The Impact of Data Privacy on eCommerce with Frank Faricy

‍Emily Lane 00:09 

Welcome to Clothing Coulture, a fashion industry podcast at the intersection of technology and innovation. I'm Emily lane. 

Bret Schnitker 00:17 

I'm Bret Schnitker. We speak with experts and disruptors who are moving the industry forward 

Emily Lane 00:21 

and discuss solutions to real industry challenges. 

Bret Schnitker 00:24 

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Emily Lane 00:35 

Welcome back to a new episode of Clothing Coulture. Today we are discussing a really big topic, the impact of data privacy on ecommerce. There are a lot of questions about data privacy these days, Apple's iOS 14.5 update included App Tracking transparency, which required app developers to ask permission before tracking in third party apps and websites. This was elevated when iOS 15.2 update came in December of 2021, where users can access that data on App privacy reports telling them exactly what that app is doing with your data. This is absolutely creating a dynamic shift in the industry in E commerce. And so we invited resident expert, Frank Faricy, who is the founder of CEO and XGen.Ai to aid us in this conversation. 

Bret Schnitker 01:31 

Yeah, it's great to have you on Frank, we've had firsthand experience with such a massive evolution where, you know, there's this kind of weird balance between privacy and customer experience. And, and certainly things have happened pretty dramatically recently, where that's kind of affecting the marketing efforts for a lot of people in that respect. So great to have you on and look forward to this dialogue. 

Emily Lane 01:55 

Yeah, you know, you kind of mentioned that the challenge between marketing efforts and that kind of customized experience for customers, you know, how do you balance that out in this age where data privacy is really key? 

Frank Faricy 02:10 

Yeah, great question. Thank you both very much for having me. I really appreciate it. Yeah, look, privacy is such an interesting topic, I like to equate it to like a gold rush, right? It's like, it's a gold rush, where the material or the objective, the rush, being gold is constantly changing from gold to platinum to diamond, back to gold again. And the reason I say that is the beautiful thing about data is you can accomplish all kinds of things from different data. And there's lots of data to collect, right. And obviously, we're seeing this huge trend of an increase in privacy across multiple systems, consumer facing apps, B2B software platforms. And then you have Europe where the push is heavier than heavy than ever has been through GDPR. And my philosophy on this has always been well look, if you take the fundamental process or concept that if I'm a consumer online, what I'm doing is my private business, right? And that as a fundamental philosophy will produce really what everyone is trying to accomplish, right? The companies, the customers, the whole nine yards. And what's very interesting about this is, from what I've seen, the advertising space, and indeed, a lot of the user experience optimizations on E comm and apps and everything are still centered around well, we don't care who the data belongs to, we don't actually why does it belong to the customer? Right? This is really a question of ownership. Who does own it? And when is the right, who and when has the right to utilize it? Obviously, there's no strict legislation around this outside of few pocketed areas. 

Bret Schnitker 03:44 

But more coming every day. Exactly, 

03:47 

Yes. And coming in with, you know, extreme force in the case of Europe. You know, in the most recent cases, you've seen Google Analytics be borderline shut down. And certain countries have seen YouTube slapped for hundreds of million dollar fines, it's really quite shocking to a lot of companies. And the way, the way I recently kind of explained this was if the fundamental relationship here is brand to customer, right, the customer is looking for an experience. So if they go to a Valentino, which is a great brand, been around for a long time, they want the experience with Valentino, that's what they're looking for. And somehow we've gotten lost and said that, well, that relationship is monetizable by everyone. Right? Which is what third party tracking is right? We gotta track this so that we can retarget you not just for Valentino, but for everyone else. 

Bret Schnitker 04:39 

Sure. I mean, that conversation is pretty public where we're the product. Yeah, exactly. Yeah. 

Frank Faricy 04:45 

So you know, I think the industry is changing rapidly here. We all we all know that and my overall thesis on the like, high level position of what's going to happen is any company or any technology that resides in the customer brand And and interjecting themselves in between that process as a source of free data, a gold rush is going to die out in the future. That's my overall concept. 

Bret Schnitker 05:09 

Yeah. And it's just, you know, when you look at ecommerce, so many people have built their businesses on E commerce platforms solely and using these tools to gain customer traction, you know, and, and I think it's this mixed kind of emotion you have as a consumer, you know, I'm both happy, and a little freaked, that if I mentioned something, and as I'm sitting around, and the product shows up, I'm like, well, that's convenient. I'm ready to buy it. But hey, yeah, yeah, it's like they know. But, you know, we, as consumers, like the convenience of being able to have decision making, in some ways, aided by AI and technology. But then all of a sudden, we've got this situation where you know, and I'm a complete layman about this. But today, everything I look at is accept cookies, reject cookies, when you're, when you're selectively accepting things, the list is forever. It makes it very difficult. You don't know what to do. You're like, yeah, if I'm rejecting something, am I going to lose my user experience? Is there, is the intuition that I've come to expect, in my consuming experience online, going to change? And so you know, when you look at that, what do you think today, like the biggest conversations or challenges that ecommerce companies like this are having? 

Frank Faricy 06:32 

Yeah, I think, look from the top down, the updates to iOS, from the consumer perspective are incredible. I think this is the right direction and the way it should be going providing transparency and control to the customer. Because when you do look under the hood, technically, it is clandestine, right. It's pretty nasty what they're doing. And yes, no, a lot of these third party companies, and if people really knew the truth, they would get freaked out. Right. Yeah. So it's good. But from the brand's perspective, yes, they've been relying on third party tools for a long time. Right. And, you know, when I talked to some of the brands that we work with, they do have this conundrum that's, you know, it started off with like, hey, our Facebook targeting is gone off, right off these off these updates, our Instagram targeting is off. And they're starting to see this perpetuate through the advertising industry. And their reaction to this was something that I really thought was powerful. And that was to say, first of all, first party data, our data on our relationship with the customer is now the most valuable thing. And I'm like, Well, that makes sense, right? Yeah, that's those customers have opted to give you that data. So you can give them a better service. Right? That's an almost relationship. But, again, it's going back to like I see this existential shift towards like, it's not just about data anymore. It's more about the experience. It's like, are you trying to advertise? Or are you trying to service the customer, and it is actually two different worlds, you can either follow someone around online until they get fed up and click on it or just impressions, get them to engage. The other concept to look at is, well, maybe we should be asking these people what they want, and showing them that right, which is where I see the future going. And they're 

Bret Schnitker 08:14 

selective e readers that do that they sit down and say what are your likes, dislikes? And they bring up content to news information that appeals to you, I suppose. 

Frank Faricy 08:24 

Yeah. I mean, the concept of actually surveying or asking the questions to the customer is not really workable. And we know that in ecommerce too much work for the customer, like, we know, bounce rates, we know, average time on site, we know that we're going to take up half of that on a survey. No, it's never gonna work. Right, right. But there are technologies that exist that from the behavior of the customer anonymized right, anonymous behavioral learning, that can kind of just understand customers without needing to know who they are just on that session alone, and can drive a very relevant experience with modern machine learning technologies. And, you know, if I, if I look at the future, I would say, look, anonymized learning and being able to want to have the customer opt in to an anonymized process in the aspect of service and having complete faith that that data is not going anywhere else, is a very strong proposition to the end consumer and to the brand. And it really does empower the brand. And the last thing I'll say about that is I read a 300 page prediction about the future of retail from a former Andreessen Horowitz analyst, and there was this one slide that shocked me. And it was the last 10 years of search terms and relate to related to product in general, not just fashion or anything like that. And the two search terms were cheapest, and best. Now go back 10 years, cheapest was, you know, 100 times higher, but in the last four years, they have done a complete inversion to the point where best is now the strongest search term, and it really does make sense If you look at the you know, 50% of the US marketplace, ecommerce is owned is borderline owned by Amazon product quality, there is no high. Right? Right. And that starts to seep into everything they experience your relationship with the brand, the package you get, is it tailored from that brand. And that's where I really see the market going is direct to brands, which is why Shopify is starting to take off so strongly in the last few years. And how can we create the best, most meaningful connection with each consumer, 

Bret Schnitker 10:30 

then we've kind of really garnered that by this community of information. We've talked about that in other podcasts, were, you know, the one to five star rating drives decision making for corporations today, you know, or brands that are doing it, people immediately give feedback if something isn't great. And so it forces the issue on quality and perceived best quality, etc. But I think also there is this there is this rise of awareness of, you know, billions of dollars with a fabric and apparel ending up in landfills and sustainability. And that's a very complex conversation we won't get into today. But I think that, that there are these number of things that start laying right each other where were we in the US, and I used to travel quite a bit, and I'm generalizing, probably way over generalizing. But when I used to travel to Europe, and I would use Italy, as a great example, they would invest a ton on garments and clothing it was about quality is about, I'm gonna wear this suit for 20 years, so it's gonna have timeless style, it's gonna have excellent quality, and they weren't really into the whole disposable clothing mentality or fast fashion. And I'm starting to see that shift and trend in the US where, and that's a positive, you know, you can increase quality, you can decrease the disposable and the fat and all that type of thing. I don't think it will always go away. But I think there is that overall shift where people are looking for that. And then how do you get that information to them? You know, when we look at apparel, as our segment in the online space, I always like to say that, you know, people like to swing pendulum. So they say, hey, everything's going online, the future is brick and mortars dead. And I've been down these things, a lot of times where they call an industry to dead before it's dead. We used to think direct mail was dead, no one want junk mail anymore. Well, it's evolved. It's now sophisticated catalogs, beautiful photography online to buy. But the junk mail is dead, right? So brick and mortar also is evolving, because there's no replacement for the tactile kind of feeling. And I sort of wonder when you're talking about all this and your life is the online experience, you know, how do we improve? How do they digitize that experience online? What's the, you know, with all these challenges that we're seeing, that are removing kind of the customer customer ease of experience, as you see the evolution of all of these things that are happening? What's your take on on how someone can digitize the experience of a person that's online shopping? 

Frank Faricy 13:08 

Yeah. And to your point, the macro trends, in my opinion, oscillates over decades, from cheap products to quality products at a time. And I think during the cheap product reign, you have an overwhelming amount of drive for finance and money totally is exists, right and profit, but sure, that particularly is strongest, which is where you start to see degradation in service and quality. But look, I mean, in current times, I believe we're seeing the beginnings of a trend towards a higher service degree in demand from customers and a better product, just like you said, right? Yeah. And commensurate with that if you are building an online experience, you really just it's not that like, online is not scary. Some brands may think it's scary and complicated. And Tech is a is a big, scary beast. I just equate it to retail, if you walk into a retail store, and you don't have a single sales rep inside, and you've got one rack in the center, and you expect all customers to just sit there and go through this rack for 15 minutes. It's a giant long rack. Well, that's a pretty bad experience. And that's what most ecom environments represent today. So they should be looking for Systems and Technology, which there are great platforms out there that enable them to say, you know, when a customer comes to our store, we're going to give them a unique experience. And we're going to do it in a way where it's a private conversation. Right? Yeah, 

Bret Schnitker 14:33 

that's fascinating. 

Emily Lane 14:34 

How do you do that in a in an online world that previously did that through capturing data? I mean, how can AI evolve to still capture that individualized experience without breaking some of these new rules? 

Frank Faricy 14:49 

Yeah, so look in the context of 

Bret Schnitker 14:52 

saying what exactly do you do at XGen Frank? {laugher} 

Frank Faricy 14:58 

yeah, I I think look, the the basic context here is okay, if we can give someone you know, someone goes to Gucci, right? And it's like me and I go to Gucci and it's like this is Frank's Gucci store, right? Yeah, I would be like, wow, you know, I touch the door handle it, it's shaped my handle grip size, and I go inside and the like, the matrix, the products on the shelves are realigning to what I like, and the advertisements or the big content or messaging on the side of the wall is adapting to me, I would think this is the greatest thing ever. 

Bret Schnitker 15:31 

So the entire store for me would be black T shirts. Problem. There you go. Right, right. 

Frank Faricy 15:37 

Yeah. So So I would say, you know, the problem with current day technologies, when it comes to e commerce is E commerce. And I won't get into why it's like this, because that's a long subject. But e commerce is very outdated when it comes to tech stacks. It really is like the wild wild west of a bunch of shoddy solutions trying to fit together and ultimately winding up driving a bad experience. Right. So that's a that's a longer conversation. So from this perspective, unfortunately, you know, we classify creating unique experiences for customers as personalization. I don't like using that word anymore, because to me, it comes with a bad connotation. It says I as a customer are going to be grouped into the local store, meaning cool, we building local stores based on what country you're in, right? Or you know, what city you're in, etc. And the reason it's like that is because that tech stack is set 10 to 20 years in the past, it's basically needing hot identifiers, like your location, it needs to know, have you been to the site before all of which are becoming dangerous data points to try and obtain via updates like iOS 15.2, right. So the concept behind this as what is a way that we can do this without needing to know who you are, right. And to put it in context, or retail store, let's say you walked into a storefront. And in order to customize your experience, what pops up is a big iPad with six buttons, and it says, Where are you from? Right? And I say, Hey, I'm from New York, okay, great, then the store adapts to me. And everyone that hits New York's gonna see that same experience. That's what we see today in personalization. But let me ask you a question. If I walked in, and a sales rep came up to me, and didn't ask my name, and just said, What are you looking for today? And how can I help you? And then we started to talk about the product. And I picked something up and I put it down and I said, I hate this color. And then all of a sudden, the sales rep says he had come with me to this back room, I have all the stuff you've been talking about preconfigure? I'd be like, That's amazing. Yeah. And believe it or not, exactly. That can be done through artificial intelligence. It's very, very available. And that's exactly what we do. And without being invasive. Yeah. Yeah. And we can and if you think about it, what is the data you're looking at? It's not who they are, where they're coming from? It's how are they interacting with your product? Right. That's the most important factor that that 

Bret Schnitker 18:06 

added a lot of clarity. Yeah, bring it to us our love? Absolutely. Am I smarter than a fifth grader? 

Emily Lane 18:15 

So what are some additional changes that you see coming in, you know, this year and beyond that are going to continue to evolve this space? 

Frank Faricy 18:25 

I think that's a really good question. We've obviously seen Europe start to get the initial legislative concepts surrounding artificial intelligence in general, meaning what can and can't be used? Europe is talking about a technology sovereignty, right? Like, how can we as a nation, set the standards for what should be in terms of data privacy, and that's a very interesting concept, because currently, those AI rules quote unquote, or legislature are fitting more on to the concept of like image recognition. Like, you know, London is a big uproar on London about, you know, all the CCTV cameras and I'm running facial recognition through AI, you can basically know where everyone is at any time, kind of an invasion of privacy, right. But I do know that it's going to continue to increase into more and more areas, subjects and topics including ecommerce, right? Case in point China actually cause legislation about how and when and what type of artificial intelligence you can use to recommend products and drive personalization on site, which is very interesting is that's a very controlling environment, right? That's getting very detailed 

Bret Schnitker 19:32 

changes a little bit for them as the government because he's you drive through streets, they even their facial recognition technology is insane. 

Frank Faricy 19:40 

Yes, exactly. There's definitely some oxymorons going. Yeah. The concept here is, you know, I again, I'm gonna go a bit more high level it's like, we should not be waiting for governments to try and legislate right now. Right. You know, if if companies are fixed on a business model, look, I understand and I get it if you're Facebook, I wouldn't know what to do right now either. In all honesty, I would invent something ridiculous like a Metaverse and call it a product. 

Bret Schnitker 20:06 

Sounds like a great idea. Maybe you should do that. 

Frank Faricy 20:09 

No, I'm not I'm not ragging. I just think it's a little bit elusive right now. Yeah. So if you're Facebook, I get it. But the beautiful thing about the tech economy, and this is where retail and tech really start to come together is, Tech has its own self correcting process, which is it's an aggressive, the fastest, the most funded the fastest growing kind of sector in the world. And that's awesome, because it allows space for startups to come in rapidly with a lot of funding and challenge those concepts. And the beautiful thing about tech, if done correctly, and a lot of the time as technology develops based it actually in the fire of customer demand, right? So now that customers are getting a little bit more tech savvy going to new generation coming about, and they're getting the option to say yes, track me or don't track me which by the way, a lot of people are saying no, it forces tech to start developing new solutions, right. So ultimately, this privacy problem is not a big issue, right, you're gonna see more and more platforms pop up over the next five to 10 years that will provide the solutions for brands, but the great news is, is for brands that are really wanting to get ahead of the curve. And I know in the US it's kind of different, because it's not really the government is not getting that involved in the data process. Yeah. You know, for those brands, if they want to get ahead or if they're global, you know, there's there are actually solutions out there that can provide both the holy grail of online experience without needing to identify the customer. 

Bret Schnitker 21:34 

Yeah, I know that you've, you've started working with some pretty major luxury brands out there. And you want to talk a little bit about how they're kind of leveraging this new world of AI to kind of deal with the competition in their space, because their whole paradigm is shifting with the customer also, 

Frank Faricy 21:51 

definitely, look, I mean, the trends, I see is very interesting. The demand for privacy, from the brand perspective is definitely increasing big time, especially in Europe, because the government's creating fear, right, they're terrified, they're terrified of getting in trouble. They're seeing these fines, you know, 100 million dollars to any company is not a joke, right? Even Google being fined $100 million. Someone got in trouble. Right? Right. Sure. So for them, you know, privacy is becoming a big deal. And the output of that is very interesting. Privacy is more like a checkpoint, right? Do you have XYZ privacy components in place? And when you say yes, it's great. The next thing is when you tell them look unique stores for every customer that adapt in real time, this is what you know, this is what they've been waiting for. They've been looking for something like this, you know, I think Bloomberg kind of wrote an article many years ago that this is what the Holy Grail would be. And that days arrives. And and I would say the the key trend I see popping up now a lot is machine learning. They know machine learning contains the answer, right? Artificial Intelligence. Sure. They know machine learning specifically contains the answer. They don't know how, why or when. But the bigger brands are starting to get savvy get ahead of the curve and start hiring maybe a small data science team not to run or build a platform, but to get to start understanding the process, right. And the way I called you know, when we built our platform, we decided to call it we actually built a tagline specifically for bigger brands, that was democratizing machine learning for E commerce teams. Right? And it's true, it's almost like this elite subject that only if you're an advanced developer with a big team, you can touch and our concept was like, why? I mean, it's not complicated, but people may think it is. But you know, yes, you need to automate certain things. And if you get that in place, then anyone can control it. So our concept was to be able to have an econ manager without any coding experience, run sophisticated machine learning systems. 

Bret Schnitker 23:50 

Yeah, cuz those things can be real complicated. 

Emily Lane 23:53 

Yeah. So I have one final question for you. Do you have to be an uber wealthy brand or company to implement this technology? 

Frank Faricy 24:03 

Look, the one thing I will tell you is that, you know, if you're doing between five and 10 million gross a year in ecomm, revenue, not gross revenue, but e commerce specific gross, solutions like this are available below that point, it does get tricky. I'm not gonna lie, right? We you know, there are solutions for that. But like us, personally, we have we've not developed that solution yet. We do intend to. The way that data and AI works is the more data you have, the more effective it is right? If it's good data. Now, unfortunately, smaller brands with less revenue have a lot less visitors, which means less data. So we do have that there are solutions coming but unfortunately, you know, that's the most behind as the smaller brands. Yes. 

Emily Lane 24:51 

Okay. Well, it's been very enlightening conversation. Thank you so much for sharing all of these insights. It seems like it's an incredibly exciting space with I'm sure even more evolution to come. 

Bret Schnitker 25:02 

Yeah. And we're excited to hear about the constant, you know, changes in your business and and I think XGen is an amazing product just we had the opportunity to kind of look through it and and watch what happened and one I'm astounded at the ease of implementation and to exactly what you've done. I mean, it's very evolutionary. So congratulations, Frank. 

Frank Faricy 25:24 

Thank you. I appreciate that. I'm humbled. Thank you. 

Emily Lane 25:26 

Thank you. Thank you. Make sure to subscribe to stay apprised of next episodes of Clothing Coulture 

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