Shop: A One Sided Marketplace

Post by Tom Baker
30 Apr 2020
Shop Opinion Piece

Without a Consumer Proposition Shop is Destined to Fail the Vendors it has been Built to Support

The aggregation of all Shopify stores is framed as an attempt to help brands reduce development costs, reduce acquisition costs and improve lifetime value 

Techcrunch quotes Carlos Rivera, General Manager of Shop

“The challenge, he suggested, is that most of us only download and shop from a handful of native apps, so it can be hard for an independent brand to launch an app of their own.”

Later in the article Rivera states

“What are the things we can today to best support merchants?”

The emphasis is on trying to help Shopify vendors.

The output is a potentially easier way to aggregate supply. The problem is creating supply is far easier than creating demand. Demand generation doesn’t appear to be baked-in to the platform.

I see a fundamental tension between Shopify’s intentions and what they’ve created.

Consumer-Facing Yet Conceived Primarily to Support Vendors

They’ve created a consumer-facing product but built from the perspective of what might be useful for their merchants.

That doesn’t bode well. 

I would humbly suggest that a consumer-facing product should be built from the perspective of ‘what are the best things we can do to support consumers’.

We can see these inherent weaknesses in the current execution.

  • The app doesn’t increase demand – there is no compelling customer proposition right now. Maybe this is on the roadmap but it’s striking that the sole customer benefit is to recommend products from brands that a consumer has already engaged with. Hardly ground-breaking stuff.
  • This brings us onto the next point – it doesn’t improve discoverability. The concept of lower CAC is based on a ready made audience that can then easily discover new products. Either through search or some promotional feature that Shopify creates such as product drops. 

Is it Really a Marketplace?

Right now, Shop is more of a product search engine than a marketplace.

Shopify themselves call it a shopping assistant.

Shop

It recommends products and brands based on previous behaviour. It makes it easier to pay for goods that are purchased through Shopify sites. Thirdly, it provides delivery tracking.

What makes it different to Amazon is that the checkout process takes place on the brand website.

In this sense I don’t think it’s fair to describe Shop as a marketplace. It’s a unique combination of super-affiliate and technology provider. The benefit to Shopify of course is that one feeds off the other – the more businesses that choose Shopify the more important it becomes as a super-affiliate.  

That’s the theory in any way. For me, the theory misses one crucial element – a compelling reason for consumers to use it.

Why Do Marketplaces Work and What Does that Mean for Shop?

Generally speaking, there are two types of product marketplaces – open and closed.

Open – any supplier can sell their wares on the platform. Amazon is the perfect example.

Closed – a collection of products that are curated by the platform. Zalando fits this description.

Open works because it creates choice which then drives a virtuous cycle of growth that benefits the platform, vendors and customers alike. Amazon-watchers will know this as the flywheel.

amazon flywheel

Closed works because the consumer knows the platform is setting a standard and that standard establishes a brand positioning.  Perhaps a more fitting example to ram home this point is Net-a-Porter. Their customer knows they will only see a marketplace of high-end fashion brands.

Shop is neither open nor closed. Not a free-for-all nor curated.

I can only best describe it as a curated grouping with no standards.

Curated in the sense that products have to be on a Shopify website. The problem being, this is an entirely arbitrary way to establish the product range.

And because it’s arbitrary there’s no brand sentiment. Only the vague knowledge that there are lots of Shopify stores so as a consumer I might find products that suit me.

You might argue that the same could be said for Amazon. Amazon doesn’t have a well-defined product proposition.

But why bother with product positioning when you can offer unlimited choice? The consumer has been trained to know that it’s more than likely that Amazon will have a product that fits the bill.

A Solution to a Consumer Problem that Doesn’t Exist

Without a distinct stance on curation or unlimited choice why go to Shop at all?

  • If I know what product I want I can go direct to the brand website
  • If I know what type of product I want but I’m unsure whether Amazon is the right place to find that type of product I can use Google or a product-specific marketplace
  • If I know what type of product I want and I think Amazon is a suitable place to find that type of product or I know a brand that sells on Amazon then I can use Amazon

Why go to a platform that both limits choice and does so in a way that’s not meaningful to me as a consumer?

All of these concerns tie back to the quotes in my introduction. Shop has been devised as a way to aid vendors, not as a way of helping customers.

How Might Shop Evolve to Solve These Structural Issues?

I don’t want to sound too disheartened by Shop. Clearly a quick checkout process and delivery tracking are positive features.

But they’re features that already existed in a previous incarnation of Shop which was called Arrive.

For Shop to live up to expectations it must develop a clear consumer proposition or become a system which enables individual stores to access more customers.

In the same way that it’s ingrained in us to think ‘I’ll just Google it’ or ‘I’ll just check whether it’s sold on Amazon’ Shop needs to establish a reason why people should use it and only it.

No one is saying ‘I must use Shop because I love to buy from brands that run on the Shopify platform’.

Who knows what Shop might become but clearly there’s a need to become more customer-centric.

In Shop’s favour are thousands of willing and entrepreneurial businesses. Creating incentives for vendors to invest in marketing activity on the Shop platform is one way to become truly successful.

As marktetplacepulse mention product drops and exclusive items would appear to be obvious paths to follow.

Will Shop Create a Conflict of Interest? 

Shopify has become a global success because it’s agnostic. It doesn’t pick favourites. 

But what happens if Shop introduces marketing features?  Inevitably some of them will be pay-to-play. Those features get dominated by the bigger players, that creates incumbency and potentially a very unlevel playing field.

It’s not beyond our imagination to see the long tail of small businesses that have made Shopify the success it is today becoming very disgruntled by such a system.

The problem is that to make a platform enticing to consumers these types of dynamics need to be embedded into the system. 

Amazon is a prime example. 

It’s created an ecosystem that rewards low prices and good customer service.  In recent years Amazon has overlaid that system with a highly effective advertising platform.  

The combination of a huge audience and a system that rewards big ad budgets attracts and reinforces the strengths of big brands on its platform to the detriment of small businesses.  Gone are the days when it was easy for a private label to become a huge success on Amazon.

Amazon creates winners and losers on it’s platform.

How Shopify approaches this conundrum will be vital to the success of Shop.  It will take some seriously smart thinking to remain agnostic whilst encouraging brands to invest in Shop.

As we’ve shown, creating a marketing layer on top of individual Shopify websites may prove troublesome.

Integrator and Enabler

What else could Shopify do to create customer demand whilst remaining vendor-agnostic?

I think the answer lies in the less glamorous side of ecommerce. Fulfilment, payments, platform integrations. All of the nuts and bolts of selling online.

The trick will be how these technologies will benefit consumers.

If Shop can reduce friction in each of these areas then I think it has a chance of succeeding. Making the purchase process quick and easy is, no doubt, a significant customer benefit.

The area that really intrigues me is the possibility of Shop creating much deeper integrations with the likes of Google Shopping.

Google has also made a big announcement in the ecommerce space. Their Shopping tab is no longer ‘pay to play’. It is free to list.

Could Google and Shopify, part of the anti-Amazon alliance as Ben Thompson so aptly describes it, come together to improve the customer journey from discovery to the product landing on your doorstep?

Shopify should be using it’s clout to establish global partnerships that individual Shopify brands can’t do on their own.

By leveraging its dominant position in the market and it’s membership of the ‘anti-Amazon alliance’ Shopify can create value for all sellers. 

Unblocking the pipes of operating a shop online has been the key to Shopify’s success to-date. Shop will hope that it can do the same job but in the realm of acquiring and retaining customers.

A Flywheel but an Underpowered One

The problem with Shop, as it is right now, is that there’s no mechanic to increase the number of customers. Shop doesn’t generate traffic.

Yes, there are 16 million ready-made users that have migrated from the previous incarnation of the Shop app but this number is a function of the number of people that have purchased from Shopify stores.

It is the individual brands that are generating customers for Shop. Not the other way around.

shop business model

That’s a fundamental problem if Shop wants to pitch itself as a means to reduce customer acquisition costs.

My own perspective is that Shop shouldn’t aim to be the acquirer of customers to then pass on to its vendors.

Lesssons From the Devil

Instead Shop can create value by becoming a system by which vendors can get better access platforms that can provide traffic.  

Coincidentally, it’s by learning from Amazon that Shopify can begin to understand how to achieve this.

Amazon holds a tremendous amount of 1st party customer data. It has created an ad network, Amazon DSP, which sellers can access to target the entire Amazon customer database.  It’s a system where everyone wins. 

Sellers can finely tune their targeting to reach people that buy from Amazon.  Customers are targeted with highly personalized ads. Amazon benefits from more sales on their platforms.

I’m not saying that Shopify should create a DSP. That would open up a can of privacy concern worms.

The key is that Amazon has leveraged the platform it’s created to add further value to both sides of it’s marketplace – consumers and brands.

It’s this flywheel effect that’s missing from the current Shop model.

Ultimately Shopify needs to work out how to leverage it’s position at the integrator to provide value to its ecosystem and consequently increase the size of the ecosystem.

Those looking to Shopify to take the good fight to Amazon are destined to be underwhelmed.

Tom Baker

The guy writing this stuff. Previously worked in-house doing all sorts of marketing for start-ups and large brands. Now helping business to sell on Amazon and growth their D2C revenue

Leave a Reply

Your email address will not be published. Required fields are marked *