The Boring Engineer #2: The old boring e-commerce
Nowadays when we talk about e-commerce everyone talks about Shopify, Squarespace or Wix. But today, we will talk about one boring alternative: Magento.
E-commerce has always been a critical business for the Internet. From the first e-commerce, Boston Computer Exchange, which launched in 1982, to Amazon in the mid-90s, to the million online stores operating nowadays on a global scale.
One thing is clear, you need the technology that allows you to have a catalog of products, display it and collect the money from your customers to ship the goods to them finally. This was a massively complex operation when we didn’t have Stripe (to handle all the payments seamlessly) or Shopify that gives you all that as a platform.
What was one of the hottest and most boring solutions in early 2000? Magento (open source v2) was one of the open-source contenders. Built with PHP and MySQL, at its peak was running most of the e-commerce websites. Before Magento, people were using Joomla or Drupal (first release on 2001) as alternatives (staying in the PHP world).
According to Magento, there are currently around 250.000 merchants worldwide. Of the 10K web stores, Magento has a share of the 7%, still going strong.
You can now run Magento in the Adobe cloud, but it was traditionally deployed on-prem, and many hosting providers offered one-click solutions to set up your store. Thanks to the community, hundreds of integrations of all sorts make it an exciting bet when creating new e-commerce if you do not want to use a modern SaaS service such as Shopify.
Let’s go deeper into the history of this fantastic project, how it evolved and how the lack of innovation accelerated its predominance.
We can see in that chart how Magento was leading as one of the main e-commerce solutions, and Shopify rapidly grew and surpassed Magento in early 2018.
History of Magento
The beginning
This solution was created by Roy Rubin and Yoav Kutner when they started a project named Varien while attending college at UCLA. The first release of Magento wasn’t under the Magento Inc company, but the original Varien Inc. This initial release was on the 31st of March 2008, fourteen years ago. For context, the modern, most comprehensive SaaS solution was founded in 2006! But it wasn’t until 2009 that they created App Store, and this API allowed developers to develop applications for the Shopify stores.
The Magento approach was open sourcing their code under the OSL v3 license, which meant customers had to run their instances on-prem (no AWS at that time). The business model at that time for Magento was to offer Professional Services to help businesses create their stores and add the required features. This was quite a traditional business model at that time.
Magento, since the beginning, was thought to be extended; with some PHP knowledge, it was pretty trivial to create new features, and there was quite a big market of developers creating new plugins that people could use. Some of the typical modules involved payment providers, as each country and bank required its implementation.
Magento won the SourceForge Community Choice Awards several times in these first years. If you do not know it… SourceForge was the Github before Github. That was the website where you could find most of the open source projects, not using Git at that time but SVN.
Magento acquired by eBay
They were so successful at that time that eBay, one of the top tech companies, decided to invest in Magento, and they got 49% ownership of Magento at the beginning of 2011. Later in June 2011, eBay decided to buy the rest of Magento, the sole owner, joining the X.Commerce initiative. The total acquisition value was close to $180 million. A few months later, Yoav, one of the founders, decided to leave the company.
But Yoav hasn’t been detached from Magento, as in October 2012, he founded MageCore, a consultancy company offering support to their customers using Magento.
To get an idea, eBay's annual revenue was $11.6 billion. In 2021, the yearly income was around $10.4 billion, but we need to consider that today's eBay is way smaller than eBay in 2011! One person is key to understanding what happened next to eBay and Magento: Carl Icahn.
We move forward to 2014. Carl Icahn is an activist shareholder looking for companies where he can make a profit pushing the board to take some radical decisions. That year, Icahn forced eBay to complete a corporate spin-off from Paypal. This meant that eBay and Paypal would become two different companies.
This move had a collateral effect on Magento, as eBay decided to spin off the company and transfer it to a new owner, Permira Private Equity Fund. Permira bought the eBay Enterprise division for $925 million in 2015, a compound of different companies. The London-based fund decided to create a company called Magento Commerce, an independent company centered around Magento.
During this period, the company launched Magento 2, a massive refactor of the platform.
Transitioning to the cloud
That isn’t the end of Magento; there was another massive event for the company. In May 2018 was announced that Adobe was acquiring Magento for $1.68 billion. It seems to me that it was a great business deal for Permira.
For Adobe, it was a strategic bet for their cloud offering. Through Adobe Experience Cloud, you can pay a subscription so they will run Magento for you, and you can still find one-click installers in many cloud providers. For instance, DigitalOcean offers that.
A slow-declining ecosystem
We can see in early 2016 started their massive growth. What happened there? Shopify's 2016 Full Year financial results are an interesting read to understand its growth better. To summarize, with some of my hypotheses on why Magento declined so quickly:
At that time was the boom of SaaS services, and at that time, companies started to have less interest in running their software if they could avoid it. Cloud was relatively cheap (now I would say is way too expensive), and it was very convenient for people without technical knowledge.
Magento stagnated depending on their community to develop new features, but Magento has been interesting since version 2 and hasn’t been a massive upgrade.
Agencies working with Magento found that they can have more significant margins setting up e-commerce websites with Shopify as they mostly need to focus on the UI, considerably reducing the development time.
Looking at Google Trends and comparing a search between Magento and Shopify, we can see that in some countries like east European countries and India.
Many agencies still offer their services to help new e-commerce companies to drive business through this boring platform.
But it’s clear that Shopify and similar ones are growing much faster; they're more modern, offer a better UI, and take the world. The COVID situation has been fantastic for Shopify as more people decide to buy online.
It’s surprising to see how a piece of software written so many years ago managed to be so successful, but in my opinion, they were late offering a cloud and managed solution as part of their core business. But good learning is that you do not need fancy features or technology but solve people's problems.
It’s great to see how some boring technology like PHP, with a pretty old project, still has a significant market share for e-commerce. I know some companies like Project A, Rocket Internet, and similar ones have their version of Magento (Alice and Bob) that still are creating successful businesses, at the expect of many developers happiness. But here we are going to talk about boring stuff, sorry.
It’s also essential how stagnation caused by the lack of innovation can quickly turn a very successful project into the Internet purgatory of almost forgotten projects.
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Unfortunately, as today I am publishing this post, Shopify announced a layoff of the 10% of their employees, affecting mostly sales, recruiting, and marketing.