Latest / Talk Commerce / [Live from ShopTalk] the Challenges of Mid-Market: Insights from Jason Nyhus
Transcript
- Brent Peterson (00:02.474) Welcome to this special Shop Talk episode of Talk Commerce, and I'm here with Shopware At Chop Talk, Jason, Nyhus and Vijay Golani are here today. Thank you for having me again. This is great. Yeah, Jason and I are on a road trip, I think, together. He missed Hawaii. I only got to do the work trip, so I didn't get to do the fun Hawaii trip. Yeah, well, if you knew what I did, you would know that it wasn't that fun. Vijay, why don't you introduce yourself? Myself, Vijay Golani, and I'm an India correspondent for the Talk Commerce, as well as I'm a co-founder company called Evrig Solutions where we are developing the websites using the software, Magento, e-commerce. Yeah. Nice. Good. And Jason, quick introduction. Hey. Good to see everybody again or at least talk to them. I'm Jason Nyhus I'm general manager at Shopware and this is my second time on.com. Longtime listeners, second time participant. Yeah. Good. So we've taken advantage of this very luxurious space for a podcast. will say the last time I did this they just had the big room so we have a smaller big room now. It's probably a little echo going on but that's all right it makes it a little bit more exciting. It's a really fun exciting place it's teaming with people and yeah it's great to be here at Shop Talk in Las Vegas. And it is about a three mile walk from here to the meeting areas so it is an incredible amount of steps we'll get today. Yes exactly. All right so let's We've been talking a lot about the mid-market merchant and I think one thing that we haven't talked about is the Is the acceleration of costs as your site gets busier? As you just do more revenue and the penalty penalties you incur as a merchant for being successful What do you have to say about that? I love the setup well so in I think it was January Shopify announced they were gonna do a big price increase and Brent Peterson (02:11.316) Before I go into those details, I think it's a good story. I put together a board slide that talked about learnings from 2023. And in a lot of ways, it was a really good year, but there were certainly some headwinds. And one of the learnings that we had is trying to compete against Shopify is very difficult. Their pricing strategy, their positioning, their marketing, they're in virtually every deal. We had some success head to head, but we didn't have any success taking someone off of Shopify. Not in any sort of material, repeatable storytelling way. But what we noticed, so I put together the slide that said, don't spend a lot of time thinking about replatforming a Shopify merchant. Then January, they changed their prices. And what was really interesting about it to me was the parallel between all the early adopters in, say, Uber or Lyft or even with Netflix, how they had this unbelievably good price, a lot of value, of adoption and it's at when you get to a certain spot that you have leverage and it's you've had a tipping point where you've got a lot of it's hard to grow new subscribers so the number one way you'd grow your business is to raise your prices and you have leverage that you know less than that amount will leave well that's the moment we're in with Shopify and Shopify again one of the greatest boxes ever invented for commerce and a lot of brands who fit in that should buy from them but what they're now seeing is that they're they just saw a 30 to 40% price increase. And Shopify now, just like Disney or Netflix or others, has the pricing authority to do it. And so what you're seeing in their announcement is they're going to charge additional amount for Shopify Plus for how much you pay as a percentage of your revenue. So to your point earlier, the more revenue that you do through the platform, their revenue scales at the same rate and pace the merchants does. Some people would say that's a shared success model. Others would say when you start to reach economic scale that it becomes a tax on your business. Your success becomes theirs. No, that's a really great way to put it. So just give us an illustration in real terms. Let's first kind of define what's a mid-market merchant. Brent Peterson (04:34.65) And what does it mean to them, to their bottom line, if they go from say 10 million to 100 million? Yeah. Well, a mid-market merchant actually has a pretty wide and broad definition. A lot of people use the revenue bands as a way to describe a mid-market merchant, but the truth is it's more about the use case and the complexity. I met with a half a million dollar retailer here at Shop Talk, and their online revenue is a small fraction of their overall company revenue. Well inside of the company, that merchant has a mid-market aspect of it that's relatively Brent Peterson (05:21.288) and they're struggling to kind of get their needs met by a market. And so to me, that's a better definition of the mid-market merchant, someone who doesn't fit inside the box of an SMB solution or is potentially can't afford to or shouldn't afford the high-end solutions that are really built for the 1% club in the e-commerce land, the Fortune 1000 type companies. So to me, that's kind of where the mid-market merchants... that's as I'm as a merchant the b2b portion of it the the parts that make it easy for something like ShopWare or even Magento to function become more difficult in a box, right? Just talk about zero dollar transactions. How easy is it that ShopWare can do it, but say Shopify has a hard time doing something like that? Well, B2B is a really fun topic to unpack. before, but I've been in e-commerce for 24 years. And every year, it's going to be the year that B2B commerce really takes over. And it never has been. And there's a reason. Most commerce platforms start using the language, it's the consumerization of B2B. That's a very common phrase in our industry. But what they're really saying is, we want the consumer, or we want the B2B transactions to look and feel a lot more like a consumer one from the platform perspective. were built for B2C commerce. Okay, so it's a little bit of a self-fulfilling prophecy telling B2B brands to fit inside this consumer-like box. So in a lot of ways, that's where the problem originates. And these wonderful multi-tenant cloud-only solutions really require a whole bunch of things that... Brent Peterson (07:24.438) B2B is largely, I'll back up a bit, B2B is largely a business that's dominated by business processes defined by a company so that they can incent their sales team, they can book revenue, they can deal with the payment authorizations of lines of credits or POs. These are not things that are purpose built for generic B2C e-commerce. nature of it purpose built for the companies to go do. And so if you're trying to solve that problem, you need to have a tool that's able to be agile and change and morph into a business process that's automated, that scales, that actually fits the way the company wants to do the business. And so the zero dollar transaction is a really good one. Back to the Shopify price increase. When Shopify recognizes, I believe, one man's opinion here, that they're getting to the spot where 78% of their revenue comes from basically fintech. So their relationship with payments and tax and fraud and cross border and they make all their money there. 78% of their revenue. And it's a meaningful piece of wealth that's part of the app store revenue that they go on top. And what they're quickly realizing is the smallest percentage of their revenue actually comes from being a commerce platform. And so part of the reason they can raise their rates or want to raise their rates is to modify that percentage. That's a really dangerous game. Otherwise, they're just a payment provider and an app store. And that's so that they raise their revenue to change their distribution of their revenue, or excuse me, their costs. But back to your comment around B2B, you can't put a 20 basis point tax. on, or excuse me, you can't make the same level of money that you make on a B2B transaction as you do a credit card B2C transaction. You just can't. No one's going to pay you 35 to 50 basis points on a $10,000 PO. Okay? Well, there are probably some companies, but most at scale won't. So what Shopify has done, because they realize they can't make a lot of money there, is they put a 18 to 20 basis points additional service fee to use their B2B commerce platform. So in addition to what you pay to use Shopify Plus, you pay a $10,000 Brent Peterson (09:40.528) also pay the surcharge for B2B, which will allow them to effectively monetize payments just in a little different way. I want to come back to that, but I forgot that I forgot two things. Number one, I forgot that we were supposed to do the free joke project. That's two in a row. Yeah, and I didn't want to forget it this time. So I do have a joke teed up. And then I do want to get Vijay's comment or feedback on this from the India perspective on B2B, what that means for consumers and what it means for customizing some of these back end things. I want to tell you both a joke, and I've got a great one today. All you have to do is say, should this joke be free? So actually, Vijay, you go first. Wow. I think we're right. We got a jet plane coming over. Vijay, you go first. Free or should somebody pay for it? Then Jason, you'll do the same. Here we go. You know what really makes me throw up? a dart board on the ceiling. Brent Peterson (10:51.49) You should have the subscription. So at any point, if I do not like it, I can just cancel and have the free one. All right, that's fair, yeah. That was a joke. All right, yes, thank you. I enjoyed it, no, I liked it. Brent Peterson (11:09.667) All right, sorry. So anyway, that simple segue. So back to Vijay now. Tell us a little bit about India and how a lot of these new platforms are being introduced. Yeah, so earlier there was just, I would say, Magento and the Shopify. Those are the two platforms that were popular. But now, lots of agencies are using the big commerce as well as software. Both have their own different features and their own market. But I would say if it is self-hosted or something, then people are definitely adopting the software also now. And These are the platforms, like it vary between the different markets. Like you can see that now Magento is more on the enterprise level markets where small agencies or the merchants are not able to maybe afford those one. And over there we have the now large gap which can be filled up by the software, big commerce also. And from a complexity standpoint or from just a modifying the code standpoint, very technical. What does it look like to a merchant who wants to do anything they'd like to do? How does ShopWare fit in compared to something like Shopify or BigCommerce? I think I asked my development team to just go through the software and they found it like very simple way you can customize it. It is easy like whenever you wanted to upgrade the software, it is not something like you Brent Peterson (12:51.928) core code and still your customization will work. And creating a new modules, new payment gateways, those are like very good detailed training available using that training as well as very good documentation available that is helping them to create those things easily. Thank you. So Jason, back to the B2B conversation. The penalty for a user to use B2B and the ability to generate large transactions, and then the pricing scale. Does it seem like the mid-market person or the mid-market merchant is getting left out and then being forced to go into something even bigger that may be outside of what they even need? Yeah, well, the first thing I think we should recognize is the fact that big software has been winning from for about 20 years or even longer in the in the context of e commerce big software has transitioned everybody from a perpetual license, which was incredibly good for the brand into a model that was a rev share, which again is really great for software companies, but it's not necessarily great for the merchant themselves. There's been a lot of economies of scale. brought down to the SMB which has been incredible for the for the boom in SMB based e-commerce and now you see some brands who are mid-market and enterprise who grew up from nothing and benefited from the ability to kind of distribute really great capabilities. Shopify is a great example. Shopware in Europe, Magento in the United States, the democratization of great tools and services to the masses a lot of companies benefited from. But again, big software in general has the profit motive and the means to move the market the way they want to move it. And so I talked about the revenue share. That's the first and foremost. The second is cloud-only solutions. Brent Peterson (15:04.496) It's a shared service model, and it's great, and ShopWare has a cloud as well that's also very strong. But the difference is it's forcing people into a box. It's forcing people to look the same, and act the same, and feel the same, and perform the same. I was at an event at Retail Summit in Minneapolis, and I was talking to this really cool brand who's running their site on a competitor commerce platform. And he got a text from one of his friends that says, hey, look, this company is ripping off. your experience. And he's like, no, we're just on Shopify. They're on the same template. And I thought that was really interesting. This mid-market merchant brand who differentiates on the base of experience, right? I mean, it's an apparel company. A lot of similar apparel out there. These guys try to differentiate on the details. And his friends say, there's someone who's copying you. So to me, this conversation around pricing and freedom of what the experience should look like. and the ability to kind of customize to meet your business needs. This is really at the heart of what it means for the mid-market merchant and the battles they're trying to fight to get their needs met at a price they can afford and pay for it the way they want and get it hosted or managed the way they want it. Do you think that leads to a little bit of, it could lead to laziness by the merchant in terms of I'm just gonna pick the cheapest theme because I'm gonna have to spend more on my apps and my transactions. I'm gonna just go with this cheap little template and I'm not gonna really look and see if it's used by somebody else. Well, I don't know if it's laziness. Sometimes it's just around speed. Don't, you can't ignore the fact that the game has changed materially. The cost of capital, the cost of labor, the cost of materials, marketing budgets have shrank, the cost of customer acquisition has raised. A lot of these things have second order effects, like smaller teams or more junior people. And a lot of those scenarios really benefit those people who can really create these cookie cutter template based experiences that people, because they're in that situation and they Brent Peterson (17:17.516) create a little bit of the 1984 experience where everybody looks the same and it homogenizes e-commerce. So that's why open source is such a great place is because it gives people the tools and the freedom to really invent what's next, not kind of fit inside of someone else's box. So I don't know if it's laziness or a byproduct of all the other factors. Yeah, that's a really good point. We have a few minutes left. I wanna give Vijay a chance to kind of chime in on what he thinks is that 2020 2024 is going to look like. Maybe from an Eastern perspective, what is the hot thing in India right now in terms of e-commerce? I would say like a hot thing, we should use the AI, because I have seen that lots of features and lots of things in the marketplace area, I also seen that lots of technologies or the third party solutions available, which you can integrate with the e-commerce platforms. And those are more around AI. And I have looked at the AI copilot for the software also. It has lots of different things. If I compare with the different platforms then software has the highest number of AI things as compared to other e-commerce platforms. And that is something emerging in the 24, 25. So we should adapt how we can use the different things and integrate with the commerce and AI. Yeah, and I'll just make a quick comment on that. Everybody sees AI as generative AI, but there's so much more that machine learning will do for a merchant than just generate content and images. important things that merchants should think about when looking at machine learning, other than just making better product descriptions. Jason, what is your thought on this next year? Well, we're in a world... You can't say AI. Well, I'm going to briefly, but I'm going to move on. You know, we're in a world now. Brent Peterson (19:17.194) Anybody who's a merchant probably feels this more than people in my chair, but we're in this world where any new technology comes out, the hype cycle is incredible. And right now we're in AI washing-ville, which means everybody's using the term to try and co-op and make it mean something for them so they can get credit in the market. My response to what Vijay said, thank you Vijay, I love that you're checking out the product and really valuing some of the AI features. But what really matters is does it change your company's behavior? Does it actually impact what you're trying to go do? There's a lot of things that are really cool and interesting and good thought exercises. But the ultimate question is, will this make you more efficient? Will this figure, will you be able to apply it to your way you go to market and spend less money or need less resources or hire less consultants or something to actually make your business perform different? That's the real test. is this cool, is it available, is it will it change our business? And I'm excited about as we move through hype cycles, you start to get to that level of resetting of expectations. Yeah, that's great. I'm going to make one comment that I see happening. And I'll differentiate the open source model versus the SAS-based model. And I'll also kind of differentiate the self-hosted, where you have ownership of your code, that this AI experience will allow you to. integrate whatever code you want to make in as part of your core, which Shopware has done a great job of already putting into their into their native release a lot of AI features, but Brent Peterson (21:14.53) The ability to make your code work the way you want it to do by having the ability to own that code and modify that code is a big change over having to bolt on something as an app to make it work. And both Magento and Shopware also have the ability to bolt on apps and have external API connections. But I think that something SAS doesn't have is the code ownership where you can take and make code work the way you'd like it to work. And without saying names, there is one company that has fallen behind on any new features, and they've already said there will be no new features. So I don't see a lot of things happening in terms of that. So this isn't the shopware show. No. But there is only really one self-hosted platform that's open source that allows you to. Dig in and make that code yours. I love the story, and you're absolutely right. You know, we live in a world where there's 18 commerce vendors on the Gartner Magic Quadrant. And the truth is, each one of them has an ICP and are an ideal customer that they're purpose-built to go serve. And we send customers every day to high-end commerce tools or low-end to Shopify, because those are the best fits for the merchants. So just because I'm on the show doesn't mean I only have blinders on that were the perfect fit because we're not. That's awesome. All right. So as we close out the episode, I give everybody a chance to do a shameless plug. It means you can plug anything you want. Vijay, go first. What would you like to plug today? And that's just a promotion. You can plug anything you want. Promote. OK, sure. So definitely, as I mentioned, that we are a development agencies from India. So definitely, if you wanted to build anything around or anything, you need any help in terms of e-commerce. integrations happy to reach out to me at vj.avric.com and schedule a call. Great, thank you. I will... Brent Peterson (23:25.042) I will talk about something at ShopWare, huge surprise. Does everybody talk about their own company on their thing or do they plug a charity? You can plug a charity. I don't have a top line. I'll do the shameless plug for my company. So ShopWare has a unique capability in the market and it's called the digital sales room. And it is something that is going to do to e-commerce like telehealth has done to healthcare. And for companies who are a mid-market merchant who really value the way that their sales team owns relationships with their B2B customers, this digital sales room will actually be something the reps will want to adopt because it actually helps them make more money. It helps them serve their long tail of customers in a digital experience way, guided by strong B2B commerce capabilities, video, presentation, all in a single experience. So to me, that'd be the shameless plug. We don't see it in RFPs because nobody else has it, and we have a chance to show it and demonstrate it, it really stands out. So digital sales room from ShopWare. That's awesome and I'll make sure we get our, they still do the show notes, so put some links in there, your contact details. Jason Nyos from ShopWare, President and GM for US. Thank you so much for being here. And Vijay Gulani from EVERIG, co-founder of EVERIG. Thank you so much for being here today. Thank you.