Source Code: Your daily look at what matters in tech.

source-codesource codeauthorShakeel HashimNoneWant your finger on the pulse of everything that's happening in tech? Sign up to get David Pierce's daily newsletter.64fd3cbe9f
×

Get access to Protocol

Your information will be used in accordance with our Privacy Policy

I’m already a subscriber
Power

Ecommerce is fragmenting. Shopify may be the glue that holds it together.

You don't know you're buying from Shopify — and its chief product officer says that's part of its plan for dominating online retail.

An illustration of a cracked vase and glue that says Shopify on it

Many online shoppers have probably bought from one of Shopify's 1 million+ merchants before, but most of them likely had no idea they did so.

Illustration: Simon Child/Enrico Magistro/Protocol

Shopify often draws comparisons to Amazon. Both offer sellers a way to sell online, after all. But while Amazon is busy building a giant walled-garden where individual merchants are almost invisible behind its brand, Shopify has quite the opposite ambition.

Many online shoppers have probably bought from one of Shopify's 1 million+ merchants before, but most of them likely had no idea they did so, with its technology quietly lurking behind the scenes. In that sense, Shopify's ambitions are closer to those of AWS than Amazon retail: to build the back-end software and logistics infrastructure that powers an entire ecosystem, making life as easy as possible for its clients to run their own businesses while Shopify itself disappears into the background.

"Over the past decade, we've tried to systematically figure out … the things that are very tricky about starting an online business. And we've attempted to solve those," Shopify's Chief Product Officer Craig Miller recently told Protocol.

That started off in 2006 with a tool to let retailers set up a website and accept online payments, but has grown into something much bigger. There were many things that Shopify "didn't think were initially within the scope" of what it should build, Miller said. "But over time, we're actually realizing: Hey, if that's now the challenge that our merchants are running into, those are complexities that we now need to bring into our world."

Stretching the scope

The first time Shopify looked beyond its original game plan came in 2013, with a point-of-sale solution that linked online and offline commerce. A couple years later, it made its first foray into logistics. The company negotiated deals with shipping services to let its merchants print cheaper shipping labels directly from the Shopify platform. "Then we realized," Miller said, "as merchants were scaling, they didn't want to ship from their house: They needed to figure out warehouses."

So last year Shopify set up the Shopify Fulfillment Network, which now lets merchants send inventory to one of seven third-party warehouses that are overseen by the company. Once there, orders are packaged and sent on behalf of the merchant (sometimes using Shopify's robots, gained through its 6 River Systems acquisition last year). Shopify's own algorithms provide Amazon-esque logistics optimization, predicting where future orders might come from and advising sellers to send their inventory to certain warehouses to reduce shipping times.

It's built other services for its merchants, too. Using its vast data store, it can predict merchants' repayment prospects, allowing it to offer them cash advances and even their own bank accounts.

"We started looking at the entire banking industry as a whole. A lot of merchants are actually still using their own personal bank account for their business," Miller said, citing difficulties with the traditional banking system in setting up accounts for online merchants. By offering its own bank account, Shopify can make cash available to merchants on the same day they make a sale — and it plans to incentivize them to keep that money inside the ecosystem, by spending it on shipping and marketing services.

A line in the sand?

Shopify undoubtedly plans to keep adding services to help merchants sell online, with a new focus on groceries potentially playing a part in that. But one thing it claims not to be interested in is building its own consumer-facing storefront.

"People always say, 'OK, when is Shopify launching a marketplace?'" Miller said. "That's not the approach we're going to take."

Yet the company recently raised eyebrows when in April it launched Shop, an app that aggregates merchants. At the time of the announcement, analyst Ben Thompson said, "Inserting the Shop app between merchants and end users runs counter to a platform strategy — that is the approach of an aggregator, of Amazon."

Miller argued that people misunderstood Shopify's aims with the app. "It's about stores, not about products," he said. There's no grid of products from stores you've never bought from, he pointed out, and there's no way to search for products across Shopify's entire merchant base. Instead, it just shows you items you might like from stores that already count you as a customer.

The idea, Miller explained, is to help merchants get repeat transactions. Email has traditionally been the best way to do that, but Shopify has found that mobile is an increasingly much more effective — and basically free — alternative. So will Shopify let merchants send push notifications through the Shop app? "Not yet," Miller said, "but I think you see where we're going with it."

Shopify hopes that Shop will get merchants a spot on customers' phones without forcing them to download a million different apps — and become just one more of the many channels through which merchants can get sales.

One seller, many stores

With Facebook, Walmart and Google all heating up competition against Amazon, ecommerce is fragmenting. Increasingly, brands have to "let consumers buy where they want to buy," said former Amazon executive James Thomson, who is now a partner at ecommerce consultancy Buy Box Experts. "If you force customers to buy through only one channel … you're just going to frustrate customers," he said.

Being omnichannel can boost sales, too. Coco Dotson, co-founder of eyewear brand Coco and Breezy, a Shopify merchant, told Protocol that "everyone's behaviors are different" — and that's encouraged Dotson to use different platforms to target different audiences.

Merchants also don't want to give the platforms too much power. Ruslan Fazlyev, CEO of Shopify competitor Ecwid, explained that sometimes platforms like Amazon "make a choice for you as a business." It might prioritize toilet paper shipments over leather gloves, for instance. Fazlyev said that decision might be in Amazon's interests, and even the consumer's interest — but for the glove merchant, "it's a disaster."

The obvious solution might be for merchants to have their own websites, but that's unlikely to work, either: Some people will never find it, and others won't trust it. "The reality is," said Fazlyev, "you have to be omnichannel … You have to be where your customers are."

The problem for most merchants is that managing inventory across multiple channels is "very challenging," Dotson said. Her sister and co-founder Breezy Dotson added that it involved a lot of manual work. That was until they switched to Shopify, they said, which has made the process easier.

The fragmentation suits Shopify. "Our approach for a long time," Shopify's Miller said, "has actually been encouraging and helping our merchants to sell in multiple channels." From a single Shopify dashboard, a merchant can sell on their own website — and also on Amazon, eBay and, thanks to new partnerships, Facebook and Walmart. As long as they're willing to pay up, that is: Shopify's subscriptions start at $29 per month to over $2,000 per month for large retailers, and the company said it saw "downgrades to lower-priced subscription plans in March," blaming that on COVID-19.

The everywhere store

Shopify undeniably has a big head start on the competition when it comes to providing this kind of back-end software for merchants: Adobe's Magento, which is arguably its closest competitor, only says it has "over 250,000" merchants — well behind Shopify's million-plus. Even Ecwid, which competes with a freemium model, is content with second place: Fazlyev told Protocol he wants "to be the Pepsi to the Coke of Shopify."

"It's taken us 15 years to build what we have," Miller said, saying that other tech giants haven't shown any interest in building a competitor — in part, the company suspects, because Google and Amazon and Facebook all want their own walled-garden marketplaces to succeed. From discussions Shopify has held with Facebook, he says, the social network has "no intention" of building a competitor.

He also points to Amazon's failed Webstore foray: "They weren't able to get it to the level [of] Shopify, and so they actually shut it down — they told all their merchants to switch over to Shopify." So instead, Amazon continues to try to build its everything store — a single place where consumers flock to buy products from sellers they've often never heard of that still arrives in an Amazon box.

Predictably, Shopify doesn't work like that with its merchants. "With Shopify Fulfillment Network," Miller said, "the box has their logo on it, not ours." Shopify wants to be everywhere — and it doesn't care if you don't know it.

Power

The video game industry is bracing for its Netflix and Spotify moment

Subscription gaming promises to upend gaming. The jury's out on whether that's a good thing.

It's not clear what might fall through the cracks if most of the biggest game studios transition away from selling individual games and instead embrace a mix of free-to-play and subscription bundling.

Image: Christopher T. Fong/Protocol

Subscription services are coming for the game industry, and the shift could shake up the largest and most lucrative entertainment sector in the world. These services started as small, closed offerings typically available on only a handful of hardware platforms. Now, they're expanding to mobile phones and smart TVs, and promising to radically change the economics of how games are funded, developed and distributed.

Of the biggest companies in gaming today, Amazon, Apple, Electronic Arts, Google, Microsoft, Nintendo, Nvidia, Sony and Ubisoft all operate some form of game subscription. Far and away the most ambitious of them is Microsoft's Xbox Game Pass, featuring more than 100 games for $9.99 a month and including even brand-new titles the day they release. As of January, Game Pass had more than 18 million subscribers, and Microsoft's aggressive investment in a subscription future has become a catalyst for an industrywide reckoning on the likelihood and viability of such a model becoming standard.

Keep Reading Show less
Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

Over the last year, financial institutions have experienced unprecedented demand from their customers for exposure to cryptocurrency, and we've seen an inflow of institutional dollars driving bitcoin and other cryptocurrencies to record prices. Some banks have already launched cryptocurrency programs, but many more are evaluating the market.

That's why we've created the Crypto Maturity Model: an iterative roadmap for cryptocurrency product rollout, enabling financial institutions to evaluate market opportunities while addressing compliance requirements.

Keep Reading Show less
Caitlin Barnett, Chainanalysis
Caitlin’s legal and compliance experience encompasses both cryptocurrency and traditional finance. As Director of Regulation and Compliance at Chainalysis, she helps leading financial institutions strategize and build compliance programs in order to adopt cryptocurrencies and offer new products to their customers. In addition, Caitlin helps facilitate dialogue with regulators and the industry on key policy issues within the cryptocurrency industry.
Protocol | Policy

Lina Khan wants to hear from you

The new FTC chair is trying to get herself, and the sometimes timid tech-regulating agency she oversees, up to speed while she still can.

Lina Khan is trying to push the FTC to corral tech companies

Photo: Graeme Jennings/AFP via Getty Images

"When you're in D.C., it's very easy to lose connection with the very real issues that people are facing," said Lina Khan, the FTC's new chair.

Khan made her debut as chair before the press on Wednesday, showing up to a media event carrying an old maroon book from the agency's library and calling herself a "huge nerd" on FTC history. She launched into explaining how much she enjoys the open commission meetings she's pioneered since taking over in June. That's especially true of the marathon public comment sessions that have wrapped up each of the two meetings so far.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Protocol | Fintech

Beyond Robinhood: Stock exchange rebates are under scrutiny too

Some critics have compared the way exchanges attract orders from customers to the payment for order flow system that has enriched retail brokers.

The New York Stock Exchange is now owned by the Intercontinental Exchange.

Photo: Aditya Vyas/Unsplash

As questions pile up about how powerful and little-known Wall Street entities rake in profits from stock trading, the exchanges that handle vast portions of everyday trading are being scrutinized for how they make money, too.

One mechanism in particular — exchange rebates, or payments from the exchanges for getting certain trades routed to them — has raised concerns with regulators and members of Congress.

Keep Reading Show less
Tomio Geron

Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.

Protocol | Workplace

The Activision Blizzard lawsuit has opened the floodgates

An employee walkout, a tumbling stock price and damning new reports of misconduct.

Activision Blizzard is being sued for widespread sexism, harassment and discrimination.

Photo: Bloomberg/Getty Images

Activision Blizzard is in crisis mode. The World of Warcraft publisher was the subject of a shocking lawsuit filed by California's Department of Fair Employment and Housing last week over claims of widespread sexism, harassment and discrimination against female employees. The resulting fallout has only intensified by the day, culminating in a 500-person walkout at the headquarters of Blizzard Entertainment in Irvine on Wednesday.

The company's stock price has tumbled nearly 10% this week, and CEO Bobby Kotick acknowledged in a message to employees Tuesday that Activision Blizzard's initial response was "tone deaf." Meanwhile, there has been a continuous stream of new reports unearthing horrendous misconduct as more and more former and current employees speak out about the working conditions and alleged rampant misogyny at one of the video game industry's largest and most powerful employers.

Keep Reading Show less
Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
Latest Stories