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.
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.
"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.