December 1st, 2021: Commercetools’ New Acquisition, Cyber Week, UPS and FedEx Holiday Crunch, and Nike Invests in the Metaverse
It’s December 1, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
eCommerce Platform CommerceTools Takes Aim at the Mid-Market with New Acquisition
Tracking the Cyber Week Winners and Losers
UPS and FedEx Looking Good for Holiday Crunch
Nike Invests in the Metaverse with a Roblox Partnership
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
[PAUSE]
BUT FIRST in our shopping cart full of news….
eCommerce Platform CommerceTools Takes Aim at the Mid-Market with New Acquisition
In what seems like a year ago but actually was right before Thanksgiving, CommerceTools acquired composable front-end platform Frontastic signalling an evolution in its strategy. Previously, CommerceTools did not have a packaged front-end solution to help merchants evolve their user interfaces, it just provided a set of composable APIs.
The cost of the acquisition was not disclosed although Frontastic had raised less than $4 million so perhaps $12 million - $15 million seems likely at reasonable valuations. It seems unlikely that CommerceTools would spend more than 25% of its recent $140 million recent fundraise in one place, especially since it announced that this was part of an updated portfolio strategy — it means there is more to do.
For CommerceTools, this means they are headed from Enterprise down to the mid-market which the company defines at $50 million - $250 million in GMV per year, which most people would still call the upper mid-market.
What this means for platforms like Shopify is unclear. These companies still do not overlap a whole lot in the market.
I still feel that most people don’t understand what powers Shopify’s success. Ultimately it’s the power of three things together:
1 - Total Cost of Ownership
2 - Speed to Market
3 - Developer and Agency Community
Most headless platforms are trying to say that Shopify is missing something by not being flexible enough. A message about flexibility on its own has no hope of competing with the broad base of Shopify customers and CommerceTools is acknowledging that most of the middle market just wants something easy an cheap.
Most headless platforms on the other hand have a higher cost of ownership and a slower speed to market relative to cloud platforms like BigCommerce and Shopify. The market isn’t moving anytime soon to a solution that is harder to setup and slower unless there is some critical priority. For some merchants, that’s B2B. For others, it might be checkout flexibility.
>It’s worth tracking this battle because Shopify’s recent announcements have been about becoming more flexible, and now CommerceTools is making noises that it wants to become easier to use, which means that if this trajectory keeps up these companies could end up competing for larger merchants in the future.
[References:]
Our Second Story
Tracking the Cyber Week Winners and Losers
This holiday shopping weekend was highlighted by a few winners and a few losers.
Buy Now Pay Later was a clear winner, being used on 8% of transactions, a 31% increase according to Salesforce data.
Klarna, for its part was up 124% on Thanksgiving compared to prior years, although I have read some reports that AfterPay is not doing quite as well recently.
The overall eCommerce narrative took a hit in the media, but in reality is diong just fine, thank you. Shopify, one of the posterchildren reported 20% growth in sales to $2.9 billion up from $2.4 billion a year ago, and double two years ago. Salesforce’s Data reported about 5% Black Friday growth in the US and about 2% globally. And remember, this is after almost every Black Friday promotion was pushed forward by as much as 2 months. Only in some strange alternate universe would this be considered eCommerce losing steam.
The biggest loser by far in the past week was the market’s confidence in the end of the pandemic. News of Omicron variant’s potential was concerning enough for many countries to reinstate travel bans — this really spooked the markets which interpreted this as a sign that Coronavirus will not go gently into that goodnight. From a retail point of view, the silver lining is the progress of vaccinations in the US which likely prevented much greater market losses. Otherwise, physical retail, travel and any category like luxury which depends on events could keep sliding for the foreseeable future.
Beyond some of these elements, I still can’t shake the feeling that eCommerce in the next few years will be primarily a game about talent. And talent flows to where it is appreciated and rewarded. Target’s move leapfrogs previous announcements from Macy’s and Walmart not to open on Thanksgiving by saying they won’t ever open on Thanksgiving ever again. I view this as a positive for all of us in the eCommerce industry.
[References:]
Our Third Story
UPS and FedEx Looking Better Than Expected for Holiday Crunch
A combination of factors seem to have made things materially better for shippers like FedEx and UPS this holiday, despite worries about labor, according to a recent WSJ report.
A few factors seem to be at play here:
First, discounts were spread into early October, so shoppers got a head start compared to previous holidays. While shippers have been trying to reduce peaks for years, it finally succeeded this year due to the media narrative on the global supply chain crisis.
Second, the big shippers learned something from last year. They don’t feel as beholden to their largest customers. UPS and FedEx in particular got really good at just telling their customers on peak days, there’s only so much volume they can accept and to roll that volume forward to other days. Some like FedEx even introduced credits and monetary incentives to ship later in the week.
Third, brick and mortar retail made a rebound! This is great news for everyone despite this being an eCommerce-focused podcast. While coronavirus made a comeback this summer with Delta, retailers by and large staged a volume resurgence on and after Q2 of this year. The mere existence of an alternative way to shop this year served as a kind of pressure relief valve for a constrained domestic supply chain. Simply put, with more consumers in stores, the fewer consumers waiting for purchases shipped to their home - while there is still growth, it’s not as bad as it could have been. The difference between 5% year over year growth and 100% year over year growth is tremendous, and that is the tale of last year versus this year.
>Now this doesn’t mean that some shippers - particularly those that are labor-constrained right now like Amazon and FedEx - won’t be forced to pay chaos costs due to their facility staffing issues. I’m not expecting Q4 profitability numbers to be fantastic, but it is possible that they will only be slightly worse than Q3 and not twice as bad.
[References:]
[PAUSE]
And Our Last Story
Nike Invests in the Metaverse with a Roblox Partnership
Last week Nike partnered with ROBLOX to create NikeLand there and connect to Roblox’s 43.2 million daily active users. In doing so, Nike is accomplishing 3 things:
First, they are creating a representation of the Nike brand in-game and essentially purchasing in-game real estate.
Second, they are setting up games in the Nikeland area that allows participants to play games and interact.
Finally, they are setting up a digital showroom where you can outfit your digital avatar with gear.
It’s really this final point that is most interesting to me. This allows Nike to learn a ton about a young demographic and get them interacting with the Nike brand.
One of my friends at Google responded to me about this news and asked why it was interesting from a Commerce point of view - as there didn’t seem to be any transactions.
My answer to him was pretty simple - Whenever there are consumers interacting with your brand, there is commerce happening. 95% of people that come to any website aren’t buying anything, but the fact that they are interacting with you means you are building trust, credibility, and a long-term relationship with the consumer which is extremely valuable.
Now you may have heard the term NFTs, which are essentially digital assets like artwork that you can prove you own. NFTs are designed to be ultimately owned by the user themselves, rather than the game.
In the long-run, I predict that portable user-owned assets will prevail as consumers will demand that many of the digital assets they take to different platforms be portable, which is the framework that the Ethereum blockchain provides for NFTs.
Personally, I am super-interested in the coming intersection between what’s being called web3 - which is generally a vision for the decentralized internet based on blockchain - and Commerce, and have setup a Discord server for interested parties to learn from each other. Check this week’s show notes to find out more.
[References:]
https://www.cnbc.com/2021/11/02/nike-is-quietly-preparing-for-the-metaverse-.html
CommerceDAO Discord Server: https://discord.gg/ctepd7S7w8
[PAUSE]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
eBay acquires Sneaker Con which runs a leading Digital Authentication business for footwear. This move follows Poshmark’s recent moves in the space like its acquisition of Suede One, a competing authentication service.
While it’s actually good to see eBay investing in its future, it remains to be seen if eBay is going to improve its seller and buyer experience as well.
https://www.ebayinc.com/stories/news/ebay-acquires-sneaker-con-authentication-business/
Second
Israeli-based Cross-Border service provider Global-E has acquired US based cross-border provider Flow Commerce. The two services while competitive have always gone after different parts of the market. After the recent deal between Shopify an Global-E, Flow was somewhat on the outside looking in so this tie-up makes a lot of sense.
Third
Youth lifestyle marketplace platform TheDrop raised $4.6 million in a Series A funding round. The thesis behind the company is that while many creators and designers have launched one or two retail storefronts to showcase their designs, a multi-brand marketplace experience that preserves the brand’s image is super-interesting and could introduce emerging designers to many new customers.
Fourth
In other marketplace acquisition news, StockX has acquired the assets of Scout, an inventory management system. The goal is to use this acquisition to help improve the selling experience on the StockX platform.
https://www.retaildive.com/news/stockx-acquires-inventory-management-company-scout/610193/
AND FINALLY …
Supply Chain liquidity provider 8fig raises a combined $50 million in Series A financing to help brands manage their inventory buys and not have to choose between having cash on hand and buying more inventory. The company is raising this additional money on top of over $6 million raised earlier this year from Battery Ventures.
[PAUSE]
That’s all for this week! Till next time Watsonians.....
[PAUSE]
Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our show is produced by Citizen Racecar. Alex Brower is the producer and also wrote our theme music. The Executive Producer is David Hoffman.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
