In this week’s Friday 15 podcast, Andy & Brian talk about:
-Owens Corning buying doormaker Masonrite for $3 billion
-The initial feedback from the Beta group testing Microsoft’s co-pilot AI tool
-Whether online revenue is just shifting revenue from the offline channel to the online channel
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Brian Beck: Good morning, Andy Hoar, welcome to Friday 15 or good afternoon if you’re on East Coast. The middle of February, 2024, ready to be here. Welcome to Master B2B Friday 15. Andy, happy Friday. Well folks, we got a lot of really cool and exciting stuff to dive into today and we got a lot of data to share and we’re tackling a great topic, but before we do that, Andy, of course, as usual, we have some breaking news. Let’s go ahead and share some of that. Andy, exciting stuff happening this week. Our friends at Owens Corning, bought door maker Masonite for $3.9 billion. My goodness, if this was a consumer retail acquisition, it’d be like headlines on CNN or whatever, but yeah, right? But it’s for us to, you know, tree dropping in the woods here, right? No one watching.
Andy Hoar: Yeah, it’s $1 billion, I mean, you’re right. I mean, this is a big deal and this is what makes the real world operate and like you said, it was hardly mentioned in the news.
Brian Beck: Well, it’s interesting, Andy, and it’s anecdotal, but I’m seeing a lot of this kind of activity happening, particularly in distribution where companies are buying, you know, other companies as a way to grow their business. So, really interesting and grads to our friends at Owens Corning on that acquisition, I’m sure it’ll help them grow. Another story, early adopters of Microsoft AI bot, wonder if it’s worth the money. This is out of the Wall Street Journal. Andy, what’s happening here? This is an interesting one.
Andy Hoar: Yeah, well, you know, we’re in a hype cycle around AI and I think everybody saw it last year with Chad GPT and their jaws fell to the ground and then Microsoft said, hey, you know, through their 12 or 13-billion dollar investment in Open AI, let’s get this into the product. So they embedded it in the productivity apps for the office suite, so Word, PowerPoint, Excel, and they started charging companies, like $30 a month per user to have it embedded and they’ve been going through some beta testing for and guess what they discovered that most people don’t find it very useful. It hasn’t matched the hype, because the reality is it has not matched the hype yet. And so they put it out there, and they had quotes in this article from various CIOs, CDOs, CTOs who signed up for this and said, you know what, it’s basically a really impressive writing app. It does a lot of writing stuff, but the PowerPoint stuff and the Excel stuff is iffy at best at this point, but they’ll smooth that stuff out. What I found interesting is you know what the killer app has turned out to be, and I know we’ve even used this before.
Brian Beck: Yes, I know where you’re going.
Andy Hoar: Meeting notes, and what’s happening is people are turning that on, especially on Teams, and many of them aren’t even attending meetings now. So we love a meeting of 10 people across multiple time zones, so they’ll just send their AI app to join the meeting, it’ll read this summary afterwards and they’ll just skip through all this stuff that wasn’t relevant to them. You can’t do that when you’re sitting on the call. So look for this, and what could be really interesting in the line is we can all have our bots having a meeting on our behalf.
Brian Beck: Right, well yeah, and I’m gonna start sending my bot to our meetings…Actually one thing I noticed, Andy, I was at the AD summit, the Commerce Summit this week in San Antonio, and AI is all the rage, but what’s fascinating is we’re starting to see like you just mentioned on note taking some real practical applications coming out of the woodwork. One, in one funny example, one company said, “Hey, I used AI, I used Chat GPT to write my AI security policy.” So it’s monitoring itself, it’s really funny. So I mean, how people are using it, and a lot of it is around sort of content. So let’s get into our topic today is online revenue cannibalizing offline revenue. Now this is a question, I heard it at AD this week, Andy, a couple of executives are like, I’m still fighting the fight of really making the case that digital investments are existential, the investments that have to be made, but I’m still getting the pushback from the C-suite saying, “What’s my incremental revenue?” And aren’t we just shifting revenue from one channel to the other? And we pulled some interesting data on this and the whole shift versus lift argument, right, Andy, which is it, right? And honestly, it’s some of both, isn’t it?
Andy Hoar: It is, but what I find with B2B companies, and I think B2C companies did this 15, 20 years ago, is they would think about online as another channel, right? Even the channel language is amorphous, but they think about it as another channel and it had to be self-supporting, it had to be self-sustaining, right? The problem with that is that the online channel’s unique and that it actually modifies all the other channels, in particular the offline channels. So you can’t use it in isolation, but how many times have you and I heard this, people try to make the business case for digital, and the C-suite say, “Well, you’re gonna have to lift some revenue here online.” Ignoring the fact that online actually is saving money that might be defecting to a competitor by moving from the offline environment, where it’s not, you know, wanted, or it’s not, well cared for, to an online environment, where actually all the research shows, when you move somebody from the offline to the online, they spend more, they have a better experience, et cetera. So there’s a definite reason in B2B to move people from offline to online, but too many executives, I think still see that as a one-for-one trade, and they look at the cost of it and say, “Well, it’s gonna cost us money, “we’re not getting much out of it.” It’s like, “No, wrong approach.”
Brian Beck: It’s the wrong way to think about it, I think, and we’ll see, we have some data in here that will show that, but I mean, B2B e-commerce, it’s huge, $2 trillion…talking about this prior to our podcast today, and there’s enough marketing here, to satisfy both shift and lift, right? But I think, folks have to recognize, this is a broader effort, a broader trend, any comments on this?
Andy Hoar: Yeah, there’s enough room here for everybody, and the fight is for the future, not the past, and the team of these companies still think like, Brian you were talking about this earlier, you said you went through this, and when you were in the B2C world, 10, 15 years ago, it’s just amazing we haven’t learned these lessons, but if you go to the next slide, what’s even more interesting is that most agree that B2B e-commerce, excluding EDI and the rest of that stuff, there’s really about 17% online penetration. So what about the other 83%, are they really that concerned that if we go from 17 to 18, it’s gonna destroy the business? And more importantly, it’s going from 17 to 18, but it’s gonna go against a larger denominator because the industry’s growing, so it isn’t a zero-sum game, and I just think both approaches are highly flawed, but there’s a lot of room here for all the channels to win, and more importantly, it’s what customers want.
Brian Beck: Yes, that’s exactly right. Look at this data from McKinsey, B2B decision makers are using more channels than ever to interact with suppliers in 2016. It was five, right? And now this is as of two years ago, it’s probably increased since then, 10 as of the end of 2021, 10 channels, adding channels. So the data is telling us that those folks, that people want to use all these channels, and it’s interesting, Andy, you know, some of this, what I would consider to be some of the smartest and the fastest growing and most advanced sort of thinking-wise, many factors in the market, they say to me, “Hey, I just want to be in front of the customer wherever they want to buy, and I want to be represented there really, really well, and I can’t control buyers’ preferences on where they want to shop, or where they want to buy and look in research products, why am I trying to control that if I’m a manufacturer?”
Andy Hoar: I heard from the comment we got on the LinkedIn about this, too, is I mean, I feel like a broken record saying this, or is it a broken stream now? A broken podcast, yeah. (laughing) – But, you know, that isn’t the way you judge these things. And I just think that’s why oftentimes we start with metrics, because that’s really where you need to begin these discussions, like, what are we really measuring against? I think that the fact that people who are buyers, prefer to use more channels, means that the buyers, as they always have, determine where and how and when sellers are going to sell to them, right? And there’s some more, there’s another fascinating finding from some a McKinsey story, or McKinsey report that, this one’s a little denser to read, so I’ll explain it that the more channels that B2B companies offer selling through, the more successful they are at stealing share from the competitors. So, for example, companies that are selling through two channels, they reported 51% of those companies that sell through two channels, stole share from the competitors the prior year. 72% of B2B companies that sold through, seven or more channels, claim that they stole share from companies or before. So, there’s a correlation here between the number of channels you sell through and the amount of share you’re stealing from the competitors. So, buyers want to participate in multiple channels, and it’s showing here that sellers that maximize the number of channels they sell through are actually winning this year or some game against the competitors, but stealing share.
Brian Beck: It’s fascinating. So, is the story then, and again, I hear this, I heard this this week, is the story that a Chief Digital Officer or a VP of Marketing and eCommerce or director of eCommerce – how do you translate this, Andy, into a story that the CEO or C-suite’s gonna buy off on, when, particularly when you have like the sales team, and this still happens, I heard it this week, the sales team going, no, you can’t sell over there, you can’t sell directly, you can’t sell in Amazon, you can’t sell these other places, it’s gonna destroy our relationship. We know it’s gonna cannibalize our existing business, I heard this firsthand from people saying, oh, I can’t convince my SVP of marketing and sales who manages both online and offline, you know, I can’t convince them to invest in some of this stuff because they have to feed the beast, they have to feed the traditional distribution channel, right, I can’t cannibalize that, why would I sell directly? It’s gotta all be incremental, right?
Andy Hoar: I don’t want to minimize that argument because there is some truth that they’ve heavily invested in certain channels, but what it gets lost in this whole conversation is, it doesn’t matter what you want as a seller, all that matters is what do buyers want because they’re gonna decide on their own, and you could have a great experience that you’re offering to buyers, but if they choose not to like it, it doesn’t matter, it’s all wasted, sunk me cost, and so that’s what’s missing in the conversation. When I talk to companies, I always ask – what is your buyer data say? And sadly, most of them don’t know. Especially online or omnichannel companies, they got offline buyer data, but when you ask where are people researching, where are they buying, where are they servicing, can change based on product and change based on customer type, you need to service all these channels, and most companies don’t know, and as a result, they sort of default to what they’ve always known.
Brian Beck: I think in the book, in my book, I argue that you really have to understand the ultimate customer, the user of the product in the field, and understand their buying preferences and things like that, as you make these decisions, but you’re not going to change how they want to buy. I think one of the greatest examples, you know, of all of this, Andy this is Grainger, right? You brought this example to light, and how Granger has evolved, how it’s thinking about, presenting multi-channel selling.
Andy Hoar: Grainger’s always had a will call window, which was typically you would call the store, you’d call the customer call center, they would message the store, and you would go pick it up, because a lot of people needed these things same day, and they couldn’t wait for it to be delivered, right? So there’s the will call window on the left, and then inside the branch, you can see there’s will call right next to customer service, right, that’s all fine, and Andy, that’s existed for a long time, increasingly though, this is people ordering online and going to the store, which by the way, that’s a net positive. When people order online and go to the store, that means online, you know, people are offline, and it increases the ticket value. You can pick up other stuff. What’s happened recently is that these have now, probably post pandemic, they’ve converted from being exclusively will call, which has an old metaphor about it, to an online order pickup, and you can see that little one in the bottom there, in the picture for our podcast, you can see it says, express slash will call. So now express has overtaken will call, and at the top, if you look very closely, under the express pickup sign, it says place order, which means you can actually place an order in the store. So what’s actually happening here is, all these channels are cross-modified with another, and you and I have seen this in the research, online lifts offline sales, and offline lifts online sales.
Brian Beck: Absolutely. Andy, I lived this. This is another example of B2B adopting stuff that’s been in B2C for years.15 years ago, when I was running eCommerce at Harbor Freight Tools and PACSUN and the consumer site, we were bringing on products, we were allowing people to pick up product in store that they would order online and vice versa. Andy, funny story, our number one selling item at Harbor Freight Tools on the e-commerce site, was a trencher, a $3,000 trencher, guess why? The stores couldn’t put it in their back room, it was too big and bulky, and it was our number one item, and we would get people coming to the store and ordering it from the store, having it delivered to their home. We had people ordering in store other times, but when we were driving traffic to the store, we proved out, at both of those companies I mentioned, we proved out that folks were buying more when they went into the store and vice versa when we extended the aisle from the store through e-commerce or associates would have the extended aisle available to them, and they could order for pickup in the store or shipment to home. It all works together, and it’s just another example of B2B catching up to B2C, right? Thinking more on the channel.
Andy Hoar: Buyers have already decided they want the channels to blur and to blend, but the challenge has always been on the sell side. They organize a certain way, they struggle with it, they think a certain way, and the reality is there’s no question here. The buyers have already decided, this is only a question when the sellers actually get on board with where the buyers are, which is why the conclusion here is that it’s about both shift and left. You need to judge all channels, not just digital, all channels by these very same metrics, because I often joke that digital is held to an unfair standard. They have to demonstrate incrementality around everything, but one of the offline channels don’t, does the customer have to demonstrate incrementality?
Brian Beck: Yep, it is the wrong way to think, and I think as you look at companies to your point that are winning share, Grainger, Amazon, others, they do not think about incrementality, the way that a lot of traditional B2B does. Guys, you have to, CEOs that are listening here, you gotta be thinking differently about this. It’s about everything working together. I love to say, Andy, it’s not incremental. It’s existential.
