What: Shopify success illustrates 3 trends in tech and ecommerce

Why it is important: can Shopify story inspire department stores to build a different selling approach?

Shopify’s 2020 results report that consumers spent a total of USD 120 billion on its platform, almost exactly double the figure from 2019. This is an impressive story of the recent acceleration of ecommerce, but it’s interesting because it illustrates three important trends in tech and ecommerce.

1: “No-one can compete with Amazon”

Shopify isn’t competing directly, but it challenges Amazon at a very basic point of leverage by doing something different, but relevant. In markets with strong network effects or winner-takes-most effects, it’s very hard to displace a new incumbent directly, but pretty common to address an underlying customer need in another way. So, Amazon thinks about Shopify, because they change what the businesses might be, and offer your customers a different way to solve their problem.

2: “Wasn’t this already solved?”

Shopify found a way to solve things that an engineer would have told you were already solved. Part of today’s explosion of ecommerce is that these businesses come from people who are product people and not technologists. Shopify unlocks ecommerce for far more people, and there are a lot more opportunities to take a ‘solved’ problem and make it more accessible, and so reach 10x more people. Now a lot of people are trying to make something that’s easier again - a step easier than Shopify, Squarespace or Wix.

On the other hand, half of the Shopify story is actually big companies - Heinz, or Unilever. Why are they on Shopify? Mostly because they want to go direct.

3: Going direct

Shopify is riding a wave of both consumers and brands becoming ready to go direct. We have an explosion of new consumer ‘direct’ brands using the internet as their first channel. In parallel, there are giant consumer brands that have always been B2B businesses and that are now want trying to go direct as well, partly to compete with those new brands and partly to create some tension against Amazon and Walmart.

That meets a wave of new companies building tools to power ecommerce. Part of the story is that anyone can use the same tools now, meaning that giant companies, perhaps, can get access to the same tools as startups.

For most of these companies, selling online isn’t ‘technology’ - it’s retailing, but with a new channel that needs new tools. The tools have to be good but most of the questions are retail and brand questions. The interesting question for Shopify is how far it can move from being a tool to becoming a network, and to become part of retail. And so (to close the loop), the idea that all of this will be swallowed by Amazon makes about as much sense as the idea that all physical retail would get swallowed by Walmart, not because of software but because of retail. So perhaps software isn’t eating retail - retail is eating software.

Benedict Evans about Shopify