME retailers.

However, interestingly, Lavelle doesn’t believe that retailers should be fearful - as long as they compete on experience. He explained:

It’s a feeling of optimism. Getting around this ‘Amazon is going to rule everything, technology queues are long and hard, everything is too expensive and takes too long’ - that’s not the world that we have today with Magento.

The reality is, is that Amazon has changed the game. Now, you can all go hide your head in the sand and say ‘Amazon has changed the game and I’ll go work in the warehouse’, or you can look at what they’ve done. And what they’ve done is draw a lot of attention to friction and bad experiences, which aren’t necessary.

That needed to change. They’ve change that and they’ve raised the bar of expectation. Plus, we all have this computing power in our pockets, so consumers have done a lot to change the game too. Now you look what Amazon has brought to the world, apart from that change in expectation, is that they’ve brought AWS, and this cloud infrastructure is going to be a boon to innovation across the world. I don’t think it’s even started yet.

Lavelle said that it’s a huge advantage that retailers can take advantage of cloud compute from the likes of AWS and Google, whilst just focusing on the experience they provide to consumers. Although, admittedly, this doesn’t take into consideration the scale of Amazon’s warehouse and distribution facilities.

But Lavelle believes that companies are now starting to realise that the distribution network itself has changed and that companies are rethinking how they provide that service. He said:

The airlines are thinking about how this distribution network can be cobbled together in a way that you don’t have to be Amazon to deliver things very efficiently. Think of UberRUSH, where all these cars running around are spare capacity and you can drop a package in the boot. Click and collect, huge advantage. Argos gets bought by Sainsbury’s - this whole thing is coming together in a fascinating way and I just think it opens up tremendous opportunity. That’s the way we have to think about it.

The future for Magento

But what next for Magento? Lavelle said that the company is in a strong position, given that it has a young generation of products that have been reengineered in the last three years - they’ve got a modern architecture and there is a marketplace with lots of extensions for companies to make use of. Lavelle said that “when the product is in front of a client it wins”.

As such, Magento is now focusing on what it lacked under the eBay brand - a marketing push. He said:

So the part of the strategy that we are focusing on most, is what eBay didn’t really give Magento, which is a market presence. We have just hired a tremendous marketer from Oracle Marketing Cloud, who is building a brand and market strategy that Magento as a business has never had.

Telling these stories is really what we’re focused on in the next six months. We’re a product and technology company, so first dollar always goes to innovation and creating better products, but at this phase in the company establishing a market presence, being competitive, telling our story is where we are more focused than ever.

And the risks? As always, it’s about execution. And Lavelle believes there is plenty of room to grow. He said:

It’s really just an execution market. It’s not like a lot of markets, where you are trying to get share from another competitor and you’re stealing points and there’s only so much market to be had.

Ours is just an execution risk, we see a market that is growing, we see more participants coming into the market. When I lay in bed and worry, it’s about are we moving fast enough to take advantage of this opportunity?