While Shopify is best-known for powering the online stores of more than 1 million businesses, the company is launching a consumer shopping app of its own today, simply called Shop.
The app is actually an update and rebrand of Arrive, an app for tracking packages from Shopify merchants and other retailers, which the company says has been used by 16 million consumers already.
Shop includes those same package tracking capabilities, but it also allows consumers to browse a feed of recommended products, learn more about each brand and make purchases using the one-click Shop Pay checkout process.
Shop is an app that helps you discover products you want. Buying arrive and turning it into Shop was a smart move to strengthen the buyer-side of Shopify’s market. The seller-side is already pretty strong and was Shopify’s entry to the market: allowing anybody to quickly set up an online shop and start selling products. The result is that shops have their own platform and just need to take care of bringing buyers to it. Shopify is the platform that famous startups like Allbirds or Away built on.
Shopify’s buyer side
Getting new sellers to use Shopify is a smooth process now that stands on several user acquisition loops:
- Shopify has a strong brand that brings sellers directly to the site (see direct traffic in the screenshot below)
- Content Marketing (Shopify’s blog brings in ~500K visits/month)
- App marketplace (apps.shopify.com pulls in ~500K visits/month)
- Google ads (Shopify is bidding on roughly 25K keywords on average per month; see screenshot below)
Shopify even provides basic marketing courses on its own platform called Compass. The company is well aware that its success is the result of seller performance.
Shopify vs. Amazon
In a way, Shopify is the counterbalance to Amazon. Whereas Shopify empowers sellers to create their own platform, Amazon has built one huge platform that sellers can participate in.
From The Motley Fool (emphasis mine):
Amazon's commerce business is split into three main segments: its online stores, its physical stores (including Whole Foods), and third-party seller services, which generate commissions and fulfillment fees from third-party merchants.
Those three businesses generated $67.5 billion, or 77% of Amazon's net sales, last quarter.
Third-party seller services are clearly a core growth engine for Amazon. If we exclude that business from the fourth quarters of 2018 and 2019, Amazon's total revenue would only have grown 19% annually year-over-year instead of 21%.
In other words, third-party sellers are tremendously important to Amazon’s revenue. The downside is that third-party sellers on Amazon have to compete with other sellers
According to Marketplace Pulse, more than 60% of Amazon’s GMV (the sum of all sales on Amazon) comes from third-party sellers.
Together with ad spend on Amazon’s marketplace, third-party sellers paid the big A ~48 billion USD in 2019 alone.
In Marketing terms, Amazon has over 1.5M stores…
… that pull in over 10M visits/month.
For example, the store of Youtube Rosanna Pansino.
Amazon wants to be (and is) the biggest e-commerce site to provide traffic to its third-party sellers and sell its own products, of course. The downside is that third-party sellers are bound to Amazon’s rules. They are, similar to any website that gets traffic from Google, dependent on Amazon. That can be good or bad, depending on how the platform changes and how much it helps you. A positive example is that because Amazon is such a big site, it brings buyers to sellers - maybe in some cases more efficiently than the sellers could on their own. One negative example is the recent drop of Amazon affiliate commissions, which caused a big outrage and probably led some affiliates to heavy revenue losses.
Shopify, on the other hand, is an open marketplace. Similar to how Wordpress gives anybody the tools to set up their own site (but open-sourced), Shopify does not own the seller-buyer relationship. It just gives you the tools but you have to take care of the customer acquisition part yourself.
Arrive and the problem of discoverability
Arrive started as tracking app for shipments with a successful launch on Producthunt in December 2017, just in time for the Christmas shopping season. The app came with everything a good millennial product needs: professionally funny intro video, smartphone-first mentality, solving a real problem, and easy usability. Part of Arrive’s appeal was not just the shipment tracking function but also that buyers could use the app to return items.
Shopify took that a step further when they bought Arrive by adding a discovery function and checkout process, as a result of the integration with the former Shopify Pay, into the app. That was smart. It provides an Amazon-like experience and sellers a chance to drive more customers without the dependency on Shopify’s rules.
In fact, Shop comes without ads and is free to buyers and sellers (TechCrunch):
Shop provides customized product recommendations to each shopper, but Rivera noted that these recommendations all come from brands that you’ve already shown an interested in, either by purchasing a product from their Shopify store or by following their profiles in the app.
He [Rivera, GM of Shop] contrasted this with product recommendations on other online stores, which he said offer “a feed of products from brands you don’t know, brands you don’t care about — most these platforms are driven by advertising.” Shop, Rivera said, will not include any ads, and it will be available for free to both shoppers and brands.
To close the loop: Shopify strengthens the buyer-side of the market. It seems that the seller-side is doing well enough.
A missed chance
I think what Shopify is doing is smart to build out its advantage over Amazon. Marketplace Pulse reports that Shopify’s GMV in 2019 was $61b, 1.5x than that of Amazon! But I have one big critique: Why not help buyers discover Shops on www.shopify.com?
Shopify could easily transfer the seller index from Shop (I know, it’s a lot of “shops” in this article) and make it publicly searchable. Even more so, it could be a traffic driver in the philosophy of inventory-driven sites, similar to how Amazon houses shops.
Inventory-driven sites have scalable and indexable page templates, either from UGC or product inventory, whereas content-driven sites generate organic traffic with content they create themselves. The difference is significant, yet underrated. Inventory-driven sites have publicly indexable inventory, which changes the rules for everything from product growth to the SEO strategy.
Shopify already does that with its app marketplace. Why not with a Shop marketplace? The demand for Shopify shops is there (see screenshot below) and would be an opportunity to drive more buyers to sellers without pushing them into a corner.