Spryker Founder and Co-CEO Alexander Graf shares his insights on why company size is no longer essential for ecommerce success, where the customer-to-brand relationship really starts, how to take a more holistic view of this important relationship, and what he sees in store for ecommerce.
Welcome to another version of Annex Cloud Market Movers, where we bring in the best luminaries and experts to help our audiences. Today, I'm very, very excited to bring in Alexander Graf, who is the CEO of Spryker. Alexander, a very warm welcome to you to Annex Cloud Market Movers.
Hi all. Thanks for the invitation.
Absolutely. Alexander if we might start with just a quick introduction about yourself, maybe a little bit about your background and then Sprykers' background, maybe we can kind of start there, if that's okay?
Yeah, of course, we can do. So I'm a CRA entrepreneur in the e-commerce industry. I started in e-commerce in 2005, actually, when e-commerce was called new media. It made all the companies. And since then I've founded lots of companies in that space. And the latest one is Spryker, which I'm heading as a co-founder and co-CEO since six years. I have an educational background in Business Administration and IT, but as you know, the education is most likely not so much related to what we do in our business, but that's what we are talking today about.
Wonderful. Well, very nice to have you and for everyone else a quick all round. I'm Al Lalani, I'm the co-founder and CEO of Annex Cloud. I think we'll start a little bit broad, I mean, in terms of sort of understanding retail strategies, we've both been in the e-commerce and the retail world for a very long time. I've been on both sides of the table, sort of learning certain things, and you've been sort of on your side, sort of educating people. Maybe, you can start a little bit broader and sort of understand what's your take on big market retail. When I say big market retail, I'm talking Amazon, Wal-Mart. They've obviously done a lot over the years, but in your sort of perspective, where do they stand today? And what are things that you think that they can potentially even improve from here, especially as we've gone past the pandemic, and we've all learned a lot of things over the last couple of years.
Yeah. There are, maybe, like two important learnings. At least, I can say for me. So the one learning is on the general retail side, all business models eventually become digital first. And when we were talking about retail business models, you're getting into trouble when your main business model is still relying on the product margin. So buying products from a manufacturer brand for price X and selling it for a price Y to the customer and the difference between X and Y, that's your margin. And those business models are squeezed out by these real platforms like Amazon, like Alibaba, like all the other ones. And that is not only true for brick and mortar retail models, that's also true for the, I call them, e-commerce generation 1.0 online shops. So if you're competing as an online shop for consumer electronics, with the standard business model where you own all inventory in the warehouse, you are doomed against Amazon.
So I think that's the one thing, that's for me, kind of certain. And we really need to shift your gears in retail, that's why we are seeing so many platform initiatives right now. And the second thing is that, even more interesting to me, is that even though Amazon or Alibaba or Walmart e-commerce seem to be unreachable, it is always day one. So it's getting easier and easier for customers to adapt to new channels to new providers. So when they're losing their speed of innovation, their ability to adapt fast, they lose customers to another provider in the market.
And that it's actually maybe also a good link to understand what we are doing at Spryker, we are selling software so you can build your commerce project. The main USP with our software is you are getting faster than your competitor because it's the only common denominator of success. The ones that adapt faster than the competition, those will win. It's not related to size, it's not related to fundings, it's not related to strategic assets like a network or something else, it's just adaption speed that counts. And I think those two things are especially true for retail businesses.
Well, I think the speed of adaptation is very, very important. I agree with you and I couldn't agree with you more on that one. On the carrying on the thoughts of this and Amazon in one way has out innovated many people, for many, many years. So that's a known truth. I think they've done really well, but they have a new CEO and there's a change of guard. And when that happens there's always obviously a change of some strategy or some alignment over the years. Now this is again, food for thought, we're both CEOs of our own companies, so putting you in the shoes of, let's say the new Amazon CEO, what would you do if you were Amazon's CEO, what are the things that you think that are still innovations that they can do, or you would have done if you were in those shoes?
Yeah, I think what we're seeing in the Amazon books right now is that the share of marketplace revenue is increasing, increasing, increasing over the years. So eventually as the CEO I would most likely get rid of the first party retail business, where I'm still selling and buying stuff on my own account. And the new CEO because of his heritage will focus on AWS and new services. So selling more services to retail us, maybe even like Walmart or other businesses where AWS, for example, already does a good job. That I think is the new growth dimension. When it comes to the pure e-commerce experience, from my point of view, Amazon is lacking behind already. So Amazon lost its state of the art desktop position like 10 years ago. Maybe that was a good thing to do for Amazon because like desktop is declining in relevance for B2C retail, but just the desktop experience alone, that is, it feels so wrong.
So it does not give me the feel anymore that I will find the right product, the best product for me. It's just like an ad space where smart providers, smart manufacturers are arbitrating the ad system of Amazon. So from a customer experience perspective, there's many things to do for desktop and app, but they still can grow in e-commerce for the next five to ten years. But from a pure strategic perspective, I'd rather focus on services for other retailers or for a company like us, where we are also using AWS as a platform, and we are a partner with Spryker here. That I think has much more potential than the retail business.
That's great. And I think by moving a little bit more towards the marketplace model like you mentioned, you can eliminate the frenemy problem that Amazon has had for a while, especially with the AWS side of the business. Because some retailers are a little apprehensive of using AWS because of potentially their data getting to Amazon. So I understand it from that perspective as well.
One of the sort of shifting gears from some of the big giants into kind of the pandemic, we've gone through a pretty phenomenal change. We leave out all the challenges, for another way to change in e-commerce. The growth in e-commerce has been astronomical growing from lower, single, probably 11% to now closer to 30% of business for many retailers happening in e-commerce, if you weren't directly e-commerce, that is before. When you think of the strategies that we've all talked about, buy online, pick up in store or use your store as a location to ship goods from and so on and so forth. What are some key innovative strategies that you have seen that all brands should be paying attention to as they come out of the pandemic to improve the experience, or just make it better for their audiences?
Yeah, for me, like two things are standing out. So one thing obviously is that many brands are going back to a direct to consumer strategy. So you remember maybe the discussions with brands like 5, 6, 7 years ago when we discussed, okay, do we want to go direct to consumer desktop or mobile? The answer was no, we'd rather focus on platforms, sticking to our wholesale model. And I think the pandemic really showed them that if you're losing your direct access to customers, you might get out of business pretty fast because Amazon is prioritizing other products over yours, for example. So there was a big shift in gears, a new second wave of direct consumer strategies from my point of view.
And the other big thing I thought is that, also a thing that was accelerated during the pandemic, is the commerce via messenger systems. So even the old short messaging system was used here in my environment where I could buy flowers from a local seller, or where I can use WhatsApp to get in contact with maybe a more sophisticated seller like coffee machines or so. And this new channel really provides a true hyper-personalized experience. Something where desktop commerce, or even the mobile standard commerce never got to a level where it was, wow, that's really a personalized offer and not a standard voucher. Those two things, those two strategies really got a new twist over the last two years. Something, especially on the direct to consumer side, I would have never expected. I think Nike is doing a very good job here and showing what's possible if you're really pushing this pillar and others will follow I'm pretty sure.
And the direct to consumer part is being energized even more with the dropping of the cookie in a Cookiepocalypse, as we call it, that was dropping there. And we obviously are paying a lot of attention there because first party data is even more important now than it ever was before, especially for the brands that were not going direct to consumers, where they were happy selling to sellers. Now they're saying we don't have access to the same data as we had, and they need to own the customer, they need to know who their customers are and have a direct relationship with that customer.
And that comes with direct to consumer commerce, but that also comes with retention and loyalty programs that we sort of work on and we try implementing. What are strategies that you would suggest? Because of this movement towards direct e-commerce and this moving away from the cookie, for brands to focus on owning that customer data and building that relationship. Because at the end of the day, we know companies like Amazon or Nike, what they've done really, really well is they've built a true relationship with their customers and how do you advise brands to do that?
Yeah. So I think we are moving away from the third party cookie and moving towards the first party cookies. So you should own them, the customer. So I'm closely following obviously the loyalty programs, especially loyalty programs that were just developed as an answer to Amazon Prime. And you might've seen the eBay numbers from last week, which were devastating actually. So even though they have a good program in place now with eBay Plus, that's not enough. So I think it's the right thing to do to focus on your existing customers with better and more personalized loyalty programs, but if those loyalty programs are not hyper personalized, then I think it will become really, really hard to stick out in the competition.
And the newest example here, you might've seen it yesterday, are the Wish numbers. So Wish.com kind of reported really, really bad numbers. Decline in customers, decline in buying frequency, and I think that could be a very interesting case for the next business administration generation to understand. So what kind of customer relation really works? Where Wish comes from the one extreme. You're getting your Beamer that would usually cost $1000 for $20, and maybe you'll do it once, maybe twice, but not a third time. But the companies are really focusing on loyalty setups that lead into a more or less like one-to-one loyalty relation. Those programs are in a time where advertising costs are increasing and increasing and increasing, because there's not enough advertising space available, not more affordable. Those ones turn out as very, very effective and very valuable.
Oh, that's great. I think one of the things we talk about a lot is personalization. So I'm glad you've brought that up and that can happen in multiple different ways. And certainly not being able to copy an Amazon Prime or something to that effect, even if you are as big as eBay or frankly, even Walmart and on your side of the world maybe Zalando, right? So there are a lot of companies that have done that. Some have done it fairly effectively, and some have not worked, like you mentioned Ebay Plus. But for a smaller brand just keeping what someone has done before won't work.
So the way we advise is looking through your customer journey and your customer experience and seeing where in that customer experience across the channels, all Omnichannel, that you need to touch that customer to remind them about your offerings, to improve their experience with you, to be able to touch with them in ways that they normally wouldn't have. And then you can start building that relationship and build a program around that relationship. A lot of times people do program first relationship next, and it should be the reverse. It's figuring out the relationship first and then build a program around it. And that's really the key message.
Yeah, I agree. Last week or two weeks ago, I saw a very nice keynote speech from a known consultant here in Germany. And he had a statement which went like, "The online shop, that's the end of the customer journey and not the beginning." And I think that's the correct way to think about it. And most of my peers are coming out of a generation where you always thought about, okay, let's lure the customer in the online shop. And in the online shop we offer a nice menu, a nice search, a nice whatever, recommendation banners to make the basket bigger. But I think that's the wrong way to look at it. I think you have to do all those things before the customer comes to the checkout and just buys the stuff he or she wants to buy. And I think that's especially true when you're thinking about this personalization pattern you've just described.
I think the message or numbers I was seeing in certain places I think Forbes or other people reported it was, I think that people are doing their research offline a lot more. So by the time they get there, they've already done 60 to 70% of their decision-making before they even get to you in some capacity. And then, especially for repeat customers, they're doing 90% of the decision making before they even come to you again. And so the relationship before they come to your branded site, or your experiences and the relationship between those, the customer service experience in the middle, the communication experiences along the way before they come back again as a repeat customer, all of those things make a big impact because those decisions, like you said, are no longer being made on the cart page, on the product detail page, as they were many years ago. To some extent they are, but not to the extent that they were before certainly.
So shifting gears into the world of e-commerce and the focus of e-commerce, how do you see it changing over the next few years as we all start to rethink the ability of... We've done all the things before, we've done our best product recommendations on the product detail page, and we've done the ideal case of personalization across the shopping experience online. And we've started integrating Omnichannel and direct to consumer experiences, but what's the next fathom for e-commerce over the next many years as you see it.
Yeah, so we will get rid of the E in e-commerce because like, it's just commerce, channel doesn't matter anymore. And we'll see a lot of movement in the B2B industry to be honest, but also in B2C there's more and more industries moving into the e-commerce world, but those companies would never say it's e-commerce. So look at Peloton, for example. They've developed their own device, they're not relying on a third party device anymore on Android or on iOS or on a windows machine, they can sell you a subscription over their own device, they control. The device itself costs like $2000 or $3000, including their little screen. In selling you a subscription though, Peloton essentially is an e-commerce business, right? Selling you something very successfully.
And we are seeing more and more industries moving in that direction, becoming a transactional business. We see more interesting, innovative stuff in B2B, especially if we're talking about IoT cases, B2B marketplaces are a much bigger niche than it is in B2C. We will see hundreds and hundreds of marketplaces in the US and in Europe for every need, for every category. And the next generation is joining e-commerce. I think we are part of the last generation that learned using online shops via filters. So there are so many filters we would expect on Zalando or Amazon or Walmart too. We know what we get at Walmart. And then at walmart.com, we go through the men versus women verus kids filter. And then within that filter we are searching for the brand and the size and the color and the price and whatever. And I think that we are the last generation experiencing e-commerce that way, because it's so much designed around a desktop experience. So I would steal the pro word from Jeff Bezos, "It's still day one in e-commerce."
Still day one in e-commerce it is, absolutely. And on that point we can talk for a very long time. But Alexander, a lot of great insights were captured today. I want to thank you for coming on the Market Mover session and sharing your thoughts with the audience. For everyone else if you want to watch such amazing videos, like the one we had with Alexander today, please go to annexcloud.com/marketmovers. Thank you so much again.
Co-Founder, Annex Cloud
Founder and Co-CEO, Spryker
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.
Spryker enables companies to create winning commerce experiences in B2B, B2C, and marketplaces. It is the most modern platform-as-a-service solution with over 900 API-based modules, cloud-enabled, enterprise-ready, and loved by developers and business users worldwide. Extend sales reach and grow revenue with a system that allows you to increase your operational efficiency and lower your total cost of ownership. Expand to new markets and business models without technical limitations. Spryker solutions are trusted by brands such as Toyota, Hilti, Lekkerland, Hero, Rose Bikes, and Prym.
To learn more about Spryker , visit spryker.com