Shopify Taps Into Walmart-Level Scale

Pandemic-driven economic fallout has a polarizing effect on the SMB SaaS world. Anything that’s high-touch is clearly suffering, including home services and local bars & restaurants. Meanwhile, quarantine-friendly fare like digital payments, virtual office tech, and e-commerce see usage spikes.

One result is tech and media companies rewriting their product road maps. Some products get shelved while others get fast-tracked as shifting ground transforms the market’s demand signals. The name of the game is to pivot with agility, as we examined in a recent Localogy Analyst Brief.

As noted, one of these pivot-heavy areas is eCommerce, for lots of obvious reasons. As we examined last week, eMarketer projects 18 percent year-over-year growth for eCommerce in 2020. That transaction volume will have a trickle-down effect on eCommerce enablement such as payments, shipping and logistics software.

Put another way, tech companies that provide such tools are well-positioned.  And those who rise to the occasion will reap the rewards even more. One example is Shopify’s recent string of moves to meet new-normal demand signals. That includes its new user-facing app that aggregates all its merchants.

Shopify Goes User-Facing in New App

120-Million Strong

With that backdrop, the latest news from Shopify is its new collaboration with Walmart. The deal will bring Shopify and its online merchants into Walmart’s Marketplace. This will start with 1,200 merchants this year, presumably growing over time as Shopify has more than 1 million businesses on its platform.

As for who those lucky 1,200 merchants will be, Walmart says it’s prioritizing SMBs whose products complement (read: don’t compete with) its own, and those with strong customer reviews. Once approved, they can upload products to the Walmart Marketplace directly from within their Shopify dashboard.

The benefit to these businesses is greater distribution and exposure to Walmart Marketplace’s 120 million monthly users. This benefit will flow to Shopify indirectly as it can use this distribution partnership as a perk to attract and keep merchants on its platform. Expect to see Walmart’s logo throughout Shopify marketing.

What’s in it for Walmart? It gets more content and merchandise to fill its marketplace. Any marketplace-based business benefits from network effect. In this case, a broader product catalog attracts more shoppers through SEO and other means. User volume will in turn attract merchants — a virtuous cycle.

Walmart presumably gets a revenue share for transactions on its marketplace, meaning it will directly benefit from all of the above (but to be clear, the terms of the Shopify arrangement were not disclosed). This makes its role not unlike Amazon’s position with respect to third party resellers throughout its network.

Ample Volume 

Speaking of Amazon, Walmart continues to make moves to compete with the eCommerce giant. And that’s a game of scale. It’s tough to operate on such thin margins (or compete with someone who does) without ample volume to reconcile small per-transaction revenue, not to mention logistical economies of scale.

Bringing Shopify into the tent can be seen as yet another move by Walmart to gain depth and breadth in its product library. And its the right time, as merchants ramp up e-commerce capabilities and as consumer order volume is at all-time highs.  Walmart reported 74 percent e-commerce revenue growth last quarter.

Zeroing in on SMBs in particular, they align with all of the above according to Localogy’s Modern Commerce Monitor. In the most recent wave of research (see above), 40 percent report that they want to sell more online. And 41 percent are more inclined in the current environment to adopt new technology in general.

Finally, to end on a speculative note, this deal could signal Shopify as a potential acquisition target for the retail giant. As noted, it continues to invest heavily to beef up its e-commerce stable, including the $3.3 billion acquisition of Jet in 2016. Shopify has lots of non-overlapping value, including a long-tail SMB base.

We’ll keep watching for evidence of that move, along with continued action and evolution in the eCommerce and SMB SaaS sectors.

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