16 August 2022
Is Shopify laying the groundwork for a creator ecosystem?
With Collabs, Shopify is signaling the promise of connecting merchants and creators to each other.
With Collabs, Shopify is signaling the promise of connecting merchants and creators to each other.
With a focus on spurring entrepreneurship, Shopify’s ecommerce infrastructure casts a wide net.
While it is often synonymous with the direct-to-consumer brands of the last decade that put a value on controlling their store and selling through digital means only, Shopify’s tools to set up and run ecommerce stores are used by a variety of businesses. There are small businesses or independent grocers that want to sell online, solo makers who started in their kitchen, dropshippers or musicians selling merch.
As Shopify’s team expands the available tools within its app store alongside an active community of developers, it in turn can specialize particular offerings that will serve these distinct groups. In some cases, there are also opportunities to connect merchants to each other.
With a recent series of releases, the company is signaling an expansion of available tools for creators – shorthand for the people who make digital content and build a direct audience on social platforms.
The latest rollout arrived Tuesday. Shopify Collabs is a new platform that connects creators and merchants. Creators can browse Shopify merchants to partner with, then curate a selection of products from these brands using Linkpop, which is Shopify’s link-in-bio tool. When someone purchases a product using that link, creators also get paid through Collabs.
For creators, who often partner with brands to showcase products as a monetization opportunity, this offers an avenue to easily connect with merchants. Shopify points out that many creators work part-time, so they benefit from tools that can save time and make the process of finding brands easier.
For merchants, Collabs offers an avenue to connect with a group that is succeeding the influencer as a key conduit to reach potential customers. With video-based content only gaining importance on platforms like TikTok, YouTube, and Meta’s properties, creators are becoming more important parts of the chain that leads to a purchase. Meanwhile, customer acquisition is only growing more challenging for brands as costs rise, privacy challenges limit attribution capabilities that previously drove big conversions on platforms like Facebook, and more venues for marketing emerge.
"For Shopify merchants, Collabs is a new way to find potential customers at a time when it's never been more difficult or expensive," said Amir Kabbara, director of product at Shopify, in a statement. "By giving merchants the ability to discover and partner with creators that align with their brand, they can tap into the power of community-driven commerce to reach consumers in new and meaningful ways."
Collabs is just the latest tool for creators that was released within Shopify. In recent months, the Ottawa, Canada-based company has also:
Shopify’s moves so far illustrate the unique place at which creators sit. Harnessing content, creators are bringing together audiences and demonstrating expertise. This combination of community and value in turn provides an opportunity to showcase and curate products that are for a community. Those products can come from brands. In time, they may even be a creator’s own. All of this opportunity leaves room for them to build their own brands and start their own companies that are an important part of selling consumer products.
Creators sit at the intersection of media, community building, influencer marketing, commerce and entrepreneurship.
Within Shopify itself, the creator similarly has multiple roles. They are the conduit for brands to reach an audience, which necessitates the connections that Collabs provide. But at the same time, Shopify is now allowing creators to set up their own stores. In many ways, they are among the entrepreneurs that Shopify is seeking to serve, just as they are serving the entrepreneurs. Not to mention, they’ve already done the work of building a community that’s engaged around a specific interest, and are now bringing them into the store. Talk about direct.
This has important implications when considering Shopify’s primary goal, which is galvanizing entrepreneurship. The company accomplishes this aim at the intersections of its communities, as well as within the communities themselves.
Perhaps the most prominent example comes through its app store. Using its software, entrepreneurs can open stores to grow businesses through digital commerce. But building that software itself spurs entrepreneurship. The Shopify app store’s open model allows developers from beyond the company’s own team to create apps that can in turn spur businesses. It is providing the infrastructure for not just consumer product startups, but also software startups. Having invested and acquired some of those apps gives Shopify itself an equally unique role in the middle of this, but that’s a topic for another piece. The point is that developers are both becoming entrepreneurs and serving entrepreneurs in Shopify’s community.
With creators, Shopify has a group that is even more intertwined into its core community of consumer brands, given that creators are active participants in the process of selling physical products. The fact that they are setting up stores and connecting them to social channels indicates represents a recognition by Shopify that creators offer their own form of retail.
In today’s announcement, Kabbara indicated that Collabs in the future “will be fully integrated with Shopify, giving creators access to more parts of our platform and accelerating their journey as entrepreneurs." This all leads to the question of where Shopify is heading as it offers more and more creator tools.
It clearly sees potential to support and galvanize this group of entrepreneurs. The question is how they can easily connect them to opportunity. Collabs offers the strongest example yet that those connections can happen within the Shopify ecosystem.
Where could this go next? One avenue that you might consider would be building tools for the other parts of a creator’s work beyond commerce. It could offer creator-specific stores, with tools not only to sell but also to share (shoppable) content and foster social touchpoints with their audiences. They could add ways to discover other creators, and their stores, as well. Go too far down this road, however, and Shopify would essentially be building some cross between a social platform and a consumer marketplace. If history is any guide, the company has little appetite for either of these directions. While its stores are all built using Shopify tools, they remain independent websites. After getting their stores set up and products at the ready, merchants must go out (often to social platforms) and develop ways to reach audiences there (increasingly through creators), while also figuring out how to get products to their customers via fulfillment and delivery methods. This has always made it distinct from Amazon, which offers a common site where sellers display their own goods alongside others. Amazon sellers give up layers of independence and the control over their stores that comes with them in exchange for Amazon doing the work of attracting the audience and access to its fulfillment network.
While Shopify is going down the road of building out fulfillment and offering advertising tools to merchants in the form of the recently-released Audiences, it has given no signals that it is set to build a marketplace of its own for merchants, or offer ways for merchants to promote themselves in each others’ stores through advertising.
Likewise, the creator tools it has offered to date are designed primarily to integrate with the other platforms where creators gather and meet their audiences. Shopify is currently still the endpoint.
Collabs indicates that Shopify is interested in connecting creators to the entrepreneurs who use its tools. It is not, however, the type of marketplace where creators sell their goods to consumers. Platforms like TikTok and Instagram have their own creator marketplaces that similarly seek to surface partnerships.
With this in mind, it seems more likely that Shopify seems to be working toward an ecosystem. Similar to the app store, they are offering a growing number of tools that creators can access in order to improve commerce capabilities. At the same time, it’s a place for them to do business with each other, with that business still happening on top of Shopify’s ecosystem. Given where creators sit, however, this may ultimately exist as a separate ecosystem from one that exists for developers, with Collabs as a centerpiece. The potential to work with brands can further make Shopify a foundational part of the equation for creator commerce, no matter the primary platform where they share content.
Shopify shared data showing that the creator economy is worth $100 billion. With many creators still part-time, it sees room to bring growth through the still-nascent path of commerce, with a stated goal of providing economic independence to creators.
Still, how big a role this ecosystem ends up playing for Shopify is dependent in part on whether the creator economy continues to grow. Today, more than 50 million people globally count themselves among this group. But its rise has been heavily tied to the short-form video format of TikTok that other platforms are now adopting. Something else could come along with technology advances. After all, the creator model of the early 2020s is subsuming and replacing the influencer model of the 2010s.
It could also depend on where Shopify wants to focus at a time when it had to lay off 10% of its staff as a result of a misplaced bet that the ecommerce growth trajectory of the early pandemic would continue. Its leaders may not want to make a big bet again at a time when it is less certain where the market is heading. Besides, Shopify is also building out a fulfillment network, launching B2B ecommerce tools, and shipping a host of other products designed to provide updates for the merchant and developer communities.
Nevertheless, Shopify has clearly recognized the potential power of creators to serve as their own group of entrepreneurs, and to serve those in its merchant community. If Shopify continues to provide infrastructure to bring the two groups together, it seems likely that they’ll only continue to unlock new opportunities at the intersection of content and commerce. Both groups are working to build brands and connect with audiences. Give them more tools, and they could develop new ways to do so. They may even create their own.
After all, the beauty of an ecosystem is that it is self-renewing.
The reversals offer a cautionary tale for executives weighing a classic dilemma: Build or buy?
There’s no doubt that the pandemic ecommerce boom brought massive operational growth across retail. The investment that retailers made to keep up with demand ushered in lasting transformation to fulfillment operations, as we’ve noted in this series.
Yet it’s also true that not everyone can be Amazon. Some of the big supply chain bets made during the pandemic didn’t pan out, especially when ecommerce growth returned to a more normalized trajectory in 2022.
In particular, Shopify and American Eagle Outfitters (AEO) made high-profile moves to scale logistics operations, and even made clear that they were setting out to take on the giants in doing so.
The companies occupy different parts of retail. Shopify is a software company that helps brands run ecommerce, while AEO is a brick-and-mortar-based apparel retailer better known as a mall staple than a digital innovator.
But during the wild ride of the pandemic years, both outfits made bets that they could build logistics operations that would attract small and medium-sized brands looking for an alternative to Amazon, and spent millions to acquire companies that would help them get there.
Alongside the investment, they talked like they wanted to got big.
As AEO COO Michael Rempell put it at Shoptalk in 2022, "There's a supply chain revolution happening and we want to lead it...We think it’s leveling the playing field and allowing like-minded companies to compete with Amazon, Walmart, Target – the biggest retailers in the world.”
In 2023, executives at both companies are singing a different tune. Shopify sold the $2 billion logistics acquisition Deliverr to Flexport. Meanwhile, AEO said its acquisition of Quiet Logistics wasn’t meeting expectations, and backed off an aggressive move to bring other retailers into the fold.
Together, these reversals represent a cautionary tale for retailers weighing how to scale ecommerce to keep up with future growth:
Buying your way into a market may provide a head start, but it’s still a long road to the top.
Let’s take a closer look at both deals to learn more:
Shopify has long been a leading software choice for brands looking to run the frontend of commerce. The tools built by the company and the apps available from its ecosystem of developers provide everything that’s needed to start and scale the demand generation and selling side of ecommerce.
But ecommerce is not just a matter of lining up the bits. It also requires moving atoms. As it sought to offer a more complete ecommerce platform, Shopify lacked its own tools for the backend of ecommerce such as processing goods and delivering them to customers.
There’s good reason for this. Operating fulfillment and delivery is a different business than building software. It requires warehouses and workers and boxes and trucks. Still, it’s an area where there’s a massive opportunity to make life easier for brands. Amazon’s FBA program showed how providing storage, fulfillment and delivery for third-party sellers could serve as a critical connecting point to deepen their ties to Amazon. These sellers may be independent, but the fact that they are reliant on Amazon’s facilities to provide the two-day shipping and free returns that customers expect make it an attractive and convenient way to sell there. Once you’re in, it’s tough to quit.
For its part, Shopify didn’t set out to build a sprawling logistics network. But it did make moves to provide full-service fulfillment. Initially, the Shopify Fulfillment Network had several warehouses. This stood to become supercharged when it acquired Deliverr for $2.1 billion in May 2022. The companies seemed to be a fit. While Deliverr owned warehouses, it had a software-centered approach to logistics that prized predictive analytics and placing inventory close to demand. Shopify executives talked about how it would be an “asset-light” network. Translation: We aren’t building an Amazon-like network, even as we compete with them.
But the move to acquire Deliverr was still expensive, clocking in at Shopify’s largest-ever deal. It also happened to arrive as ecommerce fortunes were shifting amid the return to stores and the weight of inflation on discretionary budgets. A couple of months after it made the acquisition, Shopify laid off 10% of its workforce as CEO Tobi Lutke admitted that the company’s bet on explosive growth for years ahead “didn’t pay off.”
This ultimately presaged a monthslong period of recalibration at the company. By May of 2023, it emerged with more layoffs, this time of 20% of the workforce. Executives spoke of a recommitment to priorities on the frontend of ecommerce, and Lutke disavowed “side quests.” Underscoring the fact that logistics fit into the latter category, Shopify sold Deliverr to Flexport just a year after buying it.
To be sure, Shopfiy will continue to benefit from the logistics network as the preferred partner of Flexport. And the fulfillment operation that Shopify started may still be built out to scale, especially with former Amazon commerce chief Dave Clark at the helm of Flexport. But the fact that Shopify turned away from this approach was ultimately another admission that the bet didn’t pay off. At the end of the day, Shopify runs a software company focused on the bits side of ecommerce. It will continue to leave the atoms side to others.
American Eagle was perhaps a more surprising entrant into the logistics arms race. But as it transformed its own supply chain to make ecommerce a more integrated part of its operation, the retailer saw an opportunity to provide logistics for other brands and retailers, as well.
In its own way, this was also a lesson from Amazon: Build a logistics operation, and it can be opened up to move from cost center to growth engine.
AEO did not lack in boldness and panache as it set out to apply these lessons. It acquired Quiet Logistics for $360 million as it set out to enable next-day and same-day shipping, and AirTerra in a move to aggregate packages.
AEO set out to own its supply chain, allowing it to make moves to save costs and implement omnichannel approaches that would bring store associates into the ecommerce mix, and add efficiency. Ultimately, the retailer decided that acquisitions would help to achieve the scale that was necessary during the pandemic.
In turn, this “hyperscale” would put it in a position to create a new kind of model, EVP and Chief Supply Chain Officer Shekar Natarajan argued. He spoke of creating a “frenemy network” where retailers banded together to create the large networks that the Amazons and Walmarts of the world could build on their own.
By April of 2023, Natarajan was no longer with the company. COO Michael Rempell told analysts that Quiet Logistics had grown at margins “below what we expected,” and the company planned to cut logistics costs.
AEO said the following in a statement to WWD:
“While Quiet’s third party business has grown nicely, it has not achieved the plans we envisioned. As a result, we must pull back on expenses to reset the business. This is necessary to improve profitability, particularly given prevailing macro headwinds….We are reducing the size of the Quiet workforce to be more in line with the current business trend….This decision was not made lightly, and we realize this will impact the lives of affected employees. We will provide them a variety of transition benefits.”
American Eagle Outfitters also stated that it is “committed to the continued transformation of our supply chain, and Quiet Platforms plays an important role in that strategy as we work to achieve increased profitability. Over the past few years Quiet has been tremendously beneficial to AEO, providing much needed distribution and fulfillment capacity to grow our industry-leading brands.”
AEO said Quiet was helping American Eagle’s business. But it restructured the third-party side of the platform that provided services to others, which included downsizing the workforce.
“We now have a leaner organization that will position us well for the future. We see opportunities to leverage Quiet's fulfillment capabilities to unlock even greater efficiencies in our operating model,” Rempell told analysts this week. “This includes optimizing inventory placement, buys, and replenishment as we work upstream through our supply chain.”
AEO did transform its own supply chain, but it appears that the frenemy network is not emerging at the same pace. The move indicates that AEO is sticking closer to the goal of bringing change to its own operations for omnichannel success. For now, that doesn’t mean it needs to provide those efficiencies for others, as well.
Each of the moves detailed above offer examples of companies that opted to scale by acquiring others.
That’s a distinct approach from the other companies we’ve covered in this series, including Amazon, Walmart, Target and Chewy. They all chose to build their own fulfillment operations for ecommerce, albeit in distinct ways.
We point this out not to suggest that acquisition is an automatic recipe for failure, but simply that build vs. buy is a choice that faces executives as they determine how to meet demand and continue growing ecommerce for a future that is still heading toward online shopping occupying a larger share of retail.
When it comes to the “build” camp, the size of the four major retailers listed above gives them an advantage. They have the resources to undertake ambitious, multiyear projects and they were able to direct even more energy into quickly scaling operations when the pandemic called for it. When the pandemic ended, they surveyed the landscape and made moves toward efficiency and sustainable profits.
The two companies in the “buy” category happened to make their acquisitions at a time when ecommerce was at its peak. Their plans involved creating a new network, rather than scaling up an existing one, and the roadmaps were likely altered drastically when the ecommerce trend line came back to Earth. Yet it’s worth noting that they also tried to add parts of their business that were completely new. It brings up an important question for any executive weighing options:
Do you want to be in the business that you’re acquiring for the long haul?
There’s no question that ecommerce companies will have to scale logistics and realize efficiencies that can maintain profitability. But as they do so, they need not forget who they are.