Magento C.E.O. on Revamped Product Line; Digital Transformation

Magento, the ecommerce platform, launched in 2007, grew dramatically, and was acquired by eBay. When eBay divested PayPal in 2015, it also sold Magento, to a private equity firm. Magento’s C.E.O. is now Mark Lavelle, a seasoned technology executive who co-founded Bill Me Later, the payment service. I spoke with him recently to discuss Magento and the state of ecommerce generally.

Practical Ecommerce: Bring us up to date on the status of Magento.

Mark Lavelle: It’s a pretty exciting time here. As a matter of fact, we are just celebrating the 10-year anniversary of Magento’s founding. As you said, we spun out of eBay, which had acquired Magento in 2011. I spent time within eBay developing a large suite of products. When eBay and PayPal split up and went their separate ways as stock companies, I got the opportunity to work with a private equity company, Permira, and spun Magento and some other interesting technologies out into an independent company.

Permira is a London-based and Silicon Valley-based private equity firm. We ultimately added a second investor, Hillhouse Capital, which is a very prominent investor out of Hong Kong that is also helping us with our expansion into Asia. It’s been a very exciting 18 months or so. We have really revamped the entire product line. We’ve upgraded the core components of Magento, the Magento commerce platform.

User growth is pretty tremendous. We don’t release those numbers as a private company, but I can tell you our enterprise software business is accelerating around our cloud platform, the fastest selling part of our business.

The most interesting thing happening is how broad our market has gotten. We see digital commerce being in demand from nearly every industry out there. So the most interesting thing to me it’s not just the B2C commerce market. We are actually a leader in B2B. Forester just named us the leader in mid-market B2B.

PEC: You mentioned a revamped product line. Is that Magento Open Source and Magento Cloud?

Lavelle: Correct. We continue to provide and contribute very heavily to Open Source. The community, the ecosystem around Magento is a key advantage for us in the market. It’s what our clients love about us, the diversity of solution implementation and technology integrations they get from Magento. We have over 265,000 developers across the world. We have 300 solution providers that we certify, and thousands of technology partners that integrate with Magento. That’s a very vibrant economy.

If you look at the installed base between our Open Source and our Cloud product, we’ll generate about $124 billion of transaction value by the time 2017 is over.

PEC: Is the B2B initiative through your Cloud offering?

Lavelle: Yes, the B2B module is primarily through our Cloud product. It’s a module that is integrated with the core commerce digital platform. We also have the enterprise commerce product that’s available in Cloud, but clients also have the option to take that on premise.

PEC: What is the starting price range of the Cloud product?

Lavelle: A very low-end price is going to be around $24,000 per year. So, $2,000 a month, roughly, which would include the cloud environment. It’s a very compelling value proposition at the low end, and then as clients scale, and want more enterprise features, and stronger services and support, the price would go up from there.

PEC: Are you seeing less growth with Open Source, given what appears to us to be the appeal of a SaaS platforms, especially for SMB companies?

Lavelle: It’s fair to say what we’re seeing is SMBs really gravitating toward our Cloud product. They want to have that infrastructure as part of the service. Quite frankly, it’s not 2011 anymore. Google, Amazon, Microsoft — all these guys — are taking the cost of computing down to zero. They’re also upping the level of capabilities. It’s becoming very much a utility. So SMBs want to take advantage of that. It’s getting cheaper and cheaper. It’s a better environment to host a global commerce platform.

PEC: What’s the future of independent ecommerce merchants, given the dominance of Amazon?

Lavelle: Those realities are upon us, and they’re sinking into various segments of the market, where you’re either going to be optimistic about the potential to sell digitally, or you’re going to hide your head in the sand.

Consumers are spending time on social platforms. They’re spending time in marketplace platforms. They’re spending time in texting platforms. They’re not really spending it in the traditional user experience at all. So the merchant still needs to have a brand that gets projected through those channels. I think the big challenge going forward is what is your brand going to be like when the consumer is not necessarily navigating to your site.

PEC: Tell us about your two investors, Permira and Hillhouse Capital. What are their plans and your plans for Magento in terms of acquisitions, or perhaps an IPO?

Lavelle: Well, we are a high growth company. We’re a profitable company. We’ve got a very good funding situation with Hillhouse and Permira. When, for instance, Hillhouse kind of came to us and we were right in sync with the fact that this was a long-term secular shift to the way every industry and every vertical is buying technology — they’re buying cloud based technology. They’re buying digital experience technology. They want business intelligence tools.

Every C-suite, every investor, every board member is asking, “What is our digital strategy? Is it comprehensive enough?” So even with companies that are closing physical retail stores, we see them increasing their investment in digital. That’s what our owners see. That’s what we see. It’s a good place to be right now.