Before writing any further, I want to wish you all a happy holiday season as we wrap up the decade and begin anew!
If you have a few minutes to spare during the holidays, this article is worth a read. Not only does it discuss Shopify’s strategy, it manages to do so using the context of a game that holds a dear place in my heart, Starcraft. All the more special since it is an Activision Blizzard title, a sizable holding in the Paper Portfolio.
The key argument is that Tobi Lutke (Shopify CEO and founder) is engaging in a Zerg-like strategy that is positioned to overwhelm Shopify’s opponents in the long-run. I wish I had thought of this analogy before because I absolute agree.
I also found this excerpt fascinating and was not aware Tobi had made such a statement:
Interestingly, in November 2018 someone on Twitter predicted that Amazon would acquire Shopify in 2019. Tobi Lütke responded with the most “late game Zerg” response ever:
I don’t think we’re anywhere close to “late game” in online commerce, but I suspect Tobi Lütke’s tongue-in-cheek reply will look not so tongue-in-cheek in 2029.
The other dark horse in ecommerce that continues to bear watching is Facebook / Instagram.
Facebook just acquired a company called Packagd, a start-up that was in the process of building a “QVC-like” experience for Youtube. Although the linked Bloomberg article suggests that Facebook is looking to use the acquisition to empower Facebook Marketplace, I think live shopping/streaming experiences could be rolled out more broadly since this type of experience has already been demonstrated to be highly successful in China.
While we wait for what’s next, Facebook already seems to be marketing/positioning Instagram Shopping more widely as demonstrated with this decidedly consumer-facing Celine Dion ad:
And what’s most interesting is that Instagram continues to attract brands in a way that Amazon has not:
Sports stars, teams and leagues have long used Instagram to promote themselves and build relationships with fans. Increasingly, they’re using it to sell products, too.
On Nov. 20, tennis star Serena Williams and her S by Serena fashion brand released a new sequin jacket that could only be purchased through Instagram’s “Checkout” feature. (A jumpsuit was also made available on Instagram, but people could also buy that on SerenaWilliams.com.)
The platform is already the primary venue for social merchandising efforts by the NBA’s Los Angeles Clippers, said Alessandro Gasparro, director of social media for the team. This summer the Clippers used “shoppable” posts on Instagram, which drive users back to the team’s online store, to sell jerseys for new players Kawhi Leonard and Paul George, as well as Buffalo Braves-branded throwback uniforms.
It isn’t just for brands to use: In the spring, Instagram kicked off a program that lets creators—media companies such as Refinery29, models such as Gigi Hadid and athletes, among others—tag a brand’s products and let users buy them using Checkout. James Harden of the Houston Rockets used it to offer his Adidas shoes for sales via a post in his own feed, which has nearly 11 million followers.
Although I have neglected to write more deeply about payments thus far despite significant representation in the Paper Portfolio (e.g. Adyen, Square, PayPal), the industry is becoming increasingly important as slow moving but earthshaking tectonic forces are catalyzing significant changes around how payments are accepted.
I thought this article regarding Adyen is a great jump-off point to discuss some of these shifts. Adyen inked a deal with McDonald’s to become their merchant acquirer for mobile ordering in the UK. If initial results are successful, the partnership will expand to other geographies and could one day encompass the offline business as well.
What is interesting is that Adyen has historically been an online merchant acquirer. Legacy merchant acquirers (e.g. Vantiv, First Data, the banks including Chase, Global Payments, Worldpay, etc) that have been in this industry for decades largely come from the offline world. In that offline world, merchant acquirers relied on a sizable sales force to compete. Historically, the flywheel was: Big sales force -> More merchant wins -> Greater scale -> Greater sales force efficiency and lower costs -> Greater ability to scale up sales force -> Repeat (sometimes through M&A). Legacy merchant acquirers all have >10k employees, since historical strategies are labor-drive.
What’s interesting is that Adyen has <1000 employees and has already achieved transaction volumes >$150bn USD (~1% of global volumes) and is growing >40% a year.
What’s even more interesting is that Adyen used to be only online but is now winning significant business offline with many brick and mortar retailers including McDonald’s, Nike, Tiffany, etc. with the need for a large sales force.
The ground beneath merchant acquirers are shifting. As retail becomes omnichannel, the digital player has a pathway to win offline retail without the historical labor-driven strategy.
This article/interview with Adyen’s CEO also quite worth reading, especially this excerpt:
“Adyen’s highly scalable, capital-light business model supports even higher future profitability,” according to Johann Scholtz, an analyst at Morningstar. “The payment industry generates data in volume matched by few other industries, yet surprisingly few incumbent merchant payment providers have made the exploitation of Big Data through machine learning central to their business model as Adyen has done.”
The key word in that excerpt is data. More on this in a future post, but payments is no longer just payments. Payments is an important source of data. Legacy players provide payments, but only payments. Legacy players are poorly positioned to provide the necessary infrastructure to help merchants capture what is increasingly and important role of payments – data.
Disclosures: I own shares in SHOP. I have no intention to transact in shares of any company mentioned within the next 48 hours.