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Can Shopify Compete With Amazon Without Becoming Amazon?

Similarly, a partnership ethos sounds great and offers flexibility and reach, but there are also real drawbacks in trying to align the incentives and interests of so many parties. Facebook and Shopify currently present a united front, but it’s hard to imagine, given how important commerce is to the monetization of Facebook’s platforms, that Facebook won’t eventually try to cut Shopify out of the equation. And Shopify Fulfillment Network will need to balance the customization that brands want with the standardization that is necessary to yield efficiency. Part of what enables Amazon to offer two-day delivery, after all, is that everything is shipped in the same kinds of packaging by Amazon employees trained from the same manual.

My partner and I spent our days posting blurbs on Facebook groups, talking to moms on Nextdoor, the neighborhood social-media site, and experimenting with various kinds of referral programs. Naïvely, the one thing we didn’t want to try was paying for digital advertising, in part because grocery margins were already razor thin, and if we had to pay to acquire customers, we would have lost money on every transaction. Perhaps as a result, we were never able to generate more than a handful of orders a day, far from the thousands we would have needed to break even.

We weren’t the only ones finding the direct-to-consumer food business challenging. In October, Jessie Gould wrote on Medium that Ox Verte was winding down its home-delivery service. “The world has changed dramatically,” she said, and Ox would have to as well. She planned to take some time to figure things out, but the ambition was to build a company that would provide plant-based food to an even broader audience. “For the past six years, Ox has transformed the way NYC office workers eat, and I believe that we can do the same for all American families.”

As for my business partner and I, we closed Mellow down after a month, having stumbled upon what many other Shopify merchants well knew: You need two components to build a successful e-commerce business, the software that runs the online store and the marketing to get customers to come to the store. A large part of what makes marketplaces like Amazon so attractive to merchants — why they keep selling there despite the lack of data transparency and the costs — is that it provides both components. Shopify, on the other hand, only provides the former. If you sell a product for $10 on a Shopify store, you’re paying 59 cents for payments processing and maybe a few dollars more for storage and fulfillment, but that doesn’t include any marketing. When I asked Finkelstein about this during our interview, he acknowledged it, albeit euphemistically. “There is this resourcefulness that is required,” he said. “That’s what’s exciting about commerce and retail in 2020. It’s about who can figure out how they can connect best with a potential set of customers.” The gist of his response was that building an e-commerce brand today is essentially a marketing exercise; it’s the one thing that you, as the entrepreneur, can’t outsource to Shopify.

You can, however, outsource it to the big ad networks. For most of the mid-to-late 2010s, the playbook for a direct-to-consumer brand was straightforward: a Shopify site and Facebook ads. Let’s say you spend $15 to manufacture a sweater, pay another $15 to market it through Facebook ads, then sell it for $80 on your Shopify store and pocket $50. The problem was that Facebook, like Amazon, is a landlord who knows how to squeeze blood out of a stone. By early 2020, the same brand was paying $75 per sweater to Facebook and losing money on every transaction. Even for brands that were able to keep down their C.A.C., or cost of acquiring a customer, they often found it was a strategy that didn’t scale up. As they went from spending $500 a day on Facebook ads to $5,000 a day, the digital audiences they were targeting remained roughly the same size, driving up the costs of getting consumers while also challenging their patience. “It’s the easiest time in the world to make something and build a business to 20 million” in annual revenue, says Allbirds’s Zwillinger. “Now, getting beyond that — you need to have great business strategy and great product.”

He draws a line between truly distinctive, innovative products with strong organic marketing (like Allbirds, of course) and white-label razors, toothbrushes, phone chargers and groceries gussied up in fancy packaging that constitute a good proportion of the direct-to-consumer world. The former, he believes, can make a go of selling their wares exclusively on Shopify, while the latter are commoditized products that will ultimately have to go to Amazon, because that’s where their customers are.

Brooklinen, for instance, a well-funded direct-to-consumer sheets company that runs on Shopify (and has blanketed the New York subway system with ads), began selling on Amazon as well two years ago. “We got a report that we had thousands of people searching for Brooklinen on Amazon search,” Justin Lapidus, the company’s senior vice president for growth marketing, told me. “And that more than 90 percent of those people were ending up buying other products that were not Brooklinen.” For Brooklinen, it was a worthwhile trade to give up some profit in exchange for access to a market it otherwise wouldn’t be able to tap. “A lot of people just say they only buy things on Prime,” Lapidus said.

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