Zmags CEO Talks Future of E-Commerce and Marketing (Think iPad, Not Amazon)

5/1/12Follow @gthuang

The Boston area has a distinguished history of companies with innovative approaches to e-commerce and digital marketing. From Art Technology Group (now part of Oracle) to Demandware (which went public in March) in helping brands boost sales online; from Wayfair to Gemvara in new approaches to e-retail sites; from HubSpot to Constant Contact in Web and social marketing; we seem to have it all covered in New England. But what’s next in the sector?

One trend that’s hard to ignore is the proliferation of tablet computers—in particular, Apple’s iPad. The device seems poised to transform how a lot of people browse and shop online. There’s already a subsector called “couch commerce,” a term popularized by PayPal, which describes people buying stuff on tablets and smartphones while lounging at home, often while watching TV (hello, brand tie-ins). And my colleague Wade Roush recently wrote about iPad shopping from the perspective of CoffeeTable, a San Francisco startup that competes with the Google Catalogs app, among others.

Boston-based Zmags is a seasoned tech company that is riding that iPad wave now. The firm, which started in Denmark in 2006, brought in a new CEO, Michael Schreck, a year ago. At the same time, it made its first move into digital commerce, with a new focus on tablets, to go along with smartphones and Web browsers. (Zmags previously specialized in digital publishing and marketing.)

Schreck (see photo, left) has quite the Boston-area resume, having been involved in the early days of startups m-Qube and Upromise, as well as venture firm General Catalyst. He was doing private equity in Southern California for eight years before moving back to Boston for the Zmags job. “My vision was driven by my own experience where m-Qube couldn’t execute what we wanted to do because the devices and carriers weren’t there,” Schreck says. “Contrast that with an iPad moment where you’re like, ‘Oh my gosh, this is what we imagined, we just didn’t know it was going to be on this thing.’ That was my personal moment of figuring out I really want to be in the middle of that experience—how does the tablet change the way we market?”

To that end, Zmags now makes software to help brands optimize digital catalogs and marketing materials and track shopping analytics across tablets, Web, and mobile. In addition to the iPad focus, a key point is that consumers can make purchases from within the catalog, without having to go to the store or brand’s website. It’s still early in the experiment—less than a year old—but Schreck says Zmags’ customers (which include Kenneth Cole, Express, and Tesco) are seeing “40 to 70 percent uplift on the average order size, reduction by half of the abandonment rate, and [consumers] will stay in the experience for 11-12 minutes, versus 2-3 minutes on the website.”

According to Schreck, it’s all about “what can you do on a tablet that you can’t do anywhere else?” He showed me a new catalog interface, still under development, that renders splashy photos of models and merchandise on the iPad—similar to glossy, high-end paper catalogs—and lets you scroll through products, change colors, see prices, and add things to your check-out cart just by swiping your fingers. “You can touch it, you can move it, you can just twirl it and merchandise it, and pick the color you want without opening a new window,” he says. “It becomes more frictionless commerce.”

That all sounds (and looks) impressive, but there’s already plenty of competition in digital catalogs and commerce software. What else differentiates Zmags?

As Schreck tells it, the company is working on better targeting and analytics capabilities that should be ready in the fourth quarter of 2012. For example, he says, the analytics tools will use heat maps to show catalog makers where people were looking and swiping on the screen, how long they stayed on each page, and so forth. The information could be used to help design more effective catalogs, down to the level of whether models in the photos should look at the camera versus the product, he says.

Zmags is also looking to incorporate data and inferences about shoppers, such as whether they have a wedding (or other event) coming up, and how much time they have to shop. Presumably that could help determine what images and products get displayed to the consumer. Schreck says analytics and rendering tools are part of Zmags’ acquisition strategy this year and next, so stay tuned for more on that.

And other business strategy elements coming down the pike? “We’re doing a lot of partner deals for the first time,” Schreck says. He wouldn’t say much more about that, but I gathered that it involves working with big agencies and platform providers interested in using Zmags for rich media and interactive visuals on top of what they already do. Those partnerships would be complementary to Zmags’ customer relationships with big brands. Lastly, Schreck hinted that the company will raise more growth equity funding later this year. (In January, Zmags announced a $7 million financing round from Square 1 Bank, OpenView Venture Partners, and Northcap Partners; that round roughly doubled the company’s funding to date.)

With those nuts and bolts out of the way, I wanted to push on where Zmags fits into the broader e-commerce and marketing picture. Take Demandware, a recent Boston tech IPO and an innovator in brand retail across Web and mobile. “Their principles are similar to ours,” Schreck says. But he adds, “Our view on that is people are going to continue to invest materially in the website to constantly improve it. But I don’t see, in the short term anyway, what the breakthrough on that is. I see incremental improvement. And that incremental improvement, as Demandware demonstrated, is critical. But none of that feels like exponential change.”

He’s basically saying websites for brand marketing and commerce have played out. Amazon.com won, at least for now. “Our bottom line is, go where the profits are, not where the volume is. You’ve already gone where the volume is. How do we keep you from destroying your most profitable customers? Because your website’s going to do that. That’s the big message,” says Schreck. “Amazon has brilliantly confirmed that they will be the No. 1 through No. 100 retailer. I don’t know who’s going to compete with them [on net margin]. So the answer is, you better stop making your website look like Amazon’s.”

I pressed him a little more on this. “Amazon has nailed the directed purchase side of the business. They nailed it, it’s brilliant, I love it. But it has nothing to do with this impulse-driven, event-driven, non-price-promotion-driven stuff, which doesn’t really exist on the net. And in offline sales, that’s the majority of the revenue, and the vast majority of profits,” he says. “You’ve got to create an experience that leverages all of the offline merchandising creativity, the frictionless elements of offline, and then add the benefits of online—instantaneous, touch, immediate satisfaction, price confidence. You add those two things together, you actually get a better experience. That’s the goal, this will be the best experience of shopping. Even better than going to a store, most of the time.”

How will a company like Amazon continue to innovate in commerce? “I looked at Amazon’s website in 2000, and compared it to 2012, and it’s stunning how little it’s changed. It was brilliant then, and it remains brilliant today. Because they’re able to fulfill on the promise of price-competitive and efficient distribution, I use it every day. You don’t need to make that experience any different or any better,” he says. “But I’d build something more compelling than the Kindle Fire. If they’re going to this space where rich media and merchandising plays a role, then doesn’t it feel like the devices that you’re subsidizing, the Kindle Fire in particular, would have more of a shopping interface? That’ll be interesting.”

Which brings up the final question of how tablets and screens will evolve from here. “From a marketer’s point of view, there is a convergence, and it looks a lot more like a tablet than a PC. Whether we’ll all have two screens or three screens, I’m not sure,” Schreck says. “Once we have legitimate competition in the tablet space, which we clearly don’t have today, you’re going to see increased innovation around that. It blows my mind that the [new] iPad doesn’t look any different from the iPad 2. I think if they’d had real competition, that would not have happened. When there’s real competition, everything will end up looking like a tablet [with different screen sizes, thicknesses, processing power, etc.]. That’s where, I think, in five years we’ll see something interesting.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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