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Chief Executive Tobi Lutke said on Twitter on Tuesday that he would respond to Left's claims on the company's next earnings call, which is expected the week of Oct. 30. "Lots of people want me to address the short-selling troll thats targeting $SHOP. Looking forward to next earnings calls to do so"
Tobi Lütke @tobi CEO by day, Dad in the evening, hacker at night. - Rails Core alumni; Author of ActiveMerchant, Liquid. Comprehensivist
Shopify and DHL Express Partner to Empower Small Businesses to Go Global
October 18, 2017 PDF () New partnership brings two- to five-day international express shipping to hundreds of thousands of merchants
OTTAWA, Ontario & PLANTATION, Fla.--(BUSINESS WIRE)-- Shopify Inc. (NYSE: SHOP) (TSX: SHOP), the leading multi-channel commerce platform, and DHL, the world’s leading international express services provider, today announced a new partnership to help small businesses access global markets. Shopify will be adding DHL Express as a new international carrier to Shopify Shipping, helping hundreds of thousands of U.S. small businesses increase sales around the globe through lower shipping rates. These rates enable small businesses to more easily compete with large companies and marketplaces, and were previously available only to enterprise customers.
This press release features multimedia. View the full release here: businesswire.com
“For smaller businesses and startups today, the potential field of customers is not just local – it’s global,” said Cristian Vera, VP of Sales for DHL Express Americas. “Those on the Shopify Shipping platform can now access the growing global marketplace and take their business to new heights by shipping their products to any of the 220 countries and territories we serve.”
Shopify Shipping simplifies commerce by enabling businesses to easily manage all aspects of their shipping and fulfillment directly within Shopify. DHL Express will now be natively integrated into the Shopify platform, joining existing partnerships with USPS and Canada Post, to minimize costs and simplify fulfillment workflows for busy entrepreneurs. Shopify businesses currently ship millions of packages a month, and more than 10% of those are sent internationally.
“This partnership with DHL Express lets small businesses ship like enterprise companies: with fast, premium delivery, lower rates and a global brand consumers trust and choose at checkout,” said Maia Benson, Global Head of Shipping for Shopify. “With Shopify’s massive scale, powering more than 500,000 businesses, we’re able to work with global shipping powerhouses to offer this premium solution to the small business owner.”
Shopify Shipping and DHL Express will offer a wide variety of features to help businesses more easily ship their products around the world, including:
Fast shipping: customers receive packages within two to five business days, and can track them anywhere in the world Competitive international rates: special, negotiated shipping rates with no minimum shipping volumes or subscription required Free DHL Express pickups: can be scheduled through Shopify, for any number of packages Expansive global coverage: delivery to more than 220 countries and territories worldwide One-stop shop: Shopify Shipping enables merchants to manage all their shipping needs in one place
DHL Express for Shopify Shipping is available today for businesses in the United States. For more information, visit: cts.businesswire.com
About Shopify Shopify is the leading cloud-based, multi-channel commerce platform designed for small and medium-sized businesses. Merchants can use the software to design, set up, and manage their stores across multiple sales channels, including web, mobile, social media, marketplaces, brick-and-mortar locations, and pop-up shops. The platform also provides merchants with a powerful back-office and a single view of their business. The Shopify platform was engineered for reliability and scale, making enterprise-level technology available to businesses of all sizes. Shopify currently powers over 500,000 businesses in approximately 175 countries and is trusted by brands such as Red Bull, Nestle, GE, Kylie Cosmetics, and many more.
About DHL – The logistics company for the world DHL is the leading global brand in the logistics industry. Our DHL family of divisions offer an unrivalled portfolio of logistics services ranging from national and international parcel delivery, e-commerce shipping and fulfillment solutions, international express, road, air and ocean transport to industrial supply chain management. With about 350,000 employees in more than 220 countries and territories worldwide, DHL connects people and businesses securely and reliably, enabling global trade flows. With specialized solutions for growth markets and industries including technology, life sciences and healthcare, energy, automotive and retail, a proven commitment to corporate responsibility and an unrivalled presence in developing markets, DHL is decisively positioned as “The logistics company for the world”.
DHL is part of Deutsche Post DHL Group. The Group generated revenues of more than 57 billion euros in 2016.
Shopify Inc. ( SHOP)( SHOP.TO), the leading cloud-based commerce platform, plans to announce financial results for its third quarter ended September 30, 2017 before markets open on Tuesday, October 31, 2017.
Shopify’s management team will host a conference call to discuss third-quarter results at 8:30 a.m. ET on Tuesday, October 31, 2017. The conference call will be available via webcast on the investor relations section of Shopify’s website at cts.businesswire.com.
An archived replay of the webcast will be available following the conclusion of the call.
Shopify is the leading cloud-based, multi-channel commerce platform designed for small and medium-sized businesses. Merchants can use the software to design, set up, and manage their stores across multiple sales channels, including web, mobile, social media, marketplaces, brick-and-mortar locations, and pop-up shops. The platform also provides merchants with a powerful back-office and a single view of their business. The Shopify platform was engineered for reliability and scale, making enterprise-level technology available to businesses of all sizes. Shopify currently powers over 500,000 businesses in approximately 175 countries and is trusted by brands such as Red Bull, Nestle, Rebecca Minkoff, Kylie Cosmetics, and many more.
It all started with an Instagram ad for a coat, the West Louis (TM) Business-Man Windproof Long Coat to be specific. It looked like a decent camel coat, not fancy but fine. And I’d been looking for one just that color, so when the ad touting the coat popped up and the price was in the double-digits, I figured: hey, a deal!
The brand, West Louis, seemed like another one of the small clothing companies that has me tagged in the vast Facebook-advertising ecosystem as someone who likes buying clothes: Faherty, Birdwell Beach Britches, Life After Denim, some wool underwear brand that claims I only need two pairs per week, sundry bootmakers.
Perhaps the copy on the West Louis site was a little much, claiming “West Louis is the perfection of modern gentlemen clothing,” but in a world where an oil company can claim to “fuel connections,” who was I to fault a small entrepreneur for some purple prose?
Several weeks later, the coat showed up in a black plastic bag emblazoned with the markings of China Post, that nation’s postal service. I tore it open and pulled out the coat. The material has the softness of a Las Vegas carpet and the rich sheen of a velour jumpsuit. The fabric is so synthetic, it could probably be refined into bunker fuel for a ship. It was, technically, the item I ordered, only shabbier than I expected in every aspect.
I went to the West Louis Instagram account and found 20 total posts, all made between June and October of 2017. Most are just pictures of clothes. Doing a reverse image search, it’s clear that the Business-Man Windproof Long Coat is sold throughout the world on a variety of retail websites. Another sweatshirt I purchased through Instagram—I tracked down no less than 15 shops selling the identical item. I bought mine from Thecuttedge.life, but I could have gotten it from Gonthwid, Hzijue, Romwe, HypeClothing, Manvestment, Ladae Picassa, or Kovfee. Each very lightly brands the sweatshirt as its own, but features identical pictures of a mustachioed, tattooed model. That a decent percentage of the brands are unpronounceable in English just adds to the covfefe of it all.
All these sites use a platform called Shopify, which is like the Wordpress or Blogger of e-commerce, enabling completely turnkey online stores. Now, it has over 500,000 merchants, a number that’s grown 74 percent per year over the last five years. On the big shopping days around Thanksgiving, they were doing $1 million in transactions per minute. And the “vast majority” of the stores on the service are small to medium-sized businesses, the company told me.
Shopify serves as the base layer for an emerging ecosystem that solders digital advertising through Facebook onto the world of Asian manufacturers and wholesalers who rep their companies on Alibaba and its foreigner-friendly counterpart, AliExpress.
It’s a fascinating new retail world, a mutation of globalized capitalism that’s been growing in the cracks of mainstream commerce.
Here’s how it works.
Rory Ganon from his Shopify video (youtube/ Rory Ganon) ----------------------------------------------
“What is up everybody?!” a fresh-faced man with messy brown hair shouts into the camera. Behind him, two computers sit open on a white desk in a white room. By the looks of him, he might not be an adult, but he has already learned to look directly into the camera when delivering the ever-appealing gospel of Easy Money on the Internet.
“In this challenge, I’m going to take a brand new Shopify store to over one thousand dollars,” he says. “So I invite you to follow along with me as I take this brand new store from 0, literally 0, to over one thousand dollars in the next seven days.”
In the corner of YouTube dedicated to e-commerce, these videos are a bit of a phenomenon, racking up hundreds of thousands of views for highly detailed explanations of how to set up an e-commerce shop on the Internet.
Their star is Rory Ganon. Though his accent is Irish (“tousand”), his diction is pure LA YouTuber. He’s repetitive, makes quick cuts, and delivers every line with the conviction of youth. He appears to live in Ratoath, a small Irish commuter town about half an hour outside Dublin. His Facebook page describes him as a 17-year-old entrepreneur.
His success finding an audience seems predicated on the fact that when he says he’s going to show you everything, he really is going to show you everything. Like, you will watch his screen as he goes about setting up a store, so anyone can follow along at home. He’s a Bob Ross of e-commerce.
These techniques work the same for him as for Gucci. Some Instagram retailers are legit brands with employees and products. Others are simply middlemen for Chinese goods, built in bedrooms, and launched with no capital or inventory. All of them have been pulled into existence by the power of Instagram and Facebook ads combined with a suite of e-commerce tools based around Shopify.
The products don’t matter to the system, nor do they matter to Ganon. The whole idea of retail gets inverted in his videos. What he actually sells in his stores is secondary to how he does it. It’s as if he squirts hot dogs on his ketchup and mustard.
What Ganon does is pick suppliers he’ll never know to ship products he’ll never touch. All his effort goes into creating ads to capture prospective customers, and then optimizing a digital environment that encourages them to buy whatever piece of crap he’s put in front of them.
And he is not alone.
The touchstone investigation into this world—“ There’s No Such Thing as a Free Watch”— was conducted by an artist, Jenny Odell. After a visitor to Oakland’s Museum of Capitalism brought a watch that was “sold” “free” online, Odell endeavored to seek out its origins. The watch was sold by Folsom & Co, one of a constellation of nearly identical companies selling nearly identical watches. These companies are distinguished primarily by their loose relationship with the truth about themselves. The information they provide about the brands is almost certainly fictional. While Folsom & Co claimed to be from San Francisco’s Soma district, SoFi coastal claimed to be from Miami. Both were probably from somewhere else. Another site creates the barest sketch of a supposed founder named “Bradley” who “had a constant desire to present himself well but didn’t believe fashion and style should come with such a high price.” Bradley probably doesn’t exist.
Of course, this is merely a hackneyed version of what all branding does, Odell points out. It creates stories that pump up the value of products. What you can charge depends on the story you tell, which on Instagram means well-lit photos in coffee shops lead directly to higher prices, especially if they feature an “influencer” with a lot of followers.
These new retail sites are also creatures that could only exist in our current economy. They are a reshuffling of the same fast-fashion infrastructure that powers H&M and Zara. West Louis and Folsom & Co are a new a front-end for the Asian factories that make stuff. Stumble onto one—or more likely—find yourself targeted by such a brand’s ads, and you open up one of many highly disposable faces of the globalized economy. It’s just that with companies like West Louis, the seams show, literally and figuratively.
* * *
Ganon’s videos are particularly fascinating in describing the mechanics of digital advertising through Instagram and Facebook.
In the tutorial, he briefly discusses finding a niche for the products in your store, and he uses some business school powerpoint terms. But when he actually selects a niche, it is Lions. That’s right: Lions, the animals.
A screenshot from Rory Ganon’s video (Rory Ganon) ----------------------------------------------------------------------------
His reasoning, laid out in video two, is twofold. One, there are plenty of “Instagram influencers”—which is to say popular accounts—who he can pay to run an ad for his store because there are a bunch of “naturey” sites. And two, when he looks at Facebook’s Audience Insights tool, he (and anyone else) can see how large Facebook estimates the audience for certain interests might be. When he types in “lions,” “[Facebook] says I have 5 to 6 million monthly active people I can target,” he says. “But if I add in wildlife, you can see I have 10-15 million monthly active people I can show my ads to. So, if my store is successful, I can scale my store to thousands of dollars per day.”
So, he has his audience, now he needs his store. He calls it Lions Jewel, pulls in some lion pictures, copy and pastes Shopify’s default privacy and return policy boilerplate, and he’s up and running with the empty store.
For products, he turns to, AliExpress, the Alibaba company. The key to the whole scheme is that he doesn’t have to hold any inventory, so he can start up the business with no capital. And AliExpress has many companies that are willing to do what’s called “dropshipping” direct from wherever the item was manufactured or warehoused. That’s why my coat showed up in a China Post package.
There is an app that plugs directly into Shopify called Oberlo, which allows anyone to pull products directly from Aliexpress. Click a button and something that was manufactured in the Chinese hinterlands and marketed in a suburb of Shanghai becomes an item for sale on an Irish kid’s website. Oberlo’s marketing claims that 85 million items have been processed through the system.
Ganon searches out some lion-themed objects, including the one that he anticipates making the most money from, a gold-plated lion bracelet that he puts on sale for $0. He gives some tips for finding popular dropshippable items, too. He sorts Shopify-hosted sites by traffic with myip.ms, and then digs below the most popular stores, which generally sell products they make themselves. Deeper into the top 1000 stores, there are dropshippers reselling Aliexpress goods, just like Ganon is, so if he can ferret out what products are selling at high-performing stores, he can siphon off some of those dollars. All he’d need to do was do reverse image searches to find the listings in Aliexpress, suck those products in with Oberlo, and he could effectively clone the store in a few minutes.
But for the video series, he was focused on just the lion stuff. With his shop loaded with a handful of products, his next step is to get people to see the merchandise. First, he creates a Lions Jewel Instagram account, posting a smattering of pictures with a link to his store. Then, he taps an Instagram account that posts pictures of nature, and brokers a sub-$20 deal that pushes some hundreds of people to his site through Lions Jewel’s Instagram account.
When they hit the site, there is a countdown clock telling them they are running out of time to grab the free bracelet deal. This is, of course not true. But it creates that “sense of scarcity,” as Ganon says, that leads to purchases. That clock is just another app for Shopify, Hurrify. It is supposed to increase conversions 2 to 3 percent, Ganon claims.
As one is shopping this kind of site, occasionally a screen will pop up saying, “Alexis in Oakland just purchased the West Louis (TM) Business-Man Windproof Long Coat.” This effect comes courtesy of yet another app, Sales Pop. Ganon and the appmakers say these pop-ups provide “social proof,” which is, again, designed to increase conversions. One would expect that such an app would show actual purchases, and it can do that. But it can also show “ custom notifications” so that you can create fake customers who are supposedly buying things. Pick some cool-sounding names, pick some cool locations (“London,” “Paris,” “Mexico City,” “Oakland”) and it does the work of combining them into robo-social proof.
Given the array of behavioral tricks arrayed against your average Internet user, some of them take the free lion bracelet deal. But for those that don’t, merely by visiting his site, they’ve been tagged in Facebook’s system because Ganon has installed a standard Facebook tracking pixel. That means Ganon can now re-target those people who visited but left without purchasing anything through Facebook. And he spends a lot of time designing and testing ads that will bring them back for the purchase.
There’s nothing unusual about this in digital marketing. In fact, it’s a completely common practice. But employed so baldly, it shows the strangeness of our current commerce model. I like lions, so I follow an Instagram account that posts pictures of them, they post an ad, so I go to a webpage, and now I get ads chasing me all over the Internet advertising a lion bracelet. It’s enough to make you long for the days of going to the mall or buying stuff out of a catalog.
Ganon says he creates blogs for his sites, too. So maybe for his lion store, he’d cobble together “fun facts about lions” by looking up the most popular lion content on the site, Buzzsumo. Once you hit that page, he could retarget you.
This is one major purpose of “content marketing.” For example, a company could have someone ghostwrite its CTO some blog posts about cloud storage topics that only people deep in the industry could be interested in. Because of that hyperspecificity, anyone who lands on those pages is likely to be a prospective customer. So, even if the prose is unreadable, it doesn’t really matter beause by the time you’re staring at the words, the content has served its purpose already. Just by arriving on the page while logged into Facebook, you’ve placed yourself in a custom audience that can be targeted on the Facebook back end. This is a basic capability of the system: it works for any demographic, from Chief Executive Officers to white supremacists to lion lovers.
The last step in a Ganonite store process, then, is to do the actual fulfillment of the orders. This means entering names and addresses into AliExpress, so the Chinese companies can send out the stuff. But Ganon doesn’t like to waste time on things that don’t generate revenue for his stores. “There’s only 24 hours in a day,” he writes in a slide, underlining this text, “Why waste money on things that don’t make you money?”
So Ganon “automates” the order fulfillment by hiring digital workers on the platform, UpWork, for 3, 4, 5 dollars per hour. When I searched through the platform last week, there were 275 openjobs listed for dropshipping, 200 for AliExpress specifically, and 132 for Oberlo—though there was considerable overlap among all those ads.
Ganon’s video series opens by promising that he’ll get his store’s revenue to $1,000 in the first week. Spoiler alert: that does not happen. That’s probably because it’s harder than he made it sound. But there was something else going on, too. Ganon posted the videos in real time. So, as the first video began to circulate, other people—following his instructions exactly—began to create shops also selling lion bracelets. Oops!
In general, it’s hard to know how much actual profit anyone could make from a store that does even substantial transactions. AliExpress products are cheap, but not free. Facebook and Instagram ads are effective, but cost money. That “Make a thousand dollars in a week!” promise is very easy to whittle down.
But as hypermodern economic entities, they are fascinating. Even the idea of a “supply chain”—the system for using cheaper labor and global logistics networks to increase profit margins for companies with the wherewithal to do global business—breaks down. There are just suppliers and retail-front ends connected loosely by e-commerce sites and apps.
“Amidst the shifting winds of Alibaba sites, dropshipping networks, Shopify templates, Instagram accounts and someone somewhere concocting the details of ‘Our Story,’ a watch was formed, like a sudden precipitate in an unstable cloud,” the artist Odell writes.
Which suggests a name for this phenomenon of jumbled up global capitalism that uses Silicon Valley ad tools to arbitrage cheap goods from Asia: the Supply Cloud.
As for my coat, in the end, there was no real mystery to it. It was too cheap to be true, and no matter how much technology changes, you get what you pay for.
Investor News Details Shopify Completes Offering of Class A Subordinate Voting Shares
December 18, 2018
OTTAWA, Ontario--(BUSINESS WIRE)-- Shopify Inc. (NYSE:SHOP) (TSX:SHOP) (“Shopify”) today announced that it has completed its previously announced offering of Class A subordinate voting shares (the “Offering“) at a price to the public of US$154.00 per share. An aggregate of 2,600,000 Class A subordinate voting shares were sold by Shopify for aggregate gross proceeds, before underwriting discounts and offering costs, of US$400,400,000.
Shopify expects to use its net proceeds from the Offering to strengthen its balance sheet, providing flexibility to fund its growth strategies. Pending their use, Shopify intends to invest the net proceeds from the Offering in short-term, investment-grade, interest-bearing instruments or hold them as cash.
Morgan Stanley and Credit Suisse acted as joint bookrunners in the Offering.
The Class A subordinate voting shares were offered in each of the provinces and territories of Canada, other than Quebec, by way of a prospectus supplement dated December 14, 2018 to Shopify’s short form base shelf prospectus dated August 3, 2018. The Class A subordinate voting shares were also offered in the United States pursuant to a prospectus supplement to Shopify’s registration statement on Form F-10 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “SEC“) under the U.S./Canada Multijurisdictional Disclosure System. The prospectus supplements, the base shelf prospectus and the Registration Statement contain important detailed information about the Offering. Copies of the Canadian prospectus supplements and the base shelf prospectus can be found on SEDAR at www.sedar.com, and copies of the U.S. prospectus supplements and the Registration Statement can be found on EDGAR at www.sec.gov. Copies of such offering documents may also be obtained from Morgan Stanley & Co. LLC, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, NY 10014 or Credit Suisse Securities (USA) LLC, Attention: Prospectus Department, Eleven Madison Avenue, New York, NY 10010.
No securities regulatory authority has either approved or disapproved the contents of this news release. This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any province, state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such province, state or jurisdiction.
Shopify is the leading omni-channel commerce platform. Merchants use Shopify to design, set up, and manage their stores across multiple sales channels, including mobile, web, social media, marketplaces, brick-and-mortar locations, and pop-up shops. The platform also provides merchants with a powerful back-office and a single view of their business, from payments to shipping. The Shopify platform was engineered for reliability and scale, making enterprise-level technology available to businesses of all sizes. Headquartered in Ottawa, Canada, Shopify currently powers over 600,000 businesses in approximately 175 countries and is trusted by brands such as Nestle, Kylie Cosmetics, Allbirds, MVMT, and many more.
This press release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws (“forward-looking statements“), including statements with regard to Shopify’s proposed use of proceeds from the Offering. Words such as “expects”, “anticipates” and “intends” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions and no assurance can be given that the proceeds of the offering will be used on the terms described. Allocation of the proceeds of the offering is subject to numerous factors, many of which are beyond Shopify’s control, including, without limitation, market conditions and the risk factors and other matters set forth in Shopify’s filings with the SEC and the securities commissions or similar securities regulatory authorities in each of the provinces and territories of Canada. Shopify undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
While I am (rightfully) teased about how often I discuss Aggregation Theory, there is a method to my madness, particularly over the last year: more and more attention is being paid to the power wielded by Aggregators like Google and Facebook, but to my mind the language is all wrong.
I discussed this at length last year:
Tech’s Two Philosophies highlighted how Facebook and Google want to do things for you; Microsoft and Apple were about helping you do things better.
The Moat Map discussed the relationship between network effects and supplier differentiation: the more that network effects were internalized the more suppliers were commoditized, and the more that network effects were externalized the more suppliers were differentiated.
Finally, The Bill Gates Line formally defined the difference between Aggregators and Platforms. This is the key paragraph:
This is ultimately the most important distinction between platforms and Aggregators: platforms are powerful because they facilitate a relationship between 3rd-party suppliers and end users; Aggregators, on the other hand, intermediate and control it.
It follows, then, that debates around companies like Google that use the word “platform” and, unsurprisingly, draw comparisons to Microsoft twenty years ago, misunderstand what is happening and, inevitably, result in prescriptions that would exacerbate problems that exist instead of solving them.
There is, though, another reason to understand the difference between platforms and Aggregators: platforms are Aggregators’ most effective competition.
Amazon’s BifurcationEarlier this week I wrote about Walmart’s failure to compete with Amazon head-on; after years of trying to leverage its stores in e-commerce, Walmart realized that Amazon was winning because e-commerce required a fundamentally different value chain than retail stores. The point of my Daily Update was that the proper response to that recognition was not to try to imitate Amazon, but rather to focus on areas where the stores actually were an advantage, like groceries, but it’s worth understanding exactly why attacking Amazon head-on was a losing proposition.
When Amazon started, the company followed a traditional retail model, just online. That is, Amazon bought products at wholesale, then sold them to customers:
Amazon’s sales proceeded to grow rapidly, not just of books, but also in other media products with large selections like DVDs and CDs that benefitted from Amazon’s effectively unlimited shelf-space. This growth allowed Amazon to build out its fulfillment network, and by 1999 the company had seven fulfillment centers across the U.S. and three more in Europe.
Ten may not seem like a lot — Amazon has well over 300 fulfillment centers today, plus many more distribution and sortation centers — but for reference Walmart has only 20. In other words, at least when it came to fulfillment centers, Amazon was halfway to Walmart’s current scale 20 years ago.
It would ultimately take Amazon another nine years to reach twenty fulfillment centers (this was the time for Walmart to respond), but in the meantime came a critical announcement that changed what those fulfillment centers represented. In 2006 Amazon announced Fulfillment by Amazon, wherein 3rd-party merchants could use those fulfillment centers too. Their products would not only be listed on Amazon.com, they would also be held, packaged, and shipped by Amazon.
In short, Amazon.com effectively bifurcated itself into a retail unit and a fulfillment unit:
The old value chain is still there — nearly half of the products on Amazon.com are still bought by Amazon at wholesale and sold to customers — but 3rd parties can sell directly to consumers as well, bypassing Amazon’s retail arm and leveraging only Amazon’s fulfillment arm, which was growing rapidly:
Walmart and its 20 distribution centers don’t stand a chance, particularly since catching up means competing for consumers not only with Amazon but with all of those 3rd-party merchants filling up all of those fulfillment centers.
Amazon and AggregationThere is one more critical part of the drawing I made above:
Despite the fact that Amazon had effectively split itself in two in order to incorporate 3rd-party merchants, this division is barely noticeable to customers. They still go to Amazon.com, they still use the same shopping cart, they still get the boxes with the smile logo. Basically, Amazon has managed to incorporate 3rd-party merchants while still owning the entire experience from an end-user perspective.
This should sound familiar: as I noted at the top, Aggregators tend to internalize their network effects and commoditize their suppliers, which is exactly what Amazon has done.
1 Amazon benefits from more 3rd-party merchants being on its platform because it can offer more products to consumers and justify the buildout of that extensive fulfillment network; 3rd-party merchants are mostly reduced to competing on price.
That, though, suggests there is a platform alternative — that is, a company that succeeds by enabling its suppliers to differentiate and externalizing network effects to create a mutually beneficial ecosystem. That alternative is Shopify.
The Shopify PlatformAt first glance, Shopify isn’t an Amazon competitor at all: after all, there is nothing to buy on Shopify.com. And yet, there were 218 million people that bought products from Shopify without even knowing the company existed.
The difference is that Shopify is a platform: instead of interfacing with customers directly, 820,000 3rd-party merchants sit on top of Shopify and are responsible for acquiring all of those customers on their own.
This means they have to stand out not in a search result on Amazon.com, or simply offer the lowest price, but rather earn customers’ attention through differentiated product, social media advertising, etc. Many, to be sure, will fail at this: Shopify does not break out merchant churn specifically, but it is almost certainly extremely high.
That, though, is the point.
Unlike Walmart, currently weighing whether to spend additional billions after the billions it has already spent trying to attack Amazon head-on, with a binary outcome of success or failure, Shopify is massively diversified. That is the beauty of being a platform: you succeed (or fail) in the aggregate.
To that end, I would argue that for Shopify a high churn rate is just as much a positive signal as it is a negative one: the easier it is to start an e-commerce business on the platform, the more failures there will be. And, at the same time, the greater likelihood there will be of capturing and supporting successes.
This is how Shopify can both in the long run be the biggest competitor to Amazon even as it is a company that Amazon can’t compete with: Amazon is pursuing customers and bringing suppliers and merchants onto its platform on its own terms; Shopify is giving merchants an opportunity to differentiate themselves while bearing no risk if they fail.
The Shopify Fulfillment NetworkThis is the context for one of the most interesting announcements from Shopify’s recent partner conference, Shopify Unite. The name should ring familiar: the Shopify Fulfillment Network.
Customers want their online purchases fast, with free shipping. It’s now expected, thanks to the recent standard set by the largest companies in the world. Working with third-party logistics companies can be tedious. And finding a partner that won’t obscure your customer data or hide your brand with packaging is a challenge.
This is why we’re building Shopify Fulfillment Network—a geographically dispersed network of fulfillment centers with smart inventory-allocation technology. We use machine learning to predict the best places to store and ship your products, so they can get to your customers as fast as possible.
We’ve negotiated low rates with a growing network of warehouse and logistic providers, and then passed on those savings to you. We support multiple channels, custom packaging and branding, and returns and exchanges. And it’s all managed in Shopify.
The first paragraph explains why the Shopify Fulfillment Network was a necessary step for Shopify: Amazon may commoditize suppliers, hiding their brand from website to box, but if its offering is truly superior, suppliers don’t have much choice. That was increasingly the case with regards to fulfillment, particularly for the small-scale sellers that are important to Shopify not necessarily for short-term revenue generation but for long-run upside. Amazon was simply easier for merchants and more reliable for customers.
Notice, though, that Shopify is not doing everything on their own: there is an entire world of third-party logistics companies (known as “3PLs”) that offer warehousing and shipping services. What Shopify is doing is what platforms do best: act as an interface between two modularized pieces of a value chain.
On one side are all of Shopify’s hundreds of thousands of merchants: interfacing with all of them on an individual basis is not scalable for those 3PL companies; now, though, they only need to interface with Shopify.
The same benefit applies in the opposite direction: merchants don’t have the means to negotiate with multiple 3PLs such that their inventory is optimally placed to offer fast and inexpensive delivery to customers; worse, the small-scale sellers I discussed above often can’t even get an audience with these logistics companies. Now, though, Shopify customers need only interface with Shopify.
Plaforms Versus AggregatorsMoreover, this is what Shopify has already accomplished when it comes to referral partners (who drive new merchants onto the platform), developers (who build apps for managing Shopify stores) and theme designers (who sell themes to customize the look-and-feel of stores). COO Harley Finkelstein said at Unite:
You’ve often heard me say that we at Shopify want to create more value for your partners than we capture for ourselves, and I find the best way to demonstrate this is by looking at what I call the “Partner Economy”. The “Partner Economy” is the amount of revenue that flows to all of you our partners…in 2018 Shopify made about a billion dollars [Editor: in revenue]. We estimate that you, our partners, made more than $1.2 billion.
In other words, Shopify clears the Bill Gates Line — it captures a minority of the value in the ecosystem it has created — and the Shopify Fulfillment Network should fit right in:
What is powerful about this model is that it leverages the best parts of modularity — diversity and competition at different parts of the value chain — and aligns the incentives of all of them. Every referral partner, developer, theme designer, and now 3PL provider is simultaneously incentivized to compete with each other narrowly and ensure that Shopify succeeds broadly, because that means the pie is bigger for everyone.
This is the only way to take on an integrated Aggregator like Amazon: trying to replicate what Amazon has built up over decades, as Walmart has attempted, is madness. Amazon has the advantage in every part of the stack, from more customers to more suppliers to lower fulfillment costs to faster delivery.
The only way out of that competition is differentiation; granted, Walmart has tried buying and launching new brands exclusive to its store, but differentiation when it comes to e-commerce goods doesn’t arise from top down planning. Rather, it bubbles up from widespread opportunity (and churn!), like that created by Shopify, supported by an entire aligned ecosystem.
Shopify Inc. shares are on track for a record high after an executive said the e-commerce company was experiencing traffic similar to peak holiday levels and predicted even more growth.
“As we help thousands of businesses to move online, our platform is now handling Black Friday level traffic every day!” Chief Technology Officer Jean-Michel Lemieux said Thursday on Twitter, referring to the day after Thanksgiving that is one of the busiest shopping days of the year. “It won’t be long before traffic has doubled or more.”
Shopify gained as much as 11% on Friday, after rising 5.9% on Thursday. During the course of its current seven-day winning streak the stock has gained 50%, adding $23 billion in market value.
E-commerce companies like Shopify have been among beneficiaries of the coronavirus pandemic as home-bound consumers shift more of their purchases online and avoid going to physical stores. Amazon.com Inc., the world’s biggest online retailer, saw its shares rise to a record on Thursday and is on track for its biggest monthly gain in more than two years.
While the traffic surge doesn’t necessarily translate into an equivalent amount of revenue, it’s a positive sign for the business, according to Colin Sebastian, a Robert W. Baird & Co. analyst.
“This is another positive indicator for the strength of Shopify’s platform, and a more positive signal for Shopify’s ongoing business trends,” he wrote in a research note.