There is one perplexing question our customers ask.
Why is it that we hear numbers that are in millions when we talk about the user bases of Shopify or PrestaShop or WooCommerce and yet when we check out PipeCandy there are just under half a million? The answer always has been 'long tail'. We analyze the Shopify ecosystem very closely, tracking the monthly surges and declines in the userbase, migrations within and off the platform. So we know the effect of this long tail. I can bet my fortune (cookies) and say that nearly 85% of the merchants are ghost shells. Nothing happens with them. Some spring out of their graves on the Halloween evening and stay up for Christmas and go back to their graves. Their second-coming happens the year after and so on.
The above charts may not make sense to you. It's here to serve the purpose of marketing ourselves not so subtly.
Oh, by the way, did you know that the Mormon Church has $100B AUM and its the money they are saving for the 'rainy' day a.k.a the second-coming? More precisely, its for the days before Jesus' second coming, when they expect the world to be chaotic.
Sorry, I digressed. But, WTF? Softbank's vision fund is smaller than church money?
Above: Roger Clarke, who manages the said $100 billion. After this photo was taken he does this...
Sorry, I digressed again.
The phrase 'Long-tail eCommerce' casts what's happening as a 'haves vs. have-nots' argument. It clearly misses the point.
When we started focusing on eCommerce about 4 years ago, in a particularly gut-wrenching moment, a successful investor whose company bought a company that surreptitiously scanned your email receipts (Shit, shit, shit...I am clearly in a destructive, sleep-deprived mode. This truth-spilling cannot do any good for us!) and eventually got acquired for several tens of millions of dollars told us this - What we were building didn't matter. The action in retail and eCommerce happens in the 'Top 1000'. 'Internet Retailer' tracks them.
I pay attention to the naysayers if they are smart. The entrepreneur/investor was a very smart person. I was worried. But if platforms amass millions of adopters and they all sell 10 million nickels and dimes worth of counterfeit and dropshipped stuff, it must mean something right? So we plowed through. Besides, I didn't like that IRCE (the conference that uses the name of Internet Retailer) does a raffle every year and gives away a BMW convertible and I never got one. So I didn't like that they could publish a list of 1000 companies and stay relevant.
If anything, in the last two years we have realized that the 'long tail' framing is wrong. The merchants are long tail. But what they do to the incumbent retailers and CPGs is 'tectonic-plate-shifting' level important. There is money to be made (for us) in telling big brands, retailers, and CPGs about the 'Davids' and why their customers love them.
There are three segments within the long tail:
The makers are brands. Some are boutique, artisanal product houses (a.k.a. no money or appetite for marketing). In my country, they climb up to a chilly mountain, set up a goat farm and sell cheese to hundreds of eager tourists. I love their art though. But they don't make millions for themselves or for Shopify. Then there are brand strategists (MBAs who can stub out great subway copies and also understand cap-tables, secondaries, ratchets, and down-rounds). They usually launch D2C brands. They pay for Shopify-plus. They may get loans from Shopify Capital (FTC blocked Harry's sale and that means no VC money for the next Harry's for a long time). Some of them may set up at the airy, anchor-less Simon-owned mall and would need Shopify POS. Shopify loves this tribe.
The traders are eCommerce companies that sell multiple brands. They know PPC. They know to buy. They are just like D2C brands but with no pretense. They buy from brands that make decent (or average) products and sell at a healthy margin. They don't raise capital. They play the platform arbitrage game really well to keep the CAC at bay. A special kind of these traders drop-ship. In other words, they don't care about brands. They buy knock-offs on Alibaba. You'd see less of them springing up this year because their Chinese factories are under siege.
Hmm. Why is nobody talking about the permafrost that is going to engulf the eCommerce world because of Coronavirus? This is a bigger deal than the trade war. In fact, this IS the trade war waged by a virus and (even) the said virus does not like talking to Trump at the negotiation table. Some of you won't mind arranging a meeting but I don't think it works that way (unless you have different motives)!
The fakers are Instagram and TikTok celebrities. We have ranted enough about them a previous article.
Incumbents like Shopify need more traditional eCommerce companies and fast-scaling D2C brands. They need more retailers setting up eCommerce presence than just the pure-play eCommerce (which is long-tail). It is also why Square and MailChimp spar often with Shopify. They are all competing for retail.
History has taught us often that you don't win against a monopoly by beating them. That job is often done by culture and zeitgeist. Amazon won't die. They will become less relevant for brand seekers. Shopify won't stumble. They will become less relevant for artists, creators, and small makers.
No-code platforms like Gumroad that allows artists to sell their bits or Elliot that allows makers to sell their atoms are popular because the ability to create and make is getting democratized. Granted, Elliot at this point is just a lovable marketing rascal taking cheapshots at Shopify, but they have the space to do that today because 'culture' is drifting to a new place. Gumroad has 40,000 creators making more than 100s of millions of dollars for themselves. Sahil, the founder who has the gift of the gab sounds more like an artist himself than an MBA. They are bootstrapped!
The longtail of eCommerce is unviable to serve only if you see the merchants as businesses. Frame it differently. Think of the no-code platforms as distributed eCommerce companies with no-UI (or many-UI). Their SKUs are artwork and artisanal products sold by boutique makers. SKUs may come and go but the platform should be made so attractive for these makers that their SKUs come calling. The no-code platforms are like eCommerce companies but the buying function is done not by a category buyer but by the simplicity of the platform and its services. SKUs come to them. Like Amazon, the job of the merchandiser here is not to curate or gatekeep but allow any and all to come and set shop.
An artist needs 100 great patrons. I saw this in an article from a16z. How true! As long as there are artists who can cultivate a loyal (100) fan following, the platforms that monetize their work can build to scale without having to turn the artists into merchants.
And that is how to view the long tail of eCommerce. There is a merchant-side and then there is a maker-side. Shopify and the likes will own the merchant side. Gumroads and the likes will own the maker side.
I will be in Shoptalk in March and I plan to be in LA/SF/NY around that time. If you are a brand or know a brand that needs to track consumer perceptions or someone who makes money by discovering brands for a retailer, financial services co. or if you know any in the ad tech world, connect me. I will make time to meet them and keep you in my prayers for your well-being.
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