Episode 04
June 15, 2022

Decoded: The Vertical Limit

It’s no secret: low-code and no-code platforms have displaced the need for a “developer.” Yet, software development thrives with highly complex experiences. This combo means that there is no such thing as a best practice. In episode 4 of Decoded, Phillip and Boris chat about high-complexity environments versus high-commodity environments and their effects on the shopper. Listen Now!

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this episode sponsored by

High Complexity, Low Commodity

  • Online experiences have become more commoditized over time; low and no-code platforms have displaced the need for a “developer,” and instead require feature configurations and tweaks
  • Software development thrives where experiences have high complexity. High complexity often means that there are no de facto “standards” or best practices that need to be employed. This requires developers to build, test, refine, and iterate. This is the best-case scenario for a developer in eCommerce.
  • eCommerce platforms have become increasingly prescriptive in UI and UX as customers have become “used to” certain purchasing patterns
  • eCommerce needs to become more complex in certain industry verticals. Specific sectors such as automotive, food, furniture, manufacturing, and pharmaceuticals all have sophisticated requirements, complicated purchase paths, long consideration times, unique regulatory requirements, or other challenges that make them a poor fit for off-the-shelf software, but a great fit for developer innovation.
  • A shopper’s identity in high-commodity environments is tied to the retailer. You’re not a grocery shopper, you’re a Walmart shopper or a Target shopper. However, in high-complexity environments, the identity of the shopper is found in the brand of the product itself. You’re not a car driver, you’re a Tesla driver.

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Phillip: [00:00:02] Welcome to Decoded, a podcast by Future Commerce, brought to you by Spryker. Today's commerce world is full of marketing promises, "Launch a site and sell today," being chief among them. With cloud commerce computing, the marketer is promised infinite [00:00:20] scalability but consistently given less flexibility. These promises deliver a commodity experience. To build anything differentiated requires technology and developer investment. This podcast will address this chasm between the developer and the [00:00:40] marketer while speaking through current events, tectonic changes, ecosystem threats, technology trends, and platform wars and how we can build a bridge between the two. The developer and the marketer. I'm Phillip.

Boris: [00:00:59] I'm Boris, Co-Founder [00:01:00] and CEO of Spryker.

Phillip: [00:01:02] And this is Decoded. High sophistication and low commoditization. This is what the eCommerce developer spends the majority of their time trying to solve in [00:01:20] today's world. For most consumer brands, off the shelf software has solved the needs of the shopper. Add a few items to your cart, checkout, done. But digital commerce use cases get much more complicated for specific vertical sectors such as automotive, [00:01:40] food, furniture, manufacturing, and pharmaceuticals. Which industries have moved with the times? Which ones are left behind? And how can developers solve in these verticals to push the boundaries of customer experience? How do we create exciting digital commerce experiences that customers [00:02:00] actually want to use?

Boris: [00:02:13] So let me maybe start with just a little bit of history because I think it's important for context. [00:02:20] It's actually interesting now, if you look back the last the last 25 years, every couple of years a new vertical kind of started to transact online. And it always started the same. Way back to selling electronics and books [00:02:40] online and fashion. It was always like, "People will never buy fashion and T-shirts without trying them on. Never, ever will I buy shoes without trying them on. Never, ever will I buy a sofa without sitting on it. Never, ever will I buy cosmetics or fragrances. It's so personal. You need to put it on your skin and [00:03:00] try it," on and on it went with all the different, actually with every category. [00:03:07] And every category starts with not being yet commoditized and being super sophisticated. So very hard to crack. Even selling green T-shirts online 20 years ago [00:03:20] was a huge undertaking, actually. And over time, you kind of have this sinuous curve kind of effect. So the level of sophistication goes down and the level of commoditization goes up. And then comes the next kind of cycle.  [00:03:36]And then it starts again with cosmetics [00:03:40] and fragrances again, with high sophistication, and low commoditization. And then it changes. And you can also see some patterns because it started with B2C, B2C ish categories, and it's now moving more and more towards B2B and the heavy lifting stuff. So now, [00:04:00] in terms of categories, I think ultimately it's less about digital or not, but more about what actually digital enables. And if there is a USP, if there is something that is easier or cheaper or faster or more convenient for the customer, then it makes sense. If not, [00:04:20] then it doesn't. And so, let's maybe just pick one category. I mean, food and groceries I think is super interesting because we see around the world that the different type of business models are being tested. The delivery, curbside pick up, click and collect in Europe,  [00:04:40]milkman style fixed-route deliveries, drone deliveries, whatever. So there are many, many different concepts. Now I think it's interesting to kind of drill into it because you could now argue that the opportunity costs and the kind [00:05:00] of cost in terms of times of buying groceries in the supermarket, it's actually a very inefficient undertaking for something which is very much standardized, because I guess you and I and many of the listeners, we would most likely buy the same products like 90% of the time. So it's not that much variation we have in our weekly [00:05:20] basket. So sometimes you buy some fresh fish, some fresh meat, sometimes you want to try something new, but maybe 80% milk and cheese and all these kind of things, they are pretty much standard. So you're spending a lot of time on a very standardized basket. So you're going to a  [00:05:40]supermarket, you have your basket with you, you take goods off the shelf, you put them in the basket, you go to the cash register, you put them out of the basket, you pay for them, you put them back, you bring it to the car. So a lot of friction, right? So to use kind of the digital language here, a lot of friction, a lot of inefficiency for very, [00:06:00] very little value at compared to the same bananas, the same yogurt, the same milk that you always wanted are just been delivered to your home, to your office, put into your trunk, whatever. So I think personally, this is a huge category. I mean, obviously, it's a multitrillion-dollar industry. [00:06:20] What will be the kind of default behavior, the default delivery method, is yet to be seen. But I like the fact that many businesses are experimenting with different variations of it. And I think, like in general, I can see a lot of cost and [00:06:40] time savings and just relocation of time into to more useful things instead of waiting in line in the supermarket to just pay for your basket. I don't see where the differentiation would come from for me. Personally, I can't even remember when I was last time in the supermarket just because  [00:07:00]in our app we have set up some weekly and biweekly kind of subscriptions. So the same food, the same water, drinks, etc., they just get delivered in an automated way. So we don't even think about it. We have some more fresh goods that get delivered every week. And then basically [00:07:20] my wife and I would just go out to hunt and search for some exclusive stuff. You just get some inspiration. But I would say that 95% of our groceries and drinks and beverages are basically delivered in a subscription or non subscription type of way.

Phillip: [00:07:40] I [00:07:40] think that that's really interesting in the way that we immediately went to the two extreme ends of of the purchase, of a customer's purchase psychology. When you think about it, there are very few things that are higher frequency purchase than something like [00:08:00] groceries or food of any kind. And then at the other end, there are very few things that are as infrequent as, say, an automobile purchase. We recently did a a piece of research called Visions here at Future Commerce. And in our research, we actually found a really high correlation to things like automobiles or [00:08:20] sneakers that are fairly infrequent purchases, and these infrequent purchases seem to map more closely to what somebody says is part of their identity. So they think of themselves as [00:08:40] a person who drives a certain type of a car or a person who wears a certain type of a sneaker, and you contrast that to booze or alcohol or food, which brand becomes less important to your identity. You may have brand affinity. You may not necessarily think about that brand as being part [00:09:00] of your identity. How much do you think that the psychology of buying and maybe even the channel in which we buy is really tied to our identity?

Boris: [00:09:09] As I said in the beginning, what I mean by that is you could also... I mean, to your point about buying a car, I mean, it's all true. Yet Tesla is doing [00:09:20] extremely well and selling very expensive cars in high volume with maybe not as many variations as the traditional car makers, but it seems like enough variation so that people are still satisfied with color, etc., all the relevant things [00:09:40], and making it super seamless and super easy and frictionless. And I think because back to my initial point, what is the value add a car dealer has over the Tesla app? Let's just use Tesla as an example. I'm [00:10:00] very, very sure all auto and car makers will move in that direction. But I think just Tesla as being already kind of proven in the market. So what is the additional value add? Do you define, to your point, would you define yourself... I think the definition comes from owning the Tesla. So you own it. Now you define yourself not [00:10:20] from the actual way how you buy it. It doesn't change anything if you're going to the dealer versus you buying in the app. At the end of the day, it's your Tesla. It was not in the sales process as such. For the experience piece, and this is why I still believe that there is a rule going forward for a certain type of offline [00:10:40] shopping, even though like we are all in eCommerce. For me, this is clearly the experience piece, and I think if you look at how some of the luxury brands, for example, manage it. I mean, if you've ever been to a Chanel store, this is an experience, regardless of whether you're going there with your wife or not. It's an experience. You're treated like a [00:11:00] real customer. They really spend time with you. You get coffee served, you get some water served. They ask you about preferences and interests. They are not incentivized on frequency, but on quality of service. So this definitely is important, and this definitely will stay. And this then again, leads to identifying yourself [00:11:20] as the product, not just because it's expensive. For cars, it's I think if you think beyond the initial purchase, but again, to use the Tesla example, all the goods that you keep on purchasing, consuming content, watching Netflix, ultimately I guess there will be someone coming up with an app [00:11:40] store-like concept for cars as well. Once we reach autonomous driving and people will have time to consume content, consume games, consume whatever by apps, I think this will be a very similar experience to what we have now with our iPads and smartphones. [00:12:00]

Phillip: [00:12:14] In the earliest days of eCommerce software had no front-end assumptions. Let [00:12:20] me explain. Platforms implemented demonstration stores, but they provided very little guidance on best practices for front-end use cases. As you might have expected, the earliest shoppable websites use the visual design language of their offline cousins, the printed catalog [00:12:40]. Stores were separated into physical categories like pages in a magazine. Products were merchandised visually in the style of a newspaper ad. But when larger eCommerce stores emerged, including Amazon, software vendors came and they gave us a visual language. [00:13:00] A common UI and UX pattern that quickly became expected behavior for catalog-based websites. Platforms began to implement these so called features, and a playbook for best practices emerged. In addition to flexibility, platforms became prescriptive, not [00:13:20] just about coding style or architecture, but in user experience. For the past five years, digital adoption has presented new challenges for the developer. Common use cases require more sophisticated purchase paths. In grocery and automotive. These [00:13:40] purchase paths aren't ideal for platforms with prescriptive and opinionated front-ends. Booking, scheduling, one of one inventory, multi-sided marketplaces. They're all seemingly common eCommerce use cases, but they've become more difficult today in the age of cloud commerce. I [00:14:00] think that's an interesting insight and that actually will take us to the next channel that potentially here has opportunity for disruption or the next set of verticals that I think are going to be challenged. It seems that what you're saying [00:14:20] is the higher the frequency of purchase, the more your identity is tied to the channel in which you purchase it. So it's not that I'm a grocery shopper. No, I am a Costco shopper or I am a Walmart shopper or [00:14:40] I'm a Target shopper. And that identity tends to lend itself to the channel as opposed to the lower frequency purchase where we tend to tie our identity to the product ownership itself. That seems like a really interesting insight and not something I've heard before. When you think about other  [00:15:00]types of verticals. Furniture comes to mind.

Boris: [00:15:06] Yeah. So first of all, I think if you look at the traditional furniture store, at least from my experience living in Europe, typically these would be huge stores at 40,000, 60,000 square [00:15:20] meters. So it's quite, quite big. And yet they would not have all the variants, all the colors, all the materials for the sofa. There would be one sofa, which is actually available in 15 different materials and 35 [00:15:40] different colors. So you have the 15 times 25, so hundreds of thousands of variations of this one piece. So I would argue this one option out of thousands for this variant, for the SKU is not really making a big difference. [00:16:00] Very often the exact combination that you would want is not available anyway. So you can't sit and you can't touch it anyway. So so then instead of having full screen picture where you change color, you change material and it changes right away or you have the 360 [00:16:20] kind of ability to move it around or more and more have the 3D kind of data. So you can just, just hold your iPad and put it in your living room and see how it would look like in real kind of dimensions. All of [00:16:40] this is not possible while being in the store. So the question is... And then it becomes the logistics piece, which is very often not different. So last time I went to a store I wanted to buy a sofa. It was the same six weeks that I had when I would buy something online. So I would argue there's not that much of a difference.  [00:17:00]I think for some products there might be. But I personally [00:17:20] enjoyed, and again, I think the 3D data which is available now and the increase in the rise of augmented reality capabilities regardless of whatever Apple might release. Glass or not. But if you just look at a standard furniture [00:17:40] app and how it looks in the iPad application and how you can move things around and resize them and have a feel for kind of size, dimensions, color, etc. in your real environment. This is unmatched, right? This is far better, to my initial statement. So what problem [00:18:00] are you solving? Is it convenience and service? Is it price? So for me, this is much more convenient. It helps me with a much better selection of the product. It gives me a feeling for the real environment in more variations and more colors. So I think furniture is really up for disruption. In fact, these [00:18:20] large stores which are operated, it will be very hard for them to be profitable, I think, going forward because you need a lot of space, a lot of square feet, a lot of sales reps on the floor. So I think this will be challenging. They need to reinvent themselves and again ask themselves what is the experience [00:18:40] besides Phil or Boris sitting on the sofa that I can offer on top of that? How can I take care of the kids while this couple is checking out new furniture? What other SKUs or products?  [00:19:00]Do I have a Michelin star restaurant in my facilities? Whatever this is. But just operating basically on the promise of "I have one of thousands of options of the sofa," that this is a huge value add where I should drive out and spend half a day instead of doing this in half an hour at home. I'm not sure this is enough. I think there is a lot [00:19:20] of room for optimization going forward.

Phillip: [00:19:25] Let's bring the developer into the conversation. What I have witnessed is there's not a purpose-built grocery eCommerce platform. So you have challenges in adapting what is a more generic solution [00:19:40] to solve in eCommerce to becoming incredibly specific, especially when you start thinking about finance for automotive or pharmaceuticals and certain compliance and delivery challenges. So let's talk a little bit about how these sort of verticals solve software adoption.

Boris: [00:19:59] Yeah, look, [00:20:00] I think that if we go back to what we started the conversation with, I think in general, [00:20:06] if you operate a developer in high sophistication, low commodity environments, it's a wonderful time and wonderful place to be in. Because by definition, [00:20:20] if something is a commodity then you're basically not a software engineer, but you are a software configurator over time. So yeah, it's true, right? Because once somebody becomes a commodity, once a certain industry vertical like selling fish online is becoming a commodity, it basically means that consumers have learned [00:20:40] what functionality to expect and software vendors have learned what to provide in, as it is called today, a low-code no-code type of way. So this is why you're becoming a configurator of software, not a software engineer. There are no engineering challenges anymore [00:20:54]. So now if we look into the verticals we just discussed, I mean, there are very different [00:21:00]... I think, in food and groceries, obviously, a lot is about solving subscriptions in different types of ways, which can be very, very complicated with all the complexity you have around selling beverages, returning empty bottles... [00:21:20] You don't sell meat or steaks, maybe per gram or bananas. We have different measuring units, etc. So there's a lot to be solved around this. Logistics, a lot of very interesting logistical challenges to deliver, to keep things fresh, to deliver [00:21:40] them curbside, click and collect, put them in someone's trunk or into a locker enabling cashier-less shops like Amazon does it or Aldi does it, or some other companies are doing it. I think there's a fantastic opportunity [00:22:00] for developers here. On the automotive side, it is ironically, if you think about the purchase or the transaction itself, there is a lot about AI and machine learning and all of this like predictive learning, buying patterns, recommending the right products, be [00:22:20] it food, be it groceries, putting your baskets together, optimizing for it, recommending you content games in the car. So I think AI and machine learning, in general, is a fantastic, fantastic area to be in if I would be a developer today myself. I guess I would be very much focused [00:22:40] on that and then try to find the best application for this for these capabilities.

Phillip: [00:22:48] There's so much that we could talk about there. I think that the interesting problems to solve then are beyond just what we would usually classify as like the catalog [00:23:00] experience or the search and browse experience. Those are highly commodified and highly sort of pattern-matched challenges that have sort of been solved over time. And any change or any material change to that doesn't just require developer effort. It requires retraining of a consumer base. We have [00:23:20] to teach them how to use the product now and teach them how to use the app, which in itself I think can actually be quite good for a brand. But then you're taking on an additional level of complexity in not just software design, but in user experience design that [00:23:40] very few people are willing to venture into.

Boris: [00:23:45] And I fully agree with this being a new opportunity for brands. Why? Because every time a new device or a new channel is created or emerges this is a new opportunity [00:24:00] because everyone has to learn to master it. I mean, just think about it. Imagine just for a second, imagine you have hired an army of SEO specialists. These people are the best on the planet. So they're the best at doing onsite SEO optimization for [00:24:20] your desktop shop, for a desktop website. So they know all the tricks, all the tricks, how to rank your desktop version of the site better. But then now boom comes the iPhone and comes the mobile push. So your army of SEO specialists is becoming basically worthless, more or less. Because you have to master, [00:24:40] learn it all over again for a new device or a new technology for new algorithms that the search engines would roll out, and then boom, you know, full self-driving is here. And all of a sudden your car turns into a media center and people start to consume content and browse web and watch games and watch Netflix movies and shop online [00:25:00] in the car and whatever the interface will be, be it in the seats, be it a hologram in the middle of the car, and then you have to learn it again. And this is like pretty much the same thing with Facebook and Instagram and TikTok and Snapchat and all these types of things. So I think, you know, as [00:25:20] Darwin said, it's a survival of the fittest. So I think not the smartest but to adapt to this new world the fastest. And I think this is kind of risk and opportunity for brands. It is a risk because if they have been world-class in mobile, in SEO for desktop, [00:25:40] in Instagram postings, in Facebook marketing, there comes a new channel, so it's a risk. It's a threat for them, for their business, if they don't retrain and relearn, get new skills. But it's an opportunity for the other brands who might have been too late to the other game, to the previous generation game. They might have missed or [00:26:00] underperformed on Instagram or on desktop, but now there is TikTok or now there is AR, or whatever new channel. Hey, let's forget about the past. Now we have an opportunity to become the best in the new one. So I think I fully agree it's a huge opportunity.

Phillip: [00:26:20] Thanks [00:26:20] so much for listening to Decoded. You can find more episodes of this podcast and all Future Commerce podcast properties at FutureCommerce.fm. You can also subscribe to our newsletter, which comes out three times a week at FutureCommerce.fm/Subscribe. This [00:26:40] special series of Future Commerce is brought to you by Spryker, the Commerce Platform to futureproof your business. Hey, it's a challenge right now in 2022. You have to be about more than just selling online. The market is shifting and new technologies are changing the game every day. [00:27:00] And that's why innovation and agility should be at the top of your list to be able to stay competitive. And that's why the Spryker Excite Conference is so exciting. At the Spryker Excite Conference, you'll gain pioneering insight from industry leaders. You're going to learn about how to win new and future commerce projects, and you'll be inspired [00:27:20] by the amazing speaker lineup and fellow attendees. If you want to learn more and register for the event, go to Spryker.com/FutureCommerce to learn more and register, and [00:27:40] we'll see you in June in Nashville at Spryker Excite.

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