Earlier this week, we wrote about the strategic drivers for Amazon’s continued ad revenue growth. Now, is its competitor Shopify following it down that same path… and for similar reasons? We frame these companies as “competitors” in that they both attract merchants to a platform to enable online product sales.
Going deeper on Shopify’s latest ad-based moves, Business Insider reports that Shopify is planning to roll out an ad product called Shopify Audiences. The program will evidently position the company’s sizable corpus of shopping data to better inform and target advertisers’ campaigns on Facebook and Google.
This makes it slightly different than Amazon’s ad business. Both programs utilize shopping data to target advertising and drive traffic to their respective merchants’ stores. But Amazon — as a destination unto itself — offers ad placement on its own domain versus Shopify’s approach to target ads on other networks.
Shopify frames this as its “data exchange network” according to a presentation obtained by Business Insider. The thought is that advertisers can strategically select the products they want to promote based on insights and activity from Shopify’s 1.7 million merchants. It then targets lookalike audiences on Google and Facebook.
North Star
Those 1.7 million merchants will also be the primary target for Shopify Audiences, as it can help them drive more traffic to their online stores. This makes it yet another Shopify feature meant to offer its merchants the reach and scale that competes with what they might get as Amazon sellers… and with a smaller revenue share.
That’s Shopify’s value proposition in a nutshell. And that “North Star” guides most of the company’s recent product announcements and updates that we’ve tracked. In a broader sense, it’s all about attracting more merchants to the platform and boosting their retention. These are SaaS fundamentals — Shopify’s core model.
Some of Shopify’s past moves along these lines have been distribution deals with Walmart, Google and Facebook. These collaborations give Shopify merchants more reach, which boosts traffic and thus conversions. eCommerce is a numbers game like anything else, and Shopify is the smaller-scale David to Amazon’s Goliath.
Beyond offering greater reach and distribution, Shopify has made moves to attract merchants to the platform through new functionality and eCommerce capabilities. As we examined last week, it integrated new AR product visualization to attract home decor merchants that want to virtually demonstrate colors and textures.
Follow the Money
In addition to a merchant expansion and retention play, Shopify’s move into advertising could be a revenue diversification play. This is where Amazon and Shopify’s ad ambitions have something in common. Advertising has adjacency and synergy with eCommerce as a merchant upsell, so its integration is logical in both cases.
But the thing that jumps out from most of the above is the variance in ad-market approaches from Amazon and Shopify. Though they’re both expanding into advertising, their reasons are (mostly) different. Amazon wants to diversify revenue and find new areas of growth to counterbalance a maturing core business.
Shopify is doing some degree of that revenue diversification as noted, but it’s more about using advertising as a means to an end. And that endgame is expansion and recurring revenue for its core Saas business. As always, the moves and motivations of tech giants can be demystified if you “follow the money.”
Meanwhile, the timing and pricing of Shopify Audiences is unclear, but clues obtained by Business Insider suggest that more details would officially be announced at the Shopify Unite conference. That event happened Wednesday and there was no such announcement. So we’ll keep our radars up for any ongoing clues.
