Faisal Masud: [0:00] There has to be some special sauce to the product. If you're just selling a commodity product with no brand recognition that's associated with your brand, then unfortunately...It's not just Amazon or Walmart will build a product label, Target will build a product label. The next thing you know you're out of there.

Dan Saks: [0:28] That's Faisal Masud, CEO of Fabric. Faisal was there at the Dawn of the E‑commerce Era, holding leadership roles at the biggest Fortune 500 online retailers, including Amazon, eBay, Groupon, and Staples.

At Amazon, Faisal had the unique opportunity to learn the secrets to scaling e‑commerce from Jeff Bezos. He took that playbook to Staples and helped transformed a big‑box retail company into an e‑commerce giant.

Most recently, he headed operations for Project Wing, a Google X's moonshot project, where he was responsible for commercializing a drone delivery program, which aims to improve the speed, cost, and environmental impact of transporting goods. Today, Faisal will explore what the future of commerce looks like, both online and down at the corner store.

This is Daniel Saks, co‑CEO of AppDirect, and it's time to decode e‑commerce. Welcome to "Decoding Digital," a podcast for innovators looking to thrive in the digital economy. I'm your host, Daniel Saks, and I'll sit down with other founders, CEOs, and changemakers to decode the trends that are transforming the way we work. Let's decode.

Dan: [1:45] I am just completely thrilled to have a legend of the commerce and online retail world, Faisal, with me today. Welcome.

Faisal: [1:53] Thank you.

Dan: [1:54] You've worked for the who's who of e‑commerce pioneers whether it's Amazon or eBay. You even did the Google X's moonshot. You also had the experience in traditional commerce. What really brought you to the retail and retail space in the beginning?

Faisal: [2:25] That's a great question. I actually was introduced to e‑commerce back in 1999 with Kozmo.com. I don't know if you remember. You're probably too young then, but Kozmo.com was the largest Internet retailer at that time, backed by Amazon and SoftBank.

We raised north of $300 million. Back then, the biggest core competency for Kozmo was to get to movies from the Internet to your door and an hour. You could return those movies at a drop box, at Starbucks.

We were in 11 cities, had about 20 fulfillment centers, and I just fell in love with the e‑commerce. I felt that, why would anybody have to go to a store if you can just go online and place an order and have it delivered to you in an hour? Unfortunately, at that time, it was just too early for one‑hour delivery as Prime Now launched only a few years ago.

Kozmo set the stage for me early on my passion for driving for online colors and how brick and mortar was good to have but shouldn't be the only way that people shopped. That's where my interest began and evolved and went into Amazon from there.

Dan: [3:34] Since you started in e‑commerce in '99, you saw three major recessions ‑‑ the Internet blow‑up, the '08 pre‑recession, and then the current crisis that exists today. Do you see each one of them is just disproportionately making it harder and harder for brick and mortar retail to operate?

Faisal: [3:53] I have a theory on this. I'm pretty open about it even on Twitter and maybe too much candor at times, but I feel that brick‑and‑mortar retail is a necessity because humans need to interact with other humans, number one. Number two, you're OK for waiting for stuff sometimes, but you're not OK waiting for stuff all the time. Sometimes, the instant gratification, you always need to go.

By the way, native online brands have had to open stores. Why do you need an Allbirds store? Why do you need an Everlane store? If stores were useless, why are they open stores? They're open stores because stores add value.

Staples, we saw that every time you closed the store in a ZIP code, our online sales for that ZIP code were affected because stores matter. It's a marketing tool as well. I don't think stores are not relevant, and these downturns are going to eliminate stores.

However, the retail industry has been married to stores. Walmart until recently was all about the vanity website because the stores were what was driving the business, same with Target, where both of them have come a long way now. Target is an excellent example.

They have an unbelievable private label business. They have unbelievable customer service at the store. They have a fairly decent website, not saying it's that amazing, but it's OK. I think that combination has given them a pretty good flavor of what's possible.

A lot of folks disproportionally spent money on their retail stores while completely abandoning online. Some have gone the other way, completely abandoning stores, so they look like graveyards versus actual stores. It has to be a healthy balance, and it has to come from a customer‑centric approach.

Customers care about experience. They care about availability. They care about service. That's why you'll see the ones that are doing well, it's pretty clear. Target, etc. are doing well because they have an excellent customer experience.

I don't see stores going away. However, the per capita store equation in the US was just obnoxious. There are too many stores. There's just too many stores. This is a bit of a rationalization that's taken place. In some ways, frankly, the luxury store is closing now that you're noticing is because luxury retailers just never evolved.

You have farfetch.com. You have Essence and other marketplaces. Why on Earth do you need to go to Saks? Farfetch has a better selection. You need to go to Saks if you want to try on those clothes. If you want to have better selection, better service. They'll exist, but they have to have some level of affinity with the customer. You can't just buy from the X and sell to Y. That model is dead.

Dan: [6:36] Let's go back to your Staples experience. You were hired there to turn around Staples CTO, chief digital officer. Tell us about what the key outputs were when you got there, what do you need to change your culture, and then how did that end?

Faisal: Clearly, there's some moat there. Staples had 5,000 salespeople. They are driving enterprise sales in the market and SMB sales, where the first thing that had to be addressed was the culture. The culture was very much, again, output‑driven.

How could you improve that by focusing people on the key elements? Selection, we sold 30,000 skews when I got there. Amazon sold six million office supplies skews. Why are we declining? Oh, we're declining because people are going to Amazon to find this skew, where the iconic brand for office supplies, yet we don't sell office supplies. That was one.

Why? Because there was this notion internally that, "Oh, we need to curate the selection." No, you don't. The customer curates the selection. You don't get to do that. That's a very traditional merchant‑think process. Merchants think they know what to sell.

Yes. When it comes to design of product, sure. When it comes to Apple, sure. But when it comes to commodity, no. The answer is the customer decides what to sell.

Our goals were, are we at parity on selection? Are we at parity on price? Are we at parity on the service? Let me break each one down.

On selection, no. We were far behind. We had to fix that. We did that. We went from 30,000 to a million. On price, no. We changed prices once a month. [laughs] Amazon changed price every few seconds. We had to build a lot of technology internally to fix that problem.

Third, delivery. We were better than anybody till today on delivery. We are next‑day delivery‑guaranteed. Nobody knew we were next day, nobody, because we were not telling anyone. I don't know why, but it was just not a known fact. The experience was so broken.

Final point as I experienced that. If you were a Staples Rewards member and you had millions to them, you're supposed to get free shipping, but you had a different login for Staples Rewards and a different login for Staples. Most of the people weren't taking advantage of free shipping and next day.

We have to fix a lot of the broken internal small stuff that just had to be fixed, lots of easy wins. The biggest one was technology didn't have a seat at the table. It was just an IT shop. I think that's where we had to do a lot of work to bring technology to the table.

Dan: [9:30] When you talk about the small wins, for those listeners that are working at large enterprises, a small win might still take a year and cost millions of dollars. What would you say to them? How do they get that quick win?

Faisal: [9:41] We had a monolith platform as you can imagine with IBM WebSphere. We moved to a microservices environment where we built a service for every single major domain in the company which included single sign‑on, etc.

The biggest hold back for companies, the size of Staples or companies that have been extremely successful in the past and are trying to evolve to being more digital, what holds them back is their automatic systems and their e‑commerce platforms.

What ends up happening is the tail wags the dog. The IT team starts telling the business what to do, because what's not possible doesn't even ever make it to the priority list. When I arrived, I remember seeing there was 100 priorities. It was a very project management‑driven business.

You can't have a project management‑driven e‑commerce business. It has to be a product management‑driven business. The first thing we had to do was evaluate, why do we have so many priorities? Everything was a priority. We broke that down, went from 100 to down to 7 or 8.

You can understand that there was so many resources being expended on these hundreds of priorities that when you cut them off and say, "OK, the ROI is just not there for these. Let's build a product domain‑based model," which is landing pages, discovery, checkout and payment, and traffic generation.

Whatever domain you want to call or mobile, you have very specific dedicated squads that are solving those problems. You would have a product owner for landing pages. Their entire job is to improve how fast the landing page is. How do you get to that landing page? Does it have the right images?

Does it have the right content? Does it have everything that's needed to provide the customer of would‑be experience to go at the cart? Top of funnel improvement and bottom of funnel improvement through the checkout and cart squads. It brings that level of rigor to the thinking of what's a priority versus not.

Dan: [11:31] You mentioned this approach of changing the culture. What does it take to hire up people that are going to have a different DNA and to change that culture? How difficult do you think it would be?

Faisal: [11:41] I'll give you some examples. Dress policy. I wasn't going to wear suits and ties. They didn't make me do that. I could wear whatever I needed to wear to go to work. Video conferencing back then and not being physically available to the meetings. For a lot of traditional companies, I know it sounds dated. Back in 2013, you had to be in person.

Another example, remote work. We acquired a lot of companies that were not in Framingham, Massachusetts because we had to bring the talent. That was a brand‑new culture shift for Staples, but we were able to adapt to that.

I think if companies are able to look beyond, now with Zoom, of course everybody feels a lot more flexible, but we're quickly finding out that remote work is not the only answer. You need physical offices because you just need to do that. I would say a large part of it is having a culture that's willing to adapt in that process.

Dan: [12:33] What advice would you give to a small business owner that's been operating brick and mortar on how to transform?

Faisal: [12:39] Depending on the size on how big they are. If they're sub 10 million brick and mortar, a couple of stores selling on Amazon could be quite helpful for their business because it gets their name out there.

They have to have some moat. There has to be some special sauce to the product. If you're just selling a commodity product with no brand recognition that's associated with your brand, then unfortunately...It's not just Amazon or Walmart will build a product label, Target will build a product label. The next thing you know you're out of there.

Dan: [13:11] Let's talk about the future of work. We've seen a lot of traditional brick‑and‑mortar stores on Main Street close down. We've seen also a lot of great digital‑first businesses emerge. Where do you think the future of retail exists, and where do you think the bulk of the people will be employed?

Faisal: [13:26] You saw the big uptick recently with COVID. The growth in online retail is no surprise. It just happened faster than we expected. Grocery was the biggest shocker with what happened. There's a ton more growth to happen in grocery, in my opinion.

I think that the future of retail is 100 percent all‑new channel. There's no way this is going to be just online or just offline. Nobody shops just online and just offline. It's a hybrid of both.

One could argue it might be more online and less offline. Sure, for certain businesses, but if you're going for sporting goods, you may be more offline than online. If you're doing books, of course, you're more online than you are offline. It all depends on the category.

What's going to really, really matter is, what does your brand stand for? Sustainability, environment, hygiene, being compliant with the most basic things, Gen Z‑approved methodologies are going to play a very big role.

Once you go to an Apple store, you don't want to go to Sears. Why? Because it looks like, "What happened here?" It's a totally different world. What's special about what you do? That is going to matter.

Dan: [14:41] That's as fascinating as said. The idea is to find something that you're passionate about, that's differentiating, that fits the demand from a target market that may not be captured today?

Faisal: [14:52] Yeah. Think about it, the commodity products are...Why is The Honest Company doing so well? You tell me. Why is it doing so well? Because they built a brand that people trust.

You can try to go and tell them a hundred times, "Go buy AmazonBasics over Honest." They're not going to, because they believe in the mission. They believe in the R&D that the team has done. They believe in the brand. Now, it's got a moat. Like, "Go ahead, compete. Let's see what you got." That's what makes the difference, the continuous R&D into the product.

There's a reason Google survived and thrived. Because the Google R&D on search is bar none. Nobody else can do that. Yahoo died because they give their entire search business to Bing, and Inktomi, and whoever else. That's not how it works.

If you have a core product or a set of products, you focus on those and get better at that. There's no reason you can't be successful on Amazon, off Amazon, online and offline. The moment you take your eye off that ball, then you're trying to figure out, "How do I optimize my profit?"

Dan: [15:58] What's your advice on how someone goes about getting advice on getting buy‑in, whether it's from customers, partners, merchants?

Faisal: [16:06] You need sponsors inside the organization. Typically, if you have sponsors that are part of the executive team, that are bought into your idea, putting those runts on the board become a lot easier. Most sponsors want to see data. If there's data, it's hard for anybody to say no.

My encouragement would be, if you want to do something, make sure you've got enough data around it. Having real clickstream data that you can represent and say, "Well, if we do this, then this happens, and here's where the ROI is." I think presenting that when you're in your initial stages to the right executive sponsors helps move the ball forward.

It's helped me in my career a lot. We launched Global Shipping Platform at eBay. It was purely because we had the data to say, "Guys, we have so much traffic coming from overseas. They want to buy this product, but our deliveries take 30 days. Why can't we do this in 7 days or less?

We built it, and we shipped it. We shipped it close to seven years before Amazon because we had the data. I think the single biggest mistake a product owner can make is being obsessed by the product. Once you get obsessed by the product, there's no way out, because now, you stop worrying about the customer. You're just obsessed about how beautiful your product is.

Unfortunately, your product's not that good until a consumer thinks it is. It's that healthy balance of building a great product but getting the validation from the customer before you get too obsessed with the product.

One could say, "Apple was obsessed with the Apple TV, what a colossal failure. They were obsessed with a whole bunch of things that didn't work out in the end." Being customer‑obsessed is more important than being product‑obsessed. That would help.

Dan: [17:51] You've been at the intersection of online/offline brick‑and‑mortar delivery. As one of your moonshots, I heard about what you're up to, which is really exciting around, drone delivery. Can you tell us more about that?

Faisal: [18:06] Drone delivery will change the way suburban and semi‑rural/rural areas of the world operate today. If you look at what happens in these areas, they're always the last ones to get the love from any kind of innovation that you see. When DoorDash launches, where they're going to deliver first? Main cities.

Typically, these other ZIP codes are waiting ages to get any kind of love. Drones unlock that in a major way. We're delivering food to you in six minutes and traveling six miles to do so and doing it through a pretty incredible experience.

There's a long way to go to make it at the scale that you see today e‑commerce app, but there's enough use cases there that you can unlock where customers really need those. From an overall status of where we are, drones will be another vehicle in this fleet.

You'll have bikes, cars, trucks and drones, and even one could argue, foot traffic. You can have people deliver on their feet in the city, and we did that at Cosmo. Drones, it can augment what's there. It's not the end‑all. It's a very important one; hence I was very passionate about.

Dan: [19:24] Skeptics out there, will either not believe that it's possible or never want to adopt or find it really scary. Obviously, at Alphabet and Google moonshots, there must have been something in the culture that enabled, someone like you to say, "I'm going to try this crazy thing.

"I'm going to figure out every way to make it possible even though anyone would tell me, 'Here are the 1,000 reasons why it's going to totally fail from the packages dropping on someone's head or from a regulation issues.'" What was it about the culture that allowed you and others to focus on something that was such a long shot?

Faisal: [19:58] Just being a moonshot, Google X focuses on complex problems that are not easy to solve, but somebody has to solve them. That's why Google has the competency to do that. The idea was more involved before I arrived. I was actually advising X before I joined full time.

They went through quite a few iterations of the aircraft and the model itself of how and when was going to do. I guess the good news was...If anybody has any skepticism around, you should see our deliveries live. You can see them online. There's videos out there. There's live customers that are using it.

These things take time, and they're not going to happen overnight. Just look at the first car, it wasn't born overnight. People were scared of cars. Everybody wants to be on a horse.

In this case, you have to treat drones as another vehicle in the process versus the only one. That's when it becomes a little bit easier and digestible for folks to understand that, "OK, for this delivery, I can imagine this coming by drone. For this delivery, that should come by a truck."

The package contents, the weight, the dimensions are important too. Keep in mind for that. It's a matter of time before everybody starts getting drone delivery. It's just not going to happen overnight. I don't think it should because you got to keep all the safety elements in mind.

Dan: [21:17] Super fascinating. Obviously, you've been a part of e‑commerce to date. You've been part of the future. You're working on something new. Can you tell us about it?

Faisal: [21:24] Recently, I was on the board of a company called Fabric. It is a modular e‑commerce platform. We help brands succeed online. The biggest part of Fabric is being extremely flexible and extensible where you could be using other platforms, but you're able to integrate with our commerce APIs seamlessly. We're actually backed by Redpoint Ventures, their lead investor.

Dan: [21:50] Congrats. Definitely super exciting, and we know definitely how complex it is to drive commerce transformations. Really excited for what you're building.

Faisal: [21:58] Also, with this COVID times and groceries, and everybody else going online, you can imagine it's quite the frenzy to get the right platform. We are super against re‑platforming because I haven't heard of the last time anybody said, "Our re‑platform went well." It always goes badly [laughs] because it's just too big a change.

We believe in a very modular approach into improving your growth opportunities online, and Fabric stands with you as a partner. Check it out when you get a chance.

Dan: [22:28] As you look ahead, what's one word that summarizes how you feel about where we're headed?

Faisal: [22:32] For?

Dan: [22:34] For the the future that’s coming.

Faisal: [22:37] There's going to be more change in the next 2 to 3 years from a digital consumer perspective than we probably saw in the last 10. It's going to be pretty dramatic because Facebook coming out with their native experiences in Instagram and Marketplace. It's going to be a seismic change there.

The Craigslist and eBay, good luck what's going to happen there. You've probably seen what's happening. Grocers, this is a 800‑billion US business that's going online, gigantic move, and then brands and Amazon, of course.

A lot of change in the next two three years versus what you've seen, so I'll say it changes the only constant, and we're looking forward to it.

Dan: [23:17] What advice would you give to someone navigating this world of change?

Faisal: [23:21] I would say keep your options open. Really when making decisions, focus on the consumer versus the constraints. Because when you focus on the constraints on what you can't do because of your current environment, you quickly forget what the consumer wants. This happens all the time in traditional retail.

It's always about, "Well, our system can't do that. Well, let's not worry about that. Let's start from a blank canvas and see, what is the ultimate experience we're seeking?" The customer obsession would be really important.

Dan: [23:52] Amazing. Thanks so much for joining us.

Faisal: [23:55] Awesome.

Dan: [23:56] Take care.

Dan: [24:00] On the next episode of Decoding Digital.

Helene Barnekow: [24:05] To live that, you have to have leaders who want to live it. You cannot say it. There are too many companies who talk about that purpose. They talk about their sustainability goals and their diversity. Then, they don't live it. The first thing is that you have to look at yourself and your leadership team and say, "What do we stand for, and are we prepared to live accordingly?"

Dan: [24:29] CEO of Microsoft Sweden, Helene Barnekow. Listen on Apple podcasts, Spotify, or your podcast player of choice. To learn more, visit decodingdigital.com. Until next time.