How the Pandemic Changed E-Commerce—and Where It Goes Now

For insight into the issue, The Wall Street Journal’s Preetika Rana spoke with

Kirsten Green,

founder and managing partner of venture-capital firm Forerunner, and

Lydia Jett,

managing partner of SoftBank Investment Advisers, at The Wall Street Journal’s annual Tech Live conference. Here are edited excerpts of the conversation.

What’s going on?

WSJ: Kirsten, I want to turn to you. Why didn’t sales stay strong?

MS. GREEN: I think of e-commerce and commerce as one and the same. Being home for so long or having changes to your routines had people shopping online more than ever, and getting comfortable shopping online in some new categories like grocery. Coming out the other side of it, it’s not as much of a slowdown in e-commerce as much as a reorientation or a distribution across all of the channels.

WSJ: So when we were locked up at home, watching

or booking a flight. Lydia, did you expect this to happen?

MS. JETT: Consumer experiences change. The expectations have changed. How we will behave has changed. We see that in so many different facets of how we’re living today.

But we are in a market where we’ve had supply shocks. We’ve had big economic shocks in terms of how do you capitalize companies. And you’re talking about consumer inflation. You’re talking about consumers who had to think about, “How do I outfit a home office,” now saying, “How do I go experience the world?”

We see growth across the e-commerce portfolio. That makes us bullish on the future when we get past all these big shocks we’re playing with right now.

WSJ: What advice are you both giving to startups at a time when no advice seems like good advice?

MS. JETT: It is undeniable that companies in the tech sector scaled up to assume a continuation of that level of demand that we saw. We are reiterating what has always been true, which is efficiency matters, margin profile matters, that relationship with the customer matters.

MS. GREEN: Before the pandemic, we had been in a 10-year bull run. Everybody was feeling good about everything. During this time period where there is so much uncertainty, it’s really an opportunity to understand where the levers in your business are, and to be able to unlock that flexibility, and make calculated trade-offs between them.

WSJ: In the past year, we see money pour into businesses that were virtually selling anything online. One industry that comes to mind is fast-delivery startups that deliver, say, toothpaste and toilet paper to you within 15 minutes. A lot of these startups died a pretty fast death. How has the past year changed your investment thesis?

MS. GREEN: Some of that overexuberance toward that trend was people simply looking and saying, “There’s a big market. Behavior is shifting. We want a piece of it. And we’re going to approach it with this level of aggression.” At Forerunner, we’ve really spent our time thinking about, what does the developing customer look like today? What does that signal for the future? And thinking about where the market is meeting that opportunity, where they’re maybe not meeting that opportunity and what business-model opportunities exist there.

The lasting effects

WSJ: Let’s talk about some behavioral trends that are here to stay from the pandemic.

MS. JETT: We are huge proponents of two major trends, one of which is automation and improving that entire experience from a customer standpoint for online commerce. How do we think about using automation to deal with worker shortages? How do we think about using automation to accelerate a customer journey through a transaction? The other area that we’re just seeing more and more green shoots around is the concept of video. How do we apply this to a U.S. market?

WSJ: Is there a trend that came from the pandemic that wasn’t there before that you think is here to stay?

MS. JETT: It’s incumbent upon all of us to think about, what actually drives better business outputs? It’s so easy to say, “We all need to be back in the office. That drives creativity. It drives collaboration.” But it’s not necessarily clear to me that we’re not receiving those benefits or other benefits through different modalities.

I was talking to a colleague of mine recently, and he said, “All the collaboration that we didn’t have before I actually have now on platforms like Discord at my home office.” It is kind of interesting to think about how we’re just using different platforms to get the same outputs or maybe better outputs. So, I’m excited about these big, fundamental shifts that we’ve been forced into, which I think are very productive and healthy.

WSJ: One of the trends that I’m seeing is social shopping overseas, particularly in China. Could you talk a little more about what social shopping is, why it’s so big in China, and why it hasn’t taken off in the U.S.?

MS. JETT: We have big portfolio companies in China, like

Alibaba

and ByteDance. What we’ve seen take off in Asia broadly, beyond China, is a concept of social shopping or live shopping where you think about, how do you create trust on digital platforms that in America we take for granted that we’ve created that trust through brands, through retail storefronts?

How do you think about taking that same concept, but applying it to a domestic market? We look at companies like Firework, which are so interesting, because they’re basically decoupling the tech platform, and giving it to established brands here in the United States.

And that shift is pretty amazing, because the engagement levels are so high on video. For several of our assets, we look at stats like three times the conversion rate when you move to video, away from static imagery. We look at three-quarters of a TikTok audience as they actually build much deeper relationships with a brand when they see through video that brand establish its voice.

MS. GREEN: We’re really excited about, how do we start to think about technology applied to a different macro environment, applied to a different physical environment, and applied to a different consumer environment, but at scale? So that’s where we’re spending a lot of time from a thesis standpoint.

WSJ: Speaking of video, SoftBank has invested in TikTok’s parent company, ByteDance. TikTok is making a big foray into e-commerce. Could you talk about what TikTok has that, say, Amazon doesn’t, and what Amazon has that TikTok doesn’t?

MS. JETT: What TikTok fundamentally has is user engagement on just a wild scale. If you count the number of minutes an Amazon shopper spends on that site relative to the number of minutes a consumer on TikTok spends, the discrepancy is enormous.

TikTok has been only really trading in commerce in China for the last two years and has become a very big platform. We’re all looking for instantaneous response here in the U.S., whether it’s Facebook, or TikTok, or any of these social platforms. I think it’s going to take a couple of years. We’ll be shocked at the scale of the businesses that are built, it’s all on the back of the engagement level that they have and the understanding they have of consumer behavior.

On the other hand, Amazon has a huge advantage in the fundamental fulfillment architecture that they’ve built over the past 15 years. TikTok is starting to think about that, but it won’t necessarily be their advantage in this market. Amazon has a very good understanding of customer-purchasing behavior. It is based upon decades of data and customer understanding.

WSJ: Staying on the topic of Facebook, Kirsten,

privacy rules crushed billions of dollars in ad revenue that Facebook could have made. Are you seeing small and medium-size businesses also being decimated by those privacy polices? Are small businesses now finding more customers through, say, traditional billboards than, say, through Facebook ads?

MS. GREEN: I don’t know that a single change on Apple or any platform decimates a business. But it definitely creates an impact. The name of the game in marketing or getting in front of customers has really been being nimble between all the different platforms. Anybody that leveraged their business too much to one tool was destined to run into a challenge. And so the name of the game has been about being early, about testing, learning and pushing as hard as you can when you find something that’s working, and then be prepared to kind of move and switch.

Also most of these marketing things really work together: The age-old story is that a customer needs to get a message three to five times before they act on something. The companies that are sophisticated and efficient with their marketing know how to leverage across lots of platforms.

Generally, a lot of small businesses are operating with limited resources. I’m not sure that playing the Facebook game was really ever part of their plan, per se. A lot of those businesses have flourished from the social reach that they get by authentic, organic stories that customers share online.

WSJ: We’re seeing inventory that was stuck because of the supply-chain problems finally line up at warehouses. Does that mean as a consumer I’m going to get more discounts this holiday season?

MS. GREEN: Probably. On average, inventory is up about 20% in warehouses this year over last year. And 30% or so of consumers are reportedly planning on having tighter budgets. So the mix of that does sort of seem like maybe demand is down or shifted a bit and inventory is up. Not a great place to be if you’re a retailer.