Mage Montreal – How To Protect Your Business From Fraud With Megan Blissick of Signifyd
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How To Protect Your Business From Fraud With Megan Blissick of Signifyd

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Megan Blissick

Megan Blissick is the Head of Global Agency Partnerships at Signifyd, the leader in ecommerce protection. Megan’s background includes a widespread ecommerce experience, ranging from brand management to digital marketing and advertising, in addition to building partnerships throughout the SaaS ecosystem.

 

Signifyd provides an end-to-end commerce protection platform that leverages its commerce network to maximize conversion, automate customer experience, and eliminate fraud and customer abuse for retailers. Signifyd uses big data and machine learning to provide a 100% financial guarantee against fraud and chargebacks on approved orders. This effectively shifts the liability for fraud away from ecommerce merchants, allowing them to increase sales and open new markets while reducing risk.

 

Signifyd counts among its customers many companies on the Fortune 1000 and Internet Retailer Top 500 lists. Signifyd is headquartered in San Jose, CA, with locations in Denver, New York, Mexico City, Belfast, and London.

Here’s a glimpse of what you’ll learn:

  • The most common frauds in ecommerce
  • How return frauds can be circumvented
  • Creating a more sophisticated fraud prevention system
  • Why companies need more protection from fraud and losses
  • Navigating the difficult landscape of subscription fraud
  • Best practices for ecommerce businesses
  • Preventing bot-based attacks in larger companies
  • The difficulty of returns and how to handle them

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In this episode of the Ecommerce Wizards Podcast

Fraud is an unfortunate reality for ecommerce businesses, but what if it could be effectively and consistently prevented?

 

Both fraud and fraud protection are in a constant game of cat and mouse, with new issues and solutions being introduced every day. Most companies can’t afford to stay on top of these trends, so they only treat the symptoms rather than the underlying causes. The best solution is to have a dedicated service specializing in ecommerce fraud. A few of these exist, and Signifyd is leading the charge with its knowledgeable staff. So while fraud can never be fully prevented, now you can stay one step ahead.

 

Guillaume Le Tual joins Megan Blissick, the Head of Global Agency Partnerships at Signifyd, on the Ecommerce Wizards Podcast to discuss fraud in ecommerce and the best preventions. They start with the common issues in the current ecommerce landscape and what measures are being taken to deal with them. They also get into returns, subscriptions, and bot-based attacks and the unique challenges each one brings.

Resources Mentioned in this episode

Sponsor for this episode...

This episode is brought to you by MageMontreal.

 

MageMontreal is a Magento-certified ecommerce agency based in Montreal, Canada. MageMontreal specializes in and works exclusively with the Adobe Magento ecommerce platform, and is among only a handful of certified Adobe Magento companies in Canada.

 

Why Magento? Mage Montreal wholeheartedly believes that Magento is the best open source ecommerce platform on the market–whether you are looking to tweak your current website or build an entirely new website from scratch.

 

MageMontreal offers a wide range of services, including Magento website design and development, Magento maintenance and support, integration of Magento with third-party software, and so much more! They have been creating and maintaining top-notch ecommerce stores for over a decade — so you know you can trust their robust expertise, involved support, and efficient methodology.

 

So, if your business wants to create a powerful ecommerce store that will boost sales, move dormant inventory to free up cash reserves, or automate business processes to gain efficiency and reduce human processing errors, MageMontreal is here to help!

 

What are you waiting for? Contact MageMontreal today! Visit magemontreal.com or call 450.628.0690 to chat with the MageMontreal team about creating your dream ecommerce store and transforming your business.

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Episode Transcript

Guillaume: Hello everyone. Guillaume Le Tual here, host of the e-commerce Wizards Podcast where I feature leaders in e-commerce and business. Today’s guest is Megan Blissick. She’s the head of Global Agency Partnerships at Signifyd and today we’ll be talking about fraud, especially e-commerce frauds, shipping frauds and so on. It’s a very annoying topic for merchants, but it’s really worth the time to learn about.

Before we get started we have two things; firstly, a shout out to Robert Rand JetRails hosting. Thank you Robert, this episode would not exist today because Robert connected us like a knife. We also have a sponsorship message, this episode is brought to you by MageMontreal. If a business wants a powerful e-commerce online store to increase their sales, or to move piled up dormant inventory to free up cash reserves or to automate business processes to gain efficiency and reduce human processing errors, our company MajorMontreal can do that. We’ve been helping e-commerce stores for over a decade. Here’s the catch. We’re specialized in and only work on the Adobe Magento e-commerce platform. We do everything Magento-related. If you know someone who needs design, development, maintenance, training, debugging, we got their back. Email our team, [email protected]

So Megan, thank you for being here today.

Megan: Thanks for having me.

Guillaume: Can you tell us a little bit about yourself and your background in the e-commerce front?

Megan: Yeah, absolutely. As you mentioned, I’m currently the head of Global Agency Partnerships at Signifyd, so I oversee our relationships with all of our system integrators. Prior to this, I was head of client success at a digital marketing agency. Before that I was actually all the way on the brand side. So I’ve really seen my way around the e-commerce ecosystem.

Guillaume: Thank you Megan. So let’s dive right into the topic, fraud. I will let you lead. You’ve seen a lot of e-commerce fraud in your current company, you know a lot about this. So what are the frauds that are trending the most right now?

Megan: Yeah, absolutely. So before I joined Signifyd I really didn’t know much about fraud in e-commerce. Working in digital marketing my goal was to get people to hit the buy button. What you don’t realize is, for one, how many of those people that hit the buy button aren’t people, they’re bots, they’re fake, they’ve got a stolen identity or a stolen credit card. And how many of those are legitimate customers that are hitting the buy button and being told that they can’t transact because of fear of fraud. So we’ll definitely go into both of these topics.

Starting off on your question, there’s actually a lot of different types of fraud that can hit a website. If we look all the way back to I would say it’s kind of a fraud 1.0, a stolen credit card is probably the one that we’re most familiar with. You might have seen that transaction show up on your credit statement and you’re like, ‘Oh, that wasn’t me’. So this is the fraud that I think we’re all pretty familiar with, but fraud takes many different shapes and forms. One of the more recent trends that we saw in fraud especially when pandemic hit, was actually romance fraud. Romance fraud is when someone poses as a partner on online dating sites, something like that. They essentially build a relationship with another person and then utilize that relationship to defraud that person.

Guillaume: That is so horrible.

Megan: I know. It’s pretty tough. This is a long standing play, it has been around for a while. The proliferation of lockdown really accelerated romance fraud. A lot of people got stuck in different countries, a lot of people got stuck without everything that they needed when we first hit a lockdown. So it was pretty easy for someone to say, I’m stuck in X country. I need $1,000 to get a laptop and a plane ticket, will you send that to me? We saw this happening across the board. That really ends up showing someone that’s getting scammed out of 1000s and 1000s of dollars.

Guillaume: I guess through Signifyd you sort of saw that unfortunately happen. The victim or the merchant had some claim because it was a fraud scheme through romance where they had to ship merchandise to their supposedly loved one, then you guys had to investigate all that fraud stuff.

Megan: Exactly. We got a lot of these different fraudlence because the patterns are pretty similar when they start happening across the board. So that kind of gives you a little bit of how Signifyd works, is that we sit right at that payment gateway within 1000s of merchants around the world. So we’re able to see the transaction level data happening in real time with those merchants. When we see someone pinging at six different stores within 30-40 seconds that can be a pretty quick indicator that something’s amiss, a lot of people don’t usually shop that way. So we’re really able to capture things at the point of sale, identify that erroneous behavior and stop that across our entire network. So we’re able to protect merchants because they’re part of that Signifyd commerce protection platform.

Guillaume: It’s interesting because if you’re talking about e-commerce fraud I would not even have thought about romance fraud because to me it was a totally different category that they will fool people before it happens, but that’s not related to any commerce merchant. Actually it can be the merchant that’s shifting your merchandise to that kind of scheme, then you have a chargeback or some kind of system like that. That’s an interesting one. Which other ones do you have? We hear about shipping problems, I guess return problems.

Megan: Yeah, absolutely. Another type of fraud that we’ve seen, really, really strongly take off is of ‘item not received’. That’s when a customer will get their product delivered to them, they will claim that they did not receive the item. We actually ran a survey on this in the UK, and we found that 30% of our survey respondents said that at some point they claim that they’ve not received an item that they actually had gotten delivered to them. That’s the people that said that they did it, so we’ve got some very honest people on these surveys.

Guillaume: That is surprising. Anyway, what can a merchant do to protect himself or herself from that kind of fraud?

Megan: The tricky part of fraud is that every merchant has to balance fraud with what we call in the industry an insult rate. So we’ll take for example, have you had any packages that you’ve gotten stolen in the past?

Guillaume: Not me. I’m in a good neighborhood but have many employees who had stuff shipped to them and clearly it was getting stolen off the porch.

Megan: Exactly. So put yourself in those shoes. It’s happened to me before. You order something, you’re very excited about it but the supply chain is a mess. It takes four weeks to get there, you get home and the item is not there. FedEx says that they shipped it, they delivered it, it landed there. You check with your neighbors, you check everywhere and it’s not there. So you go to the website and say, hey, I didn’t get my product, I’d like you to ship me another one or refund my order. And they say, ‘We think you’re lying, we’re not giving you your money back and we don’t have your product’. That’s probably the worst thing you can do to a legitimate customer, and that’s a great way to guarantee they will never shop with you again.

So we have to balance that insult rate because you can really kill lifetime value. Also, you know, ratings and reviews exist for a reason that customers will go and make themselves heard, I can promise you that. So we have to balance that with actual fraudulent customers, people that are taking advantage of a store that they know they can order 1,2,3 times and say that they never got their product and just get another one back or get a refund. So when merchants work with Signifyd we have ‘items not received coverage’. We’ll actually have our team go in and investigate each and every one of those claims. They’ll go back and determine whether or not that was a legitimate customer or not, whether or not they actually received their product, and then work to have that chargeback claim reversed if it is fraudulent.

Guillaume: Yeah, because let’s be clear, the credit card company protects the consumer. So it’s not like it’s the merchant’s word versus the consumer’s, where the consumer is always right and the merchant is guilty until proven otherwise. So that’s how the credit card company works. For sure for a merchant, the first step is to ask for a photo of the delivery, whether that is technically possible with your shipping system. And that reminds me, I did have a package that they claimed was delivered to me and then I was happy they had a picture of it. So then I said, what’s the address written on your picture? I was like, but that’s not my home. So that was sort of funny as a music consumer. Every merchant, when possible, should have pictures of the delivery when it is doable. So that’s the ideal part of it, sure protection, especially if it’s a more expensive package.

Megan: Yeah. That was hard as well because you know a signature upon delivery used to be something for high value products, for age restricted products. But of course, when we have to enforce social distancing rules a lot of those signature requirements get removed. So when you ask your customer to show that they didn’t get their order, all they’re sending you is an empty hand. So you have this very challenging paper trail that you have to find and a lot of merchants just don’t have the time or resources to do that. So they have to balance whether they should insult this customer or should they eat this cost so that they are not going to lose this customer in the future, without really understanding if that is a customer that they want to keep. That’s a really interesting challenge a lot of merchants have had to face. And that’s another example of the many different faces of fraud that exist.

Guillaume: There’s also a lot of orders from before where merchants were more restrictive. If the shipping address and the billing address were not the same then there’s more risk and they will check. So if that shipping is close, maybe in the same city or the next city, then they might allow it. But if this shipping is much further away they would decline or do calls and try to really investigate if it’s worthwhile to ship this order. Or if it’s likely, they’ll just get a chargeback because it’s a fraud case. But now with COVID, a lot and a lot of billing and shipping address mismatches aren’t shipping now because people don’t go to the office. If I’m not going to the office on that day and I need to ship something, guess what? It’s going to get shipped to my home, but it’s the business address that’s on the credit card, so there’s going to be a mismatch there. So there’s a lot of that going on right now. That’s one of the big shifts with COVID, and a lot of those orders are legitimate.

Megan: And that’s a challenge that existed before COVID in terms of fraud prevention. As e-commerce has become more sophisticated so has fraud prevention, because what you’re describing is what we would call kind of a fraud 1.0. There’s manual rules that are in place, the if then equation, if the billing and shipping address mismatch, reject the order, if the CVV code is incorrect, reject the order. This catches some bad orders, of course, but how many of us have wanted to buy something on our personal card and then ship it to our office? How many times have you bought a gift online? The average consumer sends 14 gifts a year, so that’s 14 billing shipping mismatches. And they can be across the country especially when people are restricted on travel. Those can be two different countries, those can be cross border.

The rate of cross border shipments that are denied due to fear of fraud is three times that of domestic shipments. So a lot of merchants for a long time have been leaving money on the table out of fear of fraud. We find that 3% of transactions are declined due to fear of fraud, not fraud itself. And that goes back to that insult rate, you’re not going to keep a customer that you can tell is fraudulent. And even with some of the stopgaps that we put in place, you know, calling that customer and verifying their identity, that’s something that we would call manual review, it takes working hours on your merchants. It also takes a customer service team to make those phone calls and do those investigations on their own, when they could be helping good customers rather than asking their customers if they’re trying to steal from that company or not. These are all really challenging things that merchants face. Again, after the buy button, these are your highest intent customers, these are people that are saying I want to buy this product and they’re the ones that were given the most scrutiny along the way. So you’re just looking at fraud in the overall landscape. Those manual rules like they did, they did part of their job but very, very heavy handed, and of course, fraudsters can find their way around a manual rule. Those rules are static and fraud is dynamic.

We had a merchant a while ago that found that a lot of fraud was happening with red couches that were being shipped to Florida. So their solution was that if someone ordered a red couch and was shipping to Florida then they would deny the order. Yeah, it’s laughable at this point. But that was their solution and what happened is that the fraudster started ordering blue couches.

Guillaume: The value of a blue and the red couch doesn’t change much.

Megan: It really doesn’t. But these are the types of things that when we looked at we were like, oh, this is way too heavy handed and it’s not doing what we need. Then the next iteration of fraud protection for e-commerce came out in the form of scoring. That was when we started using, oh, we have this same customer shopping across different e-commerce sites. So let’s pull that data together to have a better idea of how that customer shops, do they spend five minutes on the website? Do they go directly to the PDP or do they browse around a lot? What billing and shipping addresses have they used before? What email addresses have been used before? So gathering more information about that customer themselves, looking at that in a little bit wider scope and using a bigger network to identify that consumer behavior.

But the limitation with the score is that it still leaves a lot of room for questions and that still leaves, the buck ends with that merchant. So like we said, the credit cards are out there to protect the customers but no one’s really looking out for the actual merchant. So at the end of the day, you can give them a score and you can say this is how good we think this customer is, but if we’re wrong it’s still your fault. If it is fraud that’s still on you, but we’re just giving you more data to make that decision. So that has still left that manual review in place, has still left a lot of questions, and has still left this big gap for that fear of fraud where someone could look on the line, on the fringe. You don’t have enough resources to review those orders on your own, you don’t want to take that loss, so you reject that customer. So you get that, ‘Sorry, your order couldn’t go through’. And then that customer is not going to just not buy that product they’ll just buy it somewhere else, or they’ll buy it from Amazon and you’ll take the margin hit there.

So that’s where Signifyd realized at one point, because we used to do scoring and we used to help our customers to that degree. They started asking us, can you guarantee this? Can you put your money where your mouth is? And we said, ‘Yeah, we believe in our product enough to say that if we’re wrong, and if it is fraud that we’re letting through we’ll pay you back’. So the full costs of the product shipping, taxes, fees, and everything associated with that. And we’d buy that data and feed that into our system, make better decisions in the future, and help protect our customers better.

Guillaume: So on top of the scoring system, you added the insurance system, basically on it. For companies like Signifyd and a few others, it’s a very smart product. There was a clear need in the world for this product and your company and a few others created this. It’s very smart to have a network like this, that these users sort of identified. Say, this is a valid shipping address, that customer has already shipped to that address before and was buying from Walmart, because you guys are on Walmart and as well as on their anti-fraud system. So you’ll say, we know this user from Walmart orders and it was not contested as fraud because they did ship to that address before, so it’s a safe address to ship to. So some kind of authentification system. You’ll still have the issue of, is it a new address that this customer is trying to ship to? Did he get his credit card stolen in the last 24 hours? Who knows? There’s always a risk factor, but it adds a lot of certainty and safety to know better who’s a customer because that customer is across a network of sites and it’s a known customer.

Megan: Yeah, it also lets us identify a good customer, and in case they make a mistake. I don’t know about you, but I fast finger my CVV code all the time, I type way too fast and I mess things up. The autocorrect hits a lot of words but doesn’t really get the numbers. I’ll put in the wrong CVV code and I’m too lazy to walk across the room and go read my credit card and make sure that it’s right. So I try to check out and if Signifyd has enough information to say, Megan is calling from her IP address using an email she’s had for 20 years, shipping to an address that you just shipped something to three days ago with the same billing address, but that CVV code is wrong. We’re still confident enough that it’s her and we’ll ship that order. We do think it’s Meghan even if there is this one mistake or these two mistakes here.

I moved recently, that’s another great one. You are at your new address but they’re still able to say everything else looks right, but now we have this new address on file, we’ll let it through. So that’s also where that revenue optimization started coming into play, when we realized that that fear of fraud was still what was holding our customers back, taking that liability on for them, and you shouldering that decision. The outcome of that decision allowed a lot of our merchants to start really seeing a huge revenue lift, there were a lot of good customers that were being kicked out because of the fear of fraud itself. So by changing and doing that liability shift, we’re actually able to increase our customers’ conversion rates by four to 6% on the back end.

Guillaume: Interesting average. So basically, for most of those merchants they could expect, especially if they have enough volume for it like if they already had a few million dollars of new volume, say 5 million and up, they could look at all the orders that they’ve declined in the past as potential fraud. A percentage of this we’re sure is real fraud, but there is also some lost revenue there, you say on average is like one third of those, are just like we’re not fraud, but we’re at risk of fraud. So they will be inclined to be safe and not to lose. Let’s say shipping a TV for $1,000 and the merchant losing that $1,000. There’s a potential of increasing your revenue by having a better fraud detection system that allows you to ship a few extra orders that normally you would have declined. Because anyway, if it’s wrong when the system tells you that it is safe to ship, you’re fully insured, because it’s the insurance system that says it’s safe enough to ship. But if we’re wrong we’re just going to pay you back your TV.

Megan: Exactly. Once we started offering that we started seeing a lot of growth, we started seeing a lot of our customers declining much more than they needed to. But then that’s when those other types of fraud came up. So after a few years, we started offering items not received coverage. We would actually take those cases and investigate them on our own but pay our merchants back first. First and foremost, we make sure that they’re taken care of, and then we go and try and figure out if that was a good or bad customer. This is for two reasons; one, we can recover that revenue, and second, we can better feed our systems to decide on that person in the future, and decide on those behavior patterns.

So we’ve talked about a couple of the different ways that this happens, but the ways that it’s caught can actually get pretty entertaining. We have a chargeback recovery team that goes in and investigates these claims. So going back to the shippers and saying, did someone sign for this? Did you get that photo? Did you get that address? But then we’ll also look at the full scope of a customer purchase. I think one of my favorite ones was someone that purchased a Rolex for $5,000 from one of our brands and said that they never got it. The shipping company actually got a signature on file. They also got the time and date of delivery, the signature matched the buyer. We did some of our homework on that front, but then we also did a social media profile check. And sure enough, he had taken a mirror selfie with the said watch on. So we printed that photo out and sent that to the credit card company, and they reversed the charge back.

Guillaume: Did he actually have a fine for doing that? That’s my own view on it.

Megan: I think the fine was that they had to pay up.

Guillaume: But no, because they purchased, so they had to pay up. But they tried to get away with it and it created a lot of work for other businesses. It’s actually an attempt at fraud. An attempt to steal from another company to get a Rolex because they’re big, they’re rich. But still, it’s attempting to defraud another company and to steal from them, which is just morally wrong. It makes no sense here in this society. It’s not a survival thing. It’s an attempt to steal just like stealing other kinds of jewelry or gold or whatever. There should be something like that, it should not be without consequences. Not just because you paid your credit card bill, it’s good. There should be something more.

Megan: Yeah. Absolutely.

Guillaume: Not a criminal case because that would be going too far. It could be an honest mistake somewhere to some degree, and you know, you don’t want to punish someone who’s some once in a while. It’s better to let go of one guy who’s guilty than punish the innocent. But there should be some kind of fine because you involve so many people who need to work and prove that you actually did receive it, and you’re wearing your Rolex in your social media.

Megan: Yeah, absolutely. There are cases that can be mistaken. One of the challenging ones that we found for a lot of merchants is subscriptions. So have you ever gotten an online e-commerce subscription?

Guillaume: Yeah, some are hard to unsubscribe to. I was like, oh, yeah.

Megan: Some of them you miss that renewal email, and then you check on your card and you say, Oh, what is this charge? That certainly happened to me before. So, I went and contacted them to say I didn’t want this renewed shipment. Please cancel this order, please remove this charge. But what happens with some e-commerce sites, unfortunately, is that one arm doesn’t speak to the other. For example, you can have that charge canceled but then still receive that product because shipping and fulfillment is not attached to payment. So merchants can actually lose out on the product and the money because of an accident, because of someone that didn’t mean to renew their subscription, they contacted it, they asked not to. But that can be a challenge for merchants as well as losing money in their subscription pieces, losing money on that item not received and then also significantly not as described as something we started finding with our marketplace merchants.

Think of eBay, Wish, Etsy, they can’t really control everything sold on their site. There are thousands and thousands of sellers but when a chargeback comes back, it goes back to the company. So really looking at a product and saying I ordered a red couch and it’s a blue couch or something a lot simpler. I ordered something that you promised to be this high-quality product and it wasn’t, it’s falling apart. It’s ripping at the seams. The customer is not wrong there but the merchant is also not wrong. They’re not the ones actually selling that product itself. So going in and covering those significantly not subscribed claims really helped a lot of our marketplace merchants really take off and grow their business.

Guillaume: So, in addition to implementing some kind of anti-fraud system there, are there other best practices that people should implement in terms of reducing fraud? For example, we said, if it’s possible with your fulfillment and shipping carriers to have a picture of the delivery on the porch. So then you say, maybe there was a test case on the porch, but at least you have the proof of delivery on the porch. It’s a good start that will protect you as a merchant, in many cases. Are there other good practices that they should try to implement when possible?

Megan: Yeah, I think just looking at good e-commerce practices. Post-purchase account creation is one that I think is a great way because pre-purchase account creation can cause too much friction. But having an account allows your customers to track their orders, and it allows them to access their previous orders, which can also increase the chance that they’ll order something again, or they’ll renew. It’s frictionless, and it can offer a lot of benefits at the end of that funnel, where you say, create an order to track your product or to gain points from this purchase that you already made, a lot of those things. And then you also can collect that customer’s information in that first party manner, third party cookies are out. So having your customers volunteer that information directly to you, and then keeping them within your own space, that’s something that’s really valuable. They can also update their billing or shipping addresses there, they can update their forms of payments, and you can have autofill, which makes it a lot easier for them to check out on your site. Creating that ecosystem that really cares about your customer, while also getting the information necessary to identify and validate their behavior, and see any patterns within that specifically, I think that’s a really important thing that going into this era of e-commerce that we should all be paying attention to.

Guillaume: Pretty good. And are there any kinds of different industries that are more at risk? Or that you had more increases of fraud, especially recently with COVID?

Megan: Yeah, absolutely. So when we evaluate a merchant, we look at a couple of different items. Number one, I think is actually a pretty funny one, but brand recognition, you can’t steal from someone you don’t know. So if that brand is not well known, it can experience less fraud in that exact point. Of course, there are certain niches that can really get hit, but our Walmarts and Targets of the world are going to see a lot more. And there’s also this interesting social pressure of it. Stealing $2,000 from Walmart does not feel the same as stealing $2,000 from the mom and pop shop down the street. So really looking at how much name recognition goes into a product or into a brand, can be a huge indicator of the potential fraud that they’ll experience.

Guillaume: So the more famous the brand, the more fraud it typically has. And it’s not just about the business volume, it actually grows in person.

Megan: Exactly and then the other one would be the second-hand value. I live right across the street from an Apple Store. If I grabbed a credit card that I found on the street, walked into that Apple Store, and bought myself 10 iPads, I could probably go right outside that store and flip those within 10 minutes, make myself look cool for $5,000 and be done with my day and then I wouldn’t have to work anymore.

Guillaume: Yeah, for a certain amount of time, you’ll be rich, you’ll need to repeat that scheme and not get caught.

Megan: I certainly would and I’m much happier on the anti-fraud side of the coastline, but you can’t really go to the grocery store, buy $5,000 worth of bananas and make your profit back that quickly. So you’re really looking at the second-hand market, which is going to be a huge indicator, luxury products, electronics, jewelry, those are the types of things that have a huge second-hand market. So there’s going to be a lot more attacks because that merchandise can be resold at a very similar value. And then the order value itself again, if $10,000 exists in this little space, and it’s a new computer or an electronic or a diamond ring or a tennis bracelet. That’s just quite frankly, simpler to ship, to resell, to send somewhere else. It’s definitely a lot harder to do that with large merchandise. Not to say that our large merchants don’t experience that. We’ve worked with a lot of home goods companies, couches, chairs, swimming pools even. That was actually a very funny item that received a story that ended in a Google Maps image of the pool in the backyard.

Guillaume: Really?

Megan: Really. I will say it’s quite hard to steal a swimming pool.

Guillaume: That’s funny.

Megan: People will still try, they certainly will. The high order value is a huge indicator.

Guillaume: A swimming pool?

Megan: I know, someone stole a swimming pool, I was honestly quite impressed. Our team did catch it, find it, reversed that chargeback. But someone really did try to steal a swimming pool.

Guillaume: Did they put it in their own backyard?

Megan: It was in the backyard.

Guillaume: That’s not smart. That’s just like taking people for dummies. There will be no process in place to verify. Maybe they would have at least put it at some other address or something. A two person fraud at least, it’s fun when they are not too sophisticated. We don’t want them to get any better.

Megan: So yeah, high order value, high secondary market value, and brand recognition. Those are the three things that get the most, like, if you hit that kind of pinnacle of that, that’s where you’re going to have the most fraud attempts. So that’s what we have to look out for some of those merchants, and that can span across a lot of different categories. Fashion can always get huge hits because there is a certain brand name or recognition or there’s seasonal value. One of the things we tend to see is bot attacks on any seasonal drops, think of Supreme, Yeezy, things like that, that have like a limited edition drop, get scooped up by bots, and in a few minutes, they all show up on eBay for three times as much the price. So we really look across the board because those three items do span many different categories. We work with merchants in I would say 20, 30 different e-commerce categories. And we make sure that we’re providing good protection for all.

Guillaume: But then the question was the bot attack, is it pure fraud? Or is that actually just a bot attack that they actually pay and will honor that payment, and then they just resell it at three times the price? There’s that question too. But of course, if somebody’s using bots to buy, they’re already admitted into the shady market, for sure.

Megan: Yeah. So that I think would fall into, as we’ve talked about item not received abuse, significantly, not subscribed abuse, I would say policy abuse is where you can say a bot attack is. So if the policy is to per customer, and someone’s using a bot and different fake identities to scoop up more of those products, then that’s abusing the policy of a merchant. So we’ll work with merchants on determining what their policies are, and how we can identify those customers. So even if they’re using a different email address, or a different IP address, we can identify that same consumer, based on the over 80 different data points that we use when we’re looking at consumer behavior. So being able to identify and stop velocity attacks, bot attacks, pre-off the tax as well. We start setting pre-off with a lot of our merchants, so that if someone’s doing a carding attack, they’re running 10,000 different cards through a website to see which ones work because they can buy a list of compromised credit cards from the dark web. Every single one of those even if we’re able to stop the fraud attempt, that transaction fee can end up racking up.

Guillaume: On a 10,000 list there could be maybe like two or three that will work or something like that.

Megan: Absolutely. But you’re paying that credit card processing fee for all of this, even if they’re not working or going through. So that’s another thing to look at.

Guillaume: If you have protection against that kind of flooding attack, then that would be great. It can be put in place. Unless they are a large brand, it’s rare that it’s put in place in a proactive way, it’s pretty much always, oh, we got hit by this, then it’s a reaction. And then Okay, now let’s protect ourselves against that kind of flood attack of 10,000 carding attacks.

Megan: So it can be really challenging for a merchant to prepare themselves for all of these different things. Because at the end of the day, they’re trying to stop these bad actors from getting onto their site. While at the same time, they’re trying to let all those good buyers and good repeat customers through. And those good first-time customers, they want to make sure those people are having a great experience. So it can be really hard for a merchant to handle all this on their own. And that’s why we really look at that network-based approach saying, hey, let’s look at where else this person is. Because no one exists in a space, none of us shop on just one website. So let’s utilize the information we have as a commerce network, and really approach this from a broader view.

Guillaume: Also some technical solutions like content delivery networks and various other scripts you can put in place to defend your e-commerce store against carding attacks or a massive attack like this, which you can talk to your web agency to put in place if they have the expertise or some specific security firm. And you talking about bot attacks reminds me of eBay, haven’t been there for a really long time. But you used to see auctions taking off like nuts in the last five seconds. It was just like bots fighting against bots.

Megan: And it was driving that price straight up.

Guillaume: Exactly. Because how those software used to work is they would wait let’s say 10 seconds, 5 seconds before the end of the auction. And then you would write what is your real final prize if you’re willing to bet, but you don’t want to lose money. You want to win it for as low as you can. So the bot would just like spam bids for the last 10 seconds to try to increase, increase, increase to your max that you’re willing to pay to buy it. So you can get it for as low as possible and sort of like steal the bid at the last second against other users.

Megan: Yeah, it can be really hard for merchants out there, and that’s why we’ve really looked at the entire funnel, trying to make sure that our customers can get through and that our merchants are protected. And I think since we have a few more minutes, we can go into that final step that I think everyone has been looking at. The big scary monster that is, returns.

Guillaume: Yeah. Okay, let’s go with returns.

Megan: So you’ve done all this work, you’ve stopped all the bots. So you’ve let through all the good customers, but returns happen. And returns happen a lot more on e-commerce than they do in person. So as e-commerce has grown, you still have returns.

Guillaume: You don’t see the product, you have a photo, maybe a video, but you still haven’t touched it. It’s not the same as a shoe, you haven’t tried it on. So for sure, there’s more return.

Megan: Yeah, returns are a $40 billion issue. And there’s 30% of purchases made online. So I’m sure these stories have made their way to you of people trying to return things after the holiday season and being told, keep the product and your money. Because the reverse logistics can be up to 25%, or not more of the actual retail value of a product. So looking at margins, it can be too expensive, like too cost prohibitive for merchants to accept returns. So they just leave the product with the customer and give them their money back. So a couple of people caught on to this. And then there are other things that happen too. When you’re processing this huge value of returns, there’s different ways that returns get processed and fraudsters caught on to these, it can be weighing the shipment. Taking it back to FedEx to weigh the shipment, if the weight matches, then the return is issued immediately.

So that means that so long as it’s the same weight, that return will get issued. And by the time it actually gets back to the merchant who’s maybe inspecting the product, then that’s when they’ll find that the product is illegitimate, that it was just the same weight of return, not the actual product. And unfortunately, the fraudsters made off with the product and the money at that point. The one that we always bring up is someone put a potato in an iPhone box and shipped that back, they sealed it back up and it wasn’t down for months until it started sprouting. Which is crazy but that’s $1,000 right there and a brand new iPhone that that person was able to get. So, this is the challenge that merchants face. And of course, we’ve had this one size fits all policy.

Guillaume: It’s sort of sad to see that intelligence put to use in such a petty way, like, Okay, you got $1000 and then what?

Megan: It’s become full businesses. There are people that are resealing TV boxes with rocks and they’re really figuring out how to steal these items. I hope I’m not inspiring anyone in this segment, but it’s a lot of work that’s put into this and merchants are catching on. And they’re kind of making it worse for everyone because we all have expectations of free returns now. Some merchants are saying that now we’re only doing free in-store returns so that they can inspect the goods in person. And that they’re also not paying for those reverse logistics. There are companies popping up that do returns in different ways, that are trying to make the returns process easier and smoother, as well as more protected for merchants.

Guillaume: The RMA, Return Merchandise Authorization code and all that, but it’s a whole industry. As I said, it’s a big problem, too. And you can also see that Amazon is trying to be super competitive on this sub-perfect experience. But when you try to return on Amazon here in Canada, they offer to pick it up for free at your door and that’s convenient.

Megan: Yeah, that’s convenient, but how do you compete with that without the p&l of something that can quite frankly, lose money every year?

Guillaume: Yeah, exactly. Because they think that’s just a big scale as long as the whole equation bounces at the end, they’re okay with it. So for small merchants, it’s near impossible unless you have unbelievable margins like designated beauty products or high-end products, fashion products, they don’t have the normal margins and have like above 50% margins and stuff like that, then they could afford that stuff. Or a super crazy loyal fan base of maybe like the Patagonias of this world, but it’s hard to pull off.

Megan: Yeah, it can be really challenging. So the way that we’ve approached it is, rather than trying to make the returns process easier, let’s try and figure out returns before they happen. So we’ve rolled out a return of use API product so we can really segment those customers based on their behaviors. Has this person returned in the past few months? How many orders have they returned throughout the signified network in the past six months? So really using that information across the board to better determine, did this product just not fit or is this a serial pattern with this person? And policies are different. As we said, some people are okay with bots buying their products and reselling them but some people don’t want that to happen. Wardrobing is something that happens in fashion a lot where people buy a product, tuck in the tags, wear it once, ship it back. Maybe a brand wants to see their name out there a lot and they’re okay with that because they don’t have seasonal products, but then you have someone else that’s got a six-week turnaround on their season. So by the time that product gets back, it’s deeply discounted, potentially damaged.

Guillaume: That was the Microsoft Windows and the Photoshop approach back in the day a long time ago. It’s like, it’s easy to crack on purpose, we just want to flood the market.

Megan: Exactly. So we’ve created a product that every merchant can tailor to what their customers are, and what their tolerance is. So they can say if someone has returned more than half their products in the past six months, then only issue them a store credit, instead of a full cash refund.

Guillaume: Which is always better from a business point of view, a store credit, than cash.

Megan: If you’ve got your really preferred customer, like someone that constantly buys from you all the time, then the moment that they request a refund, or they request to return an item, send their refund immediately, and then send the packaging and the label because you know that if they have a great experience, they’re already a loyal customer. And they’re going to come back and shop threefold. So really treating our customers as individuals has become a huge piece of e-commerce, personalization is very important. So why not personalize that returns process because it’s inevitable rather than trying to prevent it from happening, let’s handle it in the best way.

So those worst customers, those ones that you see on there that have returned 90% of the things in the past, or they file chargebacks, everything’s final sale for them. Of course, you can purchase, checkout all you want, but you’re keeping this product, we’re not going to take it back. So we’ve created this product to really approach returns in a different manner and stop going with a one size fits all for different customers, because customers aren’t the same. And they’re not the same on different websites, they’re not the same in different spaces. So we’re really excited to have this, we unrolled it last year. And it’s a really interesting way to look at returns fraud before it happens, rather than try and find more ways to return different products.

Guillaume: Putting in place that kind of insurance fraud and all those detection tools, what kind of cost could the merchant look at?

Megan: In terms of?

Guillaume: I guess it’s some kind of percentage of the top line that is getting charged or something like that. Or is there any guideline as to when they should go into calling companies such as yours or others that I have a fraud problem. But how much of fraud do I need to have for it to be worth putting in place all that stuff?

Megan: That’s a great question. Everyone has different tolerance and everyone’s going to have different fraud pressure, because of those categories that we covered because of the brand recognition, the secondary market for their products, as well as the average order value. So when a merchant starts seeing disproportionate time going towards manual review, when they’re starting to see a lot of chargebacks. But also, what happens quite often is when they’re not seeing many chargebacks at all, there tends to be a problem with how many orders they’re actually approving. So one of the things that we tend to look at is that order approval rate. Are 80% of people checking out? Are 90% of people checking out? How many people are hitting the buy button to actually get their product along the way? And that can be a huge, scary factor for merchants.

With Signifyd, we see 98%, 99% order approval rates. So I would say if your order approval is below that, then there’s probably space for a conversation. If it’s above that, that’s incredible and we love to see that. But then on the other side, if you’re chargeback rates are above half of a percent, above 0.5%, then there’s definitely some space to fix that as well. So those are the two things that we tend to look at. And sometimes it’s hard to find those exact numbers. So anytime that we talk to a customer, we’ll look at that, we’ll share that information with them, we’ll showcase what their system looks like, what we think we can make happen, and then the difference that that would cause for their business.

Guillaume: So basically, if your fraud or chargeback is more than 0.5% of your top line. And/or if your order approval rate, if you decline more than 2% of orders by risk and fear of fraud, there’s probably an opening that the product would sort of pay for itself.

Megan: Yeah, absolutely.

Guillaume: Pretty good. Megan, we’re coming to the top of the hour here. So thank you for being here today. If people want to get in touch with you, what’s the best way to contact you?

Megan: Yeah, you can find me at [email protected] You can also find me on LinkedIn, always around to chat, always around to help our customers and the rest of the partner ecosystem.

Guillaume: All right. Thank you, Megan.

Megan: Thank you.

Episode Transcript

Guillaume: Hello everyone Guillaume Le Tual here, host of the Ecommerce Wizards Podcast where I feature leaders in business and e-commerce. Today’s guest is Derric Haynie CEO of EcommerceTech.io, which is a logical recommendation platform for e-commerce merchants looking for the right tool to grow their store. Today we will be talking Magento versus Shopify, big debates here. I think that’s going to be fun. So Derric, our guest is a Shopify expert. His whole technological recommendation platform stuff is around Shopify tools, in which tools Shopify merchants need depending on which kind of problems they have, checkout, growth, whatever it says, and well as your host, I’m a Magento expert, so we’re going to have some fun.

Before we get started, our sponsorship message. This episode is brought to you by MageMontreal. If a business wants a powerful e-commerce online store, or to increase their sales or to move piled up dormant inventory, to free up cash reserves, or to automate business processes to gain efficiency and reduce human processing errors, our company MageMontreal can do that. We’ve been helping e-commerce stores for over a decade. Here is the catch, we’re specialized and only work on the Adobe Magento platform. We’re among a handful of certified Adobe Magento companies in Canada, we do everything Magento related. If you know someone who needs design, development, maintenance, training, we got their back, email our support team [email protected] or go to magemontreal.com Before we start, a shout out to Robert Rand of JetRails who connected us. Otherwise, this episode would not exist, so thanks Robert. Now let’s get to it, thank you for being here, Derric.

Derric: Thanks so much for having me, I’m really looking forward to this. I’m looking forward to learning more about Magento because it is a platform that I honestly need to know more about, but I’ve neglected for a while.

Guillaume: That’s an interesting way of starting so it’s going to charge. Same thing here, I’m pretty sure I’ll learn a few things about Shopify. I did my research obviously before our podcast meeting today.As the guest, I guess I’ll let you have the opening salvo.

Derric: Well, Shopify versus Magento. Shopify as a platform in some ways you could call it a down market solution, but it actually scales well with the business and frees up a lot of costs. For instance, in DevOps or in managing your own servers. It frees up some costs in development in a lot of ways because there are so many different things that you can plug into the tool that become accessible by the marketing team, accessible by the CEO who doesn’t know how to code, and it gives a little bit more of that freedom and flexibility, I would argue, to make it so that you don’t have to always send it to the Dev team.

Guillaume: Okay, that’s a nice one to start with. I’ll stage my answer a bit before I give it. I do believe in a general way that Shopify is a great product and if it was not already on the market, somebody would come up and invent Shopify. There are very few projects where actually it is the right pick to either do it on Shopify, or do it on Magento. It’s a narrow overlap of a zone here. Very often there’s a clear platform that is the best choice for that specific project. Should you build it on Shopify or should you build it on Magento? I’ve personally lived both, I’ve been doing this for almost 15 years now. And you know, since Magento version one, that was like 10 years ago or so. I’ve seen projects like right now we are doing some project that we’re migrating people away from Shopify or Shopify Plus and we’re building on Magento commerce. And I’ve seen the other way around as well, to be fair, that some merchant left Magento and went with Shopify.

So, I think I have a pretty fair perspective to some degree on this. So if we’re talking about total cost of ownership, there’s a few different nuances to discuss. But in a general way, the cost of ownership is lower on Shopify, like Shopify just wins in the cost category, but that win comes also at a cost, a different kind of cost. Like what are you giving up so that it doesn’t cost as much and that’s where a lot of this battle comes in because the two platforms are fundamentally different. It’s a different mindset, it’s a different philosophy behind it. So on Shopify you have a SaaS, the software as a service platform, which means you have a black box there, that’s the main thing by the Shopify theme. And because it’s maintained like this, by that big corporation they decide how the user experience will be. And there are very severe limitations as to what can or cannot be changed, as per what they decide should be changed, and so on. So if you want to have a very customized workflow, or very customized experience. There are things that Shopify would just not allow you to do. It’s not even a question of budget. And yes there are lots of plugins or extensions, if you wish, on the app store that you can add to Shopify, but even that has its limitations.

So without going too technical, just a little bit here, if the software does not offer what’s called an API endpoint here, if Shopify does not allow you to modify that specific functionality that you want to modify, it is just forbidden, it’s not a question of money, you just can’t period. So even though there are apps that add additional functionality, if there are some apps that you would not be able to create on Shopify, because your plan does not provide an endpoint to connect you to modify the functionality that you desire to modify. So that’s one of the key things that you’re giving away to have that lower cost. They say here’s the sandbox in which you’re going to play, and this is the safe zone, go do whatever you want to do in that sandbox, and if that’s great for you, well, awesome, you got a very good product with Shopify at a lower cost. But it has a limited range of sales scenario or customer experience that it can support or offer. I could go on for a long time but I don’t want to hijack the microphone. I will pass it back to you.

Derric: I will play your side here and I’ll talk more about these limitations in detail because they are quite a pain in the butt. The first one has to be the checkout functionality. Checkout on Shopify is owned by Shopify and you cannot modify the checkout at all. If you are a Shopify Plus merchant, there are many changes you can make to the checkout process, but it still has certain limitations and functionality. So just as an example, there’s a great tool called Order Bump that you can put on that checkout page and you can just click once to add a product to the cart right there at checkout, great idea that makes merchants a lot of money. You cannot do this on a Shopify regular plan, you can only do this on a Shopify plus plan. And it’s still limited in design and functionality based on certain rules and limitations that Shopify puts forward. I would say that is one of the major limitations.

You mentioned user experience, there’s a lot you can do with user experience. You can change the entire layout and design of any page on the site, except for that checkout. But what you can’t do is you cannot improve some of the fundamentals of your PageSpeed load time. So I have seen in the past, there’s a company called DFO Global. They had a website on Shopify, they were a very large successful company now, and they said, we think we can build a faster loading landing page than Shopify. And so they got PageSpeed, load time down from maybe on Shopify could average three to five seconds, which is a little high, because you’re usually on a shared server of theirs. That’s the black box you’re talking about. You don’t own the server. So you cannot fundamentally get a better PageSpeed load time. They got their PageSpeed load time down to under a second by using their own server and a very slimmed down page design and building it all from scratch, it is very expensive. But I think they’ve invented their own platform at the end of the day and now they are actually selling to the merchants and using it in their own business.

 Guillaume: It’s not Shopify anymore?

 Derric: No it’s not, it’s a completely different platform than both but yeah they migrated completely off. So those are some of the limitations. A third one that comes to mind and usually there are things you can do for PageSpeed load time that help but it will never get it into this sub-second range because you don’t own the server and that kind of limits you. The third thing is not a scandal but a big problem that arose in the last few months here was the Shopify subscription billing API. For a while Shopify didn’t offer anything as far as the subscription payment directly. They had an integration with ReCharge and a few other tools that allowed you to use them as the subscription backbone. Then they would actually hijack the checkout experience and you would check out on rechargepayments.com, essentially, mysub-domain.recharge payments.com. Now Shopify created the subscription billing API.

But in my opinion, they did a bad job rolling it out. It actually caused companies like ReCharge, I think there’s another one called Chargebee, they had to shut down getting new customers while they migrated from their own platform to the Shopify billing API. And there were a lot of API functionality that they needed that didn’t exist. They rolled this API out too early and in a lot of ways a lot of merchants and subscription brands on Shopify were hurt in the process. It was not better. Now, I think the goal and where they are now is a better process. But for a few months, like you said, that black box, you had to deal with this problem because you’re on Shopify, as opposed to Magento. So those are some of the costs that I see on the Shopify side that we experienced recently. So I’m not really winning this game.

Guillaume: Well, I don’t think it’s about winning. I prefer actually a search to the truth quite frankly and you can notice I’m not very adversarial about it, more like trying to find what’s the rule here. It goes beyond just Shopify and Magento what you’re talking about here. It goes to a SaaS solution, Software as a Service versus an environment that is fully open that you own the server and that you control it. Of course, you don’t want a server in your closet, go through a proper hosting company specialized in this. But it is a more fundamental trade off than Shopify versus Magento, this specific point. So with any SaaS software, you’ll say well, if the experience is fine and the number of features that I have for my subscription system, I’m fine with it, then great. Lower costs, you delegate all the trouble of maintaining the server, maintaining the IT infrastructure and all that to the company’s Shopify, and you don’t burden yourself with that, you focus on building your business, which is awesome. But you pointed so well, here, the limitation of this is that you don’t control the customers’ experience in the business. You’re now missing functionalities from that switch of which was the subscription system, the external system or Shopify system.

So when you’re on a platform that is open, such as Magento, then you have full control of the experience. You control your own system, infrastructure and server and all that. So that’s the positive, the negative of owning that full thing is the full burdens on you. So you cannot rely on a big corporation like Shopify to provide all that infrastructure for you, the IT expertise and so on. So it’s why Magento tends to position itself. Actually, when it was created, it was for the mid-market industry. Now, how do you define mid-market? There’s a lot of definition and it changes per country, and per tax return filing and what not. But I say over 25 million dollars per year, and over 250 employees kind of range, you tend to be in the mid market.

 Derric: What are some other pros where you think Magento does better? Is it like a higher skew count?

Guillaume: Yeah, higher skew count Magento can win on this one on the commerce version of it by using database sharding. So basically, you can just explode your database and have as big of a catalog as you could possibly want. There are risks and downsides and limitations as well. So that’s the flashy side of it, like as big as you want, wow! But in reality, you have to remember that all those products will need to be indexed. So there could be a limitation on practically speaking how you handle that even though the theoretical models are all as big as you want, they may have a few million products that you have the limitation So that’s what database sharding, if you’re talking some other specific areas that I believe Magento is way stronger, is especially around everything that’s multi-site, multi-brand, multi-language, multi-currency, multi-warehouse, multi-store.

Because Shopify will claim like oh yeah, we support multi-site, multi-brand multi-language but you have a clone in Shopify of this, it all lives in an individual silo like that. So it’s not a true multi-everything like Magento has because Magento just has one instance, and you have all these branching out from it like a tree. So you can even share catalogs across your multiple brands. You can have one brand that’s selling at whatever store, another brand that’s selling at another store, another logo and all that but they share catalog, or you can share catalog data, what you choose, how you manage that.

So you can decide to say, I want to dominate Google or something like that, and then you’re going to have your single catalog with different domain names and logos that will come up on Google’s search results. Then you try to dominate Google this way, and they buy from the first and third and second results that are all you in different looks. You could even have slightly different prices if you wanted, you could adjust the catalog a little bit there. So, the true power of Magento often comes down to that. That’s a fundamental infrastructure thing, that Shopify could hardly replicate without some major headaches and the vector of everything. Magento is made this way. We have learned that three structure that start from installation and branch out to multi-store, multi-warehouse, multi-country, multi-currency, multi-language.

Derric: I was about to ask about country and currency because in Shopify, often it’s one storefront with a currency switcher. In Magento, you often find you’re creating separate domains and separate storefronts for separate regions.

Guillaume: Yes, but that’s more like just the decision thing. You choose how you build it, you will typically have it all any way on one installation of Magento, so that when you do your version update, you only do one version update on one instance of installation and then every site gets it. Of course, each site still needs to have its own control, because there’s more manual control of everything in Magento. But if you want to do a sub-domain, US dot or Canada dot or dot US or slash US, slash Canada, whatever, it doesn’t matter. You choose how you structure that thing after that.

Derric: Let’s talk about this version update. Because this comes in as a con, I would say, the site goes down for this.

Guillaume: Actually, that depends how you do it. You could have it down to a few seconds. Literally, a few seconds.

Derric: Few seconds, 1000s of dollars?

Guillaume: Depends on which store. Most stores won’t have a problem, like I did my WiFi cut for five seconds or something.

Derric: Let’s talk about uptime. Who has a higher uptime percentage? Certainly, I’ve seen outages in Shopify. I’ve heard people can’t log into their own back-end and Shopify partner logins are down, a few other things like that. Their front-end has had a couple of rolling blackouts, that kind of thing. But what do you think, who’s got the best uptime?

 Guillaume: The uptime is decentralized here because Shopify is centralized. But then every Magento merchant is hosted wherever they’re hosted. So you have decentralization in that discussion for uptime. So it comes down a lot to who’s your hosting partner. On Magento commerce, you have two choices, you can buy Magento commerce cloud, which is now called the Adobe Commerce, they just renamed that last week, so then Adobe is your hosting provider in that case. Alternatively, you can buy Adobe Commerce on premise. It just means not hosted by Adobe, doesn’t mean you put it in your closet. Then you could go see any hosting partner that you want, like Nexus, JetRails, Webscale, and all that. So then it depends on the performance of that specific hosting company for the uptime reliability of this.

Derric: There’s one other factor that came into play when I worked at a beauty box subscription, which was on Magento 2 and had a large tech team and DevOps person and all these stuff as well as an outsourced agency. It was the kind of store that really peaked with traffic. An influencer would post on Instagram and I had a screenshot of like 45,000 concurrent visitors to the site. Now the site was down because somewhere about 10,000 concurrent visitors, the server couldn’t handle the volume, it became a serious issue. I mean, technically it was a very successful day but it was also a very frustrating day because of a lot of customer service complaints on social media and stuff like that. So is there this additional risk of uptime there?

Guillaume: I believe that this is very similar on both platforms because what you just mentioned here like 10,000 concurrent visitors visiting at the same time would be sort of the limit roughly on that Shopify plan, which is a limit that they decided to put there. Is that applicable for Shopify Plus as well?

Derric: Providers limit the number of visitors but it could be true. I know for example, Kylie Cosmetics, they had a special scalable infrastructure plan for her store so that when she posted to Instagram, they could support the volume going to her store. They had to hash that out with her personally because she’s a very large personal brand. And it was the swings in volume there.

Now, if you’re a small merchant, and you’ve been getting 500 hits a day or 1000 hits a day, and all of a sudden you get 40,000 that could cause you to crash. But what’s interesting is that your instance isn’t just on one Shopify server, it’s kind of across the entire Shopify network. So in most cases, you should be able to scale relatively infinitely. If you’re a large size, then you’re a Shopify Plus merchant. Then you’re talking with your rep and you’re saying, we need to make sure that our infrastructure can scale infinitely as many new visitors that hit the site. Another thing to note on that was when I was in the beauty box subscription, and maybe this isn’t a problem today, I wanted to use a CDN network so that the pages would load instantly. They said that there had to be a small amount of software that was run on the server for every time the page loaded on the homepage, and that was kind of what was causing the crash. Whereas most of the time for every page, but the checkout, I believe, maybe the cart page for Shopify, it can load through a CDN, I mean, Magento should be a CDN.

Guillaume: Magento is a CDN as well, especially commerce comes with Fastly. Otherwise, you choose what you put it on, you want to put fast in or whatever. Yeah, it’s fully CDN as well.

Derric: It was just the way that my team decided to do it, which is a risk. And now if you’ve got MageMontreal, or a guru to prevent you from doing something silly with your site or your back-end then you probably won’t run into too much of a problem. But if you build a site in which loading the homepage requires software to load on a site, then you have a fundamental limitation and server bandwidth and can no longer go through a CDN for services.

Guillaume: But now we’re talking about some sort of hard limits from either architecture or from server side and stuff like that. So, even Shopify will have some unless they decide that there’s no problem. I’ve heard of some limitations, but they’re quite high like on Shopify Plus, like 10,000 checkouts per minute. I mean, if you have 10,000 checkout per minute,

Derric: You’re in the process of a super merchant if you’re Amazon.

Guillaume: You’re pretty successful. Yeah, it’s not really a problem. But I’ve heard of some limitations like that, and of course on the nonplus plan. Those kinds of limitations somewhere, it’s a black box are hard to know, which is typically not a problem. So, on topic five you can typically just do a flash sale and not worry that it’s going to work fine. On Magento, when you do a flash sale well, check with your hosting company first, because they’re providing your infrastructure. So flash sale is something that we always plan, we look at it like, okay, how big of a flash sale we’re talking. Most of the time, it’s not a problem, it’s just like you have a server that’s big enough to support it. Even with a merchant in mind, we’re seeing names like 15 million dollars per year of online sales, specifically just online, it’s still running on a single server. Also, we’re not even yet at the clustered approach of having multiple servers separating the database from the web server and running that bigger infrastructure of multiple nodes, and so on.

So, even doing flash sales on the site that’s 15 million per year of sales, you can still handle that on just one server, just like buy it big enough that it can take the peaks from flash sales. And if the merchants are really that big, then they just get into that clustered approach of having more than one web server and then they can scale and plan how much you’re going to spend on those flash sales and we can sell and so on.

Derric: So this brings us to this point of technical expertise inside an organization because I think if you have a low technical understanding of servers bandwidth, then you don’t have a CTO as an e-commerce store owner, which a lot of early and mid stage stores don’t have anybody dedicated specifically to the technology, then it can be really scary to go with a Magento build, you will be fully reliant on your partner who’s meant like you’re either a development agency or some sort of technical partnership. And if that relationship doesn’t work out, you have to find another one immediately or you can’t make any changes to the website and you have no idea how your server uptime is going to be responding and all of those things.

So I feel like Magento leads itself of course towards larger providers multi-store, I totally agree with multi-warehouse. Now Shopify does have those solutions. I don’t think they do it quite as well. That’s the important thing to say. Especially, I think of a company like Men’s Wearhouse like stores or retail locations, and dozens of warehouses in its own custom supply chain. And I don’t even know what platform they’re on, but I have to imagine they’re not going to be a good fit for Shopify. But I think about a company like Timbuktu which is I think doing 100 million dollars a year but started more direct to consumer e-commerce then launched a couple of stores. I think they haveNew York, San Francisco, something like that. And are branching out that way you are seeing them continue to be able to scale through the Shopify platform with very few limitations for that growth. So back to the original point of technical know-how in the company should be a concern when making the decision. At a certain point, once you’re at 100 million in revenue, you can hire in-house for that technical role. But at three million years in revenue, can you really bring in a CTO full-time to manage?

Guillaume: I’ve seen part-time CEO’s either coming directly from us to providing that role as the agency or other consultant brought on part-time, just like your accountant or your lawyer, you don’t need to hire a full-time lawyer, unless you’re really big or full time accountant. You just do that portion of the books and of closing the month’s or whatever and closing the year and just returning that. So you don’t need someone full-time to bring that technical expertise or independent verification that we are headed in the right direction, technically speaking. So that’s for the high level strategic point of view or like a CEO.

Hands on, you do need more technical capability to run a Magento store. And it’s part of why it’s not made for small businesses. You do have to expect to spend several 1000s of dollars per year on that Magento store because you need either the extra power or you need that extra flexibility, or you say I don’t want to be like all of my competitors who yes, they can design, the visual of the user experience but they cannot go any further than that. Ultimately, we’re all going to have the same experience more or less than Shopify with no difference. Did I buy at one or two or three to customize that feature? But it’s going to be roughly the same experience for the checkout process, and from the purchasing process and all that. So you go to Magento, because you want that extra power for personalization, or you must go there because of the complexity, for example, the catalogue complexity of the multi-brands and so on. We were talking about multi-warehouse, so that’s true you need to think also about the future. Go ahead, you had something to say.

Derric: Yeah, growing into it, as well. So yeah, even if you are at the 10 million dollar revenue mark, but you know the growth of the business is going to involve all those complexities just listed, you can kind of build in advance on the Magento platform. But if you know that it’s going to stay relatively, let’s call it streamlined or simplified, then you have a tough decision, or you can be more confident on Shopify. The next spot I thought we would take it is actually payment processing. You made me remember Shop Pay having the same checkout experience isn’t always a bad thing, it can be a good thing. With Shop Pay, the user once they buy from one Shopify store, their information is stored similar to Apple Pay or any other kind of payment process like this. And then if you go check out on a different Shopify store, you can actually check out without having to put in your payment information. So it significantly increases conversion rate and makes a sort of network effect, which means as Shopify grows, it’s going to be easier and easier to sell on Shopify with Shop Pay. Now, the downside is of course, Shop Pay is just one way you can pay. You can also use a buy now pay later tool, you can use PayPal, you can use a few other ways. Those are all options available on the Shopify platform. So you’re not limited but the limitation is only when paying through Shop Pay itself, which is the primary payment processor for probably all Shopify stores.

Guillaume: So you can use whatever payment processor you want on Magento, assuming they have Magento extension, which most banks do. The most popular one tends to be Monetaris and we’ve seen a lot of Stripe and PayPal as well. And then people who want Apple Pay will use that typically Stripe or Braintree from PayPal to allow Apple Pay, because Apple Pay doesn’t want to position themselves as a competitor to those platforms, it’s just like an add-on. So that’s their approach for it. For now, there is Authorize.net and there’re a lot of US banks that you can just ask the bank, and if they have it, there’s often on their website, and then you can use those lower rates that you’ve negotiated with your bank to the benefit of those lower credit card processing rates as well on your website. So that’s it.

Derric:  Those rates only exist if you have negotiation power.

Guillaume: Exactly. So it’s for the bigger merchants again, so you see it’s not for the same targeted audience.

Derric: You know what the rates typically are? Really quick I’ll give you that. So Shopify regular is 2.9% I believe it’s also plus 30 cents, and then Shopify Plus is 2.4% plus 30 cents transaction rates and those are the only options you get. And of course, like I said there can be other payment options still at checkout but primarily people pay through that.

Guillaume: Okay, well that sounds like the same as PayPal basically, you know, 2.9% plus 30 cents so this is a universal rate for everybody. But even Stripe if you contact Stripe, then they will negotiate rates that are not listed on the website. So it’s always about the negotiation power of your brand. Say, I’m going to bring you over 10 million a year in processing power, but I think your rate kind of sucks, can you lower it a few points? And very often they show flexibility there. It’s always a question of negotiation directly between the merchant and the payment processor. And don’t take the list of rates during the negotiation.

Some payment providers are easier to know how much it can cost you if they give you like a flat rate, but just like lower, and this like around the two percent, or if you have a company like Moneris in Canada, it’s a bit more difficult to know because every single credit card like it’s an Amex platinum, or if it’s a Golden Visa, or whatever, you know it’s going to change the rates. So, it’s like you just average at the end of the month, because you have no clue how much your rate processing will be. But in the end it is lower, you’re just in no way to know how much. So that’s what Moneris specifically so it goes case by case with the payment gateway providers.

Derric: One downside of Magento is that you have to go find your own payment provider. And with Shopify, you’ve got out of the box.

Guillaume: You will have to create yourself a merchant account either with PayPal, with Stripe, with the Authorize.net, Moneris or others. That’s the case about screening the account. But often, if you come from the brick and mortar store and established company, they tend to already have a payment processor for their stores at their retail company, and then they can often use the same payment provider as their retail brick and mortar store online. But not always, sometimes they have stuff that we’ve never heard about. And then of course, we just bring them to one of the big online player for payment processing.

And that reminds me also, we scripted this point quickly. But again about the point of planning for the future, sort of trying to avoid replatforming. It depends a lot on this, are you able to keep your business simple, because some business can stay fairly simple in their catalog and so on and scale to 100 million, but not all of them. And some of the businesses can be small, but they have complex needs. It wasn’t too long, let’s say they have one warehouse in the States, one warehouse in Canada or one warehouse in Mexico, whatever. And then there are small companies with few employees but they already have to manage their business like a multinational because they have warehouses across the borders and it becomes multi-lingual multi-currency, multi-warehouse pretty quickly and multi-problem. And then you have that complexity coming in.

So I have a Shopify merchant like this around. They started with nothing, did great, went to about 5 million a year of online sales on Shopify and now they’re replatforming on Magento Commerce because of all those extra capability that they’re looking for, and also to add B2B. So you know it was strictly a B2C experience. Now they want to add B2B, so Magento Commerce has a B2B module also. And unlike some other platform, which is out of scope of discussion, like the Salesforce or whatever, that you would be stuck with two platforms with Salesforce. There’s one B2B platform and one B2C platform and you sort of double your upkeep costs, then you have to retain your website again to design on the second one with Salesforce because Salesforce bought one B2B platform and bought one B2C platform, so it’s not the same. So you want to offer B2B, it’s a different experience, different platform. But we have a bit of that kind of case with Shopify, which B2B is sort of nonexistent out of the box.

Derric: There’s a couple of good apps that provide the wholesale side of the business, you can create either a sub-domain or sub-folder, which allows for logins and different rates and pricing by vendor. So there is a way to do that but it is a Shopify app, the prices on that app are not bad at all. But it is a little bit fundamentally different. I’ve heard issues with how this might integrate with inventory management and a few other kinds of hiccups that it causes. But I would say that it’s probably not as seamless as Magento doing both. But it is absolutely doable to sell wholesale or B2B which is typically to have different pricing for specific users that are like managed accounts as opposed to just the mass market.

Guillaume: So through those apps and their capability or limitation?

Derric: Yeah, but that app is integrating fully with Shopify, and plugs into your existing catalog. It’s just changing that front-end user experience. I would say it’s what it’s doing right so you can hit that wholesaler login button, and then it takes you to a login page into your credentials. Then all of a sudden, you are looking at different collections and different product detail pages that start at 100 units or whatever, and then show you the discounted pricing for you specifically, up to that 1,000 units that you want to buy. Because that’s typically the two things that are changing when we talk about the B2B or wholesale side is that the unit volume is significantly higher, then there might be some form of tiered discounting or products unique to certain vendors. So only they get to see these products or something like that. So that all can be managed on Shopify, it is just through an app as opposed to let’s say native. And I honestly don’t see Shopify changing that anytime soon, because they are so focused on their B2C platform.

Guillaume: So you get sort of the B2B through, not even an afterthought, actually purely through partner so that the app itself does not cover B2B. It’s whatever the app marketplace covers there for B2B.

Derric: Those apps are only doing one thing and so they are moving fast in improving their features and functionality they integrate with a lot. They know that they need to integrate with everything. And so you’re seeing maturity in this market now in a way that didn’t exist a few years ago. There might not have even been a wholesale app, or any legitimate there was a real cheaper one I think a few years ago but now they’ve got well funded venture backed startups that are building off of the Shopify platform. And that’s maybe where we could take it.

Next is how in Shopify, I feel like it is enabling the technology to build on to its platform, in a way that is bringing rise to really unique businesses. Of course, Klaviyo is now everywhere but started on Shopify and grew, there is another one called Privy and there’s other Shogun, and because of purposely lacking functionality in Shopify, there was room to build these apps. The apps themselves started making quite a lot of money. The Shopify did a great job empowering their partner ecosystem and that has created a really unique space, I would say. I don’t know anything about the Magento, extension and app ecosystem. So I know that there are a lot of apps that crossover between the two. But I don’t know how Magento might empower their technology partners or anything like that.

Guillaume: That’s different. So what’s interesting about Shopify, which you just mentioned, like it’s a venture backed ration of a fairly large company that just like addressing the Klaviyo, we like Klaviyo, are working with Magento as well, now they have the Magento plug in and all that. So, that’s interesting, the creation of those larger companies on Magento. Since we address customization as that’s the key focus when you present Magento is, sky is the limit or budget’s the limit. What do you want to see here? We do just like everything and every business is so different and because we’re going naturally with the complex cases to solve, even with all the bells and whistles that comes with Magento. There is never enough bells and whistles. So, those companies still make us develop a lot of custom work, and there’s a very large marketplace. I don’t have the exact numbers, but I know for a fact that the Magento marketplace is dwarfed by the Shopify marketplace, like how many apps are available on Magento?

Derric: Just because of the customization and in some ways it’s better to just custom code sometimes than to pay a monthly subscription for something. For instance, when I mentioned Shogun, it’s a landing page builder designed drag and drop functionality, so it makes it wiziwig and ease of use. Now, the pro of that is that the idiot marketer can now change the page around without having to bother the tech team. But the con of it is, of course, paying that subscription fee. So if you’ve got a development team that can execute on changes needed for product detail pages, then you probably don’t need a landing page builder. And so you’ll never have to build one. There won’t be an app or extension for that, because it should just be done in a custom way.

There’s a few others to do that, like how you change your navigation menu in Shopify is often in app instead of with custom coding, and a few others. There’s this whole low end of the Shopify app market, which I consider tools that two guys in the garage developed and do like one small thing, it adds a bundle and it adds a discount, adds a little widget here, little dropdown there. Those are all the things that you would always custom code in Magento, which I think is a very big pro to Magento. I’d rather have them custom coded, but at the same time, it’s going to cost me 600 dollars to custom code it, or I could pay 5 dollars a month. It will take many years to get to 600 dollars at 5 dollars a month. So that is the tradeoff. In Magento I think you pay upfront for development whereas in Shopify, you get sucked into a tool that solves that problem that you pay for in perpetuity.

Guillaume: Yeah, so the subscription model, the short-term can be super interesting and long-term and becomes different, so the apps in Magento, almost all of them like 99%, are one-time purchase. It’s not expensive, typically it’s like 99 bucks, 200 bucks, 300 bucks. And if the enterprise version of the open source version, they put the ad, more or less 300 bucks on it, so the 300 dollars purchase becomes 600 dollars. And it’s a one-time fee and that’s it. So it’s more like part of the upfront development cost. And then for the version updates of those plugins it varies per vendor, a lot of the very large vendor like Amasty will give you lifetime free updates. Others will give you only updates for a year, but majority tend to give free updates, lifetime, not all of them.

Derric: So as a merchant listening to this, you’re thinking I’d rather just pay once, pay it upfront. But there’s actually this hidden cost, just in how kind of Business Economics work. It’s why Microsoft used to sell Microsoft Excel, now they sell an annual-like subscription to their products, because by having a recurring payment, SaaS model it provides, in a weird way, the capital to that technology company in order for it to invest in growth and scalability.

So in some of these one-off tools, there doesn’t need to be too much more developed, except for some updates, but they’re only always going to solve these one things. Whereas if you think of a platform, I’m thinking of the customer service solution, gorgeous, which is now also on Magento. But they are charging monthly launched specifically on the Shopify app ecosystem. And they launch with a relatively low feature set, knowing that they would have to continue to build features over time to reach their beautiful end goal of their vision. And so I think that you have a lot of certain technologies, and these could be technologies that you add on that aren’t Magento extensions, they’re just apps. They’re just other tools like Slack and Asana are not necessarily part of your e-commerce technology stack, but you’ll still use them in your business. But there’s a value to paying monthly for something and seeing that feature set grow over time, as opposed to a one-time fee for a very specific fix. Yeah, I’ll leave it at that.

Guillaume: It’s a fair point of view. So I’m not going to argue that point like one-time fee versus recurring, but the recurring sometime can have improvements within the pans, if you will get improvements, some makers of plugins will give you improvements. But often, it’s just like you said, new version fixes. But sometimes there are improvements in the case by case. But I think the main differentiator is not exactly that, even though it’s one of it, that’s more like, if you have a cool idea, if you search for that plug in, there are the odds that there’s a plugin that does your cool ideas way higher on Magento, because there’s so many 1,000’s of extensions, like just the core Magento extension in the market despite 1,400 extensions, and that’s bigger than the Shopify marketplace, and that’s just the official one.

Derric: Some guys have got over 6,000 now.

Guillaume: That’s just the official because it grew up a bit but then you have all the vendors that are not listing on the marketplace. Because the marketplace you need the code review by Adobe and all that and it’s long and it’s slow. So there’s a lot of vendors that want to sell on their sites, we have 1,000s and 1000s of extra plugins that you can just buy directly from vendors.

Derric: There’s something there. I would say that most of the things that you’re going to need to change, there’s probably an app for that. I’m kind of hinting I do not like the one-time fix app that you pay a monthly subscription to, and the developers aren’t working on that tool anymore. I do not like that in Shopify, whereas in Magento, it’s clearly well accepted and it can fit the business perfectly. It also sounds like Magento, correct me if I’m wrong but these extensions, I think they’re all changing the backend code. But that’s what you’re paying for is like, just make these auto-like adjustments to the code that you’ve already written and then just injecting it into my site. In Shopify, you’re more like renting the code, I guess is the best way. Shopify is rented in a lot of ways, semi-rented land, because they own it and they can change a lot of the rules. But Magento is true owned property. Nobody’s going to be taking it back anything from you there.

Guillaume: I’ve heard something also about the licensing for Shopify, maybe you can tell me more. On the marketplace Shopify and Magento are two of the key players. There are a few other more of course out there. Shopify positions themselves, when I’m talking Shopify Plus here versus Magento Commerce which is Salesforce, big commerce. So Shopify Plus position themselves little bit lower than everybody else sort of as the least expensive option. But I’m told that if you add all the recurring subscription costs for plugins, for personalization, especially in the context of a large more enterprise grade product with Shopify Plus that base license cost difference that is lowered Shopify Plus quickly goes up, that there’s not much of a licensing difference afterward.

Derric: So we want to separate out the cost of Shopify Plus and the cost of your e-commerce technology stack. So if you’re doing 25 million plus a year, you should have a personalization engineer who should probably be adjusting or alarm spotter, some big AI based personalization tool, which I’m sure isn’t like something that you can just build yourself. You need that because they’re literally merchandising solutions. They know what products to show at what times and increase conversion rate. And you’re going to need a host of other tools on both platforms for a lot of other things. Everyone has their own email service provider separately and all those things.

So the question is, what other tools do you have to buy on Shopify that you wouldn’t buy on Magento. There’s not necessarily too much more in the technology costs for the Shopify Plus itself. I made the calculation a while ago, I have it in like a LinkedIn post. We found out that it was something around two million in revenue, maybe it’s a little bit more, you should switch from Shopify to Shopify Plus, specifically based on the transaction rate savings that you’re going to make. So you go down from 2.9 to 2.4%. And so you can do the math on 1.5% is less than two or more than 2,000 dollars, you’ll save money switching to Plus. That is really almost the only reason to switch to Plus is the savings in your transaction rates.

They do give you access to flow, they give you a dedicated merchant success manager, and you might get some better bandwidth, or maybe a couple of other things along those lines. But it really is, I would say, move transitioning upgrade based on transaction volume that you move from Shopify to Shopify Plus, and in some cases I have seen merchants move down even as their revenue goes up from plus to Shopify, because they ended up using a third party vendor for a lot of their payment solutions. That was again, just a custom thing to them.

So that’s the main difference there and absolutely you’re correct that Shopify Plus is still coming in on the low end of the market .The majority of Plus merchants are doing under 100 million a year, whereas probably the Magento enterprise are probably much higher than 100 million a year and they’re in the billions. So you definitely see those complex multi-billion dollar conglomerates being more successful on the Magento platform, whereas those fast growing digitally native vertical brands that are famous on social influencer and with a very specific like DTC channel as their primary focus, I’d argue see more success on Shopify.

Guillaume: For a small brand, actually, I do recommend them very often if the product is appropriate to go on Shopify, like a small mom and pop shop, they are too personal they’ve a bit of personal savings, you want to start, no, Magento is not made for you, sorry. I know you’ve seen a cool template on Template Monster or P Forest at ninety-nine bucks, you’re buying them into the wrong platform and product. This is made for the mid-size market but it also tailors well with the smaller company but are still fairly large and the also the enterprise solution there. So like when you go the licensing costs and all that for Magento, even though there’s a tier like starting at 500k a year of volume it’s not for those making 500k but more for the word 500k. But like we’re venture-backed or something we’re going to explode next year, we’re going to grow and we’re going to be a mid-size company in a few years from now. That’s more who they’re aiming at. So typically Magento is like at least a million and that can be a good fit.

I see a better fit in our agency with like three million in that kind of client that tends to be good especially if they have complex needs, again, is one of my previous examples. You’re a small business with just few employees but you can have the same problem as a multinational if you have warehouse in multiple countries, currencies and languages and so on. Adobe acquired Magento three years ago, and since the acquisition of Adobe, Magento is getting pulled even more upmarket. That’s how I feel it’s happening. And it’s becoming even more enterprise grade and enterprise solution and so on. So if you look for example, at the top 1,000 internet retailer internet merchants online, this is where you can see the stats get totally skewed toward Magento being the market leader there.

Like, there’s 121 stores out of the top 1000 that are in Magento, which positions as number one platform for that segment, the top 1000. You know, and then you have the other one, the other platform listed here, and Shopify is toward the end of the platform list, like we have a few other in front of this. If you go at the bottom 1000 stores, Shopify is gonna win a lot, or it’s gonna have a hard time maybe with WooCommerce, or I don’t know, but I don’t have the stats for this. But for sure, Magento is not winning low, and it is a mid market solution. So it’s part of why you have to be careful. And I was saying like, not every project is a good fit on both platform majority of projects can have a clear winner as should this be a Shopify project, or should this be a Magento project, it’s rare that you have a few in the middle, there are some but still, because you want to be careful to think of it for the future.

And when we’re talking cost, total cost of ownership, or replatforming, is one of the worst costs you’re going to ever have. So if you neither replatform, that could be like 100 grand on the cover of loss or something or whatever, it depends on what you you invest in that platform, then we’re talking like mid sized companies here with complex needs integration with the MRP system with the fulfillment system with maybe they have an own fleet, or samsara or other fleet management for their truck delivery system integrated with the website, the multi warehouse, and it goes quickly up in the bill. So then it becomes more like, you can get in several hundreds of 1000s of dollars of development for those kinds of projects, because it’s not a website anymore, maybe the users just see a website, I understand the whole complexity here. But in the back, it’s almost becoming an ERP to some degree in enterprise resource planning system. It’s integrating with the ERP submits the mirror, all the power, the complexity of that ERP so that let’s say it’s SAP that integrate with Magento here.

Well, Magento needs to be able to do all kinds of crazy stuff now. How merchants returns are handled, how the account creation is handled and stuff like that, let’s say you’re talking about the checkout process of a merchant, complicated business manufacturers, you look at their product structure, and you want to pull your hairs and you need to do another session to understand how the heck that thing is working, you know. And in their case, they want SAP to do all the calculations for shipping, and for the cost of the checkout and for taxes and all that. They don’t want the e-commerce store, which is the standard way of doing things to do those calculations.

Normally, you’d have let’s say your checkout for your US taxes, maybe you have UPS for your shipping, and then you contact ups for the shipping, if you have freight, maybe you have FedEx Freight, or whatever, and contact that for the shipping cost for your freight stuff. But they didn’t want that to come for all kinds of reasons. They need SAP to do those calculations. So during the checkout process, Magento can hijack the checkout steps and sort of stop there. Let’s go to SAP instead for all that shipping, pricing and rules and everything comes back here. And then the checkout continues. You got all that power for that large corporation running on SAP that needs any commerce store that has the power and flexibility to match SAP.

Derric: Yeah, for a large kind of enterprise provider like that, Shopify is just not an option. It can’t even make the shortlist because you’re talking about a lot of needs and custom integration needs. And so I think that’s where we have a cut and dry, clear winner for Magento. And I think we’ve been hinting at it, there’s this gray area on the growth and trajectory of the business where sometimes it’s not clear whether you should be building on Magento or on Shopify. The advice I would give is you need to build for your five year future. I’d love to say you want to stick with the platform for more than five years, but who knows what’s going to be held in the business for five years.

And you have to make sure you can afford to get there. You talked about hundreds of 1000s of dollars in maybe launching on Magento. Whereas it could be 10s of 1000s of dollars launching on Shopify. So if you know you don’t have the capital investment, you unfortunately have to underserve yourself slightly to make it to the five year future and then you pay that $150,000 to $200,000 replatforming fee at a later time when the business complexities get there.

Guillaume: Just to interrupt quickly about budgeting. I’ve heard a lot of quotes that are kind of similar in development with Shopify plus unlockbase. But yes, Magento tends to be just a little higher in general. So the larger agencies will typically do project either like a 100 a day and up in USD.This is like the general agency if you get the largest of all agencies several hundreds of employees they’ll typically do like 400k and up in a project, but then you’re talking several hundreds of employees or CGI or a center and then they’ll get the half a million a million dollar project and up. But that’s it, it’s a different ballgame. You will have smaller agencies that will do projects maybe in the 30k, 40k, 50k, range but you don’t have a 10k Magento project with professionals, that doesn’t make any sense. It’s in the outsourcing you are going to get a disaster.

Derric: Yes. Actually, that’s the way my first e-commerce business that I launched was Magento 1 outsourced agency and a big business.But I don’t blame the platform, even though the platform was overwhelming for us. It was our fault for not being ready or well trained in it, we eventually got pretty close up to speed. Comparatively, if you know nothing about your e-commerce platform, if you’ve never used one, maybe you’ve got a few retail stores and have just completely neglected your website, and are now moving online. It’ll be a lot easier for that person to get off the ground on Shopify, even though they are a 10 million dollar business with most of it being retail to get their e-commerce up off the ground through Shopify than through Magento. That doesn’t mean that it’s absolutely the right solution. I just think of the ease of their investment into the transition and even who they might want to hire to help run the DTC and e-commerce side of it, like the actual marketing and acquisition side not the development side and stuff like that. I do see projects for Shopify development, I’ve seen as low as 1500 dollars per starting store being built, I’d say most projects would be five to $25,000 for a good website build. And then of course, for larger more complex stores, higher skew count, or for migrations, because we have seen migrations from WooCommerce, from Magento, and stuff like that, then you could be at 30, 50, and at the absolute upper bound is 100,000. I think that’s the reason the cost gets really up there in Magento. Because with Shopify, there’s almost no custom API. It’s always either there’s a tool or a widget and integration, there’s very little that needs to be done there.

Usually, you’re going to actually make integral those API if there is any API integrations. It might be between an ERP and a 3PL, and that is actually not typically in the development of a Shopify site. It’s not included in the dev costs, because it’s kind of a layer outside of the on-site experience. And so it can definitely be a separate thing charged for differently, but you have almost no custom integration work in Shopify, you have a lot of custom development and making the pages look phenomenal. So it becomes a little bit more about design, and then some streamlining, technical SEO components and JavaScript rendering and stuff like that and then importing product catalogs. But it’s a lot less on building out custom API’s for sure.

Guillaume: Yeah. That’s exactly back to that fundamental thing beyond Shopify and Magento. And you have a SaaS platform software as a service, and you have that open ecosystem on Magento. So with the SaaS platform, what you can modify is restricted by templates, is restricted to some areas, there’s limited customization that you’re saying checkout is not even allowed to be modified. Some of the restrictions or processes of how things work. Well, if they don’t even give you access to that specific functionality, then you cannot modify it.

There’s no API endpoint to connect due to modify feature, so it’s just impossible to do it. That’s why also those projects for Shopify will tend to cost less than love. Because there’s less you can do so they keep you in the sandbox there. The Magento project, by definition, tends to be the more complex projects, larger with the bigger needs and that full customization needs, and then integration with lots of custom API and all that it becomes huge. So the project can quickly turn into pretty much a software development project, and mirroring like functionalities from the ERP and stuff like that enterprise resource planning system. So it gets fancy quickly.

Derric: We have our answer, we’re settled, I agree completely. I think we’re totally on the same page here, which is good to hear.

Guillaume: That’s amazing. We did a very good cover of it. There’s a few more things we didn’t talk about, let’s say like the mobile experience or stuff like that. You’re talking about the speed of loading. If you just install a Magento like this out of the box with a template you buy somewhere like Themeforest, the speed will suck as well. Frankly speaking, you need to spend money for a developer to work on it to the speed of optimization. Now if we get into the more modern stuff, then Adobe has bet pretty hard on what’s called PWA the Progressive Web App, also called Headless Cinnamon. So, your front end is pretty much all JavaScript now. And it’s generated to API called Magento API, with the difference it can create additional API endpoints in Magento if you have one missing, so there’s no limit to customization.

Derric:  That’s interesting. Now is Adobe providing the Progressive Web App option or?

Guillaume: Yeah.

Derric: Okay. So, in Shopify, we have progressive web apps, there’s a couple of players in the space, but they are separate SaaS products that you have to buy, and you work with their dev team to ensure success. Some of them are almost plug and play, you just have a drag and drop builder to make sure that the front-end experience is mirroring what you want it to. And then they actually will integrate with the other tools in your Shopify stack, to bring in the review widget tool, and the loyalty program tool. And there’s a few other maybe on-site chat tool, or whatever it is, so the good news is that they do exist, there is dev cost, and it usually is for the upper end merchant, I usually recommend that at about 3 to 5 million in annual revenue is right when a progressive web app becomes viable and scales in business.

Guillaume: I agree. That’s the minimum you need for that.

Derric: Yeah. And then the only other limitation is because you do have other apps that are showing an on site experience. So you have to make sure that that progressive web app tool can bring in all of those things. And some of them, if they don’t have the direct integration, there is actually an opportunity to do custom API development usually, in that situation. But then that’s a bloated cost kind of situation.

Guillaume: Yeah, exactly. It is part of the Magento, Adobe value-1:01:47 studio so yeah, it’s the future, they’re going there. That’s where the whole company is going it’s pretty interesting.

Derric: Shopify I don’t think is going to do it. Unfortunately, I think they’re letting the Partner Network create the headless commerce experience, which I find interesting, because I think they just should have headless commerce built in. But I don’t know how technically feasible it is.Because then every developer has certain limitations.

Guillaume: And talking with developers, I’d like your opinion on this. Is it easy to find developers and the merchants and so on? Because you have that proprietary liquid technology there for the code. So you need someone who knows liquid. Is that an issue to have a limited pool of liquid developers?

Derric: I would say there’s so many Shopify developers. And because of the size and growth of Shopify, people have flocked to this platform the same way you chose Magento. It kind of has happened to thousands of developers. There’s a whole agency network, we’re actually about to launch our own agency page that we’ve got about like 100 agencies that we’ve vetted, that are specific to e-commerce, some are specific to Shopify. And so there’s a lot of agencies there, but most importantly, there are these freelance networks. One of them is called FreeUp, there’s Storetasker, and there’s get Carson-1:03:20. There’s one other that I’m blanking on that I should know. It’s a pool of vetted Shopify contractors. And then you put your job there, which is like I need this page modified. I need the CSS here, I needed an SEO overhaul or something like that. And then the individual developer will send you a quote, a lot of times these are actually like smaller agencies that are on the platform, and then just looking for a small project. And it’s better than a freelancer Elance, or Fiverr or anything like that? Because they are specific to Shopify, and they’ve been vetted and are in the Shopify ecosystem. And then there’s Upwork.

Guillaume: You said Elance. They renamed it to Upwork so that was covered. Adobe typically presents it like that, like having my own sort of independent point of view. Adobe typically presents it since Magento is built on PHP, and there’s over 5 million PHP developers worldwide. It’s the most popular language or one of the most popular universal web, and then you have over 350,000 Magento specific developers worldwide that is so much bigger, and there’s a larger resource pool.

Derric: You need more resources to get anything done.

Guillaume: Which is true, which is why I have my own independent point of view. There’s so much learning curve to Magento. I don’t know exactly about the situation with the limited number of liquid developers on Shopify, but I have a feeling it probably evens out. So there are ups and downs for both.

Derric: You need them often but the pool is there for you when you require it. And I would say in both cases Magento, Shopify and really, most other platforms, whatever platform you’re on, you should be hiring developers and an agency specific to that platform, because it is really important. You’re talking about the learning curve for Magento. I can only imagine the things that you know because of 15 years of experience, that as somebody that knows PHP, but not Magento just comes in and breaks the whole system.

Guillaume: They need to learn. We’ve done it in the past, hired a PHP programmer with 15 years of experience are defined that the Zambia-1:05:40 PHP engineer, blah, blah, blah, he needs at least one year of full time work to go get his first grade junior certification, which is now called Adobe Certified Professional Developer. It’s at least a one year learning curve for a back end developer, to just get up to par, so to speak, to just be competent on the platform.

Derric: That’s interesting. I don’t know if Shopify has the same bar or not. They do have some certified partner programs and a few other things and resources. I do know that the platform’s I mentioned with the pools of contractors, they have their own kind of onboarding and vetting process and they do deny a large portion of applying developers that just don’t seem to have the amount of hours put into the platform to be successful yet.

Guillaume: Well, that’s the standard Adobe way. It was changed, it used to be different when it was the magenta day. So now Adobe does that for all their platforms, not just Magento. So you have the first grade, it’s like professional developer, second one’s expert, certified developer expert, basics for that and then the third degree is the master, which can be like a master architect, master full stack certified so you have that probation there. But again, it needs these one year full time experience to get possibly the realistic capacity of the first level of certification.

I think that covers well for developers. We didn’t talk much about AI, or what’s happening in there for Shopify, I just don’t know what’s happening for Shopify with AI. I can tell you what’s going on with Magento. But go ahead, tell me about Shopify or something.

Derric: I don’t know anything. I don’t think there’s anything, there might be some things going on in the background of how they’re managing server loads, and a few other things like that. But any AI solution that you would want to use is going to be an app partner to Shopify. Whether it’s a recommendation tool, like a personalization recommendation tool, dynamically changing web pages based on content, or there’s a price testing tool out there that uses AI to predict the best price of your products. And there’s AI copywriting tools and all these things. We actually just did an event last week called the future of e-commerce AI, and how it’s changing the industry. And yeah, Shopify didn’t speak and Shopify certainly knows that these tools are out there. But they focus on the platform dynamics, which don’t really require any machine learning artificial intelligence. Like I said, some server load time and maybe a few other things whether it could be sales. There’s not too much that they need to do in terms of building AI. But that is why I want to hear from Magento. And what are they building that is so great here?

Guillaume: Yeah, in that case, we likely have a win on the Magento site for the AI because of the following reasons. Yes, Adobe themselves, they charge AI with the Adobe Sensei platform, which is the Adobe AI platform that they are integrating across all their products, not just Magento. And why I say that, I believe that’s Magento and that is because how deep do you integrate your AI to capture data from your visitors to do the best recommendation or the best understanding of the person who’s shopping there? You need to go deep with this because that’s Magento they are some third party login providers to add AI in the form of Amazon personal likes so Amazon has that you know Amazon product recommendation engine, you can just pay per request and have access to it and Amazon will generate recommendation for your catalog to Amazon personalized. That can be integrated with a store like Magento and other types of stores as well. But the extension maker we integrated that Amazon personalized with Magento. Their touch point and data collection points are far more limited than what is built by Adobe, like Adobe is more of that big brother approach to everything on the website that tracks and feeds data to the AI to try to understand who’s in front of me now.

Even the page builder, the drag and drop page builder supports it, everything supports it. The main areas in which you can see artificial intelligence on Adobe, it’s strictly on the Adobe commerce version, we got its cloud or on premise, not on the Magento open source section. And then you will have product recommendations that are made through AI. And what’s really powerful about this, well, in this case, more data from visitors to give better recommendations. But by using AI in general, for product recommendation, let’s say you have a really large catalog, not large at all, but let’s say 40,000 skews. That’s quite the size of a catalog.

Now, if you want to suggest other products to buy, you could do it in the more manual way that there’s somebody that fills a spreadsheet and says, that’s insane for a 40,000 product, I agree. Then there is one better before AI it’s other tools like automated rules. If you’re in this section, show also this, if you’re looking at a camera, show bags and batteries and accessories, that kind of thing.

Derric: I think that should be dead as well.

Guillaume: I agree, then the next one after that better is based on some data like a beginning. It’s not AI, but just something smart, like people who bought also bought, people who viewed also viewed and it’s based on real checkout data. And this has a downside that you need enough data of people who have viewed the product out of your 40,000 skews for this to have any data to feed. And it will not be a personalized experience. Because everybody will see the same recommendation that people who viewed also viewed then here’s the three others that they viewed. This is almost like if you go to Netflix, or amazon prime video or whatever and everybody would get the same recommendation, doesn’t make much sense to me in terms of personalized user experience.

And that’s where AI comes in and just like trumps everything, because then on that whole catalog of 40,000 skews, you will have personalized recommendation based on who the AI thinks you are as a persona, and based also cross match with what sold in the past related to this and so on what might interest you. And then the kicker is that the AI will self correct. So across the full catalog of 40,000 products, if something does not convert, doesn’t add to cart, doesn’t checkout, it’s going to start suggesting something else. So it autocorrects everywhere based on performance. And that just becomes incredibly powerful. So that’s my product recommendation through AI for mathed catalogs.

Derric: I love that Adobe has that separate AI product. And I would imagine you end up integrating this into most of your builds for your merchant. Similarly, anybody I would say actually a lot of these tools are now scalable all the way down to starting stores. So I’m assuming Adobe Sensei is more than 100 dollars a month, right?

Guillaume: It just comes with the license, same fee, it’s included in all.

Derric: So it’s free for all Magento plans?

Guillaume: All Magento commerce.

Derric: Okay, that’s huge. Now I can’t necessarily compete on price. But there are personalization tools. I mentioned two, LimeSpot and Justuno are two of the big ones in the space, perfectly integrate with Shopify. You get all the data you need to make the right recommendations, and both are very good. Just fully robust solutions, conversion platforms, and merchandising platforms that understand, is this in stock, stop showing products that are out of stock, all of those things. But also, I know with LimeSpot specifically, it uses data points not just across your website, but across to their users on on all platforms, which is in a GDPR compliant way, they’re able to say, oh, well, this person was visiting another product intended to lean towards products that were female oriented. So I’m assuming they’re still female. So we will show them female oriented products on our site. So there’s just a basic kind of learnings that you can carry over across site that make their platform really powerful. And you can see that boosting conversion rate.

Guillaume: I believe that it can self pay if you have a large enough traffic base and catalog and complexity and so on. And there’s two more really cool things about that AI. Another one is visually similar products through a visual recognization of image and patterns through AI. So that’s really cool. If you’re familiar, let’s say with the website Adobe Stock, not everybody knows, but you can search by picture. Next to search is a little icon, upload a picture, you put a picture in there and then Adobe Stock will search for other similar pictures based on that image search on AI. So you have the same functionality in Magento because it’s using the same thing, it’s Adobe Sensei and then you can have a search visually similar and then it will show you garments or whatever that are visually similar. That’s quite powerful.

Derric: Believe it or not, it’s not as powerful as you think. Image search, in the sense of, let’s say, I have 40,000 skews. Now, most of the time, these skews, wherever they’re coming from, vendors or something like that are going to have tags or something associated with them, like meta description information that give us more about that product. And if you’re not getting that information from the vendor, and you need to create it, then yeah, using a tool that analyzes the image and creates a handful of tags for it can be really helpful. But usually, you know that it’s a women’s, a red dress, slim size with a bow. Usually you know those four things or whatever. So you don’t actually need the machine learning to find it.

Guillaume: It depends where so for a simple example I’ll agree with you. Then you get the more fancy, more complex thing. Let’s say you have whatever it is shoes, try on a Nike sneaker or Adidas or whatever to say what color’s the goddamn shoe. It has so many colors on it and the patterns are different, and the swirl and the descent of that, and nothing is really gray. It’s light gray, it’s beige gray.

Derric: When we’re recommending another product, you can get close just on basic functionality, show the recommendations, and then the engine finds out which products people are clicking on and makes the correlation over time. So you’re only saving a little bit of time by having that additional data at that.

Guillaume: What I suggest with this is actually to do what you just said to do. But to add an additional row of visually similar so that you separate the visually similar thing with what you just said, to keep all the benefits of what you just said. And you add the benefit of visually similar. And this is really cool in so many instances, because you have all that very advanced capability because they want to use this for a software like Photoshop for photo touch ups and retouching and so on.

So the software is smart enough that let’s say that this picture was a fancy picture of a woman wearing a dress, but she’s on an orange background and other white background. Well, the software is smart enough to know that the orange is not part of the garment, and this is not a white and orange dress, this is just a white dress. And it will suggest stuff like that. And same thing for the patterns that are on it, it can recognize the type of drawings, shapes and angles with swirls or whatever, or flowery and whatever. And it will suggest patterns that match let’s say products like tiles, you have a lot of subtleties, and marble tiles and whatever and stuff like that. And then you can see visually similar all just showing up like that on that extra recommendation row. It’s quite interesting.

Derric: I like that, I like the idea of having a second recommendation for visually similar because the first one could be products that this type of person is most likely to buy. The second one is products that are more like this product, but slightly different. And there’s kind of two mindsets inside of I think the consumers mind at the same time, which is like, I’m shopping. I’m gonna see things that I like, but look, I’m on this product, I want to see things that are like this product for now. And giving them the choice between those two options, I think is valuable. But now we’ve gone completely off topic.

Guillaume:Well, yes and no, went into AI which is not covered by Shopify directly, let’s say it’s a just wrap for AI because it’s a fun topic. They just added now they’re ready to buy a 2021 AI search as well for Magento commerce. So that was not there. Before we had ElasticSearch, very powerful for simulans accounts, like items in a few milliseconds. But now you have AI search. That’s the latest thing, it’s so new, I cannot tell you much about it.

Derric: That great powerful love it. And I love that it’s in-house. And again, with Shopify, it’s going to be an app, you’re going to pay a monthly fee. And the good news about it is that these app providers are phenomenal. They’re competing with each other. They’re building new products and features. It’s a relatively mature market of competitors there. So the pro of Magento here might be that you’ve got Adobe backing it and it’s probably a very good search functionality. But you it’s probably the only on site search functionality you can use if it doesn’t have a bell or whistle you like I mean, you probably can custom install it.

Guillaume: There are four Magento customizations. You can’t replace it with whatever.

Derric: But you kind of want it to be from Adobe, I would argue. Whereas Shopify said, we’re not even going to touch that category. We want the market to compete for the best on site search personalization, the same way they let them compete for the best email service provider, and they let you know best pop up Google and so forth and so on. They didn’t want to take those spaces so that they could focus on the core of the platform and let those markets they win if those markets grow and get better, essentially.

Guillaume: Yeah. I guess we’ve covered the topic pretty well. Is there anything we forgot to discuss about the Magento versus Shopify?

Derric: I think it’s been quite a lot. And at the end of the day, there’s a reason both of these are clear competitors in this large open space because they have different focuses and are good for different things. And so they are fairly well differentiated with that. One layer of overlap is the growing $10 to $25 million merchant could really go either way. And I think that, as far as you and I have contention, we’ll all be pulling into Shopify, probably still. And you’ll be pulling them to Magento at those stages. But again, it will come down to complexities for sure.

Guillaume: Exactly. The simpler the site, the simpler the business case, the three colored t shirt, the three sizes, and you just add to cart checkout, and nothing fancy. Go Shopify is going to cost less basically, for a very small merchant, go Shopify. Magento is built for the mid size market and is expanding more and more to the enterprise territory very strongly with Adobe having such a strong worldwide presence and enterprise grade software. It’s made for complex need, multi warehouse, multi brands, multi inventory, complex catalogs, large catalogs, the complex products here, the multi lingual and all that stuff. That’s when really Magento shines more and more. The more complex the project becomes, the more large scale it becomes in terms of complexity and implementation,

Derric: I could make one recommendation to merchants, it is to not overly complicate your business.

Guillaume: I agree. I’ll back 100% on this. If you can simplify, if it’s okay to use the standard thing let’s say the Shopify offers, well, it might be a good decision. But some businesses just cannot do it. Maybe their franchise approach or they have a lot of brands and stores and they need it to work that specific way, well, then that’s when they need to go the Magento way. The complexity, I don’t see it as a benefit, complexity is a negative, you want to reduce complexity. But sometimes those businesses have a lot of complexity. And then they need a platform that can handle that complexity, and it becomes Magento. But it costs more also both to build it initially and to upkeep it later.

Derric: That’s why I see, older, larger brands lean towards Magento. Whereas younger newer brands, which are simpler by nature, but probably looking to keep simplicity a little bit more by the nature of them. And by the way, the rise of those brands has only really begun because of the proliferation and opportunity that an easy to use platform exists. Meaning if you couldn’t use the cheap platform, then you never would have gotten the company off the ground in a non complicated way. One kind of be got the other and now you see more streamlined business models existing and thriving on top that couldn’t have existed in the year 2000 or even 2010

Guillaume: Awesome, I think we covered everything here.

Derric: Awesome.

Guillaume: All right. Well, thank you for being here today. Great recording, enjoyed the session together, talking about Shopify versus Magento as objectively as possible, despite us being each.. You’re a Shopify expert, I’m a Magento expert, but I think we did a pretty good job trying to be objective here with the comparison.

Derric: Yeah.

Guillaume: All right. Thank you.

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