Reflections on Shopify Unite
I listened in to the Shopify Unite 2021 livestream last month, and I’m certainly glad I did.
If I were to sum up my takeaways from the event, I’d say:
Shopify is focusing on a broader definition of a business customer.
Shopify has re-written the rules for the third-party app developer market, a choice that will force all e-Commerce ecosystems to follow suit.
Shopify has decided to outsource R&D to its ecosystem of app developers, and when a trend or feature proves its worth, Shopify will focus its resources on competing with it.
Shopify would rather be an Amazon than an Adobe.
Strong words, I agree, and worthy of an explanation.
Banking on a Broader Business Customer
Shopify has always focused on entrepreneurs and built its business around helping smaller companies grow the customer base and revenue streams. They’re still leading with the story of entrepreneurship, but that lens has widened. Focus is no longer just merchants and businesses selling products to customers. It has expanded to incorporate the small B2B software business that is actively wondering where the best place is to invest their time and money. Shopify has raised its hand, screaming, “pick me, pick me!”
And they’ve chosen not to be particularly subtle about that change in focus, as evidenced by the changes in their commission schedule.
Shopify’s Changes to Commissions on App Developer Revenue
The most eye popping – and talked about – announcement at Shopify Unite 2021 was the company’s plans to eliminate commissions on app developer revenue for developers who earn less than $1 million a year on the platform (that’s down from 20% commission). Sweetening the pie further, the benchmark will be reset every year.
I found this a rather remarkable decision. Shopify's developer ecosystem has been strong for a long time now, but by waiving the commissions, the company is telling smaller developers everywhere that their go-to-market strategy should begin with them. To my mind, this creates an unfair advantage; small business entrepreneurs will naturally want to launch where they’ll pay the least and roll out to the others at a later point, even if another e-Commerce ecosystem may be better suited for their apps.
And Shopify has a scale which allows them to get away with it, which is a shame. It’s only a matter of time before Adobe, BigCommerce, Salesforce and everyone else will feel compelled to waive their commissions. If we’ve learned one thing from Amazon, it’s that once someone offers a perk, everyone else must do the same. That’s just the nature of capitalism. The market dynamic is a race to the bottom.
Shopify Will Outsource its R&D, but Will Ultimately Compete with its Developers
One wonders: to what end does this advantage Shopify? I have this philosophy – dare I call it a theorem? – which is that all platform ecosystems are erosive by nature. They gain prominence by building a partner ecosystem in which third-party developers add value in terms of features and functionality, but once the platform becomes ubiquitous, it begins to compete with its own community of developers. In essence, the platforms are choosing not to dance with the one who brought them to the party. This is a shame, but not a surprise, to watch, because that's how every other software platform ecosystem has worked.
So, what do I think will happen? If my theorem holds true, rather than invest in R&D on its own, Shopify will provide enticements, like zero commissions, to fund third parties to do the development on their behalf. In other words, Shopify is moving money around its balance sheet.
And it’s not like Shopify has been particularly R&D focused these past five years. In June 2019, the company announced Sections Everywhere, a feature that would grant store owners more control over content management. Many website owners have waited on bated breath for it to arrive. It finally did this year.
Will Shopify follow the path forged by Facebook, Twitter and many others of getting third parties to develop platform innovation and once an idea proves it has legs, start competing with the developer or acquire them outright? This is, after all, how capitalism works.
This reminds me of the investor relations hosted by Shopify’s CEO, Tobi Lütke in January 2020. An investor asked about headless commerce. His response was more or less that Shopify has been headless since day one, and that the term was one of the worst pieces of jargon to come out of the industry, ever. It was a sentiment he reiterated to the general public later on Twitter.
Fast forward 18 months, Shopify announces significant infrastructure investments in its API and developer tools in order “to ensure that a merchant never has to replatform to build headless.” I guess Shopify is joining the VC capitalists who have invested a billion dollars in Nacelle, Shogun, and a half a dozen other companies who saw headless commerce as a critical development, and developed the functionality on Shopify.
Shopify’s investment in its APIs both validates that venture capital has been right all along. It also creates a self-fulfilling prophecy in that customers are asking for headless because it exists (and further validates my contention that Shopify will end up competing with its own partners).
Shopify Would Rather Be an Amazon than an Adobe
The other fascinating announcement at Unite 2021 was the launch of Hydrogen, a React framework for building custom stores, including headless ones; and Oxygen, a hosting environment for store owners to host their Hydrogen sites.
These announcements combine to offer the same kind of rapid development application frameworks provided by Google and Amazon, where developers have access to a programming language, developer tools, and frameworks for database and data storage in a single environment.
Google, Amazon, and now Shopify, offer a cloud product where developers can write software on their local machines and, because it uses no servers, deploy it to their clouds instantaneously. It’s also as cost effective as it is fast, as store owners no longer need to pay for separate hosting services from the AWS’s of the world. Shopify is now one-stop shopping.
Why am I so fascinated by these announcements? Taken in total, they kind of change the way one thinks of Shopify. The new Shopify is much more of a platform company these days; more of an ecosystem than it is a shopping cart. These developments make Shopify mind-blowingly differentiated from any of the other players in the space at this point.
When you put all of these things together, it seems as if Shopify wants to look more like an Amazon than it does an Adobe, and that’s a radical change.