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Shopify announced a new feature on Tuesday that’s designed to help merchants more effectively find new customers using advertising platforms at a time when it's getting harder and more costly to do so.
Shopify Audiences provides key digital marketing data that has become less freely available following privacy changes made by Apple this year. It works like this:
- Brands choose a product that they want to promote to more potential customers.
- Shopify uses machine learning to build an audience with high purchase intent for the brand.
- The audience is “directly and securely exported” to an advertising network, Shopify wrote, where it can be used to target potential customers.
Attracting new customers is the lifeblood of a consumer brand, and direct-to-consumer businesses rose over a decade by leveraging powerful digital advertising tools from platforms like Facebook to scale.
But this well-trodden advertising route has been getting rockier in recent years. As the number of consumer goods companies went up, ad space on platforms like Facebook became more limited and expensive, driving up customer acquisition costs. At the same time, Apple’s privacy-centered changes that rolled out with iOS 14.5 in April 2021 decreased the number of users opting in to provide the data that powers mobile advertising. Shopify said Audiences aims to address these issues.
“We know that independent merchants may have to pay twice as much to find a new customer as they did a year ago. In fact, one merchant told us their customer acquisition cost climbed 80% over the last year," said Kaz Nejatian, VP of Product at Shopify, in a statement. “We've also seen merchants’ return on ad spend drop, reflecting the growing difficulty of using digital marketing to find new buyers. That’s why we’re launching Shopify Audiences to fix it—without compromising privacy standards.”
Shopify’s new feature aims to provide a key piece of the digital marketing equation: an audience that has a high purchase intent for a product. With data on intent, platforms can target the users that are more likely to buy a product. Shopify is using machine learning to assemble these audiences using its own platform – which has data from its 1.7 million merchants – and tailor them to a merchant. Shopify Audiences “leverages our unique perspective on purchasing intent from supporting merchants and their buyers,” the company wrote in a news release. Then, it exports the audience to a brand’s preferred advertising network, where they can run “look-a-like” campaigns to target people who match the profile of the user lists generated by Audiences.
The company is accounting for privacy with this feature: merchants can opt out of sharing their data, and the company states that Facebook deletes data after it is exported and matched to its records.
Currently available to Shopify Plus members, the feature is currently available for Facebook and Instagram. Meta properties have been important platforms for DTC brands. In turn, Facebook has taken a big hit in digital advertising post-iOS 14.5, reporting earlier this year that the privacy moves would cost the company $10 billion.
At a later date, Shopify plans to make Audiences available for TikTok, Snap, Pinterest, Microsoft Advertising, Criteo, and others.
Shopify said the Audiences feature is designed to help brands increase conversion rates on their ads, and generate better Return on Ad Spend (ROAS).
Seeking to address another area where iOS 14 brought big and challenging changes, Shopify is also looking to provide accurate attribution with the new feature. The company said it would provide measurement at the audience level, rather than at the campaign level.
“Having a transparent attribution model is essential so that merchants can have a high degree of trust about what marketing tactics are driving conversion and deploy their spend accordingly,” Shopify wrote.
Shopify has long offered the tools to help brands set up online stores where shoppers could browse and buy items. Under this model, it was up to brands to turn to platforms like Facebook to attract customers to those websites. Audiences is one sign of Shopify making a move to help brands not only man the store, but go out and get shoppers into it, as well.
Business Insider first reported on the development of the new feature last year, and characterized it as part of a big push into advertising by Shopify.
"I think it's the first step to Shopify building out a much more robust advertising offering for their merchants — it's the low-hanging fruit of interesting data to help better advertise on platforms," an executive told Business Insider at the time.
One outgrowth of the iOS 14.5 shifts was a move by retailers to build out advertising networks on their own platforms. The prior report indicates Audiences might be a building block for Shopify to make a retail media move of its own.
There are questions about where such a network would live on Shopify, as individual brand websites don't offer the same kind of traffic pull that usually leads to advertising. But as Ben Thompson of Stratechery wrote earlier this year, the attribution challenges of the post iOS 14.5-landscape – namely, determining who sees an ad – could present an opportunity:
Here Shopify’s ability to act on behalf of the entire Shopify network provides an opening: instead of being an advertising seller at scale, like Facebook, Shopify the company would become an advertising buyer at scale. Armed with its perfect knowledge of conversions it could run probabilistically-targeted campaigns that are much more precise than anyone else, using every possible parameter available to advertisers on Facebook or anywhere else, and over time build sophisticated cohorts that map to certain types of products and purchase patterns.
To be clear, Shopify hasn't detailed any plans, or addressed whether this is the concept it's building. But it's worth reflecting on the fact that Audiences shows some symmetry with what's presented.
For one, the feature's ability to assemble merchant-specific audiences geared around particular items sounds like it could be at least a step toward building "sophisticated cohorts that map to certain types of products and purchase patterns."
There is also a sign that Shopify views its network as a strength that can be harnessed. In its news release, Shopify writes that Audiences "taps the collective power of our platform so merchants can reach new customers more effectively."
It might be a different approach from where Shopify started, but it would still be arming the rebels.
Trending in Marketing
Commerce Components by Shopify allows enterprise brands to customize their software stack.
Shopify has long been known for helping new and emerging brands get off to a fast start in ecommerce. To kick off 2023, the software company is planting a flag in the enterprise market.
The news: Shopify on Tuesday launched Commerce Components by Shopify (CCS), a product offering that allows larger, more established brands and retailers to access parts of its ecommerce infrastructure. With the new package, Shopify is aiming to provide a modular approach for enterprise retailers that typically require more customized systems to run their digital commerce operations. “Enterprise retailers can take the components they need, and leave what they don’t, and developers are free to build with any front-end framework they choose,” Shopify writes.
What's in it? As part of CCS, Shopify said it is rolling out new back-office management that is designed specifically for enterprise retailers. At launch, the product offerings include:
- Checkout: Shopify’s checkout will be available to enterprise brands. This will also open up access to customers who use Shop Pay, which is Shopify’s checkout service for storing payment info and tracking orders.
- Flexible APIs, which now have no rate limits. These allows brands and retailers to integrate existing services with Shopify components.
- Infrastructure: Shopify says it has over 275 network edge points globally, which enables speed.
- Ecosystem: Shopify has a dedicated account team with solutions architects, specialized support and a network of seasoned agency partners and system integrators like Deloitte, EY, and KPMG.
- Find a full list of the 30+ components here.
Key quote: “Commerce Components by Shopify opens our infrastructure so enterprise retailers don’t have to waste time, engineering power, and money building critical foundations Shopify has already perfected, and instead frees them up to customize, differentiate, and scale,” said Harley Finkelstein, president of Shopify, in a statement.
Who is using it? Mattel, for one. The Barbie and Hot Wheels maker is bringing its entire portfolio of toy brands to Shopify. The companies first worked together on a creator platform called Mattel Creations, and are now expanding their work together.
Shopify goes bigger: Tuesday’s launch is a product-level outgrowth of rhetoric that has been emerging from Shopify in recent months. With existing clients like Coty, Spanx and Staples, Finkelstein recently told analysts that growth of enterprise clients using the existing offering Shopify Plus outpaced that of Shopify’s overall GMV in the third quarter. Coupled with recently-launched hardware that powers in-person retail, the strategy reflects an aggressive roadmap for Shopify that sets up the Ottawa, Canada-based company to serve markets beyond the digitally-native, direct-to-consumer brands and small businesses with which it has long been associated. This comes as DTC brands are facing challenges following post-lockdown shifts in shopper behavior, Apple’s App Tracking Transparency changes and a pullback of once-plentiful venture capital. Many in retail are also bracing for a difficult year as a result of inflation and interest rates. Landing larger clients can deliver sizable and stable recurring revenue from brands with established footholds in the market. That’s a good way to ride out the storm.
Let’s be clear: Shopify is not alone here. There is already a big, existing market for enterprise ecommerce, and more platforms are gearing up to make a splash in it. In recent weeks, BigCommerce also shared plans to shift its entire sales and marketing infrastructure toward growing its enterprise account. Both companies conducted layoffs in 2022 as they shifted course.
Trends to watch:
Composable commerce. Remember the term. This launch also points to a trend in ecommerce software: Brands and retailers, especially on the larger side, are increasingly opting to build commerce technology stacks by combining elements from a number of different providers. They want to create their own systems that meet their needs, and they want the different parts to be able to easily work together. This points to an environment where choice is prized, and the best components get selected. With CCS, Shopify is signaling that it believes it can stand out with checkout. In turn, partnerships with consulting firms like Deloitte, EY, and KPMG show it is tuning for how these solutions are sold in the market.
Land and expand: The progression with Mattel shows how enterprise sales presents the opportunity to take a "land and expand" approach, as Finkelstein put it to analysts. Start with one part of a brand's work, delight them and there may be a chance to bring in the whole account.