December 20th, 2021: Meta and Shopify, Carolyn Everson’s early departure, new marketplaces, and buy now, pay later in 2022
It’s December 20th, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Is Meta Taking Aim at Shopify?
Instacart’s President Carolyn Everson Departs After Just 3 Months
What’s With All the New Marketplaces?
What Does 2022 Have In Store for Buy Now Pay Later?
- and finally, The Investor Minute, which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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BUT FIRST in our shopping cart full of news….
Is Meta Taking Aim At Shopify?
Business Insider recently reported on a leaked memo from Meta which discusses its eCommerce ambitions. Here are a few points from the report, most direct quotes from a Meta executive.
1 - "We need to make progress against our vision of our apps being a primary destination for commerce."
2 - "Our offsite ecosystem remains critically important, not least because we will have US offsite sellers that decide never to upgrade to onsite and a large international presence of offsite Shops for quite some time."
3 - "Growth in on-site purchases will ‘help commerce merchants that are feeling the pain from Apple's iOS change,’ Levy wrote."
All these things are true, and are from the perspective of the Meta advertising business, which is still recovering from Apple’s recent changes, along with many marketers who depended on the platform.
BUT. You knew there was a but, right?
Here’s what Meta is missing.
First of all, the way Meta describes the world is incredibly self-centered. Anyone whose store is on another platform is part of the offsite ecosystem waiting to upgrade. Or downgrade. Have you ever looked at a Facebook Shop? Yahoo Stores were better in the year 2003.
Second, the consumer is the engine of this entire flywheel. If there are no consumers, there is no merchant spending money on ads to attract those consumers. But does that matter to Meta? It’s not mentioned in the report at all.
I’m particularly struck by the phrase “primary destination for eCommerce.”
Know who else wants to be the primary destination for eCommerce? Amazon. Yes, the same company 63% of consumers start their product searches with.
So a company that doesn’t even identify the buyer in its memo is going to topple the greatest eCommerce company the world has ever seen? Not bloody likely.
Finally, by all accounts Facebook’s engagement is declining. Who are they losing share to? TikTok, that viral sensation you can’t take your eyes off, which incidentally is capturing the rest of the attention of the younger generations whenever they are not playing Roblox or Minecraft.
Which leads me to think — if I’m competing with Meta right now, I see opportunity everywhere.
Why?
The company seems to have lost its way, many top executives are leaving, and the company has lost sight of the reason its current users are there.
It’s no wonder that Amazon and Walmart’s advertising businesses are skyrocketing.
[References:]
Our Second Story
Instacart’s President Carolyn Everson Departs After Just 3 Months
It’s certainly been a rocky road for Instacart for the past year. Let’s review a few key events going back to 2019.
Seth Dallaire left his job as Amazon’s VP of Global Ad Sales to join Instacart in November 2019.
At the beginning of 2020, Instacart was valued at $7.9 billion.
In October 2020, the company’s valuation doubled to $17 billion in a new $200 million funding round.
In March 2021, the company’s valuation more than doubled again to $39 billion, on a $265 million funding round, becoming the second-largest US-based unicorn behind only SpaceX.
So you have Instacart at the height here in April 2021. The company had gone from an $8 billion valuation to a $40 billion valuation inside of a year. Given the fact that there’s no way their revenue made similar gains, that already puts the company on shaky footing.
At that time the then CEO Apporva Mehta said he had a 20-year plan.
Unfortunately, the Board had other plans for him.
A few months after saying he had a 20-year plan, Apoorva Mehta was reportedly forced out by the Board.
In August 2021, Fidji Simo joined Instacart as CEO coming from Facebook . Advertising company.
Fidji Simo’s first hire was Carolyn Everson that very same month, also from Facebook. Advertising company.
In August, the company announced it held failed talks to merge with Doordash.
In October, Seth Dallaire – who joined just two years prior –left for Walmart. October also sees Instacart acquire Caper AI, a smart-cart technology company.
Now in December, Carolyn Everson leaves the company.
I said it’s been a rocky road for Instacart, but that is an understatement and the path forward is also rocky. Unfortunately, I’m not seeing a lot of good possibilities, but there are four options:
First, Instacart could become a grocer itself. Ultimately, this would be suicide as it puts them in competition with current customers.
The most likely outcome in this bucket is to merge with an existing grocer, of which the primary options are Kroger and Ahold Delaize - both of which have only $40 billion dollars of valuation, making Instacart a very difficult merger.
If Instacart’s value keeps declining, and its market cap goes down, then it would be more likely that Kroger or a company like Doordash would acquire it.
It’s not an accident that the first thing the Board told Fidji Simo to do the first month she was on the job was to try and get the company bought by Doordash.
Second, Instacart could become an eCommerce platform company. This would entail moving past the company’s previous acquisition of Unata and potentially buying a full-blown headless eCommerce platform that is optimized for the industry. A private equity buyer could also help Instacart merge with Mercatus, one of the leading solutions in the space.
Unfortunately, I don’t believe this is a big enough market for Instacart to be able to justify its current valuation.
Third, Instacart could become a logistics company. This would position the company as a partner to grocers looking to improve their experience by helping them redesign stores of the future that are optimized for curbside, something like an Urbx. I don’t believe that Instacart has the expertise or capital to invest in supply chain. Furthermore, the margins of a supply chain business are also small. Instacart is valued like a technology company.
Finally, Instacart could pivot out of grocery altogether and become solely an advertising company. The challenge is, Google, Facebook, Amazon, or Walmart would be the only companies with enough size to handle its valuation, and they already have well-established platforms.
Sad to say, but this is one of those cases in which the pandemic may have killed the company.
I predict it will decline in value until it gets bought by a strategic industry player. Instacart doesn’t make enough money for private equity to find it interesting. I also don’t think the company will be going public soon, unless it is via SPAC reverse-merger.
[References:]
Our Third Story
What’s With All the New Marketplaces?
We’ve seen a stream of new online marketplaces in the past few years, from Kroger to Macy’s to Albertsons to Bed Bath and Beyond. So much so that the most common question I get these days is “Why”?
You could come up with a number of practical responses. The best answer you can hear from a retailer building a marketplace is that there is so much traffic and the retailer is missing opportunity because it doesn’t have products consumers are consistently searching for.
Most people would assume there is only one way to build a marketplace, in that they want to tackle Amazon or Walmart head-on. That could not be further from the truth.
Most medium to large retailers are buying products wholesale, and using dropshipping to fill in the gaps between vendor orders. Many also have substantial dropship programs which are most commonly based on EDI.
The challenge with this approach is that it takes considerable resources, even with an experienced provider, to onboard EDI vendors because you need to coordinate roadmaps on both sides. This destroys the ability to be nimble.
Increasingly, when I hear that marketplace is a strategy for a retailer, often one of the primary reasons for it is a “curated marketplace”. But what does it really mean?
Ultimately it means that the retailer does not want to onboard thousands of brands because that’s not the kind of company it is. Instead, the retailer wants the ability to onboard dozens or a couple of hundred cool and interesting brands each year that don’t understand the old-school world of EDI. And even if they did understand EDI, the technology doesn’t allow onboarding of those brands quickly enough to make a difference in the roadmap.
Maybe these brands are Shopify or BigCommerce merchants. The point for a retailer is not even always sales. Curated marketplace often means that the aesthetic and brand fit is more important than sell-through initially. And the success of these marketplace experiments can then lead to deeper wholesale relationships.
[References:]
And Our Last Story
What Does 2022 Have In Store for Buy Now Pay Later?
One area we don’t always cover here is the payment trends. Out of all the payment methods you can think of, one of the hottest trends is the rise of debit and buy now pay later, which is eating into the share of traditional credit cards.
This is represented by things like Square’s Cash App (which bought Afterpay), Paypal, Klarna, Affirm, and Sezzle.
The online outlet PYMNTS.com recently released a report about buy now pay later highlighting a few facts about Buy Now Pay Later momentum. But why?
The reasons are pretty simple.
1 - It’s not as open-ended as a credit card. The consumer generally has to pay for the item in 4-6 weeks, and then it’s done. As a result, the consumer is not able to build up revolving debt.
2 - Many people, particularly the young or those with weak or no credit scores, are not able to access credit. This offers an option with guardrails against overspending.
How is adoption doing?
First, based on a survey in the last year, at least 20% of the population has tried Buy now Pay Later at least once. For now, this is mostly online, but providers are looking to bring this option offline, particularly Square, which runs the POS system for many small retailers.
Second, more than two-thirds of users who have tried it in the last year self-report that they will use it more, and 70% of people who have not yet tried it report they will over the next year. Simply put, 2022 is the breakout year for Buy Now Pay Later.
Third, flexibility is increasing. Just look at what Affirm is doing — enabling you to buy something and then within 24 hours of a purchase decide on your own terms how you want to pay for it. Later, or even much later, depending on the value of the transaction. Paying off immediately can come with rewards such as 5% stored in an account — similar to the top credit card rewards programs like Amazon’s own credit card. Money in an account is preferred by a consumer over credit card points programs, which most consumers have been burned by over the years.
Even Amazon launched with Affirm as its exclusive provider this year for these services.
What does this mean for merchants? While the average direct to consumer store has had this technology for a while, it’s not everyone. As a result, if you haven’t added it to your eCommerce site at this point, you’re behind the curve.
If you want to get ahead of the curve, particularly if you are considered a high-value purchase, I advise adding this as a payment option for your retail store. It’s not widely adopted here and particularly your younger customers would appreciate it.
Either way, look for this to be a growing part of your payment share in 2022, which is a good trend for any merchant.
[References:]
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It’s That Time, Friends, for our Investor Minute. We have 5 items on the menu today.
First
The private equity-backed eCommerce agency The Stable acquired two of the bigger eCommerce agencies BVA and Zehner. My experience with these kinds of rollups is not as good as you might expect. While bigger companies can enjoy better service, small to midsize brands often get worse service from a larger agency.
https://www.businessinsider.com/the-stable-acquires-dtc-firms-bva-and-zehner-2021-12
Second
Enterprise supply chain provider Ryder acquired nationwide eCommerce and Omnichannel fulfillment provider Whiplash.
I’m trying to get my head around this valuation. I saw reports that Whiplash was at $300 million in revenue and the acquisition price is $480 million. Seems low, but there is probably something I’m missing here.
Third
Competitive pricing tool Anakin raised $2 million in order to give brands real-time data on their competitors. This is one area I can attest to being underserved, despite the fact that there have been tools in this market for the past decade. Just last year I installed almost all of these vendors in the Shopify App Store, and hardly any of them actually worked out of the box. If Anakins can make this easy, they could have a path to growth.
Fourth
Sequoia and Bessemer invested in a headless eCommerce infrastructure startup called Gadget. What’s most interesting about this is that these are ex-Shopify developers investing in headless infrastructure.
AND FINALLY …
Platform as a Service provider Celigo raised $48 million.
Celigo became known for its Netsuite ERP integration, being an early leader there. It's new funding should help them establish a foothold in MS Dynamics and beyond. Congrats to CEO Jan Arendtsz, who I’ve known for a long time.
https://www.insideindianabusiness.com/articles/tech-company-secures-48m-series-c-funding
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That’s all for this week! Till next time Watsonians.....
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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.
