Does Digital Transformation Really Happen Faster in the US?
I recently got back from DMEXCO – Europe’s top trade show for digital marketing – where I had the chance to chat with top experts in the field.
The issue I’ve long wanted to discuss was whether the rumors are true: Is digital transformation really happening faster in the US than in Europe? Is America just that much better at innovation, particularly around eCommerce? And if so, why?
So I convened a panel of my favorite thought leaders in the industry: Jim Stirewalt, who recently joined me at CoreMedia after a long tenure at both SAP’s Retail Group and IBM Watson Customer Engagement and Alexander Graf, CEO of Spryker and widely regarded for his influential blog “Kassenzone,” which analyzes online strategy and eCommerce.
To set the stage, I started with some numbers. I wanted to highlight the astronomical sums that startups are fetching on the market, including:
- Chewy.com – acquired by PetSmart for $3.4B
- Jet.com – bought by Walmart for $3.3B
- Dollar Shave Club – purchased by Unilever for $1B
What’s driving these insane valuations? What do US eCommerce companies know that we in Europe don’t?
Needless to say, both Jim and Alex had some fascinating insights here. For example, Jim pointed out that America’s consumer-driven economy – Americans spend nearly 2x what Europeans do online – really goes back to the country’s founding and the idea of individual liberty.
On the other hand, Alex pointed to the different management culture here in Europe, where there is often less appetite for risk-taking around investments for companies without a well-proven business model.
Good stuff, but that’s just a sampling. The whole panel is well worth a watch. And I would love to hear your thoughts.
Knud Kegel: Then I ask Jim and Alex to join me on stage. So we have a. 20 minute session here and just waiting for some more people to join us. I will slowly start it. In case you are not sure where you are. This is a panel about. E-commerce in general from a global perspective and the belief we have in Europe that you ask is so much faster and. Really drives. How to do online business. And I think the main reason. Why this is some. Ideas I will pitch here and then we use you to experts to go a little bit deeper and see what it is. So our first expert is Jim Jim is our current acting general manager for North America. But he has a long agency background and then he was also with SAP retail and afterwards for IBM customer engagement and that on a global perspective. So he knows a lot of large retailers. He worked with a lot of pure online players and brings in this All American perspective. Welcome Jim. Thank you. And on the other side for the German perspective we have Alexander Graf. Alex’s famous expert for e-commerce with his block kassenzone.de which is all about e-commerce strategy eCommerce. Why people are surviving or not so good in e-commerce. But he is also co-founder and acting CEO of Spryker, which is just across the aisle and this is why he made a long long way for all especially you. Thanks Alex for joining.
Alexander Graf: Thanks for the invitation. This is the most impressive conference stage on a booth here in this hall.
Knud Kegel: Thank you. So. Just a little intro from me to get started. So we all know America is a country of big unbelievable opportunities and we see all the big news what’s going on there. And we also in e-commerce we have the biggest exits there with Amazon and Zappos. So it’s it’s really big big business over there and showing numbers, we are not really used to here in Europe like just recently it was we PetSmart acquisition of chewy. It was just I would say pet supply and be a little bit dog food.
Jim Stirewalt: But it was billions of dollar business and no one mentioned that they have cat toys too.
Knud Kegel: Ahh, okay. They one thing that was a pretty famous moment was the acquisition of Jet.com which was also several billions or like Dollar Shave Club which really disrupted an industry and then actually was acquired by Unilever. And. So we see the opportunity there and when we look into the per capita spend we actually see that in the US people spend three times as much than we spend a year in Germany online. Yeah. While in general it’s both really leading economies. People have money to spend. People like shopping but something seems to be. Different in the U.S. compared to Europe. And. So the thing is is it just a faster transition or as a just a different market. And so it’s really what has been a transformation. Driving in the U.S. versus Europe. And maybe Jim you have some thoughts. Why you think U.S. is kind of ahead. We have seen many other countries and then we will use Alex insights.
Jim Stirewalt: Well I think the question that I think we’re seeing a transformation it’s. Going now beyond the U.S. prior to my time running global sales at Watson customer engagement for IBM. I traveled around the world a lot and I saw a lot of the same disruption happening in different cultures and different companies. They were a little bit different though right. You look at India. It’s all about mobile right. So a massive transformation is occurring of how customers are buying. The one thing that is leading this that’s been a bellwether within the US and this actually goes back well before even the creation of the Internet. And it’s a consumer driven economy. I mean you can go back to the founding fathers and it was about the individual it was about the the. The person on the street. And. Quickly. Culturally something created which is it’s about me. I know what I want. I know when I want it I want it now. And so it becomes a very consumer. Focused oriented culture. Yeah. Now I’ll say something that I think what has helped accelerate that within the Yes and again I don’t think the U.S. has the corner I’d like owns this by itself. It’s certainly manifested itself in some of these valuations that have occurred. Some of these transactions that have occurred but it’s rooted in an aggressive nature and a higher risk taking. Posture. And it’s been fueled. By two words. Silicon Valley. Or you could say Palo Alto and all of this I guess you’d call it. The. Growth Capital. Has found a way to get to these investments faster. To grow these companies faster so just the the. The. Pure. Aggression that’s been focused in focusing this capital. Faster and more aggressively I think has helped. Take that and turn it into gain and for these companies. And it’s been obviously then. Driven by this consumer oriented culture. So again it’s spreading globally. We have three billion people between China and India. That is being unleashed that same kind of aggressive capital investment mode you’re going to see that really impact the global economy.
Knud Kegel: OK. So Alex do you think that’s the main difference. That’s really on one hand the aggressive early shoots amount of money and then this kind of shopping attitude or do you see other kind of factors coming in there.
Alexander Graf: So if you look at the sheer data and compare like what kind of successful companies in the digital space are in the U.S. and what are in Germany it became clear that the approach of the American way was much more successful. Though I think the reasoning behind this is not just only pure customer focus. I think that’s. What still B2C and B2B companies are learning from Amazon and the likes. But what is more important is that I think the management structures in the European market especially the German markets is very different from what I’ve seen and in U.S. companies. So if you’re looking into if you’re looking into the educational background of German companies even like big companies how people decide or come to decisions. They have been very successful and in environments where they just scale an existing business model where they have been presented like five options which they could choose from. And each option has like a a pro list economist as and spend plan and like a probability winning probability and then usually they’ve chosen something that was in the middle. So now the problem is additional opportunities. We have like not only five options you have probably like 20 or 30 options none of the options has like a winning probabilities No just don’t know what works and if it works if there will be a payback and if there will be a payback how big it is. So now it’s like the old the capability the management capability the that let’s say many German companies was optimized for this. McKinsey. Boston Consulting Group approach. Yeah. So that options police now decide what kind of money you want invest. Yeah. And I always like to share options so you need to be like kind of an optimism optimist could choose from let’s say let’s go rather with left options or rather alive. Right. Options. There is no to it set which you can apply for those options.
Alexander Graf: So essentially what we are saying right now on digital is that all you’ve learned in business administration studies is kind of worthless. And I think for like American management style that’s easier to apply its mind. It’s might. You can follow now a little bit your gut feeling it’s like very very customer focused and feel like if I talk with German companies about the options. OK. Now then let’s please optimize and make. Let’s let’s make all digital options just cheaper because you can’t decide which are better. The answer is usually Yeah cheaper is good. But Mr Goff still you have to say yes which option I should took and that’s I think is one of the main differences.
Jim Stirewalt: Well it’s maybe the German way of dealing with uncertainty. It’s very German right. Very process oriented. Now I will tell you that I know a company very well a German company that has. Taken a different approach. SAP. Go back 15 years. They made their decision on the roadmap very similar to what you just described. You know how they make their decision on the roadmap today. It’s called a slug. It’s their users group. Yeah. Literally their users group defines what that product is going to be. There’s they certainly do market evaluation and do all the term things they would do but ultimate if you look at S&P it is a company that isn’t braced. And I hate to call it the American way because it sounds so. I don’t know. I don’t like it but they’ve taken that model and SAP has gone to the squad and I think the very sad thing right now what is happening is that if it becomes more and more clear the debt the way to go like pure customer focus in the SAP Case it’s like B2B software customers even though they are one of our main competitors. But it’s a good way to go and and it’s clear that you have to take a lot of bets and you need to calculate in your your whole function that some of these debts will be very expensive and will not work out. So and even though it became clear now just by empirical data. Even if I go now to other gem and let’s say to the next as AP or to buy us off or to other companies and even explain them that way. That’s how it works right now. All the people there will not with a head and say yeah. That’s just that’s the way we should go. That’s how we should act. Please Mr. Graff. Show me these three options I should I should go with.
Alexander Graf: That’s still the issue that’s still being on now. Yes, sorry Jim.
Jim Stirewlt: No I just want to throw it this is great dialogue and I’m interested Alex in your perspective of something I call creative destruction. We talk a lot about just disruption. Something I think we’ve seen a lot of within markets is this destruction. Look at Uber air being be new ways to consume. Purchase things to service services like home markets and industries have been upended. Those didn’t happen by doing what you’re talking about right. By looking at all your different apps. So how do you find a little bit. They literally. Destroy it and they start with something new.
Knud Kegel: Yeah. But isn’t it at the end just the pure money that actually enables these kind of options.
Jim Stirewalt: No no. It’s the idea. It’s in if you have. Now you it’s chicken or the egg because you still have your capital right. But it is the route. The genesis is the idea that you have a market that’s addressable and that has a buying base right. Yes. That will fuel the money that will fuel that.
Alexander Graf: I think it do. I think it was a money late related question like 10 years ago when Silicon Valley started. But like in the low interest rate phase we are right now for 10 years so money is especially for bigger companies. It’s available super super super cheap and like a bigger bigger company like Siemens issued the bond I think last week with we negative interest like a company so they can literally raise hundreds of billions more or less as a settlement and build stuff but they don’t know how to deploy it and let’s take the uber examples or I’m living in a small city called Kiel in Germany and there was no Uber or MyTaxi around for four and then MyTaxi was introduced though the EPA’s not available in queue since 6 months and that was like the community of taxi drivers asked by the local newspaper. Do you think that’s a threat or not. And. It was clear what how successful it’s now the citizens committee of Taxi Driver said no. We don’t see a big market potentially in Q because our customers say they shop local and then it’s. So I think this explains a lot like the. It’s more like an attitude kind of thing it’s not money related it’s not strategy it’s it’s really how you do it and not what you do. And then that’s also like the main difference. Because that was the penalty question. Yeah. In the U.S. and Germany. That’s really bad.
Knud Kegel: And just one other aspect we see it’s actually the size of the addressable market. So U.S. is pretty strong and you know we have it for restaurants and everything. One thing that works get scaled out immediately to an unbelievable amount of copies of that. Yeah. And so how is it here from your experience. Alex in Germany, being a decent European market. You know it’s like France U.K. it’s it’s pretty good markets but of course it’s not the same level like the U.S. that you reach 400 million people without any policy you see that’s still a limit or I think that’s the limit for capital B2C business models where you need economies of scale though that help you monitor growth and in a lot of B2B businesses that’s not necessary.
Alexander Graf: And then there is no European market at all. So I was often asked by U.S. companies if I know what should be our go to market strategy Europe and then we have to explain there’s no common market. You have to decide what is your core customers. Are they in Germany or the UK either in France and you have to go market by market so. If you’re like in a business environment where where you can where you can create local economies of scale that protects. It protects you from your competitors that’s good enough. If you’re in a market B2C driven market you are an economy of scale that are globally related. That’s very hard to achieve in Europe but. Then again. We don’t have to look into Silicon Valley. Now we have to look to China where other providers are in local markets that are. Just in the Shanghai area alone. They are like living 80 million people like all over Germany. Exactly this market can prove much faster than the whole American market. It’s like a new social media application will work. We’ll work on it. That’s where the ammunition comes from but it depends on the bit what kind of business you want to be. There’s enough advantages in the German market that you can apply to your business. Yeah.
Knud Kegel: So it’s not as limiting as attitude you would say, right?
Jim Stirewalt: No. Do you see direct to consumer impacting the European market in the U.S.. It’s been interesting dynamic that we’ve watched occur. And they’re quite a dichotomy. One of them is the surge it’s a bricks and mortar right. Look at Amazon buying whole foods. We know that Millennials are skeptics. They want to touch it and see it. Let’s say purchase of a electronic device or find clothing or couch for your living room. So bricks and mortar. Is probably more relevant than we ever thought it would be. Probably 15 20 years ago we thought. Bricks and mortar is dead. Everything we buy is going to be online. Not true. Look at the resurgence of I mean amazing retail experiences. I don’t know if you have ever seen a Restoration Hardware. If you come to the states you should visit the restoration hardware. It’s really an experience right. But it’s also matched online so it truly is this full 360 degree customer experience right. So you have that occurring but similarly on the other side is this huge growth that’s occurring in the direct to consumer Warby Parker. Undone watches custom watches for three hundred dollars built to your specifications on a Web site. Custom jeans. From Mott and Bo and all these other things direct to consumer and I find that an interesting dichotomy and I’m interested from your perspective. Sorry I don’t mean to be interviewing your last year it’s your guides. Do you see the similar dynamics and do you see direct to consumer in Europe?
Alexander Graf: Maybe being away through some of these localization issues that you were talking about not as in the US so if discussing a lot these opportunities all of these options that we have that we see from the US market how that can be applied to the German economy. But most businesses are way behind there are a couple of business to do like a very very good job by focusing on just one channel so maybe a brick and mortar tenant or the online channel but we don’t see economies or we don’t see businesses doing the same thing like you described. I don’t see them. They might be like. Some businesses that do a good way but this is a small small example. It can’t be taken for like a best practice case like the bigger parts of the industry and that’s still an issue again here. Even though Amazon or that under or whatever it’s successful you can’t apply this old best practice approach by just copying them into you like business because when you are life with the alleged new version of your business then it’s already outdated. It’s. Again here it’s only a how question how how they evolve and a lot of like. Classic approaches old approaches failed. I don’t think the cool thing now is and I think that’s why I most particularly trust it is in this discussion here. Now it became clear now it’s not now it’s not virtual anymore. It became clear that old strategies failed old message fear and now the management knows it. And now they need to act. And that was different like two three four or five years ago.
Knud Kegel: Yeah. So there’s definitely this change of moral let’s say consciousness about where companies are and change but also like here in Germany we have a lot of these good old retailers brick and mortar stores seeing online just as a channel and. Being very careful for many many years and. Now the kind of. Numbers prove them wrong. So they are trying to catch up. So what we see in the US is that a lot of the good old brick and mortar stores are very successful online as well. And we don’t see it to the same extent here. So do you think it’s. Just a little bit lagging behind and it will come here as well. Or are they kind of too late actually to make that happen?
Alexander Graf: Yeah it’s too late. It’s just not so possible. The the the level of excellence you have to achieve just to fulfill it like the. The DVD the B hygiene barrier to to do when it comes to like online experience is already so high that even with luck it’s a two or three billion dollar B to C retailer. It’s too late. You just can’t hire people fast enough so the competition never go to high so you need to use your now. You need to go now with a couple of partnerships. All you have to partner with would not be what the. Nets become like the Knicks the land No.4 whatever needs industry on our own by investing let’s say 100 million 20 million but that it’s too late. Definitely.
Jim Stirewalt: But to be fair some of the American reach bricks and mortar retailers. They had those same struggles right. And. As some of them learn faster than others. Others didn’t give up and have established a pretty healthy online business. Target is a good example of one right. They first came out they tried to fulfill it all their own. And then they realized their best bet even though it was going to cut into their margin was to use a three people a third party. Right. So I would encourage European companies that feel like they missed the boat. If they have a addressable market that has customer loyalty it’s worth that jump to that that business model. Yeah definitely about the most German companies that are now sitting on.
Alexander Graf: Already failing brick and mortar business models are trying to transform the fading model into online and let’s not working out not even the USO not off like cases Nordstrom Macy’s. Yeah it’s not working out from a peanut perspective at all.
Jim Stirewalt: Yeah I know but I think the one global trend we see is the idea of omni channel not because you wear kind of a classic brick and mortar but really actually also more and more pure online players opening the brick and mortar shops more this idea of pop up shop right. So you basically still have one Shetland which is online but physical is kind of part of that right. So it’s more driven meant that we are back to control an attitude so it’s driven by that online for us attitude and the physical channel follows. Because at the end it’s a lot of physical products. And we still see a lot of people who like to touch things. At least from time to time right.
Alexander Graf: Yeah but it’s not like it’s not like the main rescue channel though. For me it’s like an educator if like a company I’m invested in like on the Stock Exchange. It’s investing in brick and mortar like a form of you online. I said all this talk. At once so that’s usually like it’s a it’s just a sign that a day they run out of ideas how to grow bigger like Amazon market. Yeah same their own result.
Jim Stirewalt: I don’t know that a lot of people would say that their purchase a whole foods though when it happened people were like why why would you buy a grocery store. Well because they wanted to have locations near their customers to be able to distribute perishable goods. Right. So is a totally different business model. Yeah. So what’s interesting is it’s also provided a link to Amazon to where you can go take your returns back to. Right. So I think physical work physical beings as much as we live in a digital space. We still want to touch things. We want that people in our neighborhood in the United States. And I live in. We call it X Serbia kind of suburban. America. The amount of banks that are being built within a mile and a half of my house is unbelievable. I mean there’s six new banks branches. Because I could do business just as easily. Matter of fact I do all my banking with my bank online but they believe they need a physical presence that you can see. So. It’s going to be interesting as this plays out. Yeah. One thing that I think this is a little bit of a plug for some recent writing that our CEO Soeren Stamer did. Which is about being agile fast and iconic, right. And it’s interesting as I was kind of preparing to have this chat. I was thinking that really that really applies to this conversation because if you look at not just in the United States but globally the companies that are going to succeed. Have that. Yes they have the ability they have agility meaning they’re able to move quickly make decisions. And then they’re able to do it with speed. But the one thing they all have in common is they are a very recognizable iconic brand. There’s something about it that’s one thing I love about Spryker. You have a very iconic image. I mean you’ve got a tattooed on yourself right. I mean you couldn’t be any more iconic than that right. So I think those three things I think are really good guideposts for us. And so I’d encourage anybody. It’s a really nicely written it’s a brilliant. Now I’m not just plugging him because he’s my boss but I’d encourage everybody to read that blog it’s worthwhile.
Knud Kegel: Yeah I think this film was actually perfect summer region because we kind of agree but is this different yeah. So there was no dispute. Germany ruled the world and how to do online transformation. The US has something. And it’s at the end its attitude. It was the money in the beginning. So this is how it started where actually a lot of risk taking and attitude was shaped and also scale. But now money is a global thing. It’s free or actually you get paid if you take it. So at least some people believe in you. You can actually do all kinds of things. And this brings us again to attitude and culture. Cause when you’re iconic and you’re fast then you will also get for money and then you will find the addressable market. So if this guys thanks a lot for being here and just a little reminder it’s just one hour left and then we will have Vladimir Kaminer here for a Russendico and wodka shots – hope to see you later.