The Crunch: Direct-to-consumer sales have seen an increase in recent years as more brands have established relationships directly with their customers. With so many companies taking this approach, differentiation has become increasingly important as each brand looks to stand out from the pack, particularly when it comes to building an online presence. This desire for a white-glove approach to e-commerce has led to tens of thousands of companies choosing Magento. From its open-source roots, Magento has become a large, global powerhouse with significant market share in nations all over the world. More than $100 billion in merchandise was sold through the platform in 2016 alone, and that number is expected to increase as more brands choose to differentiate themselves with web stores built on Magento.
Brand loyalty, particularly among millennials, is on the rise, and it should come as no surprise to anyone paying attention to the research. An Inc. article revealed findings from a pair of studies in 2015 that pointed to millennials as the most brand-loyal generation with more than half saying they were either “extremely or quite loyal” to their preferred brands.
We recently spoke with Peter Sheldon, Head of Strategy for Magento,, who echoed these sentiments.
“There’s a big transitional shift in retail that we see well underway, and it’s the millennials moving to the preference of buying directly from the brand. They have a high degree of brand advocacy,” Peter said. “Apple started all this. That’s why the millennial consumers are in this mindset of buying direct. You don’t buy an Apple computer from Best Buy. You go to the Apple Store because you trust that they are the experts.”
Seeing brand loyalty as an opportunity, many well-known companies are focusing efforts on growing direct-to-consumer (DTC) sales. Nike, for instance, is projecting to more than double its DTC sales from $6.6 billion in 2015 to $16 billion in 2020 through its e-commerce sites and branded brick-and-mortar stores.
A PYMNTS.com article reported results of a survey that said 88% of consumers prefer buying from brands over third-party retailers, and 82% expect to have the option of doing so. These figures highlight the need for brands to establish well-developed, fully functional e-commerce presences.
Peter told us how Magento is going about helping brands differentiate with a global, open-source ecosystem that was built to be highly flexible and scalable — supporting companies just entering the marketplace with a free edition of the platform and also giving powerhouses, such as Coca-Cola and Burger King, the functionality to drive revenue and make customer connections.
Magento’s Global Ecosystem Drove $101 Billion in Sales in 2016
Other e-commerce software platforms exist, but a key differentiator for Magento is the sheer scale it operates on. A press release reported that $101 billion in merchandise was sold to more than 50 million consumers in 2016 through Magento-powered e-commerce sites.
“What makes Magento unique in the marketplace is the size of our ecosystem,” Peter said. “We’re not just a vendor of software, we are a living breathing ecosystem. We have a few customers doing over $1 billion of revenue and 45 customers doing over $100 million in revenue on our platform.”
Much of this growth stems from the company’s open-source roots, which encourage developers to create localized extensions available on the Magento marketplace that enable e-commerce in every corner of the world.
“We’re in every market globally. I can pull out our Rolodex of customers, and I can find them in the Middle East, in South Africa, in Brazil and Chile, in China and Japan, in Russia. Obviously, we also have a huge install base in Europe and North America,” Peter said. “And I’m not just talking about U.S. merchants selling into these markets. I’m talking about Chinese merchants and Argentinian merchants and so forth using Magento locally in their own markets.”
Open source, by nature, encourages contributions from a global community of developers, and their efforts since Magento’s launch in 2008 have continued to push its e-commerce solutions into emerging markets.
“We have this huge, global ecosystem that’s invested in Magento,” Peter said. “[Developers] translated our entire admin panel in 30 different languages because they wanted to see Magento in these markets.”
A Bespoke Site-Building Experience for Businesses of Every Size
When people think about e-commerce, companies selling apparel and consumer goods typically come to mind, but nearly every industry is now using e-commerce platforms, from financial services and telecommunications to health care and B2B sales. Magento is highly diversified and has integrations and customers in nearly every vertical.
Unlike other e-commerce companies that operate under the Software as a Service (SaaS) business model, Magento is a Platform as a Service (PaaS) meaning users have access to the source code and are able to modify and customize the software.
“I think what we find our customers are really craving today is differentiation,” Peter said. “They want a platform where they can build a completely bespoke experience — one where they’re not constrained by guard rails and can go off and build something that’s very unique to them. That’s what Magento allows them to do.”
With so many e-commerce sites built on SaaS templates, consumers who consistently shop online will see that many sites look and operate similarly. Part of creating brand differentiation is giving shoppers unique experiences when browsing your e-commerce site, and Peter told us a cookie-cutter approach just doesn’t cut it in a competitive online environment anymore.
“You can pull up hundreds of [SaaS e-commerce] customers, and you start playing on their sites, and you actually realize they’re almost identical to one another,” Peter said. “Yes, the branding is different, but the structure of the site is identical.”
Free, Enterprise & Cloud Platforms Support Scalability
One of Magento’s strengths is that it’s been built to function as a highly flexible platform.
“A big part of our value proposition is that we have this open-source version that we effectively give away on a freemium business model and that has driven the growth of this amazing ecosystem,” Peter said.
It’s free Community Edition provides small businesses with the functionality they need to sell online. More than 260,000 merchants are selling through the free platform, and Magento’s marketplace gives site owners access to more than 1,000 extensions created by the community and vetted by the staff to ensure each one matches Magento’s quality standards.
Included among the extensions are localized solutions for everything a business owner would need to connect with and sell to customers in every market. If a site owner needs to add functionality for handling marketing, payments, shipping, or improving customer support, extensions that handle all of those things and more are available on the marketplace.
These extensions are also available to the more than 3,500 customers of Magento Enterprise, a subscription-based service designed with bigger businesses’ needs in mind. For those companies who also want hosting, the company provides an Enterprise Cloud edition built on the Amazon Web Services (AWS) Cloud, which is well-known for its scalability and reliability.
Magento’s Trusted Partnership Network Ensures Rapid Time to Market
Ensuring every customer is in good hands, Magento provides a pool of developers broken into three types of partnerships: enterprise, professional, and registered partners. Magento lists more than 300 solution partners on its site, a range that exists because each company has unique needs and each partner has specialties that make them a better fit for each other.
Peter told us that the are more than 200,000 developers worldwide that make a livelihood on Magento. The company provides training and certification programs to give these developers deeper knowledge of the technology, which fosters this community of credentialed developers and certified solution partners. Some of them also build Magento extensions that they sell in the companies extension marketplace.
When partners design e-commerce sites for new Magento customers, they are creating the types of sites that help brands differentiate themselves from competitors, especially those using a SaaS platform. And with an extensive global marketplace of extensions and themes, Magento’s partners can get sites up and running quickly.
“I think one of our unique value propositions is we have a rapid time to market story,” Peter said. “Typically, for our average merchant, from signing a contract with us to actually having a site go live, it takes between 3 and 4 months, which is very quick in our industry.”
Unique Online Storefronts Help Foster a Connection with Customers
In 2015, online retailers sold $294 billion worth of physical goods, and according to Statista, that number is expected to grow to more than $485 billion by 2021. Magento is seeing a similar steady rise in sales figures.
“Most of our customers are seeing 20% growth — some of them significantly higher. It’s been like this for some time, and it doesn’t show any sign of ending,” Peter said. “The year-over-year growth in online transactions continues to rise. It’s a good place to be as a vendor.”
While some brands may be reluctant to establish direct relationships with customers for fear of alienating the third-party channels they’ve been selling through for years, Peter stressed how important it is for brands and manufacturers to build loyalty through a highly differentiated e-commerce approach.
“I think where we’re at in 2017 is a pivot point where brands realize if we don’t [sell directly to consumers], we’re not going to survive,” Peter said. “It’s now or never. If you don’t have a direct relationship with your consumer and own your customer and sell the right way to your customer, then you’re probably not going to be in business a few years from now.”