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The future that Shopify is building

Team PipeCandy
Team PipeCandy
Jan 17, 2022
Min Read


Shopify is the most popular technology platform used by ecommerce merchants in the US, and it powers about 15% of all ecommerce sites which together generate about USD 153 billion in GMV. In the US, 23% of all ecommerce sites and 57% of the DTC businesses use Shopify.

About 64% of DTC brands with less than USD 5M GMV use Shopify, and Shopify’s share drops when we look at brands that have higher GMVs. This supports the theory that Shopify plays a big role in propping up the small-scale DTC brands with its ecosystem of tools and plugins creating a low-code or no-code app-based infrastructure. (Our measure of GMV captures only the sales that is happening through a brand's own websites and not through other channels.)

However, the growth rate of merchant sign-ups on Shopify has been on the decline over the last five years except for in 2020 when a lot of merchants were forced to go online due to the Covid-19 pandemic.

The drop in sign-ups has been caused by supply chain woes, truck unavailability, and increased acquisition costs partly caused by Apple’s privacy policy. Several independent ecommerce and DTC businesses have instead moved to Amazon as it comes with more predictable demand and advertising costs.

Amazon is the largest marketplace in the world. With more than half the consumers beginning their product search on Amazon, reaching customers becomes a less cumbersome task for brands on Amazon. Additionally, with Amazon, brands can provide faster and cheaper shipping. With higher sales - both due to product discovery and faster and cheaper shipping - providing discounts seems to be more affordable on Amazon.

In our case, however, it is important to note that, as the businesses are probably building their brand, selling, and reaching customers through marketplaces like Amazon, they are also bringing a lot of their customers back to their own websites. Given the right kind of support, these brands could quickly start selling to customers more directly and set out to take advantage of customer data, in a way only DTC brands can.

Shopify brands don’t spend much on Google AdWords

Advertising helps bring in the customer, inculcate brand trust and stimulate the customer to make the purchase. Paid advertising to digital brands has become what rent is to physical stores. Facebook Ads and Google Ads have been the go-to advertising avenues for digital brands. Google Ads has gained more importance with the new privacy policy of Apple.

Analyzing the monthly Google Ad spend of DTC brands, we find that brands powered by Shopify spend much less on Google Ads than brands powered by other ecommerce technologies. In the case of brands with GMV less than USD 5M, the difference in Google Ads spend between Shopify-powered and other brands amounts to 251% of the Google Ads spend of Shopify-powered brands.

The future that Shopify is building

Shopify is moving to a comprehensive ecosystem for ecommerce brands. It has integrated advertising on Google and Facebook, the two most prominent digital media advertising avenues. Brands can build, manage, assess Google Smart Shopping campaigns and Facebook campaigns from right within the Shopify ecosystem. It comes in very handy for small-scale DTC brands as they do not need to focus separately on Google and Facebook. Shopify has also ventured into providing shipping and fulfillment services. It stocks the products at its fulfillment centers, and when a customer orders, Shopify packs the products and ships them to the customer. Shopify even suggests fulfillment centers, where, if the products are stored, could significantly bring down shipping time and shipping costs. The shifting focus of Shopify is evident in its revenue reports. The growth and magnitude of platform-based revenue seems miniscule when compared to the growth and magnitude of revenue from payment, shipment and fulfilment services.

With Shopify, brands can set up their own online store. It provides payment services, marketing services, and fulfillment services. They also have a Shop App through which customers can discover merchants.

Put together, Shopify is kind of building a marketplace just like Amazon. DTC brands turn to Amazon for these very features - product discovery and fulfillment. Shopify could soon be offering brands an alternative to Amazon - the only difference would be the ownership of customer data and customer relationships. And this is the difference that could potentially help small-scale DTC brands and independent ecommerce businesses sell more directly to customers. This could also help level the difference in average monthly visits and GMV that we are writing about.

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hm.com
HQ Location: Beaverton, Oregon, United States Of America, 97005
hm.com, operated by H & M Hennes & Mauritz AB, is an internationally-focused online store that generates eCommerce net sales primarily in Germany as well as in the United States and the United Kingdom. With regards to the product range, hm.com achieves the greatest part of its eCommerce net sales in the “Fashion” category.
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