Platforms in an Aggregator World

Author: Ben Thompson (Stratechery) URL: https://stratechery.com/2020/platforms-in-an-aggregator-world/ One-line: A follow-up to The Anti-Amazon Alliance: Shopify ($SHOP) is a platform, not an Aggregator — it wins when its merchants win — but the Apple/Facebook privacy alliance is making it harder for the platforms that empower individual entrepreneurs to compete.

Key claims

• In the month since The Anti-Amazon Alliance, two principals made big moves: Shopify ($SHOP) announced the Shop app and Facebook ($META) announced Facebook Shops.
• Shopify is a platform, not an Aggregator: Google and Facebook collect customers, but Shopify (and open-source WooCommerce) provide the infrastructure merchants use to sell — and now to ship, via the Shopify Fulfillment Network.
• Being a platform means you win when those on your platform win, even if customers never know you exist — e.g. Shopify packaging that looks like it came from the merchant, not Shopify.
• Shopify should NOT directly acquire customers: it’s out of step with its position in the value chain, and there’s no reason to think Shopify would beat its merchants at it — Facebook’s customer-acquisition ability is exactly why it can charge a premium.
• Shopify’s discomfort with the Facebook “partnership”: Facebook Shop integration is a Shopify feature, but Shopify is locked out of sales made via Facebook Checkout — no Merchant Solutions revenue, no participation in merchants’ growth upside.
• The deeper worry: maximizing privacy without weighing entrepreneurship and competition leads to unintended outcomes — Facebook Shops succeeds partly because Facebook and Apple “teamed up” to make it impossible for Shopify to fix the payment problem itself.
• Thompson’s optimism rests on platforms like Shopify ($SHOP), Stripe, and Substack that let individual entrepreneurs build with world-class tools; making those tools harder to use mostly benefits incumbents. #Picks and Shovels

Notable quotes

Shopify is also working to help merchants get the things they sell into customers hands with the Shopify Fulfillment Network.

One particularly clever component of the Shopify Fulfillment Network is that the same templates a merchant uses to customize their website also translate seamlessly to custom packaging… it appears as if it came from that merchant, not from Shopify. That’s part and parcel of being a platform: you win when those on your platform win, even if customers never even know you exist.

Sure, Facebook Shop integration will be a feature of Shopify’s Subscription Solutions, but Shopify will be locked out of sales made via Facebook Checkout, which means no Merchant Solutions revenue, and by extension, no participating in the upside of its merchants’ growth.

Privacy is a good thing, but so is entrepreneurship and competition; maximizing one without any consideration of the others leads to unintended outcomes.

Facebook Shops is a perfect example: it is going to succeed because it is good for Shopify’s merchants, but the reason it is good for Shopify’s merchants is because Facebook and Apple effectively teamed up to make it impossible for Shopify to fix the payment problem on their own.

This makes me sad: the part of the Internet that fills me with the most optimism are platforms like Shopify ($SHOP) and Stripe and Substack that make it possible for individual entrepreneurs to try and build their own businesses with world-class tools at their disposal; making it hard to utilize those tools primarily benefits established companies and apps.

Notes

• The fly-wheel for Shopify ($SHOP) is not about driving consumers / buyers; it is about powering more and more merchants. They want the world to run on Shopify.
• On the Shopify Fulfillment Network: Thompson isn’t fully sold on Shopify building its own logistics service (he thought a common interface to independent 3PL providers might make more sense), but he “absolutely” endorses the company making massive investments here.
  • Shopify ($SHOP) should acquire Deliverr

How it connects

• The Anti-Amazon Alliance — the prior essay this directly continues.
• Shopify ($SHOP) — the central platform: merchant-powering fly-wheel, Fulfillment Network, locked out of Facebook Checkout.
• Facebook ($META) — the Aggregator collecting customers and launching Facebook Shops.
• Stripe / Substack — fellow entrepreneur-empowering platforms Thompson champions. #Picks and Shovels
• Aggregation Theory — the platform-vs-Aggregator distinction at the heart of the piece.
• Ben Thompson / Stratechery — author and publication.