This has been an interesting week to say the least. I know that we've all been thoroughly consumed with news about the Ukraine vs Russian conflict, and with good reason.
In this week's 58th Edition of the Shopifreaks E-commerce Newsletter, I report about the effects of the war on the Ukrainian tech workforce, given that the country has become such a popular market for software development.
I've also got news about BigCommerce's moves to simplify global commerce for their merchants, updates for you on the Macy's e-commerce spin off, predictions about Shopify's advertising network, and more.
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Stat of the Week
Physical store sales growth beat online shopping in 2021. Americans spent 18% more on food, cars, furniture, electronics and other retail products last year compared with 2020, while online retail sales increased by 14%, meaning e-commerce lost ground last year to brick-and-mortar stores according to the Commerce Department via New York Times. (Retweet It)
1. The effect of the Ukraine / Russia war on the Ukrainian tech workforce
Ukraine, with its more than 200k software developers, has become a major center for software development in recent years. Therefore a number of publicly traded tech companies have direct exposure to disruption in the country, as developers in Kiev and other cities are unable to work during the Russian attack.
Seeking Alpha put together a list of publicly traded companies with the most exposure to Ukraine, of which many are Israeli for obvious reasons (like the countries' geographic proximity to one another). Israeli tech firms collectively employ around 20k Ukrainian developers.
- Fiverr – around 15% of their workforce is in Ukraine
- Wix – reported to have around 1000 employees in Ukraine which I mentioned last week they are working to evacuate
According to Protocol, other tech companies with Ukrainian workforces include Google, Apple, Snap, Oracle, Ring, Grammarly, and JustAnswer.
While tech companies are working on relocation of their Ukrainian employees, there are other issues which require their attention as well such as backing up data held in Ukrainian offices and exploring creative payment options to make sure that their employees have access to their salaries.
The uncertainty of the war is also causing long term economic impact on the Ukrainian workforces. Andy Kurtzig, CEO of JustAnswer which currently has 252 employees in Ukraine, said, “We can't take on long-term projects right now with our Ukrainian folks because we don't know what the situation is going to be in six months, let alone six days. We're trying to be as lean as possible right now.”
Much love to the people of Ukraine during this tumultuous time.
2. BigCommerce is building an all-in-one cross border solution
BigCommerce has announced a direct integration with Digital River, which works in global commerce enablement, to offer mid-market to enterprise merchants a global commerce solution that will manage payments, tax, fraud and compliance, and will simplify cross-border selling and boost global expansion.
Key features will include:
- Global payment localization – merchants can leverage access to their preferred currencies and payment methods
- Centralized Compliance – merchants can manage compliance, fraud mitigation, currency conversion, chargebacks, and global reconciliation from within their BigCommerce dashboard
- Legal Compliance – merchants can mitigate risks associated with selling internationally by leveraging Digital River's network to adhere to local tax requirements, consumer protection laws, tax collection, duties and tariffs, and payment compliance in 240+ markets
- Payment Authorizations – merchants can gain access to routing technologies that allow for lower global processing fees
- Order Management – merchants can optionally handle international end-to-end fulfillment from Digital River's existing partner network
In September, I reported that Shopify unveiled their global commerce solution, Shopify Markets, which is still in beta. Shopify also took a $193M pre-IPO stake in Global E-Online (GLBE) this past May.
Global has become the new default for e-commerce platforms, which are having to quickly adapt to the growing international commerce needs of their merchants. Merchants are going to be selling internationally with or without the help of domestic e-commerce platforms, so they might as well be along for the ride! As I mentioned back in September about Shopify Markets, offering an internal way for merchants to take their products global is a win-win for both the platforms and their merchants.
3. Macy's rejects e-commerce spinoff
Remember in November when I reported that Macy's and Koh's were being pressured by investors to follow similar paths as Saks Fifth Avenue and spin off their online stores into separate businesses from their offline department stores?
In response to the pressure, Macy’s had hired AlixPartners, the firm behind the Saks’ spinoff, to explore that and other strategies to unlock value for investors.
The results: Macy's executives have shut down the idea.
Macy's CEO Jeff Gennette, who initially opposed the idea but performed his due diligence by investigating the possibility, said on the company's Q4 earnings call, “In every scenario we considered, we found that the combination of our profitable digital platform with our national footprints will deliver greater value to shareholders than a separation of our digital and physical assets… We determined that Macy's has a stronger future as a fully integrated business with Macy's and Bloomingdale's together, and assessing a broad range of brands, price points, and customers across digital and stores”
Looking ahead, Macy's plans to keep investing in its digital business, including in its personalization tools and its third-party marketplace, which the company announced last fall. The marketplace could add sales beyond its $10B digital sales goal, increase its SKU assortment, attract new customers, and allow Macy's to respond quickly to customer demand.
Smart move Macy's! Learning towards, not away, from omnichannel is the way to go. In November, I had commented on my opposition to the Saks e-commerce spin-off, “Meanwhile, the rest of retail is going omnichannel. Online-first companies like Amazon and Warby Parker have been busy expanding into brick and mortar sales channels during the past few years, while department stores, who are ahead of the game by leaps and bounds in the offline world, are looking to take a step backwards and split off from their online channels.”
I look forward to seeing how both companies fare over the next decade with their opposing strategies — Macy's moving towards omnichannel and Saks having divided their online and offline sales channels into separate companies.
What are your predictions? Hit reply to this e-mail and let me know.
4. The Evolution of Shopify
Ben Thompson from Stratechery published a great piece this week called Shopify's Evolution which takes us through important milestones in the company's growth history. I'm going to briefly recap some of the historical bullet points from his article and then highlight some of Ben's thoughts on Shopify's future, particularly in regards to advertising.
- 2006 – Shopify launches and ties together the various pieces of the puzzle that were necessary at the time to run an e-commerce site
- 2009 – Shopify App Store is launched where devs could access the Shopify API and create apps to deliver specific functionality
- 2010 – Shopify Theme Store is launched so merchants could buy a professional theme to make their own site
- 2013 – Shopify Payments brings merchant processing in-house (rebranded as Shop Pay in 2020)
- Apple vs Facebook – a symbiotic relationship. The App Store would not be nearly the juggernaut it is today were it not for the work that Facebook put in to build out the best customer acquisition engine in the industry. The primary discovery mechanism in the App Store is search, which relies on a user knowing what they want; whereas Facebook showed users apps they never knew existed.
- Facebook & Shopify – Facebook plays a similar role for e-commerce, particularly the independent sellers that exist on Shopify, which is even more dependent on Facebook to drive e-commerce than Apple ever was to drive app installs.
- Apple’s App Tracking Transparency Impact – broke the Facebook advertising collective. It was suddenly impossible for Facebook to tie together all of the various pieces of conversion cycle for non-opted-in iOS users.
- Google & Amazon Unaffected by ATT – Search advertising is the best and most profitable form of advertising. Amazon has data on its users, and it is free to collect as much of it as it likes, and leverage it however it wishes when it comes to selling ads.
- The Original Shopify Fulfillment Network – a necessary step for Shopify. Shopify was not doing everything on their own, but instead leveraging third-party logistics companies (known as “3PLs”) that offer warehousing and shipping services, and acting as an interface between two modularized pieces of a value chain.
- The New Shopify Fulfillment Network – Shopify has moved away from their original vision. Their new fulfillment network is not going to be a platform like the Shopify App Store but rather an integrated part of Shopify’s core offering like Shop Pay.
- Shopify Advertising Services – Shopify doesn’t have any major customer-facing properties to display ads; it could potentially build some cross-shop advertising, but that doesn’t seem very ideal for either merchants or customers. The reality is that Shopify merchants still need to find customers on other sites like social networks; the challenge is doing so without knowing who is actually seeing the ads.
Ben goes on to talk more about the future of Shopify Advertising Services:
- Here Shopify’s ability to act on behalf of the entire Shopify network provides an opening: instead of being an advertising seller at scale, like Facebook, Shopify the company would become an advertising buyer at scale. Armed with its perfect knowledge of conversions it could run probabilistically-targeted campaigns that are much more precise than anyone else, using every possible parameter available to advertisers on Facebook or anywhere else, and over time build sophisticated cohorts that map to certain types of products and purchase patterns. No single Shopify merchant could do this on their own with a similar level of sophistication.
- Shopify Audiences – Shopify is already flirting with the idea above. Shopify Audiences is a data exchange network, which uses aggregated conversion data across all opted-in merchants on Shopify to generate a custom audience for a given merchant’s product. Merchants can then use these audiences when advertising on FB, Snap, Twitter, and other ad platforms either as custom audiences or lookalike audiences which should result in higher-performing ads and lower cost per conversion to acquire customers/sales. However, it doesn't address the Apple issue, because ATT bans custom and lookalike audiences from external data sources. That means that Data Exchange can’t be used in any campaign targeting iOS users.
Paul's Thoughts: One of the most standout sentences from Ben's article was, “Shopify doesn’t have any major customer-facing properties to display ads” — and the reason for this is that Shopify doesn't have a central destination where shoppers begin their search for products.
Could this change with the Shop Pay app in the future? Maybe, if Shopify leans into becoming a marketplace or creating a separate product search website / app for customers. However they'd still need to drive and retain traffic to that search portal, and they wouldn't necessarily be able to rely on their merchants to send customers to it. Because what would be the incentive of a Shopify merchant to send their customers to a search portal that helps them find merchants selling competing products?
In November, I wrote my concerns about the Shop Pay app transitioning into a marketplace:
However, still something doesn’t sit right — and that’s how Shop App grew, which is on the backs of Shopify’s merchants. When Shop App launched in 2020, merchants had the option of enabling or disabling their customers being prompted to download the app after checkout. The app was initially designed to help track shipments across multiple Shopify stores from one dashboard, as well as power their Shop Pay feature. So if Shop App were to become a marketplace, and a brand chose not to participate, did they ultimately help grow a user base for an app that now competes against them?
However nonetheless, as Ben mentioned in his article, the reality of not having a major customer facing property to display ads is something that Shopify must take into consideration in the future — especially as ad networks such as Google and Facebook encroach on their territory of providing e-commerce and merchant processing services.
5. Amazon is suing two websites for incentivizing fake reviews
Amazon is suing two websites, AppSally and Rebatest, for creating an army of “bad actors” tasked with writing fake product reviews, alleging that the sites incentivized fake reviewers to target its own sellers, as well as eBay, Walmart, and Etsy. The platforms have over 900k members.
Rebatest says they have never encouraged users to write fake reviews. A spokesperson for the company said, “What we do is to help the sellers collect some useful opinions from our users after they use the products before the products are put into the market. We don't force or incentivize our users to do 5 stars reviews.”
AppSally has yet to make a public statement in response to the allegations.
In January, I reported that Amazon is still struggling to shut down fake review groups on Facebook and Twitter, which offer free Amazon products in exchange for 5-star reviews. And in August, I reported that at least 50,000 Chinese merchants were banned from Amazon for engaging in the practice of obtaining fraudulent or incentivized reviews.
Getting rid of fake review factories is like playing a game of whack-a-mole. It’ll be an issue that Amazon continues to struggle with in the future, but one that will need to be addressed, as fake reviews undermine the credibility of their marketplace. Perhaps going on the offensive with lawsuits will help curb the rise of new groups, as I can't imagine anyone wants to fight Amazon in court.
6. India's draft e-commerce rules: What's good, bad, & missing.
In June 2021, I reported on India's Department of Consumer Affairs releasing a draft set of rules that aimed to tighten the governance of ecommerce platforms. Currently in India, e-commerce platforms like Amazon / Walmart are NOT allowed to hold inventory or sell items directly to consumers. However Amazon, Walmart, and other big players get around that rule through a maze of joint ventures with local companies that operate as inventory-holding firms, and the government is looking to change that with stricter regulation. Since then I've been keeping you in the loop about the proposed rules.
Pradeep Racherla, Professor of Marketing & Program Director at School of Management in Mahindra University, recently wrote an op-ed for The Hindu Business Line outlining what he feels are the good, bad and missing elements of the draft e-commerce rules. I'll outline his thoughts below:
- Firms are expected to provide clear information regarding product details, photos, returns and exchange rules, modes of payment, grievance redressal mechanisms, etc. This is a positive for consumers since transparent information and frictionless purchase processing are keys to a healthy e-commerce market.
- Platforms are required to open up the details of the sellers, which is good because buyers can now decide to do business with sellers beyond a platform if they wish to, which is good for seller welfare.
- Platforms cannot use the vast data available to them to gain unfair advantages of sellers or show differential treatment between sellers, which is again good for sellers.
- The proposed rules infringe on other ministries' mandates. For example, the “fallback-liability” clause holds platforms liable for any mis-selling by third party sellers, however, this goes against the FDI rules of the Finance Ministry which prevent platforms from explicitly managing their inventory.
- It takes away the immunity granted specifically to marketplaces under the IT Act.
- Rules related to the abuse of competitive position are unnecessary since there is already a robust Competition Commission that oversees such issues.
- It will choke all types of businesses. For example, Starbucks, an official partner of Tatas, cannot sell coffee on Tata e-commerce app, which is detrimental to business logic.
- A definitive structure of the industry is required, given that e-commerce is no longer an isolated channel, but rather a growing part of commerce in general.
- The rules lack nuance. The proposal must clearly distinguish between an “inventory” platform versus a “marketplace”, because rules like fallback liability are appropriate for one but not the other.
I follow the Indian e-commerce market closely because I feel that India is going to be one of the most important commerce markets in the world in the coming decades, and that the rules they establish will be modeled by other developing countries as their own e-commerce markets grow. I'll continue to keep you in the loop.
7. Other e-commerce news of interest this week
- Whole Foods opened its first-ever store in Washington D.C. that uses Amazon's Just Walk Out technology, which allows customers to bag their own groceries as they shop while in-store sensors track their selections.
- Ian Crosby, co-founder and former CEO of the accounting software startup Bench, is joining Shopify as product director of their business banking offering, Shopify Balance.
- Rakuten, a Japanese e-commerce marketplace, launched an NFT marketplace that will allow for the purchase, sale, and trade of virtual assets based on Japanese manga and TV shows.
- The new Microsoft Defender for Cloud now includes support for Google Cloud and Amazon Web Services. The product will hook into its competitors' products to provide its cybersecurity services.
8. This week in seed rounds & acquisitions….
- RetainIQ, an India-based e-commerce marketing firm, raised $2.3M in a funding round led by Accel Partners. The company will use the funding to scale its operations, accelerate product development, and expand its core teams across engineering, product, sales, marketing, and operations.
- Alloy Automation, a platform that connects e-commerce tools, raised $20M in a Series A round led by a16z, just a year after raising $4M. The company will use the funding to secure the partnerships and talent it needs without fretting about near-term cash management.
- fabric, a headless commerce platform, raised $140M in a Series C round led by Softbank, less than a year after its Series B, valuing the company at $1.5B. The new funds will be used for accelerating product development and geographic expansion.
- Depict.ai, a Stockholm-based startup that has built a product recommendation tool that it believes can help any retailer sell like Amazon, raised $17M in a Series A round led by Tiger Global, following a seed funding round of $2.8M that the company raised last year. The company will use the funds to fuel its growth in the U.S. and Europe, after picking up 60 customers including Office Depot and Staples.
- Zip, an Australia-based BNPL provider, acquired Sezzle, a U.S. based BNPL provider, to further bolster its BNPL expansion into the U.S.. The combination of the two companies is expected to result in pro forma 8.8M customers and 60.5k merchants in the U.S.
- Flashfood, a Toronto-based mobile marketplace that providers customers with access to discounted food nearing its best-by date, raised $12.3M in a Series A round led by S2G Ventures. The company will use the new funding to support their continued expansion into the U.S. and allow it to work toward a more sustainable food system.
- Weee!, a marketplace that offers over 10k locally sourced and hard-to-find Chinese, Japanese, Korean, Vietnamese, Filipino, Indian, and Latin food offerings for customers, raised $425M in a Series E funding round, just a year after its $316M Series D round, bringing its valuation to $4.1B. The company will use the funding to deepen its supply chain, build relationships with vendors, do more direct importing of products to the US. and expand into two more ethnicities.
- Celcoin, a provider of financial and banking technology infrastructure, acquired Flow Finance, a techfin that provides infrastructure for credit companies and allows any company to offer credit through APIs. The acquisition joins effort with Celcoin in the consolidation process towards a possible IPO in 2023.
- OpenCommerce Group (OGG), a Vietnam-based cross-border e-commerce startup that provides solutions for the drop shipping and print-on-demand business models, raised $7M in a Series A round led by VNG. The company has over 86k sellers across 195 countries and have generated over $670 in GMV since launch two years ago. They will use the funds for product improvements and to reach new customer segments.
- RightHand Robotics, an automation robotics company which creates solutions for fulfillment centers, raised $66M in a Series C financing round led by Safar Partners, bringing its total raised to $119.3M over six rounds. The company will use the funds to accelerate product and business development, scale its global presence and partner network, and expand its team to support overall growth plans.
- MarketForce, a Kenyan B2B retail distribution platform that allows MSMEs to order, pay, and receive inventory digitally, raised $40M in a Series A round led by V8 Capital Partners. The company will use the new funding to introduce a BNPL offering, provide more digital financial and banking services, and expand its presence in its existing markets of Kenya, Nigeria, Uganda, Tanzania, and Rwanda.
- Point.me, an online search tool that lets users discover real-time reward flight options, raised $2M in a seed funding round led by PAR Capital Ventures. The company will use the funds to expand its product range and enhance the capabilities of the search engine, which will require a deeper engineering team.
- Upflowy, a Sydney-based startup that offers drag and drop tools for A/B testing and personalization on web and mobile apps, raised $4M in a funding round led by Counterpart Ventures. The company will use the new capital to enhance its platform capabilities by leveraging data science areas like predictive personalization, develop additional features, and grow its time to over 30 full time employees.
- Zenjob, a Berlin-based marketplace that targets students looking for side jobs in sectors like retail, logistics, and hospitality, raised $50M in a Series D round led by Aragon, two years after raising $30M in their Series C. The company has matched more than 1M jobs across Germany and the Netherlands. They will use the new funding for expansion within Europe and USA and product dev, including new data-based automation features.
- Bloomreach, a platform that offers tools to personalize customer journeys, raised $175M in a round led by Goldman Sachs Asset Management, bringing its total funding raised to $420M and doubling its valuation in one year to $2.2B. The new capital will be invested into R&D to bring more personalization to their platform and make it easier to connect via APIs.
- Clickatell, a mobile and chat commerce platform, raised $91M in a Series C round led by Arrowroot Capital, which is coming a decade after it's last round in 2011. The company will use the capital injection to expand its U.S. footprint, scale its sales and marketing efforts, and accelerate the development of its chat commerce offering across South Africa and Nigeria.
- Increff, a Bengaluru-based SaaS that helps small to medium B2B and B2C retailers gather data for algorithms, raised $12M in a Series B round co-led by Premji Invest and TVS Capital Funds and Flipkart, valuing the company at $73M. The company will use the new funds to further expand services to the rest of Europe and into the U.S.
- Scalapay, an Ireland-based BNPL provider, raised $497M in a Series B round led by Tencent and Willoughby Capital, making it Italy's first unicorn startup with a $1B+ valuation. In total, the company has raised $1.19M. The company will use the funding to further its launch of its new specialized platform, Magic, which removes common friction points at checkout.
What'd I miss?
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Paul E. Drecksler
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