Has the invasion of Ukraine negatively impacted Russia's e-commerce market?
What's the deal with Shopify acquiring an influencer marketing platform?
Are we at record high e-commerce sales, or are we back to pre-pandemic levels?
Can Meta get away with charging a higher platform tax than Apple?
Did Wix just write a press release about unveiling a feature everyone that else had like 10 years ago?
Answers to all these questions and more in this week's 65th Edition of the Shopifreaks newsletter. Thanks for being a subscriber.
Stat of the Week
Russia’s domestic ecommerce market grew by more than 50% last year. Online sales accounted for 12% of Russia’s total retail market — and as much as 26% if excluding the food market. — According to DigitalCommerce360. –> [RETWEET IT]
1. Shopify bought Dovetale. Here's why that's a big deal.
Last week Shopify acquired the influencer marketing app, Dovetale, for an undisclosed amount. (However given that Dovetale raised $63M in a Series A this past January at a “north of $700M valuation”, you can do the math.)
As part of the acquisition, Shopify will make Dovetale free for all of its merchants. Dovetale previously had a free plan before that included up to 5 influencers before transitioning merchants to a paid plan. At the moment, I'm not sure if they have completely done away with all their paid plans and made the app free across the board. When I created a test account, there was no option to upgrade, so that might be the case.
If you're unfamiliar with Dovetale, it's an affiliate / influencer marketing app that allows brands to manage and accept new applications for influencer partners, send products and discount codes to them, keep track of how many sales they generate, and pay commissions.
I'm heavily involved in the affiliate marketing space and particularly well versed about affiliate apps in the Shopify ecosystem. (I've run the site ShopAffiliateApps.com since 2016 and have helped 1000+ store owners get started with affiliate marketing.) Objectively, Dovetale is a great app that stands out from the rest, so I understand why it was selected for acquisition over the others. (Whether or not other apps were even considered — I don't know.)
Dovetale tackles an influencer management issue that other apps on the market don't currently handle — sending / tracking free samples and discounts to influencers. Other affiliate apps on the market only track referrals and sales commissions, and keeping track of promotional merch had to be done externally. Additionally, Dovetale offers a very streamlined and user-friendly interface, partly because it's newer, having launched in 2017, as opposed to older apps like LeadDyno (launched in 2014), Refersion (launched in 2015), or Post Affiliate Pro (launched in 2004). Those differences in app age might not seem like much, but 3+ years is a lifetime in regards to app development and UI standards. (Those other apps work great too; I'm just commenting on the difference in UI.)
Here's why this acquisition matters, and why it's not merely a two sentence blurb at the bottom of this e-mail in the Seed Rounds, Acquisitions, & IPOs section…
1. Shopify just acquired an app in a heavily competitive space within their app marketplace and made the service part of its core offering. This is exactly the kind of move that Bolt's founder, Ryan Brewslow, was blasting Shopify for a few weeks ago on Twitter.
How will this acquisition negatively impact existing affiliate apps on the market including LeadDyno, Refersion, Shoutout Global, GoAffPro, Post Affiliate Pro, Affiliatly, Tapfiliate, and others, who charge for similar services? Will Dovetale, now a part of Shopify, have access to integrations and analytical insights not available to competitors, putting those other companies at a disadvantage in regards to developing new features?
I posed similar questions last year when Shopify entered into a multi-year platform partnership with the review app Yotpo. By acquiring apps or entering into partnerships, they are effectively picking winners.
2. Shopify is moving deeper into the consumer facing arena. Originally Shopify merely provided the tools and infrastructure for merchants to power their online businesses, and reaching consumers (outside of transactional e-mails) was a task left up to the merchants themselves, often with the help of an app ecosystem to connect the dots.
However in recent years, Shopify has been connecting more of those dots themselves and creating consumer facing products like their new Link In Bio tool, Shop App, Google Shopping app, Shopify Mail, Shopify Chat, and more.
This isn't necessarily a bad thing for Shopify merchants who may value new core integrations, as opposed to having to rely on so many 3rd party apps to power their store, and who may appreciate additional integrated avenues of customer acquisition. Ever since Apple's privacy changes made it more difficult for Facebook to track customer events, which has historically been the biggest acquisition channel for Shopify merchants, store owners have been on the hunt for other affordable / effective ways to reach new customers. The Dovetale acquisition could help provide that.
Whether good or bad (there are always two sides to a coin), the acquisition of Dovetale has an impact on Shopify's ecosystem.
2. Pandemic didn't push all shopping online, and the sales volume may stem from inflation
Two year ago people thought that the pandemic irreversibly pushed shopping online, but now customers are returning to stores and e-commerce sales are back to pre-pandemic levels.
Foot traffic to malls and brick-and-mortar stores has rebounded since vaccines became widely available, causing online sales to slow in apparel, home furnishings and other categories where consumers prefer to see and touch the products in-person before buying.
In Q2 2020, the share of U.S. retail sales that happened online surged more than 4% to 15.7%, but by Q4 2021, that share had dropped to 12.9%, putting consumer buying habits roughly back to their pre-pandemic trend.
March 2022 was the first month since the pandemic hit during which e-commerce sales declined from the same period a year earlier, while in-store sales rose, according to Mastercard SpendingPulse.
- Dick’s Sporting Goods saw online sales fall 11% in its most recent quarter, while sales at bricks-and-mortar locations jumped 14%.
- Best Buy reported higher U.S. revenue in the fiscal year ending Jan. 29, despite a 12% slide in online sales.
- Macy’s said that the proportion of sales from digital sources declined in the quarter ended Jan. 29 to 39%, from 44% a year earlier.
- Amazon posted $206M in operating losses in the U.S. in Q4 2021, and revenue at its online marketplace fell by 1%, the first YoY decline since the metric was first disclosed in 2016.
- eBay reported that the number of active sellers and buyers on the platform declined in 2021 from the prior year.
- PayPal lost tens of billions of dollars in market value after it delivered a weak profit forecast earlier this year.
- Wayfair reported four million fewer active customers by the end of 2021 than the year before.
- Walmart said U.S. online sales grew 1% in the most recent quarter, while overall sales grew 5.6%.
Meanwhile consumer online spending hit record highs last month. Consumers spent $83.1B online last month, up 7% from March 2021.
So which is it — less online shopping or more?
Turns out, both… About $2.8B of the $81.3B figure represented higher prices, according to the latest Adobe Digital Economy Index.
Inflation in U.S. e-commerce purchases amounted to 3.6% in March 2022 compared to March 2021, and 0.3% over February, Adobe reported — with the biggest YoY price increases in apparel (up 16.3%) and in groceries (up 9%, a record for that category).
So while online shopping has normalized back to pre-pandemic levels, the cost of shopping online has increased.
3. Meta's 47.5% service fee on virtual items
Meta announced that it is testing a way for content creators to earn money by selling virtual items and experiences within their adults-only Horizon Worlds 3D space. (Although nothing for sale “below the waist” they said.)
Creators will be able to make and sell attachable accessories for a fashion world or offer paid access to a new part of a world. Meta is also contemplating enabling NFT sales.
So far so good, right? Par for the course. Here's the newsworthy part….
Meta plans to charge a 47.5% tax / commission / service fee / rent / whatever you want to call it on all sales.
A Meta spokesperson told told The Register in an email, “Creators will earn revenue from purchases people make in their worlds, subject to any relevant hardware platform fee, and a Horizon Platform fee which is 25 percent of the remainder. For example, if a creator sells an item for $1.00, then the Meta Quest Store fee would be $0.30 and the Horizon Platform fee would be $0.17, leaving $0.53 for the Creator before any applicable taxes.”
Meta is receiving a lot of flack for announcing the 47.5% fee after publicly objecting to Apple's 30% fee just two years earlier. Facebook at the time wrote in a blog post:
“We hope Apple will consider permanently changing its requirement for apps to use its payment processing platform as well as reduce the associated 30% tax. Such a high tax places a disproportionate and unnecessary financial burden on small businesses, particularly those that rely on other platforms, such as Facebook, to connect with their audience because they lack the resources to develop their own app.”
It seems like a great way to steer developers towards other metaverse platforms!
Don't company's usually start out attractive and then exploit developers / merchants AFTER they've already obtained dominant market share? Seems like Meta is putting the virtual cart before the virtual horse here.
4. Shopify stock structure explained
Last week I reported on Shopify's proposed plans for a 10:1 stock split. Under the proposal, $SHOP shareholders on June 22 would receive nine Class A or Class B shares for every one share held.
In addition to the stock split, Shopify’s board proposed offering its CEO, Tobias Lütke, a non-transferable founder share, which would increase his total voting power to 40% when combined with the Class B shares owned by himself and his immediate family, allowing him to remain in charge of any big decisions at the company, such as blocking takeovers.
You might be confused how that would work, so I wanted to follow up with a brief overview of Shopify's stock history:
- May 21, 2015 – Shopify's IPO offered 7.7M Class A shares at $17/each.
- Although close to 10% of the company, collectively, shareholders held just 1.1% of shareholders’ voting power because…
- Shopify’s founders, early investors and first employees were awarded Class B shares, each of which entitled the holder to 10 votes – to keep control of the firm in the hands of insiders and loyalists.
- The ratio changed every time Shopify issued shares to acquire another firm or to raise cash; these were Class A. Shopify granted 5M stock options between 2015 and 2021, plus 6.8M restricted stock units.
- Total number of outstanding shares went from 80M at year end 2015 to 126M in December 2021.
- At the same time, the number of Class B shareholders fell sharply as original investors exchanged them for Class A shares, which they could sell on the market.
- Last month, Lütke and investment firm Klister held 7.9M and 3.8M Class B shares, respectively, representing nearly all this class of stock, and 9.5% of Shopify’s total shares.
- Given the 10-1 disparity in votes per Class B share, Lütke is still in control.
- However according to Shopify's articles of incorporation, if the number of Class B shares slips below 5% of total shares, then Class B shares convert to Class A shares on a 1:1 basis — dropping Lütke's stake from almost 40% to just over 6% (effectively losing control of the company).
- In a new deal structure, Klister agreed to convert its Class B shares to Class A, leaving Lütke as the remaining Class B shareholder with 40% voting power.
- Plus, he would be awarded a new class of share called “Founder's shares” which would allow him to maintain his 40% control, even as Shopify issues more Class A shares. If Lütke sells more than 70% of his current allotment of Class B shares, his Founder's shares would lose value.
Hopefully that catches you up to speed on what's going on with Shopify's stock because it can be a bit confusing, especially when new types of shares are introduced into the mix.
5. Andy Jassy's first annual shareholder letter
Aww, the new Amazon CEO, who took over the role from Bezos in July 2021, published his first annual shareholders letter — how sweet! Now let's judge the contents. Below are some highlights from the full letter which you can read here.
- When the pandemic started in early 2020, few people thought it would be as expansive or long-running as it’s been. Whatever role Amazon played in the world up to that point became further magnified as most physical venues shut down for long periods of time and people spent their days at home… hundreds of millions of people relied on Amazon for PPE, food, clothing, and various other items that helped them navigate this unprecedented time.
- AWS played a major role in enabling this business continuity… AWS revenue continued to grow at a rapid clip—30% year over year (“YoY”) in 2020 on a $35 billion annual revenue base in 2019—but slower than the 37% YoY growth in 2019.
- In 2020, Amazon’s North America and International Consumer revenue grew 39% YoY on the very large 2019 revenue base of $245 billion; and, this extraordinary growth extended into 2021 with revenue increasing 43% YoY in Q1 2021.
- We weren’t sure what to expect in 2021, but the fact that we continued to grow at double digit rates (with a two-year Consumer compounded annual growth rate of 29%) was encouraging as customers appreciated the role Amazon played for them during the pandemic, and started using Amazon for a larger amount of their household purchases.
- In the early 2000s, it took us an average of 18 hours to get an item through our fulfillment centers and on the right truck for shipment. Now, it takes us two.
- in 2004, we had seven fulfillment centers in the U.S. and four in other parts of the world, and we hadn’t yet added delivery stations, which connect our fulfillment and sortation centers to the last-mile delivery vans you see driving around your neighborhood. Fast forward to the end of 2021, we had 253 fulfillment centers, 110 sortation centers, and 467 delivery stations in North America, with an additional 157 fulfillment centers, 58 sortation centers, and 588 delivery stations across the globe.
Jassy then goes on to highlight some of Amazon's other historical accomplishments and milestones, as well as past and recent challenges including America's “tightening labor market” — finishing the letter off with a quote from Albert Einstein and a reminder that it's still early days for Amazon.
What's in store for Amazon in the future?
For it's first big move after Jassy published his shareholder letter, the company announced a new 5% fuel and inflation surcharge for sellers that will go into effect on April 28.
Over 89% of Amazon’s over 2M third-party sellers use Fulfillment by Amazon (FBA) to for product storage and fulfillment, so the surcharge will affect a lot of sellers and subsequently Amazon's bottom line — which might help make up that recent $206M operating loss.
6. India's new rules for algorithmic fairness
The central government of India is working on a new set of policies to bring about “algorithmic fairness” for consumers who shop online. The proposed rules will make it compulsory for e-commerce marketplaces to show several results of sellers instead of just focusing on preferred sellers.
These new rules are partly (or majorly) influenced by Amazon, for example, giving search result preference to its own product line, or to company's in which it has a vested interest.
The objective is to make the algorithm democratic for the consumer and will be a part of the framework for Open Network for Digital Commerce (ONDC) that will apply to all companies engaged in digital commerce including Amazon, Flipkart, Google Playstore, Apple Store, cab aggregators and hotel aggregators.
The rules will also restrict e-commerce companies from sharing consumers' buying behaviors with anyone, stemming from independent sellers alleging that platforms have previously shared this data with preferred sellers which were partially or fully owned by the marketplaces themselves.
The proposed framework seeks to control digital monopolies and create more inclusiveness within the digital commerce ecosystem. The e-commerce market in India is expected to reach $5.5B by 2025, up from $700M now. E-commerce is also one of the country’s biggest job creators, which is another reason why the country is pushing for openness and inclusiveness.
7. Wix Events launches Seating Map Builder
Wix Events, an event management platform for tickets & RSVPs, released a new tool for venues to create customized seating maps of their venues and enable customers to select and purchased assigned seats for those events.
With the new feature, customers can see the available seating, hover over the seat to see the price, and click to select the seats to purchase. And it's not just for concert venues — tour buses, campsites, churches, clubs, and even private dinner parties can value from offering this type of seat selection.
While a valuable new feature for Wix users, I'm surprised that it's just coming out now. Wix Events has been around for several years, and seat selection feels like a pretty basic feature for a ticketing app.
No time like the present though to catch up to the market with basic features, so good job Wix! Last week I reported that Wix partnered with DoorDash to offer integrated food delivery to their restaurant merchants, and two weeks ago I reported that Wix added integration with Amazon's Multi-Channel Fulfillment. They're on a roll with their rollouts.
8. Other e-commerce news of interest this week
- Squarespace CFO, Marcela Martin, will resign from her role on July 31, 2022 to pursue opportunities outside the company. She will continue to serve while the company searches for a replacement. (Hey folks from Squarespace who read Shopifreaks… I know some pros that would be a great fit. Give me a shout if you're entertaining outside hires.)
- JPMorgan reported Q1 earnings this week, along with a $902M in new reserves, signaling a touch credit environment ahead. i2c President Jim McCarthy predicted that fintechs are going to feel the pain because those firms have never operated in an environment like this before.
- Douyin, the original Chinese TikTok, will expand into the Chinese alcoholic drinks e-commerce market via short video clips and live-selling. The new channel will combine entertainment with instant purchasing.
- Square unveiled their next generation of Square Stand, their countertop device that turns an iPad into a POS system, featuring integrated contactless tap, chip and PIN payments technology, a professional design, and a new checkout flow.
- Meesho, the Facebook-backed Indian e-commerce marketplace, laid off 150 employees from their grocery business, which was restructured and rebranded as Meesho Superstore last week.
- Amazon is renaming its free streaming app IMDb TV, which it introduced in 2019, to Freevee. They also plan to add more original, lower-budget, shows like Judge Judy-esque content, as well as house older Prime series and recently acquired MGM films.
- Zilingo, a fashion e-commerce startup in Singapore valued at $970M, has suspended CEO Ankiti Bose amid a financial probe. Investors are concerned with the startup's accounting practices, including how it kept records of transactions and revenue.
- Amazon CEO says they won't be accepting crypto as payment anytime soon, but may get involved in the sale of NFTs. He did not provide a timeline for when that may occur. Right now Amazon is focused on keeping its retail biz profitable amid rising costs.
9. This week in seed rounds, IPOs, & acquisitions….
- Tive, a provider of real-time supply chain visibility insights, raised $54M in a Series B round led by AXA Venture Partners. Last year the company grew revenue by over 300% and acquired more than 200 new customers.
- Itilite, a Bengaluru-based travel and expense software startup, raised $29M in a Series C round co-led by Tiger Global and Dharana Capital, bringing its total amount raised to $47M. The company plans to double its 300-person headcount this year.
- Welcome Tech Inc., a digital banking and community platform for immigrants, raised $30M from a group of existing investors, bringing its total amount raised to $70M since launching in 2010. The company has not yet achieved profitability and remains focused on growth, including expanding outside the U.S.
- Beam Impact, a platform that helps customers make an impact on social issues as part of their every day purchases, raised $13.3M in a Series A round led by Index Ventures. The company will use the funds to grow its team, expand its network of partners, and deepen its product offering.
- Moot, a platform that helps businesses and brands sell through multiple channels in a unified way, raised $18M in a round led by Espresso Capital. The company is on track to make $130M in ARR by the end of this year and will use the funding to expand its business.
- BlueOcean, a cloud platform that helps companies track their brand awareness and monitor related marketing metrics, raised $30M in a Series B round led by Insight Partners. More than 80 companies use their platform including Amazon, Microsoft, Google and Cisco, which they reportedly sell a subscription basis at a price that starts at $100k per year.
- UrbanPiper, a restaurant management platform that processes 18% of all online food orders in India, raised $24M in Series B round led by Sequoia Capital India and Tiger Global, three years after its $7.5M Series A round. The company currently manages more than 27,000 restaurants across eight countries and plans to deploy the new funding to launch in more regions across India, MENA, and EU with hopes to onboard over 200k restaurants in the next two years.
- Shipium, a provider of supply chain technology founded by a group of former Amazon Prime and Zulily supply chain builders, raised $27.5M in a Series Around led by Insight Partners, bringing their total amount raised to $38.7M since 2019. The company plans to ramp up engineering and add to its sales and marketing teams.
- Kubit AI Inc., a San Francisco-based product analytics startup that helps companies track business metrics related to their applications and websites, raised $18M in a Series A funding round led by Insight Partners. The company plans to triple its 13-person team and its revenue this year.
- Quiq, an AI-powered conversational platform (with chatbots), raised $25M in a Series C round led by Baird Capital. The company doubled revenue in the past year and grew to over 200 brands including Overstock, Spirit Airlines, and Brinks Home Security. Wait, so this company helps other companies have customer service like Spirit Airlines? LOL, no thanks!
- Observe.ai, an intelligent contact center software that helps human operators with customer service, raised $125M in a Series C round led by SoftBank Vision Fund, bringing its total amount raised to $231M. The company saw record growth last year, with its annual recurring revenue rising by almost 150%, and will use the new funds to accelerate new product innovations scale up its go-to-market efforts, and expand geographically.
- Zaraye, a Pakistani raw materials procurement platform, raised $2.1M in pre-seed funding from Tiger Global and Zayn Capital. The company will use the funding to build its technology and scale across several categories on its marketplace.
- Montonio, an Estonia-based e-commerce checkout solution designed for its home market, raised €11M in a Series A round led by Index Ventures. The company wants to be come a one-stop shop for everything that happens once you click the purchase button.
- Salsify, a Boston-based provider of tools for retailers and brands to efficiently up their e-commerce game, raised $200M in a Series F round led by TPG, bringing its total amount raised to over $450M and its valuation up to $2B. The company said it generated over $110M in annual recurring revenue in 2021, up 50% from 2020, and counts over 1,200 customers including Mars, L'Oreal, and Coca-Cola.
- EQL, an Australian commerce platform built to provide fairness to product launches, raised $25M in a funding round led by Insight Partners and AirTree Ventures. The startup's initial focus was on the sneaker market, but has since moved into supporting luxury apparel, accessories and alcohol and has plans to move into gaming, ticketing, and digital collectives.
- BillEase, a Philippines-based BNPL platform that lets users borrow up to 40,000 pesos ($766), raised $20M in debt financing from Lendable, shortly after raising $11M in their Series B. The service is accepted by over 700 merchants including Lazada, Samsung, and Philippine Airlines.
What'd I miss?
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Paul E. Drecksler
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