Commerce.com, Inc. (CMRC) Earnings Call Transcript & Summary

Awesome. Well, I'm DJ Hynes. I'm Canaccord's senior software analyst. Thank you all for joining us at our first inaugural Canaccord e-commerce symposium. We're delighted to have BigCommerce here with us. We have CEO, Brent Bellm. We're going to do this as a fireside chat with 25 minutes. There is a Q&A bar on the webinar, but I'll be moderating. So please if you have questions, send them in. We want to try and make this as interactive as possible. With that, I think the time will fly by. So let's get right into it, Brent. Thank you for being here.

My pleasure.

Just to kick things off. In case we have folks who aren't familiar with BigCommerce, maybe just give us a quick elevator pitch on the business and then a little bit about your background and kind of what brought you to BigCommerce.

Sure. Thanks. So we're a -- an e-commerce platform -- a SaaS e-commerce platform that enables businesses around the world to create beautiful and high-performing e-commerce stores. We're the second largest SaaS platform in the world. And in particular, we differentiate ourselves with a strategy that we call open SaaS, meaning by being open SaaS, we are more open and flexible and more partnering ecosystem-centric than other providers in the industry who are more software conglomerates and try to sell a package of a half dozen or more integrated solutions. We're the open standard, and that tends to fit best all of those companies around the world who have any kind of complexity or strategic desire to optimize their e-commerce, software and all integrated components around their particular business needs or the most open and flexible platform on the market that is SaaS. So I came here and took over for the founders about 6 years ago but have been in e-commerce for now about 23 years. And in the early days of my e-commerce lifespan, back in the '90s, I was an e-commerce consultant. And when I pulled the plug on being a consultant, the first real business I ever bet my career on to work at was one of the first ever SaaS e-commerce platforms. This was back in the end of 1999, beginning of 2000, the height of the bubble, I joined a company called Escalate. And at the time, there are probably only about a handful of SaaS e-commerce software platforms in the world. The survivors ended up being Yahoo! stores and Volusion. There was my company Escalate. There was another Blue Martini. They didn't even call it SaaS back then. They call it ASP. But the promise was that in the early days of e-commerce, a company, instead of having to buy and integrate all these various software and hardware components and figuring out -- and figure out configuration, and hosting, and security, and bug fixing, and versioning, and functionality, and all the horrible things that are endemic to software development, but most companies who sell physical product aren't good at. I believe that this, hey, we'll serve it up to you on the cloud model at a much lower cost and complexity. What's the right model for most businesses? And at that point in time, it was too early for us or others to really pull off all of the complexity of SaaS. But 15 years later, in 2015, I had the chance to come in and take over for the founders, and I was scratching my head. So Magento, the open source but on-premise software platform was really the 800-pound gorilla back in 2015. They were the largest platform in the world. It's my son for businesses, small, medium and large B2B and B2C. And it made no sense to me in the year 2015 that an on-premise platform was still the market leader. And I saw the traction of BigCommerce that had risen to #2 in the world behind Shopify for SMBs. And I say, all right, I can't -- I don't know how to go in and make up for Shopify's 5-year head start with SMBs, but I do know how to do disruptive innovation. I did it at PayPal. I did it at eBay. I did it at HomeAway. I can do it here, and that means we're going to extend upmarket. We're going to go after the mid-market first, which is Magento. Then we're going to go -- over time, we'll earn our way into large enterprise, which is then not just Magento, but IBM, Oracle, SAP, Demandware/Salesforce. We're going to go after all the big guys because this is -- the story always ends with the disruptor winning, and we're going to be that disruptor. But we had to change everything. We had to open up. We had to build all of the mid-market and enterprise product, sales motions, solutioning, enterprise service, partner ecosystem, a lot of changes that you can't make overnight just because you changed your strategy overnight. And here we are 6 years into it, and I think there's all the outside recognition in the world that says the strategy is working in spades, and we've got the right product for a big part of the market.

Yes. Yes. Very clear. And that's super helpful background. Let's talk about the pandemic, right? I mean it's been such a transformative period in commerce. I'd love to just get your kind of quick overview on the last year. What did you see from a new business perspective? What were some of the pain points that your customers struggled with? How did you help them? Any color along those lines.

Yes. I mean, obviously, the pandemic has been great for our business. But it's notable that coming into the start of last year, we were entering our third straight year of accelerating revenue growth rate regardless of the pandemic, and that's pretty unusual for recurring revenue business that every year gets larger. And yet in our third straight year, we were growing faster than we had been the year before. The pandemic then really juiced that. As soon as it started, it took only about a week or 2, and e-commerce growth rates really started accelerating. If the average growth rate around the world had been 15% pre-pandemic, not for us, but for the industry. It quickly went to 30%, then 40%, then 60%, then 80%. It peaked at 100%. It came back down. They say that the overall growth rate in the U.S. last year was 32%, but it was a lot faster than that, certainly across our ecosystem. It's notable that it took the Internet in the U.S., according to U.S. Census Bureau, 26 years to go from 0% of all consumer spending to 11% being online. And we went then from 11% to 14% in just 1 year. I mean it was...

Incredible.

And the amount of consumer and business change required for that to happen was extreme. We have every reason to believe that these are permanent changes. We'll build from this new higher level, this high watermark and go from here. In my opinion, if we're at 14% of consumer spend now online in the U.S., there's every reason to believe, we'll go to 20%, 25%, 30%, 35%, 40% over time when you think about all of the online but pickup or deliver off-line scenarios. It's a giant part of the future of how humanity buys and sells goods. It's a permanent change. And frankly, one of the best global economic transformations to bet behind that, we'll see not just in our lifetimes, but has really ever happened.

Yes. Yes. So I had a question around kind of the architectural differentiation of the platform. You hit on some of that with the intro at the front end of the conversation, but one of the things that enables you to deliver for your customers is a headless commerce strategy. And we're hearing more and more about that in this space. Maybe you could just talk about kind of what the idea of headless commerce is, the advantages that avails to the merchant and kind of what it means for BigCommerce as a business.

Sure. So first, the definition. Headless is any time a business uses a different technology framework or a platform to create the front end, the head, that is consumer experience with the consumer or the buyer views from the platform that is powering the back end. And so what's the back end? It's -- well, it's the catalog details, and inventory, and shopping cart, and checkout, and payment processing, and fulfillment, shipping and tax and calc and all these things that get integrated into the back end. Sorry. We have one office, and my son was up here printing off some school work to do.

All good.

So headless is when you have 2 different frameworks for that as opposed to the non-headless version, which is that you create and manage that user experience in the e-commerce platform itself, which is, of course, what most of our merchants do. But why would a company do headless? Well, let's just take the most common use case. WordPress, 30% of all the pages on the web were created in WordPress. It's really easy to use. WordPress is a content management system. It's not an e-commerce platform. It does not have any of that back-end functionality. So if you have a website created in WordPress that you want to add commerce to or you like working in WordPress, you want to do the design and then using all of its great CMS functionality, but then add the products for sale, then you need a headless extension. WooCommerce is the most popular. It's open source on-premise software. BigCommerce is now a SaaS option for WordPress. But let's go to all the other examples. If you create your website experience in Drupal or another sort of enterprise digital experience platform like BloomReach or Adobe Experience Manager or Sitecore or your engineers like working in frameworks. They want to work and react Next.js. They want to do progressive web apps. These are all scenarios where headless makes sense. And so it fits best 2 types of companies, either ones who are marketing and user experience-led and -- sorry, either ones that are sort of marketing-led, and they start with a marketing website, and they really want to add back-end functionality or companies that are most innovative in user experience. And they want to do things that are well outside the norm of sort of the more templatized themes that tend to come out of the box with an e-commerce platform. Will this continue to grow? Almost certainly, because you're going to keep seeing innovation, after innovation, after innovation, in user experience. And you're unlimited when you're using an unconstrained front-end or a really good digital experience platform. And so companies who value that will go that route. It's more complex so.

Yes. Yes. Certainly. And yes, and clearly, that open SaaS architecture is what enables you guys to deliver on the vision.

Yes. So just to tie it into us, we do it better than any other generalized platform. And the reason we do is because the integration points across all those things I mentioned are really extensive. Your platform has to be super open, meaning you have to have APIs into all of these different components. It's not just the obvious things like the catalog and the inventory counts and the pricing and the shopping cart and the order processing, but it's the unexpected things. It's like order -- historic order status and customer groups and customer records, and they're all wish list. They're all these other components that are kind of common e-commerce functionality. If you don't have APIs that are powering each of those, and if they're not developed into developer-facing software development kits and consumable APIs, you can't do it. And so Shopify, for the most part, falls well short of being able to do it. We not only can do it exceptionally well, but we've been doing it for many years, and we have commercialized plug-ins into the vast majority of the content management systems, digital experience platforms and frameworks that I mentioned earlier.

Yes, yes. Makes perfect sense. So you talked a little bit about kind of the evolution of technology in this space, right? Back then, you kind of had like the version 1 vendors in the late '90s or early 2000s, the version 2 vendors, which are now kind of owned by the big platform firms. And now I guess I would put BigCommerce and Shopify kind of in that version 3 or the most modernized platforms. Like, where do you think we are in terms of the modernization of the e-commerce stack? And I guess what I'm getting at is like how would you characterize the mix of your business between new to e-commerce versus replatforming? And if it's replatforming or replacing the legacy guys, like what's the catalyst that breaks them and says, like, all right, I'm done with this. I'm going to move to a more modern platform?

Yes. I mean you know to build with or other places that scan all the sites on the web, and they find more than 500 platforms around the world that are used by e-commerce sites. There were 250 of them. I remember doing this work back in 2002. There were 250-plus of them around the world that I could name on a list. So there have been a bazillion platforms for a very long time. Why do merchants replatform? It's because all but a couple of those 500-plus are dinosaurs. They're archaic. They're on-premise software. They're ancient versions of SaaS that have so much tech depth, and they're not keeping up. So at the leading edge of e-commerce, I think there are really only 4 platforms. There's us. There's Shopify. There is, yes, Salesforce. There's Magento, which is the on-premise one of the group. And there's fewer microservices platforms. There's commerce tools out of Germany. I think those are the 5 really good platforms. And anybody who's been following this industry for the last half dozen years knows that for the most part, nothing else has been funded, right? You've seen lots of platforms close or sell or languish, but you've not seen anything new get funded. And my hypothesis is because we finally have the right model, this version of multi-tenant SaaS, unlike all the old models, which were single-tenant, and even worse, single-tenant on-premise, where the instance of the software you buy becomes your instance, and with every passing day, becomes buggier, more outdated. You, the company, can't keep up. When you have to own and manage your own software, you can't possibly keep up with the innovation that we and Shopify and the others are doing. So you just fall behind, you fall behind, you fall behind. It's not your specialty software management. And so you inevitably accumulate tech debt and errors. The fraudsters out there are finding your vulnerabilities. And so there seems to be this ironclad rule that unless you're on a modern multi-tenant SaaS platform, which is sort of progressing and iterating faster than you are, you're falling behind and you replatform on average once every 4 or 5 years. For as long as I've been in this industry, every time businesses doing e-commerce gets surveyed, are you planning to replatform in the next year? 20% to 25% say yes. And so they're going to keep replatforming until they finally get onto something that is modern and advancing because the big benefit of multi-tenant SaaS is that every merchant is on the same platform. It doesn't matter if you're -- you go sign up for a BigCommerce store and create it today or you're one of our largest customers. You're a Procter & Gamble or something. You're all on the same platform, and you're getting all of the same features and upgrades demanded by P&G that you can even think to ask for right now, but that they're demanding, right? And so it's that pace of innovation. We're staying ahead of the curve. And unlike our competitors, this is one more differentiation for BigCommerce. Our competitors at the top of the market, Magento owned by Adobe, Salesforce, Shopify, they're -- SAP, they're all software conglomerates, right? And their core platform generates a tiny percentage of corporate income. All these other ancillary software products make a lot more of their money. And so they're in the business of trying to cross-sell and up-sell customers across all their software lines. And there's a limited amount of mind share actually going into that one minority component of their businesses. In BigCommerce's case, we're what Magento used to be. We only have one platform, and all of our mind share goes into it. And we invest more in product than any of our competitors as a percentage of revenue, I think, by far. And so what we're trying to do is basically not only have the right model, but to be innovating and progressing and improving it faster than any other platform in the world. So the promise is if you get on to BigCommerce, you'll never have to replatform again because we're built in serving businesses far larger than yours. We're innovating and improving the performance and the functionality faster than any other platform in the world. We're staying ahead of the industry. And by being open, not closed, we're also leveraging all of the innovation within the ecosystem. It's all of our partners in payments and shipping and all of these other areas. You are not limited by what we can do across a bunch of proprietary software lines like our competition. You're getting the best-of-breed innovation in all the specialist categories with a tighter, deeper strategic integration and partnership between us and them than you would get from our competitors who are also their competitors. So we think it's the best model in the world, not just for configuring for your needs today as a business, but staying ahead of the curve and not needing to replatform again in 5, 10 years. However, when you look at the vast majority of companies around the world, they are still not on any of the names I mentioned. You don't get to majority share when you add up Shopify and you add up BigCommerce. And I'm not even going to include Magento in that because Magento is declining. Lots of companies are leaving Magento, which is, again, on-premise open source and going to SaaS. You add up Shopify and BigCommerce, and everybody thinks, well, that's the present and the future, but we're not anywhere close. We're maybe 30% together of e-commerce share at the low end and much lower at the high.

That's right. Yes. No, that's super helpful context. And part of the answer, you talked about one of the advantages BigCommerce is kind of the marketplace ecosystem and the best-of-breed framework that you guys enable. Obviously, payments is a foundational part of that ecosystem. Outside of payments, like who are the key players? And what are the areas where you see the most interesting opportunities for growth?

There's so many. So basically, everything that integrates into an e-commerce platform is a potential area of not just strategic partnership for us, but generation of either rev share in conjunction with that partner or go-to-market growth where they're helping to cross-sell us and vice versa. The obvious -- the next most obvious category after payments is shipping and fulfillment. But there are so many others. You get into accounting, tax. I think the biggest one in terms of potential -- the 2 biggest ones in terms of potential long term are omnichannel, meaning you're integrating your branded website with other places on the web or stores off the web where you also sell or sell-through. So omnichannel includes integration into social networks like Facebook and Instagram, marketplaces like eBay, Amazon, Wish, Walmart, Rakuten, Alibaba, et cetera, ad platforms like Google Shopping, Google SEM, advertising on Facebook or Amazon, third-party content advertising. So lots of different omnichannel options online. And then off-line, you get integration in the point-of-sale systems that retailers use to run their stores. You want to have your website, catalog and inventory integrated with those so that you can sell through the ones that make sense for your business. So that one is giant, and we look to be strategically the best in the world at enabling our sellers to simultaneously take advantage of the best of all of those other channels that make sense for their business. So that would be one. And then the other is recurring revenue subscription apps. There are tons, and tons, and tons in our app store, little feature enhancements or capabilities that folks use to add to the capabilities of their website. Today, we don't bill for those through BigCommerce. They're billed separately by our app's partners. But the whole model of adding additional bills to an aggregated build, that's what Apple does 100% of the time. Shopify does that a lot. So we're working on that capability. And having the ability to cross-sell and upsell all these great apps is something that's both in the best interest of our app's partners and our customers, and we'll get better rev share capture if we do that.

Yes. Yes. Makes sense. I mean it's a pretty important differentiating part of the BigCommerce story. I mean, I have so many questions. We could just keep going on and on. I'm getting messages that we're getting close to our end. So maybe we'll jump forward. And look, this is a kind of we're aiming to have this be a nontraditional kind of Wall Street event. So I'm going to have some questions that maybe you wouldn't get in a normal setting. But one of those is, like, what are the common mistakes that you see e-commerce retailers or retailers in general make as they're moving to modernize their e-commerce stack? And like how does BigCommerce help them avoid those?

Well, the biggest mistake you can make is buying for the present and not the future. And it's my belief that anytime you take an approach that is custom or on-premise software like a Magento, you're buying for the present. You're buying for your current needs. But then as soon as you buy it, you customize it. It's yours. And you can't possibly keep up because this is not your core business, right? And you will just get battered. You'll get battered by the burdens of scaling and bugs and uptime and security attacks, fraudsters, let alone feature upgrades and enhancements. You need to get on modern, multi-tenant SaaS, which is going to keep iterating and adding capabilities that you can use for free faster than you need them. And then you just have to pick the right one, and you've got 2 leaders, right? You've got an open model and a closed model. If you go with Shopify, you're sort of mostly constraining yourself to these additional proprietary things that they do in payments and shipping and point-of-sale because they've made enemies of all the best players in the categories they compete in, and we're those best friends. And so we're the open version. They're the closed version. One of those 2 will fit your business model better. And I say to most companies, you're making a great choice if you do either of us.

Yes. Yes. It's a very diplomatic answer. I like that. One final one, and this is a question that we're asking of all of our presenters today. And it kind of gets at the notion of expect the unexpected. But like, what's your one prediction for the e-commerce space over the next 2 to 3 years that might surprise folks to hear?

I'm going to make a prediction that will actually surprise me if it happens, but it's the thing that has to happen, and I most want to see happen. I am outraged that in a -- in the year 2021 of digital commerce, we have a 3% tax added to 100% of what we buy online because in this country, all we know how to do is process credit and debit cards and charge 3% for that. It costs a tiny fraction of $0.01 to process a bank transfer. And yet, I challenge anybody to think of any purchases that they have done online in the U.S. that are utilizing a free bank transfer, right? There are lots -- that could have happened. It could have evolved this way. I was at PayPal. It could have evolved this way, where you had the 3% expensive option, whether the merchant pays or the merchant gives back a discount to the consumer if they don't use it, but there's a 3% option for credit cards, and then there's the -- save 2% or save 3% if you use a bank transfer. And yet, our payment players and banks in the United States, every time they've had the opportunity, they have stifled bank-based payments. I was Head of Europe for PayPal for 4 years. In Europe, there are countries like Germany and the Netherlands where that's all people do. It's 70% various forms of bank transfers, like iDEAL and ELT, EFT. You've got SEPA Direct Debit. Australia is a heavy bank-based payment company. And it may not seem like a big deal. But if we're going to 20%, 30%, 40% of all of our purchases as consumers being online, add up what that cost you, if you're always paying an extra 3%. If you're a family, you make $20,000 of online purchases a year, and $600 of what you're paying is covering credit card fees, that is a total deadweight loss everybody other than the issuing banks. And so I would like to see -- and I'm not an anti-credit card. I think delayed payments, financing are an amazing consumer invention, but there should be a choice, and you should not have to pay an extra 3% inefficiency tax because that's a giant colossal deadweight loss on e-commerce.

Yes. Yes. It's super interesting. I mean you've got some incumbents that are going to fight pretty hard to not lose that high-margin revenue stream for them. But yes, I think your observations are spot on. Brent, thank you for doing this. It's been awesome last year to watch all the success you've had, and I suspect '21 will be equally interesting. So thank you for doing this, and I guess we'll hear from you in probably 3 or 4 weeks with earnings. So I appreciate it.

DJ, really appreciate the coverage, the opportunity to talk and to everybody who listened. Cheers.

You got it. Thanks.

Bye.