Saturday, January 28, 2023

Shopify tries to appeal to billion-dollar companies in a major shift in its identity as an advocate for small businesses selling online

Shopify recently launched a technology designed for large businesses in the latest sign that it’s evolving its identity as an advocate for small and medium-sized business owners.

On January 3, it announced the launch of Commerce Components, a solution that allows sellers to integrate parts of Shopify’s software, such as checkout and product listings, into their own technology platform.

Historically, Shopify has targeted small and medium business owners. At the start of the pandemic, his business skyrocketed by serving these entrepreneurs, many of whom were venturing into e-commerce for the first time amid restrictions and lockdowns.

With a new customizable e-commerce platform, Shopify may appeal to larger companies that use a separate software package to run their businesses, but would like to try alternative e-commerce features. The move to meet the needs of large retailers is the evolution of Shopify’s identity.

According to Rick Watson, CEO and founder of RMW Commerce Consulting, Shopify may see more opportunities as larger companies look for software that provides good value for money amid an uncertain economic climate. In a way, Shopify is hedging its bets.

“The majority of startups go bankrupt, and if you only serve startups and small businesses, your business model may suffer to some extent,” says Watson.

According to Ken Wong, Oppenheimer’s director of e-commerce software research, the typical Shopify seller bills about $35,000 per year. And the typical seller using Shopify Plus, the more advanced version of Shopify used by brands like Allbirds and Brooklinen, generates about $7 million in revenue per year.

With the commerce components, Shopify can target companies with sales volumes closer to $500 million, according to Wong. For that service, Shopify has already partnered with Mattel, which projects sales of about $5.5 billion in 2021.

Shopify competes with traditional software companies

Shopify’s flagship product offers a more comprehensive experience. For a subscription fee, Shopify sellers get access to tools to set up an online store, ship products, and process payments. Instead, commerce components break the product down into components, which may improve Shopify’s ability to attract sellers from other software companies.

Many large retailers use their own software or rely on traditional software providers like Adobe or Salesforce that have their own eCommerce products. Salesforce bought Demandware in 2016 for $2.8 billion and Adobe bought Magento in 2018 for $1.68 billion to lure big box retailers into their retail products.

To persuade large retailers to use its product, Shopify needs to show them that it has an advantage over existing software platforms. Shopify already repeatedly touts how its payment technology — specifically its one-click payment, Shop Pay — positively affects merchant conversion rates.

“This is what I see as the Trojan horse for them: Bring a piece of the ecosystem into a company, show that you can provide good technology that generates a return on investment, and then over time, hopefully that the rest integrate until it becomes the de facto platform for these companies,” Wong says.

founding large companies

Shopify has spent years laying the groundwork for Leap to take it higher. In 2021 and 2022 it launched Hydrogen, an environment for building custom Shopify storefronts. Then, they began working with consultancies such as Deloitte, EY and KPMG to drive adoption.

Still, analysts say a win over the big retailers will likely take a lot of sales and marketing.

“Selling a large company through partners like consultants is very different than just having a button on a website,” Watson says.

The jump to the high end doesn’t mean that Shopify abandons its core mission of serving entrepreneurs. It has launched other products, such as its Collabs branding service, geared towards emerging brands.

At the same time, it launched other products, such as the Shopify Audience advertising product, which is only available to large merchants using Shopify Plus.

“At some point, are you going to have some capabilities that may be useful to everyone, but are you going to target them to only a portion of your customer base?” Wong wonders. “That concern is definitely out there. And I think it’s hard for them to have that kind of product segmentation without clearly differentiating the characteristics of their lower-end customer.”

Nation World News Desk
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