How Is Shopify Impacting the Software Infrastructure Providers?
If there is one thing that is clear, it’s that the rise of Shopify's ecosystem threatens a lot of software infrastructure providers. If the inventory and eCommerce platform of Shopify is the "core," everything else is replaceable context -- including Intuit's flagship accounting software.
This likely had at least something to do with the recent acquisition of TradeGecko by Intuit, and the shrinking of StitchLabs over the last couple of years before its recent acquisition by Square.
A huge trend happening right now is that omnichannel infrastructure players (everything from inventory to operations) are being commoditized by Shopify's ecosystem due to the "App Store" mindset (another provider for X is always just around the corner).
It's getting harder in the SMB software space unless you are tied to a major ecosystem. TradeGecko likely viewed this as the best acquirer option for some time, from a strategic point of view.
I also think that Intuit looks at Square and Shopify with envy (Shopify is now 1.5x Intuit market cap). "Where is our place in this new world, and how can we deepen our defensible moat?”
There were a lot of comments and conversations in response to my initial post (side note: I love when that happens!) and some interesting discussion emerged. I’m sharing just some highlights here, and always appreciate when folks chime in with such great insights.
Jordan Brannon said “We're in the process of publishing a piece titled 'Who Should Fear Shopify' and Intuit was on that list. Shopify has a low barrier of entry to accounting and bookkeeping (especially compared to fulfillment) and we know that their clear path to incrementing a bigger take rate from every merchant they service is to find areas where merchants pay a lot and have low loyalty. Long run, one of the top areas for Shopify to move to, especially with a focus on reaching larger, more mature merchants, is ERPs [Enterprise Resource Planning]. With fulfillment underway, POS [Point of Sale], e-commerce, taxes (watch out Avalara), marketing, accounting, etc. they're not far off going head to head with most retail ERPs. Like accounting solutions, no one is happy with their ERP (that I've met), and they pay a lot for 'meh' sentiments.” My take on this is that no one wants to build a tax solution from the ground up, so I think Avalara is plenty safe. I think Shopify's angle in this space would be "you don't really need an ERP." Basically X is good enough.
To that, Jason Greenwood responded “Not [good enough] for complex omni-channel merchants and manufacturers it isn’t...small end of town doesn’t need ERP though - they can just connect Shopify to Xero for the financials.” To which I say Shopify would just as soon fund the rebels who put them out of business than add features to support them.
Jordan Brannon, again: “…not a lot of people wanted to get into fulfillment networks either. Given the monetization of SaaS and service solutions like Avalara, and the upside in terms of share price, I think Shopify could easily make an acquisition of any of the up-and-comers in that space.” Agreed it would be easy but also quite cold-blooded to put out an RFP for tax solution, allow Avalara to win it and then buy a competitor. I haven’t seen this level of ruthlessness yet.
Last bit from Jordan, “Let's not forget that Shopify changed it ToS for app providers so it could use the data they generated. If Amazon is a bad guy for taking product performance data, is Shopify that much better? Shopify has made Avalara a lot of money, and Avalara has been rewarded handsomely for that relationship over time. Shopify isn't oblivious to that, and the leadership team seems to have a great knack for finding billion dollar valuation adds by entering markets where other SaaS providers are being highly valued. As the e-commerce space heats up, Shopify will need to find green fields to enter (even if its just via press release) to keep floating its price. And the tax automation market is pretty ripe. A handful of entrenched competitors, most of whom are chosen based on relationship to a platform like Shopify rather than their own merits. High valuations. Strong business arguments and sales arguments for the recurring rev model. It may not be a next month sort of deal but it wouldn't surprise me in the next 6 to 12 months.” There is so much here, thank you Jordan for sharing your insights!
Ethan Logan took us in a slightly different direction “How intuit didn’t get into payments sooner and handle omni-channel payments through apps seems like such a huge missed opportunity. They own apps.com!! We even stopped using their payments for a while since it was much more expensive and confusing compared to Square at the time…Now they have to deal with bill.com and others. I’ve always felt they have it all in front of them for the taking in SMB and somehow only release halfway there products after there is a ton of competition, and only saving grace is the captive audience. I thought maybe they must have a strategy and this was the best ROI, but it’s starting to look like the company just moves slow. Why am I using someone other than QuickBooks for payroll, bill pay, payment processing, benefits, trade credit insurance, product catalog management, inventory, etc.? I don’t get it.” I think they missed the boat and may be too generalist of a company to have something specific to the eCommerce market. They need to work with any type of business in America. It's hard to nail eCommerce without a specific focus.
Dossy Shiobara posed a really interesting question, asking “I wonder how much of a risk to Shopify their dependence on white-labeling Stripe as Shopify Payments is. If Stripe launched their e-commerce platform, could they just eat Shopify’s lunch?” I think Stripe does threaten quite a few people...They seem to be content forging their own path. I expect a big move from them at some point.
Dossy then went on to propose perhaps Stripe’s next move should be Stripe Banking. In response to a comment about Stripe branching into their own SaaS offering, Dossy responded “Honestly I think Stripe launching an e-commerce SaaS offering would be a distraction/mistake. Let others fight that battle while you offer payment processing to them all... It's like the old 1940s "gold rush fever" parable: the people who really made money were the ones who sold tools and supplies to all the people who went off looking for gold.” I am always delighted when people remind me of the old Levi Strauss adage :-)
