In this insightful discussion, VTEX Founder and Co-CEO Mariano Gomide de Faria shares what he sees as the three big shifts driving massive enterprise transformation, who’s leading the way, the key steps brands should be taking now in each area to position themselves for success, why multiple ecommerce solutions are no longer sustainable, and what he predicts will make or break enterprise commerce in the very near future.
Welcome to Annex Cloud Market Movers, where we bring in market luminaries and experts to help us with navigating the current times. Today. I'm very, very excited to bring in Mariano who is the Co-founder and Co-CEO of VTEX. Mariano, very much welcome to you to Annex Cloud Market Movers.
It is an honor to be here.
Wonderful, wonderful. Mariano, it would be great for our audience to know a little bit of introduction about your background and your company, maybe we can start there.
Okay. My name is Mariano Gomide de Faria. I am a Co-CEO and Co-founder of VTEX. VTEX is a 21 year old company, we were born in Brazil. It is an enterprise digital commerce platform, a platform that just focus in the enterprise operations. We run companies like Walmart, Coca Cola, Whirlpool, Electrolux, and Levi's. From fashion, grocery to electronics all over the world. We have operations in 32 countries.
We are in the niche of the market, that if you are big enough to realize that Shopify-like, or SaaS solutions are not what you need and don't want any more to have the On-Premise big projects, headless of a big IT-driven operation, we are in-between. We promise our clients a very unprecedented time to market. We have launched, for example, Whirlpool, in Russia in three months, from the contract to go live, fully integrated with SAP and all the ecosystem. We do have in the same solution, the CMS, the OMS and the marketplace functionalities. That makes the VTEX the unique offering in the market. I am based New York, Scarsdale. I am a mechanic engineer and my passion is about spearfishing, that's my hobby. So that's all about myself and the company.
Thank you very much for that comprehensive introduction, Mariano. I think we might start a little bit broader and understand your perspective. Obviously, a lot, a lot has changed over the last 18 months in the world of commerce. If you had to synthesize that idea of change into three to four key things that are really driving big behavioral change, that will stay over the next few years as well, what are the things that you are really considering from your perspective, in that respect?
I will approach on three dimensions. First, the lack of talents. The lack of talents will change the way companies will act in the near future. The technology companies already realized that, and now the retailers, the brand manufacturers are realizing that. Without the digital native talents, those companies cannot survive in an era of a digital native first. That will change completely the org chart, the way to manage people, the HR departments, it's going to be a massive change and the companies need to face this immediately.
The second dimension is the conversational commerce. Conversational commerce, it will be a big hit. It's already been a big hit in Asia. Conversational commerce, it is taking over. It's already representing 30% of the Asian market. Five years ago was absolutely enough. I foresee that Europe and United States will face a dramatic change of platforms. Today, the browser and the mobile are the king but then the platforms of conversation will take over and will represent 30% to 50% of the digital commerce in five to ten years. The companies need to address these issue and needs to invest in this direction.
The third is the cross-border. The cross-border, is already representing 20% in average of all the country's digital commerce operations, and majority of the companies from each country does not realize that. Only the marketplace, the big companies are suffering the wave of cross-border. I do believe, now it is the time for companies, all the retailers will serve the same wave of cross-border. Remembering that the De Minimis that this is the customer year, that the product can enter, has been rising in all the countries. Last month, Biden, in the United States, have raised the De Minimis of United States from $200 to $800. That means, that if you have a retail or a brand manufacturer from any country in the world, you can ship directly to the United States and will go under the customs, that has changed everything. Because the United States also can export from the United States to the world, all kinds of goods. Talents, cross-border and conversational commerce are the three main things that we are seeing as a big shift in the near future.
I think, if we dive a little bit deeper to understand your perspective, maybe we start with conversational commerce, because that's an interesting, very interesting topic that we've talked about for a while. Your prediction is very interesting. You said a good portion, a big portion of commerce will happen through conversational commerce. Do you think that will be in certain geo locations driven to that? Is it driven to a specific phenomenon? What is going to drive that change suddenly, that will make it such a big portion of commerce in the upcoming years, according to you?
I do believe, where we see already the platforms up and running like WhatsApp, WeChat, the messaging systems already up and running and dominating the interface of the users in each country, I do believe this is going to be in those countries that they're going to... Humping up first. If you see Brazil, if you go to a suburb of Brazil, Sao Paolo, a suburb of Sao Paolo, for example. And if you go for a city like Itu, a very small city, if you go and walk in the streets, you're going to see saloons, bars, and you're going to see all the local stores within the shelf, in the signs with the number of WhatsApp. I can say that 50% of the stores in a lot of countries has the number of the WhatsApp in the shelf and in the signs of the store.
That shows that they are already engaged by the conversation, but they didn't transform these interface that already exists into a commerce solution. Obviously, this is the next step. The countries like the United States, probably will not be the ones that will be leading these revolution. But in the United States you just have a one platform that's messaging, the iMessage, we will see in the United States, the merging of conversational chats, like WhatsApp, like others. Once we have it, it will dominate the market and we'll take 30$ to 40% of the digital commerce GMV, will flow for these channels.
That's a very bold prediction and that's strong, right? Because I mean, many of these markets, especially APAC or LATAM, people went directly to their device and skipping sort of the middle layer when they came about. I agree, I think in just broad terms, that conversational commerce will take over, especially in those markets first. And then, some of the other markets like North America, that are more prevalent, will follow. Going further into some of your other predictions and understanding that better, the talent war has been there for a while, right? We've all had challenges with the talent pieces. What do you think that retailers and brands should do now, to plan to stay ahead of the game in that war, so that they don't get affected significantly and they're able to compete? Especially with the likes of Amazon, where they have a big talent pool and they're sucking in more talent pool and growing that way.
First of all, marketing, it is not any more creative people coming from marketing universities. Marketing is managed by mathematics, by developers, by formation that's much more math oriented as well on sales, as well in operations. What the companies need to do immediately is to change the role description. When you are hiring someone for marketing, you will not hire a marketing specialist or digital marketing specialist, no, you will hire a developer, but they will act as a marketing specialist. This is the toughest part because how to convince a very tech guy to come to marketing? Tech guys, they hate marketing, they hate the word marketing. How to transform an organization from upside down and bring the tectonics to run areas that used to be ran by other talent pools? That's the big challenge. The way I see is the companies needs to create their own programs. Bringing people from the university and engaging them with academic plus work, and training them into the market.
If you do not control the future of your own talents, you will not control your future at all. I can give you an example of VTEX, our company, that we were lacking of talents. And then, we decided to control our future. We create two main programs, TETRIX, that's 150,000 students apply to be on a final list of a 21 only. And those that goes to the final lists, they are delivered to the companies. We have, in the semi-finals, 600 people that we delivered to VTEX, to our partners, to our clients. And those ones are the best of the 150,000 globally selected. This is actually the biggest university challenge in the world, this is tetrixchallenge.com.
The other one is the DCS, we call the Digital Commerce Specialist program, where we pick people that already have been early graduated and recently graduated. And then, we give a training of a two years. Two years training, mixing, work and study, and we pay for that, and we do not demand any kind of link or a bond to the company. If we are good enough, people will stay. So those are the two things that we did. And now, I can say that we have future of our company in control, but I don't see these in the retailers. I don't see these in brand manufacturers. They are worrying to hiring the people from the market, not to build their own future. That's my recommendation for the enterprises that are listening for this session.
That's great. And again, I think, those two examples you gave, that you did yourself are amazing with TETRIX and DCS, that's great. Going a little bit further into what we are interested in on Annex Cloud side, understanding a little bit from your perspective, one of the big changes that happened over the last few years was the disruption in the supply chain, the disruption in the ability for people to supply the same product, so that choices for consumers became more prevalent. I'll give an example, a lot of new soup companies became popular because Campbell could not provide soup to the distributors during that time of the pandemic. Now, people got more choices and now they have the ability to consume different types of products, which they normally would not have consumed if this wasn't the case. And this has happened in all industries, right?
And so, with brands like Campbell, they haven't retention challenge. With new brands that have now attracted a bunch of customers, they have a retention challenge to keep the new customers along. Now, what is your take on retention and loyalty as an important tactic for brands over the next decade? Because, by default, sometimes marketers just focus on new customer acquisition, right? It's their DNA, like I want to just acquire new customers, new customers, new customers, but retention becomes big because you can only spend so much, the cost of acquiring are going up. What is your take on retention in general, in the world of commerce?
You were spot on. Long tail will dominate. And the long tail means that all the retailers in the world will need more cash flow to pay for the capacity of expose the long tail to the clients. But the problem is that they don't have these cashflow. What's the natural solution for the world, where the society has more money than time? All over the world, society is buying time. When a supply or a retail doesn't have the exactly product that the consumer needs, they will go and find and will buy from abroad, but they will buy what they need, not any more, what they would buy, what they find, that's end.
And so, these global dominance of supply chain and logistics will run the shop and the retailers will need to become a marketplace by default. Marketplace, it is not a kind of a featured company anymore. Marketplace, it is a basic functionality of every single retailer and brand manufacturer in the world. It is like, to put your website into a mobile, you will have marketplace, you will become a marketplace. You will sell things that are not from you to buy, that's you becoming customer-centric. This is a reality, and this is how I do believe the big enterprises will arbitrate these necessity of long tail.
That's great. I think, I want to digress it into the specifically marketplace concept, right? Because VTEX, does it uniquely, at least from an external world perspective, as I see it, where you're trying to address B2B, B2C marketplace, all in sort of the same platform. I mean, is there a specific perspective that you carry, why you have the entire sort of stack and how do you see that?
Today, if you want to fulfill all your desires and if you're a car fan, and if you want a car to be fast, you go for a BMW, probably. If you want a car to put in the mud, do you go for a Jeep. And if you want a car, I don't know to be in a sunny day, you go for a convertible one. If you want a car for the family, you go for a nine-seats car. But the problem is that all the companies only have one, two guarantees. Why we put all of the solutions together? Is because it's not a sustainable anymore to have more than 30 solutions to build your solution.
Two reasons. First, elasticity, SLA, you cannot count in an ecosystem of a 30 things working together with a different infrastructure. When you need to be very elastic, one of that pieces will fail. You can pursue solutions with a 99.5% of SLA, but when you put 30 of them in the role, the 99.5% multiply by 99.5%, 30 times we'll go for nine. It will be dining 96%. Go to a lateral looks and say, "Look, you have all the cars you need, but you're going to be two days out in a month, every month". The guy say, "Okay, forget about it". This is the headless approach gives freedom, but with freedom without talent, companies are creating Frankenstein's, and Frankenstein sleeps to be run in a 1.5 seconds page, not in a seven second speech. This is where the world is going to struggle in the near future. Secure elasticity, one.
The second one is privacy, security. Imagine to run a company, international brand in Europe with the 20 countries, and you need to be like a GDPR compliance. But then you need to explain to your consumer and to the authorities that you share your data with the 32 entities, and you need the contract and the signature and the compliance of the 32 entities. And now, obviously, you can have data flowing from country to country, but I see a world that in the near future, data will be locked in the country. How can you do it if you need those kind of systems fully integrated working together. That's why we went to approach that you can have in one solution, the CMS, the OMS and marketplace functionality, all them together, so you can run globally your landscape of go-to market and have a control. What we call a single source of truth. That's the main reason.
Companies they want to be simple. They want to be transparent for the terms of transaction. But at the end, they are pursuing complex solutions. This paradox needs to be solved and that's what VTEX is made for. we are solving these complex things for big companies in a lot of countries. And we are lucky at the end of the day, because complexity is coming to the retailers. And what we solve is the complexity puzzle, so I'm very enthusiastic in the years to come.
Great, that's fabulous. I think, just going towards the last topic you mentioned around cross-border. Now, what was interesting to me when you mentioned it is, even though the rules are relaxing for cross-border and countries are maybe embracing it more than they were before, you still need, and it's expensive to ship out the United States to other the parts of the world, unless you have a distribution center in those locations or other places, sure. And I keep taking the example of Amazon, right? They have distribution centers everywhere. They can execute at a grand scale, but can other companies do the same and we'll cross-border have a limitation because of that distribution issue?
If you look just for the delivery part of the cross-border, you're going to arrive that cross-border is lazy and expensive. But you need to put in the same calculation that the inventory management is what breaks and make bankruptcy of any retailer on earth. If you do not manage your inventory well, you will go down. Today, if you do a bet and put an advanced your inventory for a country and you don't sell there, you stuck, you stuck on tax, you stuck on liquidation, so you need to just burn your merchandising.
Once you have these centralized and yes, you're going to pay more and it's going to be not too fast to delivery to a country, but you centralize your power of inventory and you count on the inventory that you have, through sellers to fulfill the necessity of a one day delivery, actually, you can be healthy. That's what the good retailers and the good brand manufacturers are doing right now. They are centralizing a worldwide cross-border and they will advance only the pieces of the products that have a certain to be sell in that region, specifically. And so, there is not an option to be in the game of the cross-border. It is a mandatory theme that companies to address this problem.
And then, allow me to bring one big thing. When you say let's address cross-border to the US brands that have, I don't know, a hundred franchisees in a hundred countries, what is the area that we will address cross-border? We have marketing, we have sales and have operations. Nobody is looking for the disruption and licensing contracts we'll cue the cross-border adjustment of the big enterprises. What's happening? Companies like Hawkers.es, they are disrupting the market because they don't have these attachments of the past to build the future. Hawkers, it's a hundred millions of dollars company selling glasses all over the world, shipping from Asia, no overhead of distribution in any country in the world. That overhead, if you compare to Luxottica, they're going to have a thousands of employees in maybe hundreds of countries. Hawkers, they don't. They have one office, one team, and they ship everything from Asia to the countries. And that's why they will win. At the end of the day, you need to be digital native to fight the new scheme that the digital commerce brought to the table. After COVID, that's going to be massive.
Allow me to bring one more dimension. The digital click on Google and Facebook, already reach a level that retailers and brands cannot afford to pay anymore. But at the end of the day, the click, it is an auction, so nobody, not even Google and Facebook can stop the price to rise. What is happening? Companies will find different channels to reach their consumer. And then, we're going to have a big emerging of a loyalty programs, a lot of conversational will pop up, live commerce will pop up, because companies will find a way of reaching the same consumer without paying the tool that today is around 12 to 20%. All they pay for the marketplaces, all they pay for the Google and Facebook like. This is not sustainable, so they will find a way to go directly and that's what's coming next.
Great. That's a great sort of segue into sort of my last piece. I want to understand, you've given a lot of really strong statements today, which is fabulous, right? The growth of conversational commerce, the growth of cross-border. I mean, what are you most excited about from an innovation perspective? Whether it's innovation within your company, or just innovation in commerce in general, that you are focusing on for the next 24 months, if you had to pick one thing, what would that be?
I do believe solutions will go more for an autopilot mode. Today, all the supply chain of digital commerce in the world provides software. And I do believe that those companies will be transformed into an autopilot solutions. That means, today, if you are retail, you need to fly your plane, know everything of every single piece of every button, you need to do manually. You need to calibrate the price, you need to calibrate the inventory, you need to coordinate the sellers, you need to coordinate the campaigns on free delivery. And you do these by instant and by calibrating, by test, A/B test. This is not for a human being to do, so the solutions will take over and you will give the future KPIs or the strategy that you want to pursue.
For example, I want to have a 30% margin and I want not having more than 60 days of turnover product in my inventory. Do whatever the system needs to do to keep that KPIs as a true. The system will calibrate price, the system will calibrate the orders, the sellers, the assortment that we bring to that specific store, because at the end of the day, it is like a plane. Today, the most modern planes, they have a fly by wire, the pilot, there's almost no touch to landing or to taking off. In the fly, in the cruising altitude, for sure pilots don't touch anymore. That's what is going to be the solutions for digital commerce. It is one layer up and I do believe that software companies are not ready for this next step. Software companies will become a solution company, solution as a service. That's what I do believe is going to be the land of the innovation in the years to come.
That's great. And actually, it goes back to your talent wars, because things are getting so specialized because channels are improving and increasing with conversational commerce and other channels, with different specialties that are needed and the talent challenges that are there, if the automation does not happen, it's not sustainable. It's not something you can sustain for the many years. Bringing it all together, I think all of your different theories around the growth of conversational commerce, cross-border, the talent challenges and the automation, they all go hand in hand and bring it all together.
Mariano, I know we can go on and on, but this was fabulous. I think all your theories are very strong and they sort of aligned well with each other. And so, thank you for spending the time with us and sharing this with our audience. We really appreciate it. For everyone else, if you want to see luminaries like Mariano and others, please go to annex cloud.com/marketmovers. Mariano, thank you so much again.
No, thank you for the opportunity to share those ideas with you and your audience. I do believe if companies like us and companies like you, if we share knowledge, not sell knowledge, but share knowledge, we will create a more diverse approach on retail in the world. This is good. I embrace all the companies that are listening to us, share your knowledge. This is not the secret, knowledge is not the secret. Share your knowledge, build knowledge in your people and embrace the cultural diversity, because the world is a conversational, cross-border and talent driven. Thank you very much.
Thank you again. Thank you.
Co-Founder & CEO, Annex Cloud
Founder & Co-CEO, VTEX
Since 2010, Annex Cloud has provided industry leading loyalty solutions to more than 250 leading brands and retailers, including Jenni Kayne, Hewlett-Packard, Bed Bath & Beyond, e.l.f. Cosmetics, Olympus, Sugarfina, Mizuno, MacKenzie-Childs, VF Corp., with the ability to engage tens of millions of their customers one-to-one at scale.
The Annex Cloud platform provides fully integrated Customer Loyalty, Referral Marketing, and User Generated Content (UGC) solutions that seamlessly work together to optimize the customer journey and deliver a unified customer experience that is designed to accelerate revenue growth, retain valuable customers, increase average order values (AOV) and drive repeat order frequency.
VTEX is the first and only global, fully integrated, end-to-end commerce solution with native marketplace and OMS capabilities. The company helps brands in retail, manufacturing, wholesale, grocery, consumer packaged goods and other verticals to sell more, operate more efficiently, scale seamlessly and deliver remarkable customer experience. Modern microservices-based architecture and powerful business and developer tools allow VTEX to future-proof their customers' businesses and free them from software updates. Major brands including Sony, Walmart, Whirlpool, Coca-Cola, Stanley Black & Decker and Nestlé, plus over 2,500 online stores in 32 countries trust VTEX to accelerate and transform their commerce. Visit www.vtex.com to learn more.