The Complicated Relationship between Shopify and App Developers

Shopify is spinning fast in one of its flywheels (merchants and apps) and working hard to setup another flywheel input (buyers) through its Shop app. This isn't always great news for app developers.

For apps, the situation is similar to the situation for Amazon sellers, but I think Amazon sellers are in a much worse situation.

The Shopify merchant/app ecosystem works like this:

  • Shopify wants its platform to work out of the box for 80% of merchant use cases.

    • But that's not possible due to how diverse merchant needs are.

  • As a SaaS provider, they have relatively perfect information on what apps are being installed.

    • Which means they will either select a single-source provider for the masses (Avalara: taxes / Stripe: payments) or build it themselves (E-mail).

    • Until a new app category gets to 80%, rinse, repeat.

  • Because of the growth of Shopify, more apps target Shopify first relative to other cloud providers like BigCommerce.

    • Which gives merchants more options, attracting more of them to the platform.

    • Which install more apps, and repeat the cycle.

For the app developer, it's a little bit of a devil's bargain in some cases.

Great while it lasts, but ultimately you may be replaceable.

There is actually yet another flywheel that is unmentioned here so far, I think I will leave this to another post. That flywheel is the one between development agencies and the Shopify platform itself. Suffice to say Shopify agencies are very happy that Shopify is growing. But they are also in another devil's bargain that they have to support Shopify to get new leads from them, or risk being cut off. Which is great, until it's not. Suffice to say, the leverage is not with the agency.

Shopify agencies act in a similar way for their ecosystems that Amazon products act on the marketplaces. Some agencies get locked in a downward spiral which has the overall impact of reducing total cost of ownership of the platform - since agencies are such a huge component of that. That result is good for brands. Many agencies are forced to implement all manner of tactics to keep their rates down because Shopify costs less than the last generation of big eCommerce platforms.

The reason Amazon sellers are in a much worse situation is that it is about 10x easier to source a new product from China to flow into Amazon's demand than it is to build a SaaS software business at scale. So much has to go right. It always seems simple until you really how hard product development is, product management is, marketing is, getting in front of merchants, and the fact there is often entrenched competition in the top categories unless you are inventing a new category. Then there's churn. If you pick the wrong customers you slowly go out of business due to churn. SaaS is difficult. Which works in the favor of the app developers over Shopify doing it themselves because the smaller app developers can have more focus/specialty.

Rick Watson

Rick Watson founded RMW Commerce Consulting after spending 20+ years as a technology entrepreneur and operator exclusively in the eCommerce industry with companies like ChannelAdvisor, BarnesandNoble.com, Merchantry, and Pitney Bowes.

Watson’s work today is centered on supporting investors and management teams incubating and growing direct-to-consumer businesses. Most recently, in partnership with WHP Global, Rick was a critical resource in architecting the WHP+ platform, a new turnkey direct to consumer digital e-commerce platform that powers AnneKlein.com and JosephAbboud.com.

Watson also hosts a weekly podcast, Watson Weekly, where he shares an unbiased, unfiltered expert take on the retail sector’s biggest players.

In the past year alone, Rick has spoken at many in-person and virtual events as well as podcasts on topics ranging from retail/ecom to supply chain/logistics and even digital grocery including CommerceNext IRL, ASCM Connect, and Retail Innovation Conference.

https://www.rmwcommerce.com/
Previous
Previous

Shopify’s brilliant buyer flywheel

Next
Next

How Three Silicon Valley CEOs show eBay’s potential future