Explore the reasons behind Shopify’s entry into Web3 from the perspective of development history

One very interesting thing: the CEO of Shopify, one of the most popular companies in the past few years, joined the board of directors of Coinbase early this year. During this time, he personally bought Coinbase stock, and Shopify also launched Web3 this year. Business, such as integration with cryptocurrency payments, NFT services, and more. This article attempts to explore the reasons behind Shopify doing these things, as well as its strategic thinking in the process of starting a business, which may give you some inspiration.

event background

Shopify, which mainly provides e-commerce software (SaaS) to small and medium-sized enterprises, is a company that provides out-of-the-box solutions for online retail stores. Its main customers are small and medium-sized enterprises and home users (mainly providing small and medium-sized enterprises with similar Enterprise software consumerized software; there is a market that is optimistic about the impact of the continuous development of e-commerce on small and medium-sized enterprises at that time)

But here’s the problem: Shopify is laying off about 1,000 jobs in July 2022, or 10% of its global workforce, according to The Wall Street Journal, which means Shopify is less optimistic about its own business growing during the COVID-19 pandemic. . According to the company’s founder, CEO Tobi Lütke’s internal letter issued in July 2022, the layoff is at this moment as consumers return to their old shopping habits and reduce the number of online orders, an important source of the company’s growth. Necessary behavior, revenue growth is expected to slow this year. Since November 2021, Shopify’s share price has reached a high of around $175, and currently (August 24, 2022) Shopify’s share price is $33 (see chart below)

Explore the reasons behind Shopify's entry into Web3 from the perspective of development history

Explanation on Shopify’s share price

When the second quarter report of 2022 came out, the founder explained that: Shopify’s success has always been through insight and strategic layout of the needs of merchants. Before the epidemic of the new crown pneumonia, the growth of e-commerce was Stable and predictable.

But is the current surge in e-commerce market size temporary? Or the new normal? (Note that this question is worth thinking about by all startups, that is, whether your business and market demand can continue to exist and grow sustainably.) Therefore, Shopify made another bet against the judgment at that time: bet on the share of e-commerce channels at that time Permanent growth over the next 5 or even 10 years (instead of dollar share) If so, then Shopify has to pursue company size to match its current and future market judgment.

But the truth is this:

E-commerce accelerated during the COVID-19 pandemic, but has since resumed its previous trend.

It is clear that Shopify’s bet at the time did not pay off as expected, and now the data shows that the e-commerce market data is roughly back to pre-Covid conditions, and although still steadily increasing, this is not the rapid 5-year period originally envisioned. ,Great progress. Shopify’s market share in e-commerce is much heavier than in retail, and at the end of the day, the founders felt they were incorrect at the time, which was one of the main reasons for layoffs.

Shopify and Web3

According to Barron’s, Shopify CEO Tobi Lutke has been buying Coinbase stock in August 2022. The following is a form Lutke filed with the SEC, paying a total of $746,436 on August 11 and 16. Bought 953 Coinbase shares at an average price of $93.86 per share.

Explore the reasons behind Shopify's entry into Web3 from the perspective of development history

In addition to buying stocks, what other attempts have Shopify made in the Web3 field?

In 2022, Shopify CEO Tobias Lutke will join Coinbase’s board of directors. Let’s discuss the reasons: At that time, perhaps seeing the slowdown in the growth rate of his own e-commerce business, he wanted to seek some new growth from other aspects. , so Shopify began to try many businesses related to NFT and encryption.

As a result, Shopify has enabled its desk to accept over 300 cryptocurrencies through Coinbase, BitPay or CoinPayments.net, including an online e-commerce platform that also has an NFT Beta program up and running.

How did Shopify develop?

In this part, we will look at the objective conditions for the growth and development of Shopify. What was the pattern at that time? What did founder Tobi Lütke think? If we go back to today, what has changed? What hasn’t changed?

Note: This paragraph references several Stratechery articles.

The evolution of Shopify

If you go back in time to 2004, there are already a lot of bits and pieces that can run the components and tutorials required for an e-commerce website, but the user experience is relatively poor, such as opening a merchant account, setting up the credit card interface, inventory It could go through a 3PL warehouse, the logistics could go through UPS and Fedex, and it could be advertised on Google very cheaply, but the western market lacked a piece of software that could tie these pieces together, and Lutke was living in Canada at the time, working for himself Snowdevil, a snowboard store, made such a platform. In 2006, it began to open to other merchants. This is the prototype of Shopify.

It started to be a hub that integrates a lot of third-party services.

Explore the reasons behind Shopify's entry into Web3 from the perspective of development history

Image credit: Stratechery

An early prototype of Shopify was the Shopify App Store launched in 2009, where developers could access Shopify’s API and create new plugins to provide specific functionality that merchants might need. For example, if you want to offer products on a subscription basis, you can install Recharge Subscriptions; if you want to manage shipments, you can install ShipStation.

Shopify itself offers extra features through the Shopify App Store, like its Facebook Channels plugin, which lets you easily sync your products to Facebook to manage your ads with ease.

A year later, Shopify launched a store that allows merchants to buy themes, that is to say, you can make your own website by labeling. Now Shopify looks like this:

Explore the reasons behind Shopify's entry into Web3 from the perspective of development history

Image credit: Stratechery

At this time, Shopify also carried out vertical integration, especially the introduction of payment functions. Shopify Payment was launched in 2013 and was renamed Shop Pay in 2020. This kind of built-in Shop Pay function that merchants can easily use in the operation experience It’s still very good, and Shop Pay has begun to lay the foundation for the brand image in consumers’ hearts. Of course, Shopify is more concerned about the inner mission of merchants and merchants, except for small e-commerce companies and individuals, such as Gymshark, Rebecca Minkoff, KKW Beauty Big brands like , Kylie Cosmetics, and FIGS use Shopify to build their own Amazon-independent brands.

Shopify’s model

If compared to Amazon, Shopify is more of a platform of platforms, with 820,000 third-party merchants not dealing directly with customers, but sitting on top of Shopify and responsible for acquiring all those customers themselves.

Explore the reasons behind Shopify's entry into Web3 from the perspective of development history

Image credit: Stratechery

Services Provided and Pain Points Solved

Shopify expressed it like this at the time: Customers want fast online shopping and free shipping, cooperation with third-party logistics companies may be tedious, and merchants want to find platform providers who can obtain real customer data and show their own e-commerce platform services (this one Speaking of Amazon, Amazon does not give merchants user data, nor does it allow merchants to customize their own express boxes)

Shopify Fulfillment Network: A geographically dispersed network of hubs that uses machine learning to predict the best locations to store and ship products through smart inventory allocation technology, so they can reach the merchant’s customers as quickly as possible. Taking advantage of its large volume, Shopify negotiated low rates with a network of warehouse and logistics providers, and then passed these savings to Shopify’s customers—small and medium-sized merchants, including customized packaging and branding across multiple channels, as well as returns and Exchanges can be managed through Shopify.

Why is the Shopify Fulfillment Network a key service for Shopify?

Because Amazon ships in its own branded boxes, suppliers don’t have much choice. But Shopify, which provides warehousing and shipping services through a third-party logistics company (“3PL”), does what the platform does best: acts as an interface between two modular parts of the value chain.

Explore the reasons behind Shopify's entry into Web3 from the perspective of development history

Image credit: Stratechery

That is, first of all, for 3PL companies, Shopify’s hundreds of thousands of merchants are mainly on an individual basis, and it is difficult to deal with all these logistics warehouse merchants one-on-one, but it only needs to be done with Shopify. Likewise, small-scale sellers often can’t even negotiate directly with these logistics companies to get deals, but now, Shopify customers only need to communicate with the Shopify platform.

Plan Layout: Build and Manage Warehouses

Shopify will spend a billion dollars in capital expenditures in 2023 and 2024 to continue building the Shopify Fulfillment Network, as Shopify realizes from the success of Shop Pay that it can optimize its own basic functions, reduce the complexity of the use of merchants, and provide Customers provide a better experience. Likewise, the same needs exist in logistics.

Shopify Advertising Services

The fundamental challenge Amazon poses to Facebook is that FB can no longer aggregate conversion and targeting data from all advertisers, that is, Amazon’s ecosystem of third-party merchants is located on the Amazon.com website and app, so Amazon’s The data collection of conversion rate does not need to be affected by big advertising platforms such as Apple and FB. This is the power of the vertical field.

Well, Shopify has a large number of e-commerce retailer customers, and currently Shopify mostly treats them all as separate entities, leaving the pool of data used for advertising to Facebook, but what if Shopify also built its own ad network?

Of course, an important point is that these growth assumptions are basically based on the need for continued growth (there is demand) in the e-commerce market, which is an industry bonus issue, let’s go back to Web3 and Shopify:

Shopify has also launched the NFT Beta program to catch up with the dividends of this wave of NFT growth. In 2021, Shopify launched a business, which means that some sellers can sell NFTs through Shopify, and many NBA-related NFTs are sold on Shopify Yes, and it sold pretty well on the day it was launched.

What about the future? Will the NFT market continue to grow in the future? Or will there be a new change in the narrative of NFT? If there is a change, how to deal with it?

Back to the basics: The company’s business scenarios must always meet the real needs, and the demand must be large enough, and this dividend needs to always exist. If there is volatility, it is necessary to consider how to deploy during the trough of volatility, which is the most important in business. One of the elements to consider.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/explore-the-reasons-behind-shopifys-entry-into-web3-from-the-perspective-of-development-history/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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