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 willslowly 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 inEurope that you ask is so much faster and. Really drives. How to do onlinebusiness. And I think the main reason. Why this is some. Ideas I will pitchhere and then we use you to experts to go a little bit deeper and see what itis. So our first expert is Jim Jim is our current acting general manager forNorth America. But he has a long agency background and then he was also with SAPretail and afterwards for IBM customer engagement and that on a globalperspective. So he knows a lot of large retailers. He worked with a lot of pureonline players and brings in this All American perspective. Welcome Jim. Thankyou. And on the other side for the German perspective we have Alexander Graf. Alex’sfamous expert for e-commerce with his block kassenzone.de which is all aboute-commerce strategy eCommerce. Why people are surviving or not so good ine-commerce. But he is also co-founder and acting CEO of Spryker, which is justacross the aisle and this is why he made a long long way for all especiallyyou. Thanks Alex for joining.
Alexander Graf: Thanks for the invitation. This is the most impressive conferencestage 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 wesee all the big news what’s going on there. And we also in e-commerce we havethe biggest exits there with Amazon and Zappos. So it’s it’s really big bigbusiness over there and showing numbers, we are not really used to here inEurope like just recently it was we PetSmart acquisition of chewy. It was justI would say pet supply and be a little bit dog food.
Jim Stirewalt: But it was billions of dollar business and no onementioned that they have cat toys too.
Knud Kegel: Ahh, okay. They one thing that was a pretty famous moment wasthe acquisition of Jet.com which was also several billions or like Dollar ShaveClub which really disrupted an industry and then actually was acquired byUnilever. And. So we see the opportunity there and when we look into the percapita spend we actually see that in the US people spend three times as muchthan we spend a year in Germany online. Yeah. While in general it’s both reallyleading economies. People have money to spend. People like shopping butsomething seems to be. Different in the U.S. compared to Europe. And. So thething is is it just a faster transition or as a just a different market. And soit’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. Wehave seen many other countries and then we will use Alex insights.
Jim Stirewalt: Well I think the question that I think we’re seeing atransformation it’s. Going now beyond the U.S. prior to my time running globalsales at Watson customer engagement for IBM. I traveled around the world a lotand I saw a lot of the same disruption happening in different cultures anddifferent companies. They were a little bit different though right. You look atIndia. It’s all about mobile right. So a massive transformation is occurring ofhow customers are buying. The one thing that is leading this that’s been abellwether within the US and this actually goes back well before even thecreation of the Internet. And it’s a consumer driven economy. I mean you can goback to the founding fathers and it was about the individual it was about thethe. The person on the street. And. Quickly. Culturally something created whichis it’s about me. I know what I want. I know when I want it I want it now. And soit becomes a very consumer. Focused oriented culture. Yeah. Now I’ll saysomething that I think what has helped accelerate that within the Yes and againI don’t think the U.S. has the corner I’d like owns this by itself. It’scertainly manifested itself in some of these valuations that have occurred.Some of these transactions that have occurred but it’s rooted in an aggressivenature 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 callit. The. Growth Capital. Has found a way to get to these investments faster. Togrow these companies faster so just the the. The. Pure. Aggression that’s beenfocused in focusing this capital. Faster and more aggressively I think hashelped. Take that and turn it into gain and for these companies. And it’s beenobviously then. Driven by this consumer oriented culture. So again it’sspreading globally. We have three billion people between China and India. Thatis being unleashed that same kind of aggressive capital investment mode you’regoing to see that really impact the global economy.
Knud Kegel: OK. So Alex do you think that’s the main difference. That’sreally on one hand the aggressive early shoots amount of money and then thiskind 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 whatkind of successful companies in the digital space are in the U.S. and what arein Germany it became clear that the approach of the American way was much moresuccessful. Though I think the reasoning behind this is not just only purecustomer focus. I think that’s. What still B2C and B2B companies are learningfrom Amazon and the likes. But what ismore important is that I think the management structures in the European marketespecially 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 educationalbackground of German companies even like big companies how people decide orcome to decisions. They have been very successful and in environments wherethey just scale an existing business model where they have been presented likefive options which they could choose from. And each option has like a a prolist economist as and spend plan and like a probability winning probability andthen usually they’ve chosen something that was in the middle. So now theproblem is additional opportunities. We have like not only five options youhave probably like 20 or 30 options none of the options has like a winningprobabilities No just don’t know what works and if it works if there will be apayback and if there will be a payback how big it is. So now it’s like the oldthe capability the management capability the that let’s say many Germancompanies 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 anoptimism optimist could choose from let’s say let’s go rather with left optionsor rather alive. Right. Options. There is no to it set which you can apply forthose options.
Alexander Graf: So essentially what we are saying right now on digitalis that all you’ve learned in business administration studies is kind ofworthless. And I think for like American management style that’s easier toapply its mind. It’s might. You can follow now a little bit your gut feelingit’s like very very customer focused and feel like if I talk with Germancompanies about the options. OK. Now then let’s please optimize and make. Let’slet’s make all digital options just cheaper because you can’t decide which arebetter. The answer is usually Yeah cheaper is good. But Mr Goff still you haveto say yes which option I should took and that’s I think is one of the maindifferences.
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 knowa 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 whatyou 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 groupdefines what that product is going to be. There’s they certainly do marketevaluation and do all the term things they would do but ultimate if you look atS&P it is a company that isn’t braced. And I hate to call it the Americanway because it sounds so. I don’t know. I don’t like it but they’ve taken that modeland SAP has gone to the squad and I think the very sad thing right now what ishappening is that if it becomes more and more clear the debt the way to go likepure customer focus in the SAP Case it’s like B2B software customers eventhough they are one of our main competitors. But it’s a good way to go and andit’s clear that you have to take a lot of bets and you need to calculate inyour your whole function that some of these debts will be very expensive andwill not work out. So and even though it became clear now just by empiricaldata. Even if I go now to other gem and let’s say to the next as AP or to buyus off or to other companies and even explain them that way. That’s how itworks right now. All the people there will not with a head and say yeah. That’sjust 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’minterested 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 ofwithin markets is this destruction. Look at Uber air being be new ways toconsume. Purchase things to service services like home markets and industrieshave been upended. Those didn’t happen by doing what you’re talking aboutright. 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 thatactually enables these kind of options.
Jim Stirewalt: No no. It’s the idea. It’s in if you have. Now you it’schicken or the egg because you still have your capital right. But it is theroute. The genesis is the idea that you have a market that’s addressable andthat has a buying base right. Yes. That will fuel the money that will fuelthat.
Alexander Graf: I think it do. I think it was a money late relatedquestion like 10 years ago when Silicon Valley started. But like in the lowinterest rate phase we are right now for 10 years so money is especially forbigger companies. It’s available super super super cheap and like a biggerbigger company like Siemens issued the bond I think last week with we negativeinterest like a company so they can literally raise hundreds of billions moreor less as a settlement and build stuff but they don’t know how to deploy itand let’s take the uber examples or I’m living in a small city called Kiel inGermany and there was no Uber or MyTaxi around for four and then MyTaxi wasintroduced though the EPA’s not available in queue since 6 months and that waslike the community of taxi drivers asked by the local newspaper. Do you thinkthat’s a threat or not. And. It was clear what how successful it’s now thecitizens committee of Taxi Driver said no. We don’t see a big marketpotentially in Q because our customers say they shop local and then it’s. So Ithink this explains a lot like the. It’s more like an attitude kind of thingit’s not money related it’s not strategy it’s it’s really how you do it and notwhat you do. And then that’s also like the main difference. Because that wasthe 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 ofthe addressable market. So U.S. is pretty strong and you know we have it forrestaurants and everything. One thing that works get scaled out immediately toan unbelievable amount of copies of that. Yeah. And so how is it here from yourexperience. Alex in Germany, being a decent European market. You know it’s likeFrance U.K. it’s it’s pretty good markets but of course it’s not the same levellike the U.S. that you reach 400 million people without any policy you seethat’s still a limit or I think that’s the limit for capital B2C business modelswhere you need economies of scale though that help you monitor growth and in alot of B2B businesses that’s not necessary.
Alexander Graf: And then there is no European market at all. So I was oftenasked by U.S. companies if I know what should be our go to market strategyEurope and then we have to explain there’s no common market. You have to decidewhat is your core customers. Are they in Germany or the UK either in France andyou have to go market by market so. If you’re like in a business environmentwhere where you can where you can create local economies of scale thatprotects. It protects you from your competitors that’s good enough. If you’rein a market B2C driven market you are an economy of scale that are globallyrelated. That’s very hard to achieve in Europe but. Then again. We don’t haveto look into Silicon Valley. Now we have to look to China where other providersare in local markets that are. Just in the Shanghai area alone. They are likeliving 80 million people like all over Germany. Exactly this market can provemuch faster than the whole American market. It’s like a new social mediaapplication will work. We’ll work on it. That’s where the ammunition comes frombut it depends on the bit what kind of business you want to be. There’s enoughadvantages 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 Europeanmarket in the U.S.. It’s been interesting dynamic that we’ve watched occur. Andthey’re quite a dichotomy. One of them is the surge it’s a bricks and mortarright. Look at Amazon buying whole foods. We know that Millennials areskeptics. They want to touch it and see it. Let’s say purchase of a electronicdevice or find clothing or couch for your living room. So bricks and mortar. Isprobably more relevant than we ever thought it would be. Probably 15 20 yearsago we thought. Bricks and mortar is dead. Everything we buy is going to beonline. 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 thestates you should visit the restoration hardware. It’s really an experienceright. But it’s also matched online so it truly is this full 360 degreecustomer experience right. So you have that occurring but similarly on theother side is this huge growth that’s occurring in the direct to consumer WarbyParker. Undone watches custom watches for three hundred dollars built to yourspecifications on a Web site. Custom jeans. From Mott and Bo and all theseother things direct to consumer and I find that an interesting dichotomy andI’m interested from your perspective. Sorry I don’t mean to be interviewingyour last year it’s your guides. Do you see the similar dynamics and do you seedirect to consumer in Europe?
Alexander Graf: Maybe being away through some of these localizationissues that you were talking about not as in the US so if discussing a lotthese opportunities all of these options that we have that we see from the USmarket how that can be applied to the German economy. But most businesses areway behind there are a couple of business to do like a very very good job byfocusing on just one channel so maybe a brick and mortar tenant or the onlinechannel but we don’t see economies or we don’t see businesses doing the samething like you described. I don’t see them. They might be like. Some businessesthat do a good way but this is a small small example. It can’t be taken forlike a best practice case like the bigger parts of the industry and that’sstill an issue again here. Even though Amazon or that under or whatever it’ssuccessful you can’t apply this old best practice approach by just copying theminto you like business because when you are life with the alleged new versionof your business then it’s already outdated. It’s. Again here it’s only a howquestion how how they evolve and a lot of like. Classic approaches oldapproaches failed. I don’t think the cool thing now is and I think that’s why Imost particularly trust it is in this discussion here. Now it became clear nowit’s not now it’s not virtual anymore. It became clear that old strategiesfailed old message fear and now the management knows it. And now they need toact. 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 sayconsciousness about where companies are and change but also like here inGermany we have a lot of these good old retailers brick and mortar storesseeing online just as a channel and. Being very careful for many many yearsand. 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 storesare very successful online as well. And we don’t see it to the same extenthere. So do you think it’s. Just a little bit lagging behind and it will comehere 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 thethe level of excellence you have to achieve just to fulfill it like the. TheDVD the B hygiene barrier to to do when it comes to like online experience isalready so high that even with luck it’s a two or three billion dollar B to Cretailer. It’s too late. You just can’t hire people fast enough so thecompetition never go to high so you need to use your now. You need to go nowwith a couple of partnerships. All you have to partner with would not be whatthe. Nets become like the Knicks the land No.4 whatever needs industry on ourown 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 andmortar retailers. They had those same struggles right. And. As some of themlearn faster than others. Others didn’t give up and have established a prettyhealthy online business. Target is a good example of one right. They first cameout they tried to fulfill it all their own. And then they realized their bestbet even though it was going to cut into their margin was to use a three peoplea third party. Right. So I would encourage European companies that feel likethey missed the boat. If they have a addressable market that has customerloyalty it’s worth that jump to that that business model. Yeah definitely aboutthe most German companies that are now sitting on.
Alexander Graf: Already failing brick and mortar business models aretrying to transform the fading model into online and let’s not working out noteven the USO not off like cases Nordstrom Macy’s. Yeah it’s not working outfrom a peanut perspective at all.
Jim Stirewalt: Yeah I know but I think the one global trend we see isthe idea of omni channel not because you wear kind of a classic brick andmortar but really actually also more and more pure online players opening thebrick and mortar shops more this idea of pop up shop right. So you basicallystill have one Shetland which is online but physical is kind of part of thatright. So it’s more driven meant that we are back to control an attitude soit’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 ofpeople 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 rescuechannel though. For me it’s like an educator if like a company I’m invested inlike on the Stock Exchange. It’s investing in brick and mortar like a form ofyou online. I said all this talk. At once so that’s usually like it’s a it’sjust a sign that a day they run out of ideas how to grow bigger like Amazonmarket. 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 regionbecause 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 hassomething. 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 wasshaped and also scale. But now money is a global thing. It’s free or actuallyyou get paid if you take it. So at least some people believe in you. You canactually do all kinds of things. And this brings us again to attitude andculture. Cause when you’re iconic and you’re fast then you will also get formoney and then you will find the addressable market. So if this guys thanks alot for being here and just a little reminder it’s just one hour left and thenwe will have Vladimir Kaminer here for a Russendico and wodka shots – hope tosee you later.