Jim Miller of Wayfair: Turning Profitable during COVID-19 | Evolving Ecommerce Ep.3

Hans Tung

Jim – let’s start with the impact of COVID-19, and then we will see where you think the retail market is going after COVID-19. Wayfair had an amazing quarter with more than 80% jump in sales and actually turned profitable for the first time. Is that something you guys expected at the beginning of the pandemic?

Jim Miller

Well, it’s very interesting. I’ve been the CTO now for about a year. But prior to that, I was on the board of directors for over three years. I had a very unique perspective on Wayfair and the company’s growth in general from being both a board member and now an officer of the company. It’s interesting. Leaving 2019, we felt like there was a much higher probability of 2020 being recessionary, or you just looked at the number of consecutive years of growth. So we really pushed position the company proactively around a profit model that was predicated on a very conservative growth rate. So we were ideally positioned going into 2020 for what would happen with COVID. Now, obviously, even I remember sitting at the Sundance Film Festival at the end of January, looking at the Twitter tweets or the Twitter feeds coming out of China around COVID. There was already a premonition that this is going to be pretty serious. But going into with the lockdown and subsequent economic uncertainty, I can tell you that in late February or early March, I don’t think anybody really knew how this was going to turn out. And it’s one of these scenarios that, obviously, we’ve been one of the key benefactors, as an ecommerce and a third-party carrier as well. That obviously led us to the statistics which you just read off. But it’s been an amazingly interesting year. And we are now like many companies, trying to figure out what is the new normal? What does retail look like? I would tell you and I don’t have a crystal ball, but I don’t think that a vaccine is imminently around the corner in a way that is going to substantively change the way that we live our life. So I think that the pre-COVID normal is going to be very different from the new normal. And I think that e-commerce in general, will continue to be boiled and levered by that considerably. And I think the real question is, what does it mean for brick and mortar and, and traditional “retail”? Now, the interesting thing about that is that I think many of those companies for reasons that, some of it was due to their position around investment in digital technology. They really are the companies that went into 2020 and into COVID. Without substantial investment in digital technology and an e-commerce presence, those companies are highly disadvantaged. And I think, to the point where I think you are going to see a shuffling of the deck, and we’ve seen that already, with a number of bankruptcies that we’ve seen, recently, a traditional brick and mortar companies, many of them will not come back. So I think it is going to have a profound impact on what the landscape looks like, nine to 12 months from now, which will have obviously a ripple effect around things like commercial real estate, and ultimately ecommerce technology, the suppliers, the carriers, etc. So it is going to be interesting to watch.

Hans Tung

Yeah, my co-host, Robin found these two facts that are very interesting to us. One is that Wayfair gained 5 million new customers in Q2 this year, more than the last four quarters combined. So within one quarter, you guys reengaged more than 1 million last customers who haven’t made a purchase in the last 12 months. The second statistic that jumped out to us was that over 70% of the orders per quarter are from repeat customers. Both new and repeat customers continue to grow involving together. That just amazing. Those are amazing, amazing statistics.

Jim Miller

Yeah, the customer retention has been quite nice as well. It is almost counterintuitive. One would think that with that kind of explosive growth, your net promoter scores would go down. Ours, in fact, have actually gone up. So you look at that dynamic and go, there are customers that probably that we know, said “I will never buy a piece of furniture off an e-commerce.” How do you do that? We, you know, I can’t touch it, I can’t feel it. Well, again, we’ve leveraged technology in a way that most of the catalog is actually presented in 3D digital imagery. So you can do things with a piece of furniture when it is not just a 2D photograph, you can actually rotate it and insert it using an AR app into your living room, or bedroom or whatever. So I think what happened is, there is a whole new customer set that never was really intended to go online. They were forced, in some cases, to go online. They chose us, and they had a good experience. Now they’re coming back and doing it again. And this really reminds me of –– and I’m old enough to remember –– the whole “.com implosion” that happened. I remember this interesting story where we were sitting around the table: I was at Amazon time, and we were all gloom and doom, looking at our portfolios, the whole world had collapsed around the “.com crash”. I remember Jeff Bezos bounding into the room (as Jeff typically would with a big smile on his face), and we were all like, why are you? Yeah, exactly. And you said, No, this is great. This will be the best thing for Amazon. Because essentially, all these companies that had shaky business models, he will basically take them off the table, and will be able to go buy companies and acquire talent. It validates our model. Trust me. I’m sure you deal with founders a lot in your role. Founders have this uncanny ability to take a lot of muck and see a very clear path through it. What’s amazing to me is that it is not only they see it –– they make it happen. I think that is the beauty of the magic of founders. But he was right. And I think we’re seeing another kind of cataclysmic moment. I don’t want to diminish all the hardships that people are going through. I mean, the economic conditions right now are not optimal. But it is very much a world of haves and have nots. We’re going to look back on this in a few years and realize that it was one of those defining moments that reset the rules of the game and the foundation of how we act and conduct ourselves and in some cases. It will accelerate companies like Wayfair and in other places, it will unfortunately cause companies to go out of business. But this is one of those mass extinction events that the strongest survive. It puts them into a whole different category.

Robin Li

That is such an interesting comment that you made just there. I even had to write a note down for myself. Like this defining moment for not only just consumers, that the entire shift in the industry towards ecommerce and penetration, but also Wayfair, such a highly recognized brand across North America and even Europe. You have all these global customers, but you also have a global supplier base of over 12,000 suppliers, covering the 18 million products that you have on your platform. So it is such an incredible international operation. So, with what is happening and COVID, how disruptive was COVID for you? And how did you actually manage to fulfill all of these fast-growing orders with all the new customers you suddenly had on your platform coming through this time?

Jim Miller

Yeah, let’s step back because I think what most people don’t recognize around Wayfair or e-commerce in general –– even in this day and age –– is that people don’t understand the technical and a platform sophistication of clicking on something and having it show up at their doorstep a few days later. And that could be a couch. Having been involved in e-commerce most of my life, I find that even more impressive. Getting a book or a phone case to you in a few days or a day or so is relatively easy now. But getting a couch to you in a couple of days is much more difficult to do. So what we’ve done, and we’ve been doing the other company 17 years old. So it’s not like a newcomer to the e-commerce scene. But we’ve really built a technology platform. So we’ve built a very high degree of integration with our supply base. But we’ve also built a back-end supply chain as well. So for example, we are a large consolidator for Asia shipments. Now we have a supply base that also is domestic and obviously centered around the first capital of the US, which is North Carolina. But there’s a number of things that we do and work with our suppliers to actually integrate into their supply chains very tightly coupled in a couple of way. So we were able to continue to work with them around joint planning and joint coordination of their supply chains. Now, that being said, the whole world was disrupted by COVID-19. If you look at our supply base all over the globe right now, they’re still, China for example, quickly coming back into normal production. But most of our suppliers went through a-week long, two-month long period where they were doing no production. So you saw this scarcity in the supply chain, which fortunately is just now starting to get back to normal. This is great, considering we’re right on around the corner from the holiday season, where we tend to do a lot of our business as well. And again, it was a mixture of luck and solid execution. But again I think the thing that I’ve been doing outsourcing and working in these distributed environments my entire life now, is the tighter coupling that you have with your supply base, so that you don’t have a at arm’s length distance. But you’re actually working jointly with them and collaboratively with them because the difference between success and failure. I don’t think we did anything fundamentally and substantially different from what we were doing before COVID. It is just that type of integration facilitated the ease of coming out of the COVID situation and recovering and getting back normal. But we’re seeing now most of the supply chains getting back to a fairly normal type of production rate. And again, the biggest disruption right now is just getting back to normal movement of things like air freight and things like that because air travel and travel in general is now greatly curtailed. Unfortunately, most of our products don’t move by air freight, they move by sea.

Robin Li

I was just going to say you mentioned shipping in our phone case to you is very different than shipping a Wayfair item. On the smaller side, your average shipment is 30 pounds, and on the large side is 80 pounds. And so the fact that you can control the last mile logistics most of the time is also a huge plus for you.

Jim Miller

Yeah, we’ve built this system called “castle gate.” The way to think about it is that we bring in inventory from our suppliers, and that allows us to aggregate shipments in a way that we can optimize the last mile. And that being said, we’ve made substantial investments in both castle gate –– something we call the Wayfair delivery network. In fact, I’m getting a Wayfair delivery today. And it will show up to my house this afternoon. It’s two chairs. And it will be delivered by a delivery van with employees with Wayfair shirts. So it’s part of our third party network, or the network that we’re building to actually facilitate last mile. Because again, we work closely with large carriers. But delivering products, like a couch or chairs is different from most of the shipments that we typically encounter. So I went back to the early days of Amazon. We were forced to go. And we chose to go building vertically integrated capabilities, because we felt like we could do it better. And from a quality perspective, or from an economics perspective, we can do it better than USPS (or they could). We’re going to continue to build an integrate where we think that we can provide an outside advantage to our customers and do it in a way that’s economically prudent and justified. But I contend we’ll continue to invest very heavily in our outbound last mile capabilities. I think that’ll position us well for future capabilities and categories and services that we may choose to provide. But we’re very much building a platform.

Hans Tung

Yeah, I’m coming to this logistic network that you’re building in a second. You mentioned technology and having that as a competitive advantage a few times. Now, with 5G coming in bandwidth be almost 100x while we have 4G, what are the new things that you could imagine happening? Maybe not necessarily to wait for it, why don’t we make a sort of forecasting or a sort of comments? But in general, what type of optimism does that show to you?

Jim Miller

Yeah. I spent my entire career around Information Technology, starting in a very mainframe like World of IBM, and then moving from the PC to cloud computing, and everything in between. It’s amazing to me, and I find it interesting because the world is kind of flip flop between centralized computing. Now cloud computing goes from distributed and central and back. I think with 5G coupled with edge computing capabilities, it’s going to be amazing, because right now for example, when we talk about natural language synthesis, Ml and AI, whether it’s inference or training, we’re forced to do that in the cloud. Because that’s where the intensive computing capability is. And the reality is that our devices or edge devices don’t have that type of capability yet. In a 5G world, with enhanced edge computing, I think a lot of what we’re doing today is going to migrate to the edge and be further distributed. So I think, for example again, Google Translate, or Siri for that matter. You’re still doing the inference in the cloud, and you’re still bound to having network. I go back to the Little Star War days of doing the tricorder, where it could translate bi-directionally in the language. Well, you can do that. With 5G, and having a part of that inference chip now residing in the phone. And that’s certainly being implemented in design right now into the next generation of Apple and Android phones. So I think the ability to bring that edge computing and the large pipe now just enables a whole set of capabilities around AR/VR, natural language synthesis, MI and AI. All the things that it brings in a way that all that happens today, in a central cloud environment and is going to happen with your phone. You look at the phone. 15 years ago, the phone was a phone, and it was basically used. You look at it today and think about the myriad of things that you do with your phone. What’s about to explode? Again, I think it’s exciting. You’re in a world of venture capital. I think that’s going to open up all kinds of interesting business models, opportunities for new companies, new capabilities. It’s going to and again revolutionize and provide another wave of growth. But I think it’s just tremendous, and it’s going to impact every vertical medical supply chain logistics. It’s going to be exciting. And I really and I have to get bought into the hype cycle. You can use after you’ve been through these a number of times. You can just see kind of a team leaves. That’s right. Yeah, that’s right.

Hans Tung

Your CEO, Niraj Shah and I had an earnings call last year. He mentioned that with our strategic priorities or international expansion and building your own logistics system, that’s especially relevant for us as you started with e-commerce career with Amazon. Why did he pick those two things as the strategic initiative? And what are some of the challenges and opportunities that you see these get implemented?

Jim Miller

Yeah, let’s treat each one of those separately. First of all, I think he chose those because when you look at the TAM that we have available to us. It’s an $800 billion Tam worldwide. So again, as what we always talk about and as any company does, all companies ultimately are limited from where they can put in capital where they can make investments. So I believe that the two that we chose were maybe a little orthogonal in terms of the what they do for the company. So when you think about international expansion, it opens up new customers, new markets for us, and it expands our top line and opportunity. When you think about the logistics network that we’re building, it really provides top law or bottom line efficiency, vertical integration, where we think we can provide outsized value. Secondly, it improves dramatically the customer experience. If you look at any ecommerce company and you ask them where can you improve the customer experience. It usually falls into two areas. One is speed, and visibility into delivery. The other one is returns and reverse logistics. So again, I will tell you that to this day, I don’t think many companies know how to do large parcel delivery well and make it a good customer experience. When you look at the landscape of third party providers out there, we want to partner with them. But at the same time, we know we’ve got to go building our own capability in that space as well, because nothing really exists out there, where you would look at it and go. That’s a benchmark experience. This is one of those areas where it is well underserved. But back to international expansion, the way we think about that is (and this shouldn’t come as a big surprise) that we haven’t said anything publicly about where we’ll expand. I certainly won’t today, either. Okay, great. Let’s just take Spanish speaking people for example. The first thing that you would do is go and in my opinion, you’d serve the Spanish speaking population of the US. Now you’ve got that capability. Now you can serve Latin America. You can serve certainly Mexico. You can serve Spain. When you think about international expansion, you can think about it from a language perspective, and you can think about it from a locality perspective, because as it turns out, furniture and fashion have something highly localized. You look at Germany fashion versus in terms of their tastes and interests versus the UK versus the US. They’re dramatically different. So you can take the platform of catalog, but the actual items in that catalog have to be suited uniquely for particular geography, market and local tastes. So again, there’s this natural progression. But, you know, we think that that both looking international expansion and looking at improving the customer experience continues to serve, as it will serve us very well and will be highly leveraged with the plants that we’ve got for future growth.

Robin Li

Shifting gears a little bit (and I know you probably get this question all the time), given that you did a number of years in Amazon, but for the benefit of the audience, how do you compete with Amazon?

Jim Miller

Well, it’s interesting, I think that you certainly can’t ignore Amazon because they are the 800-pound gorilla. I will tell you that you can’t get maniacally fixated on them either. I think that you go back to Jeff Bezos. I think what Jeff did really, and his secret sauces was this maniacal focus on the customer experience. So I don’t think that we should be maniacally focused on what Amazon’s doing, trying to copy them. But I think what we should be doing is staying maniacally focused on what the customer wants. And then we talked about the customer being achieved because the vast majority of our customers are female. We know our customer extremely well. There’s a high degree of brand loyalty. There’s high degree of affinity when you talk to a customer –– whether that’s an interior designer or an end consumer of Wayfair –– there is this emotive response. Right, I was liking it too. I used my Windows PC, but I love my Mac once a utility. And the other one is I have the semi love affair with it because of the user interface or the look and feel whatever. And when I talked to Wayfair customers, and it’s funny, because I have a down jacket that I wear, and Wayfair over the years has gained a lot of brand notoriety and brand recognition. I was in Carmel a couple of weeks ago. I was walking around downtown Carmel and I had a Wayfair jacket on. There were people coming up to me (like you work at Wayfair) and they were saying like “Oh my God, let me tell you how much I love your company.” To me that it is an endorsement. It’s really weird, because I was accustomed to that at Google. Three years ago, people probably wouldn’t have given a second look. But now, it’s kind of an odd experience. But when you know that you’re evoking that kind of response from people, you’ve done something magical with your brand. But the brand is really the tip of the sphere. Because if you’re not providing selection and you’re not providing quality delivery experience, people are deriving value from the brand. The brand name is a brand name. Right, you go build a brand name. But if you don’t have the goods behind it, you’re not going to continue to build that brand. So it was like this kind of crazy endorsement. I walked away saying, oh, wow, there’s something happening here, which is super interesting.

Robin Li

I think you’d be happy to know that I am a proud Wayfair customer and outfitted many rooms in my house. And I actually save your mail order of things quite often because I always come across a friend and even one of our colleagues Mathew who recently moved in the Bay Area, and he was like I’m moving to a new apartment, and what should I do? Should I get my furniture? I’m like, oh, well, I have a 10% Wayfair.

Jim Miller

It’s interesting because one of the things that I think about is technology. We’ve seen so many industries and business models disrupted by technology. I think the cool thing about Wayfair, and one of the things that attracted me to the board many years ago was the fact that my wife’s an interior designer, and she works with interior designers as well. Everybody aspires. I joke because I have no taste when it comes to furniture and style. I can’t look at a color palette. It’s not in my DNA. I’m an engineer, so I can’t really look at something and go, “hey, that will go together. It will create a motif. It will create an atmosphere, look and feel.” And that’s something that she does extremely well. But the vast majority of people they want that. But because of where they’re located or candidly their financial means they don’t have access to that. I think again about cool applications of Ml and AI. I talked to her, you’re doing this thing in this room, tell me, like walk me through the logic tree, how do you choose the color palette, the furniture, and the layout? When she talks about is currently an Ml model. You can see it. If she can do that, we can teach a model how to do that. Is it going to replace every interior designer? Absolutely not. But I think it democratizes the ability to say, “hey, I’ve got this room. Take a picture of it, we can meta tag the motif. And then we can provide the customer, the potential customer with a curated selection that is not going to clash or be wildly out of sync with that particular motif of the room. Or when you think about it, there’s so many cool things that you can do with technology. But again, it’s all predicated on building a technical platform. That’s the cool thing of being the CTO that I see the opportunity that we’ve got.

Robin Li

This is actually a question that has four hands now. Given that you’re such a big ambassador in e-commerce and technology, how do you see the future of vertical e-commerce players as they face ever more powerful Amazon?

Hans Tung

Well, Robin you know this well. When I joined in 2013, maybe investing in vertical e-commerce has been one of the central themes of my investment thesis over the next seven years. It’s so good to have you join us so we can do that together. Looking at Wish, Poshmark, StockX, Peloton, every single one of them is a vertical player and I look at the ones that are successful. They’re doing or have done what Jim was saying, which is delighting the customer and make a certain segment of the population, or their target users love them a lot for whatever reasons, for wish it was the mass market bottom of the pyramid. Delight them with such amazing prices in selection. For Peloton, it is this amazing experience I went, and you don’t want to get off and you tend to raise over 95%. For Poshmark is the community that has helped to foster on the app, not just people congregating and talking about style and fashion, not just about selling clothes. StockX is not just a lot of sneaker heads on it. So that communal feel, that kind of being delighted with surprises in the amazing customers ferns, if you can nail that, that’s how you can be differentiated from Amazon, because Amazon is amazing. But it’s even the example Jim just walked through I’m remodeling my third house now in the last seven years and that you see the pattern over time like it’s this process can be so much faster. If this was machine learning in recommendation, that makes it a lot easier to go from desire to actually have the product in your house. So there is so much more can be done. I’m totally excited what 5G can bring. That’s why I asked Jim that question. And it’s also why became a shareholder in Wayfair during COVID-19. So there’s so much more to do and I can’t wait.

Jim Miller

Yeah, I share that same belief. I mean, it’s interesting. I’m with you. The whole direct consumer, the whole vertical, it’s all about the customer experience and creating that stickiness and engagement. I love Amazon. I mean, I’m a big amazon customer. But to me, it’s almost that I’m not sure that I’ll get this right. But it’s almost like a gorilla shopping experience. Right? I mean, I go to Target, I got my list. I know what I need. I get in. I get out. And you know, hopefully I you know, it’s been a frictionless experience. But I don’t, I’m not a one to sit around –– the engagement is not there. And I think that when you think about all these companies that Hans mentioned, the defining characteristics of those are stickiness, engagement, and predicated on a great experience. I’m a customer of many of those as well. Again, it’s that whole motive feeling around for a variety of reasons –– selection and engagement. But again, I think that it’s a big market, and there’ll be plenty of places for people to establish their niche, their large and profitable niche and continue to do well.

Hans Tung

While the home goods category in Wayfair is actually, as you mentioned, benefited significantly during this pandemic. A lot of people’s travel budget got changed and went into shopping for the backyard and home. How this COVID-19 change, we think about the offline stores, humans and a lot of them are closed, and they may not come back. Is there any chance that they can figure out a new business model to compete later? Or is it just completely lost?

Jim Miller

Well, look at me, we have 17 years of experience of becoming an e-commerce company, and doing it well is very difficult. Doing it well at scale is very difficult, again, partly because of “the Amazons” of the world. They’ve educated us and they’ve set the benchmark for what a customer experience is like. I’m sure we all appreciate the sophistication and complexity of getting something to you in two days. But you know that very, very, very few people can do that. When you look, I’ve got a team of over 3,000 software engineers and product managers. That is a huge investment in technology. And we’re able to hire a very, very capable, very high-quality level of talent. Most of these companies aren’t considered destinations for tech people. So I think they’re going to continue to struggle. Now, I think the opportunity that this creates is for the Shopify the world and the third-party providers, because if I were an executive coming from a traditional retail company and I did not have the capability, I would bootstrap it with a third-party understanding that I think eventually because this is so integral to the omni-channel experience and value that the company creates, you’ve got to create that capability in house. But I think it’s a matter of survival right now. And doing it organically in house, there’s no way that you can do it in the in the timeline that’s required right now. So I would really look at it bootstrap and figure out what can I partner with, to go make that capability and then, obviously over time transition to an in-house capability. But that’s going to probably take five to 10 years to actually get right, for some of these big brands that weren’t actively engaged and down that path already.

Hans Tung

Yeah, my partner Glenn likes to say that every company needs to be a technology company now. And if you don’t do that, it’s very difficult to survive. For example, Domino’s Pizza. Tastes of Domino Pizza hasn’t changed the last 10 years. But the delivery mechanism to make that work, and the efficiency, the ruthless efficiency it generates is amazing. And you don’t have that kind of DNA, what can acquire that DNA in the next 10 years? Especially when 5G comes, it is going to be terrible for you.

Jim Miller

Yeah, I’ve got a large data science team. When I was interviewing for the board almost six years ago, what I saw was understanding and infusing data science and analytics and data through everything that we do. And for me, that was one of those “wow, this is very different”, because most people don’t do that from day one. But they figured it out. But I’m with you qbout the customer intimacy and the capability and really understand attributes of your customer. That’s an outbound facing, or an outward facing perspective, but inwardly it is using data to drive efficiency and eliminate friction. But you have to have that as part of your DNA.

Robin Li

Yeah, you mentioned just a fact that you have to have this capability –– the technology capabilities for fulfillment as well as omni-channel. This year has been such a defining year for retail. We’ve seen retail struggle for the past few years. But now Amazon is taking on shopping malls, turning them into warehouses. And you mentioned Shopify, they’re doing some of the same things. And so what are some big trends that you see overall in retail?

Jim Miller

Yeah, look, I mean, I think there’s an opportunity for retail that I find fascinating, and I don’t understand why they haven’t embraced more fully. I don’t know if you saw yesterday in the Wall Street Journal, but Amazon announced that they’re building 1,000 warehouses in neighborhoods. The challenge that Amazon’s got is that they’ve got last mile problem too, because the economic density to deliver same day, well, it’s all predicated on density. It’s ironic because their advantage in the early days was let’s go build a limited number of warehouses or fulfillment centers that could serve a vast number of people. That served them very well for kind of two days shipping, but that has limitations to it. Right? So now you’ve got to start and localize. Let’s set that aside right now. You look at like a Walgreens or Rite Aid. It’s a philosophy where a lot of these retail companies that I’ve worked with in the past. They’ve treated their e-commerce system as something very unique. And I think the advantage of a lot of companies, whether you’re in the grocery business, CPG or whatever it is. You’ve got this local presence. You take Walgreens. Walgreens guy has thousands of stores across the US. They’ve got the last mile figured out. How do you couple and I would argue every one of those stores with some slight modifications is an inventory stocking point. The way you compete with an Amazon is you use that local presence. And you actually do buy online, pick up in store, or you know, partner with carriers to do same day or same hour delivery. But again, that’s a technical problem. And it’s a logistics problem that you’ve got to go work through. They haven’t embraced that in MOS. They’re just starting to grocery doing buy online pick up in store, or curbside pickup, but you just look at that and go that’s something they should have been embracing 10 years ago. I still believe that that’s a huge opportunity for some to go in, and build the last mile that says, Okay, great, I’m going to go buy something and it might be a target. It might be, I don’t know, a Walgreens or a CVS and something else, and somebody else does third-party aggregation of all that and brings it to my house within the same day. To me, that’s a value creator. For me, that starts to compete with Amazon. But I think, again, you’ve got to have that vision, and that capability to see something completely different. But, again, I don’t think Amazon’s going to take over retail in the US. But I think the retail, the traditional retailers have to get far more smarter and strategic about, not incrementalising this thing, but really reimagining what that model looks like in a world where COVID is a great catalyst for all that in my opinion.

Robin Li

Yeah, we talked about this a lot. And what are some big trends that you see as well?

Hans Tung

Yeah, I interviewed the COO of Miss Fresh from China several months ago, and their model was doing for last five years now doing exactly what Amazon just started doing this year, which is set up mini storefronts in neighborhoods. But they’re not storefronts really –– they’re all mini warehouses. And then it goes back to Jim’s point –– it is all about density. If you have enough number of orders in there, close enough to each other, then a delivery person can deliver five orders an hour, and then unit economics will be positive. So if you can nail that in a highly dense populated area, and start building that capability out. Then over time, unit economics will make it a very interesting business. And that’s what Amazon is doing in the US now as well, because you need to have enough density to justify the number of orders in that particular neighborhood to justify having that mini warehouse there. Or else they just burn too much cash. So it’s not that they don’t know this model can work. They have to wait until there’s enough orders in that neighborhood. People can start doing that. And once that happens, oh my god, it’s going to be an inflection point tipping point. And it’s going to be terrible for local retailers of length to compete. It doesn’t take a rocket science to figure it out. You can do curbside pickup and that kind of thing with stores and each store should be a stockpiling inventory for people or order online. But organizationally and culturally, it’s just so difficult for offline guys, for each store management to think like that. It’s not about the type of people that walk into the store. It’s also the other people who are not coming in. They’re ordering online as part of your customers, too. You have to take care of them, or else in the long run, when everybody’s busy, there’s not enough time to do things on your own time. Getting stuff delivered in a matter of three hours, two hours, it was what GD and Alibaba are doing in China. When that happens in the US, that is not going to be a lot of hope for offline retailers in the US. But I’ll tell them, we just don’t like it.

Jim Miller

I think it’s fascinating when Han said because you look at innovators dilemma, right? And this is a perfect example of where even Amazon is subject to innovators dilemma, right? Because you look at the hyper localization, driven by population density of both India and China. And to be candid, if I were looking at probably some of the most innovative things happening in logistics and fulfillment today, I wouldn’t go to the US; I would go to India; I would go to China, because these hyper local markets are driving this interesting petri dish of experimentation that you don’t see in the US. I would argue that Amazon, I’m sure they would if they could defend themselves; they would say they’re a hyper global company, but I think even they’re subjected the innovators dilemma and some of the stuff.

Hans Tung

And just the populace, this density difference in these countries determine what kind of path you can take. Because you’ll have enough property density you do all this you’re going to burn too much money. It’s not going to be a viable business model. It just going to be fascinating. And with 5G coming, the way that product can be shown on smartphone it will be very different. It could be a lot more AR and VR component now we have not seen before and when you have a visual experience of what’s like being the store and inside the store in the comfort of your home, and you can just one click there’s something in two hours. This like imagine what Peloton has done with all that content in your home into a gym and take that expanded. All the retail and overtime with Alexa you can just order it when you have an order. Your system will tell you hey, giving you a pattern. This is the things that you’re missing. Going to run or not in a couple days. Or what we’re going to eat today. Do you want to order and you say yes. And it’s done. How’s the author with a computer experience is going to be fascinating in the next few years?

 

Jim Miller

Well, back to the point of what are some of the emerging trends. I think some of the fascinating problems yet to be solved in e-commerce, for example, is how do you bring these massive catalogs to people in the most organized and intuitive way? I don’t think anybody’s solved that problem well yet. How do you bring that store that look and feel of a brick and mortar store to people in their living room? We haven’t figured that out yet, either. So again, and I’m not condemning anybody out there. It’s a cool problem that just needs to be solved. And I think this is again, where technology is going to play a phenomenally interesting role. But we haven’t figured that quite out yet. And I think those are the kind of problems that I wake up and go, Okay, okay, that’s an amazing problem. How do we go solve that?

Hans Tung

Yeah, it’s robbing your shoe shopper yourself? What do you think? What are the trends you pay attention to?

Robin Li

I mean, I get the convenience part of like, oh, it’d be so amazing to just have this in my house in two hours. But I  am also an avid shopper, and I do really like the experience of discovery, right? And like treasure hunting, I really, if you tell me like, Oh, I go to Target all the time, and actually logs any time, please do the $1. I know that amount of time there in person versus that amount of time on Amazon or on wage, but it is not the same experience. Yeah, not as fun and probably not as much online. So I’m curious to see like, Can you really take away that joy, with the habits that had been formed? For decades, where people and maybe it will be like that for my son who’s 10 months old? Nobody cares about going to the mall? Because you can’t go to the mall during COVID anyway. So I’m curious to see how the population will take us, because everybody has such a different experience with technology and the adoption of technology. So even Jim, you talked about Barry. You don’t really love decorating, but your wife does.

Jim Miller

Yep. But I appreciate nice house. This is not my forte.

Hans Tung

I can probably say this. I’m a few years younger than Jim. But both of us grew up when we go to a mall and play arcade, play those games and people, high school kids, middle schools, kids love to get together and play games in the mall. And for my daughter and son, there’s no way that even that thought even crossed their mind at all. They’re constantly just on the switch or on iPads playing Roblox or Animal Farm and so forth with their friends. It is such a different experience and it is literally within the last 30 years. With 5G, it will be even more dramatic. So absolutely.

Jim Miller

Yeah, I’ve got a 20-year-old and he’s a 20-year-old son. And he’s out putting his apartment in LA right now. And he’s like, I’m doing it all online, and he goes, I don’t go to the store. Like my generation just doesn’t really want to go to the mall. We don’t want to go to the store. I was like, do you have any trepidation about buying furniture online? He’s like, no, he looked at me like I was crazy. He’s like, what are you talking about? And he goes is just another category. So it’s just I mean, obviously, it’s all generational. Right? Your 10 month-old is going to grow up in a vastly different world from the one that we live in today.

Robin Li

Yeah, it was born with Alexa.

Hans Tung

Totally. Feels creepy.

Robin Li

So I want to bring it back a little bit about that, Jim, in your career and significant amount of time, both on West Coast and now in Boston as well, and so how would you compare these two coasts and the talent scenes and the tech scenes?

Jim Miller

Well, I mean, Silicon Valley is unique place on the planet, right? And I think that obviously Boston is probably where Seattle was. Probably my colleagues hit me upside the head for saying this, but it’s still up and coming. It’s a benefactor of the globalization of the Amazons of the world and the Microsoft’s of the world, go to Cambridge, Kendall Square, and within a baseball throw of Kendall Square, the tea stop, you can hit all of the big tech companies along with biotech. So I think that the talent is there. It just doesn’t have the critical mass that you see in the Bay Area. And with that being said, I still contend the Bay Area is a unique place on the planet, both from this unique amalgam of money, intellect, that West Coast kind of can do attitude, and liberalism, which I think does have a profound impact on companies, and the way that people think and then entrepreneurialism. But I mean, I see many, many elements of it in Boston as well. And I would tell you that I don’t think Boston in a way has hindered our ability to go build a great company. I think the big question is, what’s the COVID’s effect? Like, does it matter anymore? I mean, will it matter that we’re in Boston, and that some of our talent may be out here on the West Coast? I think actually COVID could be a huge depending upon our strategy around remote work, labor, force and labor strategies. Who knows. But I think it means less and less. And I think that’ll not be another, not unintended consequence, but we don’t know how it’s going to play out yet. A number of companies, we haven’t gotten there yet. But a number of companies like Twitter have said, we’re never going back to the office. To debate whether that’s right or wrong, and what that will do from an innovation standpoint, I think Reid Hoffman has been very, very adamant that he wants to go back to Netflix as soon as possible, because he thinks that there’s an innovation gap. I tend to agree with him by the way. That getting people together physically and having that interactive back and forth. You can’t do it. You can’t replicate it yet on Zoom or Jamboard or Mural or any other forms out there.

Hans Tung

Yeah, speaking of Seattle, and you’re probably a good person to ask this question, too, is that memorials told the first 20 executives at Seattle at Amazon, most, if not all, are not from Seattle. And somehow, Seattle will become the place to plan groups for Jeff Bezos and ends up hiring a lot of people outside to go there. And then that really changed how Seattle is. I mean, there’s Microsoft’s always there, but Amazon’s e-commerce of consumer facing was complete different feel. And that’s in Seattle forever. How true is that statement?

Jim Miller

I think it’s very true. I think if you look at Jeff. Jeff was a D.E. Shaw in New York. And in 1993 or 1994, he decided to create Amazon. He, typical Jeff, he did a very explicit kind of whiteboard exercise around, where was it desirable to live? Where can we get talent? The Bay Area, one of the challenges, is that it’s already saturated. And he wants to be in that fight for talent. I think that everything sorts book chronicles that decision-making pretty well. But he was very explicit and purposeful in moving to Seattle. And then when I was there, that I was talking to somebody about this last night. I think that half of the executive team was former Princeton people that he had known or had a connection from. And there’s still a large Princeton contingent on the executive even today. It’s fascinating how many people have stayed there in different roles. Perhaps, but they’ve stayed loyal to Jeff. But I think, yeah, to your point, a number of people like Jeff Holden, Jeffrey Wilkie, and Rick Dalzell (CTO came from Walmart in Bentonville). Again, you saw that he had this uncanny ability to attract great talent. And let me Seattle was an undiscovered kind of gem at the time. And I mean, I lived there for seven years, and it’s still one of my favorite places on the planet. Yeah, we can sit here and argue. I don’t think it’s the Bay Area’s changed a lot over the last 20+ years. I think Seattle still maintain a little bit of that. I think the Microsoft in the Seattle shadow looms large, which has created, again, I don’t want to make social discourse, but it created great opportunities, but it also had challenges as well. But I don’t think it had such a profound impact as it did maybe in the Bay Area. So again, it’s so great place to live and work.

Hans Tung

You had a fair way of comparing things. You are a veteran in building global companies with almost 20-years of experience in companies like Google, Cisco, and now Wayfair. What are some of the career defining moments that you can share, as you make a transition from one to the other? What was the sort of thinking, said Jeff Bezos, a systematic way of thinking that get you decide that, this is the right trend, this is right company or this is a right TV show?

Jim Miller

I don’t know. I mean, I’m probably the worst person in the world to talk about career planning, because I don’t think I’ve ever done it. I left MIT in 93. And I think the common thread of all of my career choices have been to go to an area that’s growing. And not necessarily in this order, but to work on really interesting problems in growth areas with incredible people that you’re going to learn a lot from and that you find inspirational. I remember my first meeting with Jeff Bezos, I was like, why in the world do you want to hire me to work in retail? I am not a retail person at all. And I remember spending like 30 minutes trying to convince Jeff, or maybe not convince Jeff, but it’s really trying to let him understand that, why in the world do you want to hire me. And then I realized in retrospect, that Jeff really liked the fact that I came from a continuous flow operation. I had run plants building Plentium chips. And when you think about the discipline, and the process philosophy around building a microprocessor, and doing it, you know, building hundreds of thousands, if not millions of these things with minimal defect rate, a lot of those attributes, are the same attributes that you want to put into a high-volume e-commerce fulfillment system. I say that in retrospect, because I really had to think about that. But Jeff is the magical Jeff Bezos. Jeff saw that already, right? I mean, he was like, hey, this is what I want to go build, right? And he hired Wilkie out of Allied Signal (now Honeywell) who was running a carpet fiber (a specialty chemicals plant) for some of those same reasons, right? So, again, I think I’ve never had a job. I always wake up in the morning and go. I really can’t wait to go to work, because there’s fascinating people with problems to go, and solve, and learn from. And I think I’ve been attracted to people that they view that as kind of a mission, not necessarily a job. And, it’s funny. I was having a conversation with somebody the other day, with people that I grew up with. They were like, what, why? I mean, you were kind of retired after Google. Why in the world would you want to go get another job? Their whole mode or module or decision calculus was like, you should be sitting on a beach in Santa Cruz with a beer in your hand. And I said, what’s your worldview of what a success is? And to them, it was like a destination or some figure in the bank. And I said, to be perfectly blunt, that’s not what’s motivated me. That is kind of a dividend, but that’s not the goal. The goal is, how do you go create, change and do things that are going to ultimately going to change the world. And if you impact, and if you use that as your North star, you’re going to always work with great people, you’re going to make it a change. And to be honest, you do it enough as a venture capitalist, you know this. If you do it enough, you’re going to have enough wins. You’re going to probably have more wins than losses, or whatever you want to call it in your little black book. And to be honest, I think you’re going to be probably a lot happier.

Hans Tung

A lot happier. I mean, the companies you’re with, they all change the world in some way. And when you feel that you’re part of that, okay, this life was worth living.

Jim Miller

Yep. Yeah. I use one simple (this sounds kind of corny), but I use the grandchild decision criteria. Are my grandkids going to look at me and go, wow, you were part of Google? You were part of Amazon in the early days? You were on the team that built the Pentium? I grew up in the Apollo era. And it’s probably by no mistake or no accident that I’m an aerospace engineer. I mean, you look at those things. Those were moments in time where, you know, they’re iconic. And for me, it’s always been like, Okay, if I’m going to go to a company or do this job, is it because it’s going to create a legacy and create history around it? And that’s really what I’ve used. It’s never been like, Oh, I’m going to get paid this much. It’s like “yeah, whatever”. Yeah, completely agree with that. Yes.

 

Robin Li

Thank you for doing all that. You do make the world a better place. And for us shoppers. Back to dividend and yields, I think we should shift to the quick-fire questions for there aren’t a lot of time. So what is the investment, financial or non-financial you have made in the past year that yielded the biggest return?

Jim Miller

In fact, I was talking to my financial guys this morning. AMD was probably one of the biggest ones that I saw. When I was at Google, I couldn’t trade an Nvidia because we were a big customer of Nvidia. Legally I probably could, but I felt it was probably unwise to do that. But Lisa Su, and we knew each other from MIT.  When she went to go be the CEO of AMD, I looked at it and said, one, a back to enable remarkable Papermaster. You just look at the amount that they were amassing. I looked at AMD and said, okay, first of all…I’m a former intelligence. I probably shouldn’t say this. But I really felt like Intel had become a big company. And this was a much scrappier or nimbler or a company that candidly had nothing to lose. I think they really got it. I talked to some of the folks around there, and I think they really understood how cloud computing would impact microprocessors. And they capitalized on their ability to move very, very fast. And I would argue that that’s the understanding of the industry. In retrospect, it was a great investment. My only regret was that I probably should put more into the company, but that’s how most of these things happen in life. And I was an early adviser to DocuSign. Keith Krach and I go way back, and Keith asked me very early on to come to the company and advise them. And he gave me, I forgot, a few thousands of shares of stock at a very advantageous price. And I totally forgot about it. Well, it’s so funny because my investment guys had it. I’ve been heads down on a bunch of projects, I totally missed the fact they had IP owed. And my investment guys were like, yeah, I think it was a standard $40 figure at the IPO. But at the end of the day, they called me and they were like, hey, you’re sitting on these shares. And I’m like, wow, that’s not trivial. The world is going to continue to go digital, don’t sell them. Just hold onto them. I don’t know what DocuSign was this morning. But they were trading over 200 at one point in time.

Hans Tung

Yeah. Still good. Yeah, I’m a small shareholder, too. So I love it. Yeah.

Jim Miller

Makes total sense. Makes total sense, right. I mean, I think they’re missing a big opportunity to use Ml and AI, but that’s a whole other topic. Well, I mean, I think they digitize the workflow. I think they should also think about how do you digitize the content in a way that it starts to extract value out of what great repository of all the contracts that they hold.

Hans Tung

So, again, that’s a different conversation. That could be so much more fun.

Jim Miller

Yeah, exactly. But I just look at them and go, okay, they have so many green shoots to go and create $10 billion businesses. It’s a fascinating place to be.

Hans Tung

Yeah, speaking of semiconductors, you know this and you’ll appreciate this. Morris Chang has always been someone I looked up to. From MIT, TI, feel like he needs to go to somewhere and he can build his own thing and make TSMC work. And I hate to say it, but you know, market became bigger than Intel. Who would have thought that? It was impossible when he did that in Chicago Science Park in Taiwan. So he is just amazing, seeing things decades ahead.

Jim Miller

Yeah, yeah, yeah. I’ve had the good fortune of working with Morris, not intimately but spending enough time in meetings with him. Some projects that we did were super interesting. I remember being an MIT maybe 92 or 93, and this the Economist article came out, which that outsource company or the virtual company was the name of the article. Right. And it talked about how companies, how the enterprise was moving to a world where you wouldn’t be completely vertically integrated. I was writing my thesis at Dec, the world’s probably epitome of an integrated company, right? And you can start to see the inklings of this, obviously, the internet played a huge and continues to play a huge role in in that whole structure. But I mean, to me, it’s amazing when you look in just a relatively short period of time that companies like Cisco, for example, they don’t do any manufacturing; most companies don’t do any manufacturing anymore. They do it with the TSMC which comes forwards to the world. To me, it’s amazing how quickly that shift occurred. Again, it’s a topic for another day, but it’s had profound impact on the global economy.

Robin Li

Quick-fire question number two. Something you read me silly, something you would recommend?

Jim Miller

This is going to sound completely crazy, because I have a ton of interests. And I helped build the early days of some of the capability of verily Google Life Sciences. So I’ve still got a fascination with all things bio, and there’s a great book. It’s called The Body and it’s written by…It’s too early in the morning… Anyway, it’s called The Body. It’s a best seller right now. I’m a system engineer, and I like complex systems. A biological system is probably the most complicated thing on the planet.

Hans Tung

By Bill Bryson.

Jim Miller

Bill Bryson wrote it. And Bill describes this in a way that you don’t have to be a scientist, but it’s super fascinating. We have taken anatomy and physiology, molecular biology, organic chemistry, etc. But this book is a fascinating read. Who would have thought that reading about the body is one of those books you literally can’t put down. But it’s one of the most fascinating books that I’ve read, and I’m sure I should be talking about some great, you know, pithy computer science or ML or AI. It’s probably one of the most fascinating things that I’ve read in a while. And it’s thought-provoking.

Robin Li

Thank you. And lastly, if you could spend the day in someone else’s shoes, who would that be, and why?

Jim Miller

Living or dead?

Hans Tung

Could be dead. Totally. Yeah.

Jim Miller

I really I wanted to see… Well, easy. Steve Jobs. I interact with Steve when I was at MIT just once. And it was a fascinating interaction. I wouldn’t tell you it was the most pleasant interaction. Steve told me I was an idiot for going to MIT for grad school, which I begged to ask. That was a shock to me. But explain to me, Steve, why you think that’s the case? But he was the guy who saw the world in a completely different lens, through a different very, very, very different vantage point. Steve is one of those iconic ones of a kind human beings who obviously had a profound impact on the planet. And I really like to understand, how do you see the world, like, through what perspective? Because it’s obviously not the one that I was schooled in, or I grew up in. But I think that ability to look at the world very differently, was the catalyst for a lot of what he did and what Apple obviously has become today. But that’s the person that I would love to see the world through.

Hans Tung

Son of a first-generation immigrant from Syria, who fell in love with India Sanskrit. So can’t have more interesting figure than that.

Jim Miller

Yeah. Yeah. We talked about diversity a lot. I’m a huge, huge fan of diversity. I saw it at Google. I saw it at Amazon. I’ve seen throughout my career to see in Wayfair. The more diverse we are, and dare I say even odd perspectives you bring to the table, the better we are, the better products we build. How can you go build a Chinese logistics system without having somebody who’s lived it, eat it, breathe it, right? And I think that’s the lifeblood of Silicon Valley. You look at Google or the teams that I was involved in, throughout my career in Silicon Valley. It was usually the United Nations. And I think this social system and environment that we’re living in right now it’s for all the right reasons. I think that we have to really carefully look at what’s happening. But I think we also have to remember in that rich diversity is really the way that we’re going to solve the world’s and the planet’s biggest problems right now. And that’s something I think we just have to continually remind ourselves to think about. It’ll make the world a better place.

Hans Tung

That’s why I believe in black lives matter or gender equality in the boardroom. All these things are extremely important for the welfare of this country.

Jim Miller

Yeah, I think the only thing is that you’ve got a 10-month-old. I’m behind sounds like you’ve got young kids. I’ve got a 20-year-old, who doesn’t see the world the way that I see it. His friends are the UN. And he doesn’t care. To him, it’s how he grew up. So there’s hope.

Hans Tung

There’s hope. And it is an increasingly a global issue. So there’s hope.

Jim Miller

Yeah, absolutely.

Hans Tung

Thank you so much. That was such a fascinating conversation. We both really enjoyed it.

Jim Miller

It was a pleasure. Thanks for the opportunity. Sure.

Hans Tung

It will be a fun conversation. This is better than we expected. This is great.

Jim Miller

Yeah, we get into astrophysics and astronomy.

Hans Tung

Okay. Have a good day!

Jim Miller

One of these days! Okay.