This week I finally downloaded the Shop app because I wanted to track a package that’s taking forever to arrive. Overseas shipping, am I right? Shopify, which is the hidden giant of e-commerce (to non tech nerds), powers the Shop app. As you may remember from past things I’ve written, Shopify is the platform that powers all of the pipes and value that accrues to vendors who use it. Shopify enables its million or so 3rd party merchants to sell to hundreds of millions of buyers on top of its platform, with most people not even knowing they’re using it.
Anyway, like I mentioned, Shopify powers the Shop app, which I downloaded to track my order. The app allows you to keep track of all of your orders and also shop, browse, and discover. You can actually use it to shop on its own, without having to go to these 3rd party sites. As the Bill Gates line goes, a “platform is when the economic value of everybody that uses it exceeds the value of the company that creates it”.
Shopify has grown into that definition by being the middleman, as shown above, for every part of e-commerce. Let’s talk about Google on the left side of the diagram. Google, as well as Facebook, Instagram, and other aggregators, are the main demand drivers for Shopify. Most of the e-commerce brands that you see on those sites and apps are built on Shopify’s platform. It’s just easier that way for smaller companies, and significantly more scalable. But it also means that Shopify, and therefore its users, are dependent on ad search across aggregators to discover brands to shop from. And when ads, like they currently are, are as expensive as they are, it’s hard to buy space. Less purchased ad space means fewer eyeballs on a brand’s products, which means less revenue for the brand.
This is where the Shop app comes into play. The Shop app actually removes the part of the dependency on aggregators for ad space. While brands will almost certainly still want to advertise in different locations, the more people that download Shop, the more likely people are to discover brands with just the app. Shop has 16M downloads in 2020, which leads me to believe it’s potentially reached up to 50M by now (could be more or less).
(Shop app)
Shop enables people to shop directly within the app and browse by theme, brands, and more. I’m new to the app, but I assume eventually my “Shops we think you’ll love” will be geared to my past shopping habits and not show things like Spanx. In theory, this could rival and pretty easily overtake Amazon’s shopping experience. The featuring of brands and themes is a lot more personal than Amazon’s generally overwhelming “stuff you might like” views. Amazon’s experience feels more like thrown a bunch of shit at the wall and hoping some sticks, whereas Shopify can throw very, very specific and curated shit.
With all that Shopify knows about shoppers as individuals, it could create a very targeted and personal shopping experience directly within its platform. Shopify has even gone a step further in talking about *aggregating conversion data*, via Shopify Audiences, so that its successful and larger brands could create more targeted ads and Shopify would get user data. That data would be useable downstream by brands, ultimately refining the platform flywheel that is Shopify. While Audiences is still in its early form and has to get around several hurdles with Apple and app tracking laws, there is potential for improving its algorithm even more. Or alternatively, buying ad space.
Shopify also announced Shop Cash recently, as pointed out by Justine Moore of the excellent Accelerated newsletter. Shop Cash rewards buyers with “1% in Shop Cash on all eligible Shop Pay purchases and is redeemable on the Shop app”. It also offers a mechanism for brands who accept Shop Cash to “boost” themselves for promotion and discovery while giving consumers a larger discount on their Shop Cash. While 1% may seem small, most people likely underestimate the amount of shopping they do on Shopify anyway, so this number can add up moderately quickly.
But more significantly, it incentives both buyers and sellers to utilize the Shop app ecosystem even more, containing value internally. At the same time, Shopify benefits from doubling down on its winners. The more brands using Shop and its payment processing, features, and infrastructure the more Shopify can make revenue. The more individuals transacting on Shop and utilizing its features the better for Shopify and the 3rd party brands. It’s a value-contained flywheel.
Much of the above is still in its early form and will need to play out perfectly for Shopify to further compete with the likes of Amazon. But its path to contained value platform and e-commerce shopping disrupter is less murky than ever. Execution is one part of the puzzle, and it will need to be flawless. The other is the growth of the Shop app, can it get the downloads it needs to be as ubiquitous as the Amazon app? Or even half that may suffice. Let the e-commerce games begin.