The FODcast Season 5 | Episode 8 with Kelly Goetsch

We are excited to present the finale of Season 5 of our podcast -and our first repeat guest as we welcome back Kelly Goetsch, Chief Strategy Officer at commercetools.

With nearly 8 years at commercetools, Kelly transitioned from Chief Product Officer a couple of years ago to his current strategic role – the first of its kind for the cloud-based headless commerce platform.

With an illustrious career including pivotal roles at ATG and Oracle, where he spearheaded groundbreaking initiatives, including Walmart's global tech implementation, Kelly is undoubtedly a well-known visionary and thought leader within the sector.

As one of the original co-founders of the MACH Alliance, Kelly is at the forefront of advocating for composable architectures and was therefore an ideal guest to conclude the last 16 episodes around the composable conversation.

In our chat, Kelly shared invaluable insights on the evolution of composable, highlighting its mainstream adoption and dispelling common myths. His perspective on the changing landscape of buyers, the role of innovation, and the importance of the human aspect and cultural fit of vendors are covered in detail – as well as a candid discussion on the reasons why transformations fail.

If you’re embarking on a composable journey, or still in the consideration stage, this episode will provide a wealth of information on the positives and pitfalls > > >

Simply Commerce is the leading supplier of talent into digital commerce across technology, digital marketing, product, sales, and leadership.

Find our more about our approach and our services within digital commerce recruitment here: https://simply-commerce.co.uk/

Transcript

James 0:01

Welcome to the FOD, where we bring you insights into the future of digital commerce for free. Season five is all about the move to composable architecture, and while it's not a buzzword anymore, there are still a number of unanswered questions, which is why I'm speaking to those who have the answers. In return, if you enjoy our content, we ask if you could like and share to spread the message far and wide. Hello, and welcome back to episode eight and the final episode of season five of the FOD. I'd also like to welcome our first repeat guest, Mr. Kelly Gage. Kelly first joined the show back in 2021. We've come a long way since then, as has Kelly, who is now Chief Strategy Officer for Commerce Tools, amongst other gigs, including a recent appointment as board member for Bluestone Pym. Welcome, Kelly. For those that don't know you, do you want to give a quick overview of your experience and then we can dive straight in?

SPEAKER_00 0:49

Sure, thanks for having me. Um I started my career with ATG, which was the leading commerce platform back in the 90s and 2000s. Um, did uh a ton of those uh initial launches back in the day when brands were getting online for the first time. And then spent five years at Oracle for uh product management. And my last year there, I led microservices. While at Oracle, I also wrote e-commerce in the cloud for O'Reilly. And uh I joined Commerce Tools um almost eight years ago, which is hard to believe at this point. But um it's been it's been a long time, uh, my entire 30s basically. And uh was CPO for six years, and now I'm doing uh a more external role as chief strategy officer um the past almost two.

How have you seen the growth of Composable?

James 1:36

No, so I guess uh being at Commerce Tools for the best part of eight years, you've been at the forefront of the move to composable architecture, which is obviously the theme of the podcast today. So I mean, there's probably very few people that are better placed to have this conversation with and understand the growth of composable uh over that time and how the conversations have changed and uh and everything else. So I guess let's dive straight in and say, and Kelly, how how have you seen the growth of composable over the past 10 years or so?

SPEAKER_00 2:07

Composable has come out of um, I would say it's a natural evolution. So when I started at Commerce Tools in 2016, um, that for two years, the discussions I was having with big brands and retailers was why on earth would you trust a public cloud for anything this sensitive? I want my data within my four walls, within my data center. The questions were, what is an API? What's a microservice? You know, where's the head? You know, that was a common thing for a long time. Because at that point, SAP Hybris, really Rain Supreme, Oracle Commerce, uh, Demandware, Salesforce, Commerce Cloud, um, Magento, those were all brands that were just really um, you know, at the peak of their of their adoption, and people were still buying and installing those apps. And again, those are fine for you know the 2000s, but you know, by that point, cloud had really taken off, APIs had really become a thing, headless commerce was just getting started. So it was just interesting from 2016 to 18, roughly, how the discussion was what is this and why? And then around 2019, 2020, 2021, that's when it really started to take take hold. And I credit um the mock alliance for a lot of this. You know, I think we as an organization came together and really did something big and moved the industry. Um, Gartner came out with a whole bunch of research around composability, which was great. Um, and also the legacy products out there started to have real issues. You know, folks didn't want to use the whole thing, they wanted to use bits and pieces, they wanted to incrementally adopt, um, they wanted to build and buy, and they weren't able to do that. Those legacy platforms were really holding them back. And I'll give you an interesting example. Most folks running those legacy platforms are releasing to production once a day. And those running more composable stacks like our customers are releasing to production five, 10, 20 times a day. You know, so to go from once a month to 20 times a day is just a huge difference. It is huge. You're at a disadvantage if you're not releasing that quickly because to innovate, you have to iterate.

What impact do you think the MACH Alliance has had on the adoption of Composable?

James 4:32

Not only do you get the increase in releases as well, you also lose the the lengthy times of the upgrade process as well, where you're doing very little other than upgrading what you what you have. And when we know they can take 12, 18, in some cases, maybe 20, 24 months, depending on the size of the business. So that agility in in innovating as well is is then held back. So um it's interesting to see how you accredited the Mac Alliance there. I mean, I'm I'm of it's of my opinion that they've done a very good job in in educating the the audience, um, not just via webinars and what have you, but obviously via the the the main event as well, Mac one, Mac two, and Mac three, obviously coming up soon. I only hear very good things about it. Um, what impact do you think the Mac Alliance has had on the uh on the adoption of composable?

SPEAKER_00 5:21

Um well, we co-founded the Alliance. Um, there were five of us uh companies that co-founded it. And just full disclosure, I um I actually incorporated it and ran it for quite a while, four and a half years. Um but the mock alliance does three things basically. First is it's keeping the term mock pure, M-A-C-H. And composable is a great business level term, but it doesn't really mean anything. And as evidenced by everyone out there in the world is now claiming to be composable with zero tie-in to what they actually do or don't do, right? Um, it's just one of those terms that everybody is now magically composable, and that doesn't make a whole lot of sense. But mock is a pure term, and it's because we have a trademark on the term mock, and to get into the alliance, you have to go through a very stringent test. Um, we have about a 60-65% rejection rate of new applicants, and those are folks who think that they're ready, and the alliance finds that they're not, and there are technical and commercial requirements that have to be met in order to join the mock alliance.

James 6:29

So I've read a report actually on on that um within the last six months about the the the tests and the tasks that uh both ISVs and also um delivery partners need to undergo to be part of the MAC alliance. So I've I've seen that first hand, yeah.

SPEAKER_00 6:45

Yeah, so that's that's one, and that really helps because now buyers understand what is and what isn't mock. The second thing that we're doing is as a consortium, a first of its kind, we're pulling the resources of all members to advocate and build out this category. So individually, we're all relatively small companies. You know, Commerce Tools is only 700 employees. Um, but a lot of our members are 50 employees, 100, 200, 500. You know, we're all smaller companies. And independently, I don't think we have a huge voice in the market compared to these giant um, you know, mega, mega tech vendors out there with hundreds of thousands of employees and you know, hundreds of millions of dollars of budget, the marketing side. But now the mock alliance is 104 members. Together, we're all pooling our resources and we're aligning around the same messaging, the same themes, the same thought leadership topics. And together as an industry, we're creating more safety, more demand, explaining to different uh personas what mock is and why it's important. So we do CFO-focused content, we do CEO-focused content, um, we do um developer-focused content, you know, it's very, it's very targeted for different personas and helping them understand at each level, you know, what the benefits of mock are and why it's important. And then the third thing we do is a lot of community. So we bring together folks from across the mock universe and we do hackathons together. We do lots and lots of events. So any given week, we do two, three, four events somewhere around the world. We have our big flagship conferences, you mentioned. Um, what else do we do? Uh, a lot of work around standards and aligning on the commercial side as well. So, generally, as a community, we're coming together for networking purposes, but also to make our products easier to consume together. And we're really building those relationships that that matter out there. So, those are the three things that the mock alliance specifically has done to uh to make mock a reality out there.

Thinking about accelerators, connectors etc - how much of an impact have these had when it comes to Composable adoption?

James 9:01

Yeah, I mean it's safe to say the community is certainly getting stronger every year. Um you you touched some upon something um right at the end there around making it easier for the the members to to not only communicate together but also work together. Um, I guess which kind of leads me on to talking a bit about some of the uh the connectors that the or the connector that Commerce Tools released. Um we also see in accelerators, which whilst did different to both Connect and Foundry, they form as uh I believe, correct me if I'm wrong here, a similar um um connector, but putting the piece of the puzzle together in making it easier for the end customer to see ROI quicker with both with the vendors talking to each other. Um, how much of an impact do you feel like these things have had in the in the adoption of composable?

SPEAKER_00 9:51

It's made it a lot easier. So the challenge um is the perception. And I again I think this is 95% a perception thing that composable is hard. And compared to a Shopify or somebody of that stature, which is much more of a website in a box, it is harder than that. Now, I I don't think it's that difficult. You know, our biggest customers have maybe a dozen people working on the implementations. These are not huge teams, these are not huge projects, but we as a vendor are doing anything we possibly can to make this all easier. And one of those initiatives is Foundry, and Foundry is uh a pre-composed, in-a-box, opinionated way to consume commerce tools, and it's a much more off-the-shelf, ready-to-go magento or Shopify style use of our product. And that's not necessarily down market, it is, but it's also for large organizations that want to get going quickly for a small divisional application of some sort. You know, we see a lot of that type of use, um, which is great. And part of Foundry and a general new initiative we've been spending a lot of time on at Commerce Tools is the Connect integration. And what Connect allows you to do is very quickly and easily connect between Commerce Tools and a lot of our top-tier partners. And what's special about this and what differentiates it from our normal marketplace is we as a vendor are attaching an SLA to it and we're running it as a service. So our traditional marketplace and the standard out there is to say, here's some code, go run it, have fun. Right. And that's great. And it's better than writing an integration from scratch. But what Kinect does is it realizes there are a couple dozen partners out there that have the majority of our customers' business. And we're gonna make it really, really easy and seamless. And you click a couple buttons, you know, you put in an API key and you're good to go, right? Very simple, streamlined. And we as Commerce Tools are managing it on a multi-tenant basis with an SLA attached to it. So it makes it even easier, and that's a key part of Foundry.

James 12:06

Okay, okay. I think I uh from from where I'm set, it sounds like it's it's definitely been beneficial. I know from the the tens of conversations I've had in the past, one of the biggest challenges uh end customers face uh in the move um to composable is uh is enabling the business to see ROI quickly. And I think maybe if you go back a couple of years when uh we were kind of learning as we go, unlocking the ROI fast was probably slightly slightly harder than it is now. And I guess some of these these tools and accelerators and what have we been discussed have enabled that to happen so much quicker now. So it makes the the buy-in from those that need it, which is pretty much everyone in the business much easier.

SPEAKER_00 12:50

Well, we're we're going through a change in who is buying composable at this point. And in 2017, 18, 19, that was the early adoption crowd. And these are organizations are very technically sophisticated, very competent. Um, they knew what they wanted and they bought us as vendors because it offered a real competitive advantage relative to the legacies out there. And if all the competition is deploying once a month to production, and you know, an early customer of ours is deploying 20 times a day, that obviously is a pretty big competitive differentiator, which is great. And those customers, and I'm gonna I'm gonna dramatically oversimplify here, but those customers said, awesome tech, we understand what you do, let's sign, buy, and then commerce tools go away. Right? We're buying commerce tools independently. We know what we're doing. You know, you're a tool vendor for us, um, awesome product, but we don't really need any help. And that's great, but that is a very narrow segment of the tech adoption bell curve. And now what we're moving into is the more mainstream mass market buyer. And there, they're not buying because our tech is cool, they're buying because we specifically very easily solve business problems. And they don't even necessarily know what a microservice is, they don't care. What they want to see is a stamp that we're mock certified, you know, kind of like when you buy a house and it's passive certified, for example, the certification makes a difference and that's great. But they're not looking at the details that they don't care about the you know GraphQL specification that we support. Like they just don't care. That's not of their concern. What they want is they've got a big list of uh requirements. Most of those are non-technical requirements, and they want to check, check, check all the way through an RFP, and we uniquely solve those problems.

James 14:57

Okay, so one thing that I would love to know the answer to then um is uh do you feel as though there needs to be a certain level of digital maturity within a customer uh in order for them to uh move away from maybe an out-of-the-box platform or a monolith towards composable architecture? Um the reason I ask is again, I've had a few guests in the past that have said they feel as though maybe if the business isn't mature enough from a digital perspective, this might be a bit too much for them to take on board.

SPEAKER_00 15:28

I would say largely you do not need technical skills at this point. But there's a weird selection bias that happened. And what happened is in the early days of this space, you had super sophisticated mature organizations. And newer entrants to the space, big brands and retailers and telcos and others, would look at themselves relative to those early adopters and say, I'm nowhere near that sophisticated. Therefore, I'm not ready for this yet. And this has always been easy, right? Um, it's it's always been very straightforward to use. So I would say it is becoming easier through Foundry, it's becoming easier through Connect. There are a lot more people with these skills on the market. There are a lot more cloud certified developers, commerce tool certified developers. Um, the mock alliance has helped out with a lot of the streamlining and simplification and alignment on the commercial side. So just generally, it's become a lot easier to use all of these products together. Um, so I would say you have to care a little bit and you have to have a little bit of maturity, but I would say that bar is coming down earlier. Now, I should say we're never going to be as simple as a pull out your credit card and go to Shopify and get a monthly plan type of an experience, right? That's not that's not us. And by definition, I'm happy that that's not us because we uniquely solve very complicated problems, but we can also be used in that manner as well. So you're gonna have to do a little bit, and I'll give you an example. You know, I have a good friend here in my local town in Wisconsin who runs a shoe company and they do 450 million a year wholesale, and they wanted to do a um direct-to-consumer channel because they have Walmart knocking off their shoes, and they start, they're starting to get cut out, and they wanna they have a very strong brand and they want to sell direct to consumer. And that's great. And he took me out to lunch and he started asking me questions and he said, What do I need to get started? And I said, Well, do you have an OMS? And he said, What's an OMS? Said, okay, let's let's let's play a you know a 10 questions game here. Do you have a CMS? What's a CMS? And he just had no idea, right? It's as an organization, they they have zero maturity and they're really good on the manufacturing side and on the branding side. But in terms of IT, in terms of you know how to go to market, that's just not going to be our customer. And they're probably not gonna get online for a long time, and that's fine. But that's where a chunk of the market is, and that's pretty impenetrable by all of us as vendors.

Is there any business that wouldn't benefit from a move towards Composable?

James 18:12

I mean, it sounds like they're right at the the bottom end uh of that. Like you said, if they have no understanding of OMSs and CMSs, then yeah, I mean, I guess something like this would probably be a bit uh uh butting off a bit more than you can chew, right? But uh there's very few company, well, I say very few, there's there's gonna be thousands of companies that are like that, but they certainly form the the fewer percent of the market share than those that do have some technical maturity. Um interesting, the bar the bars getting lower with with the the tools and what have you that have that have been discussed. In your opinion, would you say there is a certain cutoff or a certain type of business uh outside of ones with absolute zero maturity that would wouldn't benefit from being on composable, being as on composable architecture or not?

SPEAKER_00 18:59

You know, a lot of the director consumer fashion brands, you know, if you're a famous celebrity and you have five SKUs and you're selling, you know, makeup or a perfume or something, like that's not our customer.

James 19:14

Right.

SPEAKER_00 19:15

We're certainly happy to take their money, but like that is much more of a point-and-click experience. You could build that entire experience in an afternoon. And we certainly have customers like that, and that's fine, and that's a great business, but that's not really what we do. We do we handle uniquely the complex side of e-commerce exceptionally well. So that's um lots of products, tens of millions of products. It's product complexity, so supporting different attributes, um, lots of products per cart. It's multi-site, multi-brand, multi-currency, multi-country. It's using pieces and parts as opposed to here's a whole thing that you have to use or not use. So it's a different approach, um, one that's I think a lot better. Um, and again, we've made it dramatically easier to use this new approach. And that's why we're seeing such a huge uptick, even above our 2021, 2022 growth today in 2024.

What is the number one reason that Composable transformations fail?

James 20:17

Nice. Uh so that's really good, uh, really good to hear. Um, you you mentioned about how the um uh how commerce tools delivered exceptionally well, and obviously, commerce tools is kind of, in my opinion, the pioneer from a platform perspective of the move to towards composable. There are now other platforms that get involved in the journey. Um, so my next question is by no means aligned just to Commerce Tools, but more about the move to composable in in general. But it's safe to say that whilst the early adopters have gone through the challenges over the last sort of four, five, six years, there's been a number of um challenges that they faced. And in some cases, there's been some transformations that that have failed. Um what would be good to know from you, Kelly, is in your opinion, what why do you think the number one reason is that composable transformations fail?

SPEAKER_00 21:06

First, I would say it's awfully rare, and it's less than half of the traditional failure rate. Um, and I I can't get into specifics, but we have a very, very, very high gross revenue retention rate. It's the highest I've ever seen in our category. So, and I think all but one or two customers, it was due to their own bankruptcy, not ours. But the challenge I see is many, especially retailers, are exceptionally dysfunctional organizations. Um, some really have their act together, and that's great, but there are an awful lot of them that have competing, warring factions internally. They have staff who are reluctant to make changes. Um, a lot of different people have different entrenched interests. Um, they go out and hire SIs that they probably shouldn't be hiring that are misaligned with this whole composable movement. That they've bought into. They have unrealistic expectations. Um, they have lots and lots and lots of legacy that they can't or don't want to interface with this new world. And a lot of it is, I mean, I just see this every day. You know, we have super happy, successful customers, but in the case where there are challenges, it's 99% of the time it's just internal, it's an internal problem. And retailers especially are just so cost conscious that they end up underinvesting in talent sometimes. And for whatever reason, they are at any large IT project, commerce included, commerce especially.

James 22:46

Commerce is complex.

SPEAKER_00 22:47

I hate to blame our customers, but I mean, look, it's the truth better either. Um, sometimes it happens. It it does.

James 22:54

And I would say 90% or more of the people that I've spoken to over the last couple of years have all mentioned in one way or another um the dysfunctionalness of the retailers, whether it be having everybody on the same page and communicating properly or having um the business fully brought in and actually everyone in the business knowing uh the journey that's ahead of them and the challenges that they're gonna face and how they're gonna overcome them and what's gonna come afterwards. And also even knowing what success even looks like, right? Because I mean, arguably, when you go through this transformation, the success comes later down the line when you can not need to replatform again, for example, or you can uh push out um 20 times a day, for example.

SPEAKER_00 23:39

There's this famous security researcher um named Rob Graham, um, very, very well-known guy out there. And he did a blog post that I still look back to on a regular basis. And the blog post is why do companies hire such awful CISOs, chief information security officers, right? Why do they do that? And he made the point that most companies are run by people who have no idea what security looks like. So it would be like if I asked you to go build a veterinary practice and go hire a bunch of veterinarians, right? Are you gonna know how to build and hire and look for one? No, right? If I definitely not need to go hire, you know, an architect. How are you gonna know, you know, besides uh some renderings of work they've done, like what makes a good architect? You know, what makes a good billing claims analyst for a healthcare company, right? And it's just you end up with a lot of finance types and CFOs in charge of large retailers because of PE ownership. And inevitably somebody with a finance background is not going to know how to hire a really good CTO. And they end up making, you know, in a lot of cases, poor hires for technical roles. The other problem is, you know, tech talent's expensive these days. You know, good in the US at least, you know, a solid architect is 250, 350K a year, right? It's a lot of money. And for retailers used to paying their employees 10, 12,$15 an hour, and even VPs, you know, if you look around an organization, look at a VP of finance, a VP of HR, you know, you might have an individual contributor architect making way more than you know, VP in some other function. So tech talent really messes with an organization's comp structure. And many retailers, especially retailers, just don't. You know, they'll offer 80k salaries and think that that's plenty. And it's not. It's not. You're not going to hire the right people for that.

James 25:48

We find that happens a lot, particularly with the enterprise organizations where they've got solid um structures in place already, where it's like your grade A, grade B, grade C. This person can't be a certain grid because that's where the manager sits. But it's like, okay, well, there needs to be a little bit of flexibility here. When we have these conversations on a weekly basis with companies and they go to market looking for somebody 25% lower than what the market's paying that person, uh and then we get the well, they should want to work for us because we're a great business. I think it doesn't quite work that way.

SPEAKER_00 26:16

No, it does not at all. And you know, the other thing is with tech talent, given how productive each person can be, and given how especially generative AI makes us all more productive in the tech space, you don't need that many people. You can have a big brand with five billion dollars in GMV running with a 10 or 20 person team. And those hires are going to be more expensive, but you're not hiring a hundred of them, right? That's the key. You should be hiring really smart, really senior people who can plumb things together and build only when necessary, um, rather than just hiring hundreds and hundreds of people across different IT functions. It's a different world than we're used to.

What is the challenge that crops up the most?

James 27:03

So um going I guess going back to the uh the question then and the conversation that you're having with these with these businesses, we seem to focus on retail, but it doesn't necessarily have to be retail. If there was one of those challenges that you feel crops up the most out of all the ones that have been discussed, what would you say uh say it is?

SPEAKER_00 27:22

Around the lack of uh composable adoption? Is that yeah?

James 27:26

Is it is it just is it would you say it's the the dysfunctionalness in general? Is it the reluctance to make change? Is it the will uh the unwillingness to invest in the right people?

SPEAKER_00 27:38

I I don't think this is a problem unique to composable, but what I see is that um folks know they have a problem, they're running on something very antiquated, they know it's not optimal, they know it doesn't work very well, they have all sorts of clearly articulated business challenges, but until it's on fire, they're not going to change it. And a lot of it goes back to internal incentives within an organization. Um, if you're the person who puts your neck on the line and says, we're gonna do a big, you know, uh transformation over the next five years, and even if you go slow, you still have to get a lot of money, typically from a board. You have to tell all of your business stakeholders that their features are going to be delayed at some point. And again, if you do it right, it's not a huge delay, but there's always going to be some impact there, even if it means um very positive foundation for long-term success. Um and if it goes wrong, and any large transformational project within an existing enterprise can go wrong. It happens. The person who put their neck on the line is the one who gets fired for it. And I think it's terrible how companies do that, but that's the way things work. And it's a tough market right now. So folks are are loath to put their name on something that for any reason whatsoever could fail. You know, you could have another COVID and all the budgets get completely restricted. You know, you could have slowdown in business for other reasons, for the economic reasons, for, you know, maybe the merchandising team, you know, is is is not delivering and all of a sudden there's a slowdown and then your budget gets put on hold or halved. Right? That happens. And unless it's burning down, people don't want to change. And what's great for us as vendors is we're now to the point where people have had those legacy platforms installed for 15, 20 years. They've had the pain, and we're starting to see, especially this year, boards really changing and approving funding and hiring leaders, you know, capital L leaders to go in and make these changes. But that's been slowing us down the past couple of years when people were a little bit unsure, is there going to be a recession? Is there not? People were watching the you know, capital expenditures. And um I think it feels like we finally turned the tide on that, and a lot of budget is now getting released, and we're we're back in business again in 2024.

James 30:18

Nice. Do you feel as though um it's almost like the next generation has taken the step into leadership? And um, I was speaking to somebody before, and they felt as though um as the as a new generation moves into a leadership position, they almost bring with it a slight air of like risk to know that risk brings reward. Um, but I think a lot of it comes from a company's um ethos and whether or not they embrace failure, right? Because, like you said, you shouldn't get fired for trying to do something new if it's the right thing to do. It may or may not work.

SPEAKER_00 30:49

There's a whole host of different factors that can go into it. Yeah, no, that's true. And look, there's generally a maturity that's taking place in the market. We've had e-commerce now for basically 30 years, coming up on 30 years, and that's a long enough time that people have built entire careers around this. And there are lots of good people out there now who you could bring in as a CIO or CTO or CEO who have really solid e-commerce experience, right? Way, way, way more than 20 years ago. So there is a new generation. Also, the 20, 30 somethings now working at most of these organizations are digitally native themselves. And as they move into more senior leadership positions, they're changing the culture. So in a B2B organization, for example, somebody who says, Oh, let's make people call into a call center to place an order. You know, 20 or 30-something year old is gonna say, No way in the hell am I gonna have to call in and give my email and authenticate my account and you know, talk to somebody and have them place an order for me. I want to do it myself the same way that I buy stuff on Amazon, right? That's how I'm gonna be purchasing supplies for my business. That's what they want. So a lot of it's generational as well, and that's changing.

James 32:07

Yeah, we're seeing a lot of uh a lot of opportunity in in some of those B2B sectors like manufacturing, for example, which need to go through that transition as they start to hire more digitally native people uh or have hard over the previous few years and then they'll need to bring that change to to replicate it as well. Um, like you said, people just don't pick up the phone and call to make orders anymore.

SPEAKER_00 32:28

There's um some beautiful math to an actuarial table at some point, isn't there?

James 32:33

Say that again, sorry.

SPEAKER_00 32:35

There's some beautiful math to an actuarial table at some point, isn't there? Yeah, yes, there is.

What is the number one thing that you would advise an end customer to check before finalising an SI selection?

James 32:41

Um, so um the next question then, Kelly, I guess is is gonna be uh an interesting one because you sit and obviously vendor side and and have done for some time now. I'm sure you're involved in many conversations where uh people are asking for your opinion on on SIs and and how they should go around it. So if you were sat top of the table at the end customer and picking the SI to assist you through your transformation, what would be the number one thing that you would check before finalizing who you worked with?

SPEAKER_00 33:13

Um I think it's two things. Um first is uh the staffing model that the SI uses. The old school way of doing this was you'd get hundreds of developers, and when I was doing ATG projects, some of these people, some of these projects had literally hundreds of people working on them. That's ridiculous. It was then, it is especially today. With this new world, you need a few really educated people who can work with APIs, events, functions. It is dramatically easier than it ever used to be. So staffing model is one. And I would like to see a dozen, two dozen people high skilled, um, preferably on site if possible. I I do think there's a real value to getting people together in a room and working together. Um, so topic right now, that's for sure. Yeah, that's number one. And the second is is I like to see accountability in some way. And we work with some SIs at Commerce Tools where if they screw up a Commerce Tools implementation, we're gonna have to have a really hard conversation with them. And that could severely impair their ability to ever get work in our ecosystem again. And we go to specific SIs in many cases because we know that they are 100% committed as a company. You know, if one of their customers is having a problem, their CEO will fly in, go to headquarters, sleep on the floor, and eat pizza to get that customer alive and successful. And thankfully that doesn't happen. We're in a pretty low drama world on implementations at this point, and things are much easier than they used to be. But we want to know that if our software is tied to the implementation, if the implementation does not go well, that doesn't end well for us. So we need SIs who 100% deliver and have built a reputation for having a hundred percent success rate. And over time, that's resulted in us having it's a relatively confined list. You know, we make sure that when we are working with someone, it's done. We're working with folks who we are 100% positive can deliver. And if for whatever reason there's a customer satisfaction issue or something doesn't go well, we prune them out of our partner list. That's how it works. So the incentives are aligned for us to have successful implementations, is what I'm saying.

James 35:40

Yeah, and for sure. But you're fortunate enough now, fortunate enough now to have uh been involved in many and have be have worked alongside many of these uh SIs to get a feel for how they have how they approach it, how they deal with problems, and whether or not the CEO would fly over and sleep on the floor and eat pizza, for example, right? But how if you didn't have that kind of um knowledge behind you, what I guess you have would you do, would you be the questions that you would ask them? Would it be the case studies that you would check, or how would how would you how would you get to that standpoint?

SPEAKER_00 36:15

Um, I'd like to see Mark Alliance membership. I think that says quite a bit. I'd like to see accelerators and what work has been done there to build out IP. Um I like to see leadership of an SI being very technical themselves. So an architect turned, you know, owner of a smaller SI, something I really like to see. Um I like to see salespeople who are much more technical and more solution focused, as opposed to the you know, old school, you know, blazer wearing, backslapping, let's go out to a steak dinner kind of salespeople. Um I like to see a specialization in some tech, you know, whether that's GraphQL or React or whatever it happens to be. I like to see SI partnerships um or sorry, ISV partnerships with our other ISVs in the ecosystem. You know, it's a relatively insular world. There are the same, you know, let's call it six, seven uh uh ISV partners that show up in deal after deal after deal. You know, we want to see that our SI partners have interactions and good partnerships and engagements with them as well. We like to see innovation, you know, and and I mean like actual real innovation. Um, and it's great when we have an SI come to us and say, Did you think about this product feature? You know, here's an MVP of that feature.

James 37:42

Okay.

SPEAKER_00 37:43

You know, we like to see that. Um and another thing is we just like good people. You know, we're all human, and there are certainly some SIs that just have amazing employees and executives that we like to work with. And life is too short to be working with jerks.

What are the top three things would you advise a customer on before starting their journey?

James 38:02

That it is, that it is. Unfortunately, there's there's still plenty out there. Um but um, I mean, the along along this there, I like the fact that you ended it on we're all human and we want to work with good people. Um, I think that's often a very undervalued um part of partner selection. And I know from previous conversations that uh there's been some some of our guests, they've actually picked their partners, uh both vendor and delivery partners, based on their their culture and and whether or not they believed they would support them when times got tough in the in the transformation. Yeah, interesting. The long list there are lots of uh useful useful parts. Um let's go back to the positive side of things. And when you're speaking to customers, what are the top three things that you would advise any end customer um to do before starting their journey?

SPEAKER_00 38:53

Um I'd say the first thing is to uh ensure that you have internal alignment because I still on occasion see an organization where the tech side of the house decides to go forward, but business hasn't been bought in yet, or finance hasn't been brought in, or whatever it happens to be. So, first is you know, alignment. Um second, I'd like to see organizations better define what should be built and what should be bought. And what I mean by that is we at Commerce Tools can be used in two ways. First is you could just use us off the shelf as a snap-in replacement for a Shopify or somebody like that, and that's fine. Um, but our larger customers, especially, there's a delineation there between what we do and what they should do. Um, so they should find out what makes them them, what makes them unique, what's their competitive differentiation? What do they do that we do not do? And for things that um are not unique to their business, they should be buying those things a la carte from us and from other mock alliance members. You know, things like shopping cart, right? You're not gonna differentiate on a shopping cart at this point. Content management, you know, we still see organizations try to build their own CMS. It's like why? Why bother with that? You know, loyalty. We've got great uh um vendors out there, one vendor specifically that does loyalty really well. So what we'd like to see is more focus on what is the competitive differentiation, and then the third thing we'd like to see is having alignment on how they select vendors. And we still see some organizations come forward with a big procurement team that is entirely non-technical, and they will deliver, and I'm I'm not joking, they'll deliver a thousand question RFP to us.

James 40:59

A thousand, wow, okay.

SPEAKER_00 41:00

Which is like, why? What's the point, right? Seems a bit overkill. It's ridiculous. And they'll spend 18 months making a selection. And I get it, they're box checking, but you know, they're not buying forklifts for a warehouse, right? This is far more strategic than that. And the torture that they put us as vendors through really gets frustrating over time. And I don't I don't mean a whine, I I don't, but some organizations are just again going back to that dysfunction I'm talking about. You know, when we get a thousand RFP, thousand question RFP, and it's sent from procurement, procurement, like that to us says, uh, do these guys even know what they want, right? Are they mature enough to do anything? Not even alone us, but are they mature enough to do anything? And it's just gonna be it's gonna be a slug. You know, we make it work and we do, we certainly come to the table and you know put our best foot forward, but like tech doesn't work that way anymore. It just doesn't.

James 42:05

You know that thousand question RFP has also gone out to all of the competitors as well, and that process is gonna take ridiculously long.

SPEAKER_00 42:14

They're just not understanding it. And look, I'm fine if it's a couple months, I'm I'm fine if it's a couple hundred questions, but you know, we've had enough time on the market and there are enough resources available to narrow that list down pretty quick. And you should, after a couple meetings, pretty quickly figure out what you want. You know, this isn't some crazy new experimental LLM, right? This is you know, we've had commerce platforms for 30 years. It's a really well-defined category. We've got a handful of leaders that show up as leaders in the magic quadrant year after year after year after year. And some just do this very uneducated spray and pray approach of vendor selection. And it just again, it goes back to us looking at that as a vendor and saying, well, are is is this a customer we even want? Yes, headache incoming, multiple headaches incoming, right? It is. And I just it's so I could I could write a book on the dysfunction I see at retailers. But again, you know, for every one I see that's dysfunctional, I see five that really, really have their act together. And sometimes you'll talk to a CIO or CDO or CTO, and you you're like, ah, this person gets it. This is gonna go just fine. This is gonna be great, awesome partnership. And there's certainly a lot of organizations out there that at this point really have their act together as well. But I just see so much variability in the maturity, the the function, the just everything in retailers, personalities, who they're hiring and promoting, you know, the ownership structures of these organizations and what that what that means, the SI relationships, the ISV partnerships. They have. There's so much variability out there.

James 44:04

Something I hear very often with some of the more established retailers, anyway, is people will join them and they'll say that they're sat in a meeting with the CDO or whoever it might be, and they're asking them a really insane question. And it's like, well, how has this person even got to the role of CDO? And it turns out that they've been there for 25 years and they started in one role and they've just kind of been promoted due to longevity in the business. And I mean, it's no coincidence that more often than not those are the companies that that have problems later down the line. Uh, we're seeing it far less now, but it's certainly something I heard a lot of over the last 10 years.

SPEAKER_00 44:41

It's called Peter Principle. Peter Principle. I've not heard that before. You rise to your level of incompetence. You get to be a really, really, really good developer and then you get promoted to an architect, which you may or may not be any good at. And then let's say you're a really good architect and then you get promoted to an engineering manager. Well, then you're not a good engineering manager, but that's where you're stuck career-wise because you don't want to step down again to architect.

James 45:06

Yeah, good.

SPEAKER_00 45:07

And you see that in the executive side as well, where people get promoted and promoted and promoted until they hit a job where they just aren't any good anymore at that job.

James 45:16

But they stay there because they get paid well. Yeah.

unknown 45:21

Yeah.

Where do you see the market going from here?

James 45:21

There we go. Yeah, it's definitely it's like I said, and we're not seeing it so much now, but it's certainly had many a story on that basis over the last 10 years. Um which probably how we've got to the state where we are with some of the the big retailers that are struggling. But hey, there's probably a story for another day, I guess. Um so I guess let's wrap this up then, Kelly. So where do you see the um the market going from here?

SPEAKER_00 45:46

Composable is very much mainstream now. People are in many cases only considering composable platforms, which is great. The legacies are dying off. And over time, I think we're gonna end up in a market where it's just two or three of us that gain an outsized market share in the same way that when cloud became a thing, you know, you end up now with three vendors at scale: GCP, AWS, Azure. Those three vendors at scale get you know 95% of the market share. And we saw the same thing back in the day. It was Hybris and ETG and WebSphere Commerce, and then later demandware. And we're seeing the same dynamic now where it's just a couple of us in the market. And I think that's a great thing for for us is because we happen to be in that list and leading that list. Um, so we're gonna see further consolidation. I think there are a lot of second and third tier platforms out there that are gonna get merged with CMSs or go away entirely or turn into more lifestyle businesses, and that's fine as well. Um, so I just think we're really mainstream now, and this is just gonna continue to be even bigger, and we've got years and years of growth. We're at about a 13% compound annual growth rate. E-commerce is a percent of total retail in the US at least is only like 16%. And in the UK, it's like 35%. Um, in like Korea, for example, it's what 50% somewhere in that neighborhood. So we've got a lot of growth ahead of us as an industry. And um I'm looking forward to uh to continuing with this.

James 47:27

Yeah, it's an interesting point you raise about the consolidation because um you right now, particularly in the UK, there are the most commerce platforms that I've ever seen. Um, there's constantly new platforms trying to break into the UK market recently. We've had scale, we've had Shopline, um, we've got Commerce Layer. Obviously, there's there's big commerce shopify, you name it, there's probably 10 like relatively well-known names trying to break into the the UK commerce space right now. So um I feel some consolidation would be good in your opinion. Uh obviously, Commerce Tools is going to be the the front runner of all of this, right? But uh, who else do you feel would be the the the bigger challenges to commerce tools, let's say?

SPEAKER_00 48:12

Well, first I'm a big believer in the old saying that value is created by what is different, not what is incrementally better. And there's so many platforms now entering the UK market. Um, and I get it, it's it's the UK, it's a it's a very special market, but and I think many of them are fine offerings, but that's not enough. It's not enough just to have a reasonable offering. You have to have something that is fundamentally different, not something that is just incrementally better. And they in many cases are not either. They're not better because they're brand new to the market and they don't have years of feature development. Um, and they're certainly not fundamentally different. So they're kind of in a tough spot, and I think they're just gonna negotiate prices all the way down until they get put out of business. And that's fine. Um, I think, and I've coached some of these platforms to find a niche of some sort, you know, way too many of them just try to enter the broad mass market. And I think that's that's going, you know, head first into a buzzsaw if you do that, because what's your niche? And I'll give you examples, you know, if you do med tech, you know, somebody should build a HIPAA platform uh for med tech. And we've got some pretty big plans in that space. Um, but you know, that would be interesting. If you did one for automotive, if you did one for B2B manufacturers on Azure in the Midwest, you know, that would be really interesting. You know, high-end fashion. But like you've got to find a problem that you uniquely solve really, really well. It's not enough just to be another platform entering the mass market of UK retailers, right? That doesn't work. You've got to find that niche. And our niche for a long time was headless, right? That's the one thing we did. We invented headless, we're pioneers in it. That's our thing, right? And that allowed us, you know, it goes back to the old book, Crossing the Chasm. That allowed us to cross the chasm. That was our bridge across, right? But so many don't have that differentiation. Um, and then to your question about who else, you know, I really see, I think the big one's gonna be Shopify. And I've seen them poke their head into our market here and there, but generally speaking, we're still in different markets selling to different customers, and they sell really well to the SMBs, they sell really well to the influencer brands. Um, and I think they're a different business than ours. They are making the vast majority of their revenue from skimming payments and forcing their brands into using Shop Pay. Um, and for SMBs, I think that's just fine. But I think that's going to limit them as they go up in enterprise because I know they really want those big retailers to use ShopPay and it's expensive. It's three and a half percent. And on top of that, there's a per transaction fee, and that adds up. You know, a lot of our customers are down to one and a half percent, you know, transaction fees with their PSPs, and that's a big difference. That's a really big difference in price.

James 51:23

Huge difference, yeah. When you're doing millions and tens of millions of transactions, right?

SPEAKER_00 51:27

If more than that, so so I think they're their reliance on payment volume and their ability to monetize that is in direct opposition to what enterprises want. I also think they have some work to do on the product to get to that point. Um, it's gonna take some some quality work there. Not insurmountable, um, but I'm not gonna discount them as a team. I think they're they're fantastic, but I think their commercial model uh and their product are fundamentally misaligned with what big enterprises need, and that's where we uniquely sell. Sell down market as well, and it's great, but you know, our sweet spot is the complex multinationals, the enterprises.

James 52:08

So, what they need then is someone like you to head over there, help them with their product itself and take them into the the next stage, right?

SPEAKER_00 52:16

Dirk would fly to Wisconsin and strangle me if I left, so I cannot and would not do that to him. No, no, that means that's a thing called loyalty in our business.

Will we start to see CRMs and ERPs broken down in a similar way in the coming years?

James 52:26

Yeah, and it's great. I mean, you can see that, right? You with Oracle for for many years, and you've been with Commerce Tools now for nearly eight, and it's be it'd be really interesting to see what the next eight years bring, right? Because there's as you said earlier, there's so much more that commerce can go, uh so much further commerce can go, sorry. Um I know we're we're tight for time, but just wanted to ask you one final question. And is that do you, in your opinion, will we start to see CRMs and ERPs uh broken down um in a similar way over the next couple of years?

SPEAKER_00 52:56

Let's hope so. Um, that is the oldest, nastiest tech. And what's interesting is any company founded in roughly the past 10 years is almost by definition mock compliant. And you can tell a lot by a mock uh a mock alliance applicant's acceptance rate just purely based on their founding date. If they are past 10 years, they're you'd have to screw up pretty hard not to be mock compliant if you were built in the past decade. So we as um we as a company like to see organizations um you know, we like to partner with relatively newer founded organizations because their tech aligns better with ours. And we do partner with some newer ERPs and CRMs that are more native mock and more cloud-based. So yes, I fully expect to see it. Software lasts for 20, 30, 40 years, you know, if that. Um, I think on the commerce platform side, they've had roughly a 20, 25 year lifespan, and that's great. Um, and on the ERP side and CRM side, you know, we see the same dynamic. It's 20, 25 years, you know, maybe 30, maybe 40 if you're really pushing it. But you know, a lot of that stuff was put in in the 80s. So we're getting to that. We're getting there, we're getting there, and then just naturally they will switch to newer vendors, which by definition are mock-based.

James 54:25

Nice. All right. We'll watch this space and then I'm gonna connect you with somebody after this because I know he's he's very keen to get involved in that next wave of uh of uh CRMs. So uh I'll I'll I'll I'll I'll tell them to get in touch. Um, Brill, well, look, thank you so much for your time, Kelly. I know you're a busy man. Um, but um as always, share some great insights, one of the the most educated people in the space, in my opinion. So I really appreciate you putting a bit of time aside to to join me and talk through the move to composable and everything else that we've discussed today. Thank you. Thanks for having me. Brilliant, and to our listeners, thank you for joining again. I hope you enjoyed the episodes. And uh, if you can like, share, subscribe, and uh post across your network, if it can help one person make the right decision when it comes to digital transformation, it's doing its job. Thanks again, and we'll see you soon.