May 8th, 2023: BigCommerce doubles down on B2B, Pinterest ties with Amazon advertising, PitchBook report whines about the demise of unicorns, and Shopify reports earnings
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It’s May 8, 2023, and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
BigCommerce Doubles Down on B2B
Pinterest Ties Up with Amazon Advertising
PitchBook Report Whines About the Demise of Unicorns
Shopify Reports Earnings, Chucks Logistics Business
- and finally, The Investor Minute, which contains 7 items this week from the world of venture capital, acquisitions, and IPOs.
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To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
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BUT FIRST in our shopping cart full of news….
BigCommerce Doubles Down On B2B
This past week, BigCommerce released a few announcements regarding B2B upgrades for its solution. First, some commentary.
While Shopify was busy investing in payments and playing Ahab chasing its great fulfillment white whale, I've been watching BigCommerce too. The company has stuck to its knitting and has continually focused on being a "good enough" cloud solution for lower and middle-market B2B customers, as well as picking off eCommerce Magento refugees who needed more customizability and control than Shopify allowed -- particularly with regards to payments.
When you think about eCommerce, most people think about Shopify because their context is DTC. Well, the DTC-only moment is passed and Shopify is aggressively moving into POS and up-market into headless to expand its addressable market.
The B2B revolution is still just getting started, however, and for Shopify this is just one of ten priorities. On the other hand, while BIgCommerce has issues (plenty of which I've written about here) they also have fewer distractions.
Just ask your average private equity firm where the eCommerce opportunity is now; they will talk about industrial, scientific, education, commercial trucks, wastewater, government, and all sorts of vertical-specific and hidden industries you would never even see presented in the news, but which represent over a trillion in TAM and growing fast.
Shopify can handle many things with apps. Still, for BigCommerce with their acquisitions last year of BundleB2B and QuoteNinja, they built a plenty good enough B2B eCommerce solution where - in addition to a Netsuite ERP - any small-midmarket distributor or manufacturer could make a solid solution.
I always pay attention to the "unaided awareness" and interest in solutions before customers they come to me, and BigCommerce has captured a lot of B2B mindshare in this segment in particular. Last year I did an RFP between BigCommerce and Shopify in a small-midsized distributor that BigCommerce won and it wasn't that close.
The challenge with eCommerce is that each year is different, and you need to pay attention to what new things Shopify is doing as well (lots of B2B updates in Editions closing gaps).
A few new items from BigCommerce in B2B:
Multi-storefront
Headless beta
Configure-Price-Quote functionality
While you can do a lot with this Shopify, the App Store is a wreck unless you have a trusted agency partner, and then you depend on 4-5 companies rather than one for the same functionality. If it's supposed to be "out of the box", it's not yet. To be clear, Shopify has been making B2B strides, but BigCommerce is still in the lead here from a "default out of the box" perspective and market mindshare point of view.
To BigCommerce, my advice would be...... let’s see more of this. B2B and flexible payments is still a gap in the eCommerce market below Enterprise, and they need to keep driving through it.
[References:]
Our Second Story
Pinterest Ties Up with Amazon Advertising
Both Amazon and Pinterest had challenges to solve with their advertising approach in the last few years.
Amazon does not have a general-purpose search engine like Google, or a virtually infinite source of new content like Meta or Tiktok -- this limits the keyword surface area that can be used for its ad inventory.
Separately, Pinterest has consistently been one of the highest-converting traffic sources for other websites, but one of the lower-monetized sites that sells ads in the industry.
Bill Ready, the ex-Google and PayPal executive, wasted no time in tying up Pinterest with one of the rising stars in advertising -- Amazon. This is a multi-year partnership.
On the Pinterest side, the hint in the press release is that there could be others afterwards, but it also does make me wonder….
Could Pinterest be a future acquisition target for Amazon?
Pinterest does have social elements, though not as sticky as the big social media sites, so Pinterest's content could be an interesting addition to Amazon's content properties.
But let's not get ahead of ourselves.
As it stands, Pinterest's content gives Amazon's ad inventory wider reach both in terms of visitors, demographics, and purchase funnel intent (Pinterest is often higher in the funnel then Amazon).
On the other hand, Pinterest has no path to unseating any of the giants. The Power Law applies to the Internet, so at some point unless it is consistently taking share from another major player (it is not), it's better off partnering with one of the majors.
The only ad networks gaining share at this stage are Amazon, Tiktok and to a much lesser scale Walmart. Partnering with Tiktok was a non-starter at the moment, Google and Meta would likely spell the end of independent Pinterest over time.
Amazon was the only one who likely gave them flexibility and could even give them a path to exit in the future. Perhaps even Pinterest could become an Amazon Buy With Prime partner for its brand advertisers. Shoppable pins combined with Amazon inventory could be another interesting direction for the two companies.
At the very least, Pinterest is trying new things under new CEO Bill Ready.
[References:]
Our Third Story
Pitchbook Reports Whines About the Demise of Unicorns
Hey, can I rant for a minute? The last few years I feel like we are getting a replay of the dot com bubble burst of 2020, as well as the recession of 2008. Then here comes a new Pitchbook report saying that we are very upset that all these high valuation unicorns are upset not only can they not find new funding, they also can’t find acquisition exits either. The report feels like a love letter from Andresseen Horowitz to a lost lover. Almost like an Adele song on her 21 album.
Look, it was always a dumb idea to talk about your valuation. If it isn't clear already -- stop thinking about it; stop talking about it. It's not a meaningful business metric unless your stock is (a) worth something and (b) it goes from some small value to some much larger value.
Otherwise, it's just PR hype on parade and is likely to end badly for an inexperienced founder trying to show momentum.
Meanwhile, the economic reality set in right after Q1 last year, and any founder caught flatfooted has very little time to make tracks at this point.
Not going to lie, some of this report is kinda BS:
The article starts off by saying the only reason there must be so many unicorn companies is because of all the innovation happening. And suddenly, they are concerned the market won’t reward all this innovation.
My response is that the proliferation of unicorns was more due to easy money on one hand, and new investor eCommerce FOMO on the other.
The second claim is what they call a liquidity crunch has trapped enormous amounts of value within these highly-valued organizations.
Of course, who they are highly valued by? Yes, likely the investors who are Pitchbook’s customers providing this data. Notice there is no mention of consumer innovation in an Amazon aggregator business or a 5 minute grocery delivery business.
The next claim the article makes is that federal regulators are becoming less capable of supporting large-scale Mergers and Acquisitions. While it is true that some acquisitions have been blocked, we are still talking about the United States government here, and not the EU which has been much a more active regulator. This is the United States where Google has 90% of the search market in the United States for at least a decade.
Look, the demise of unicorns in my mind should be cheered. Let's return to operators running businesses rather than hucksters.
[References:]
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And Now the Story You’ve All Been Waiting For
Shopify Reports Earnings and Chucks Its Logistics Business
Shopify reported Q1 2023 earnings this morning, kicked their Deliverr Fulfillment arm off the ledge, and slashed 20% of its staff. Shopify management reports that it is trying to change the shape of its business. The current shape is broken and distracted, the new shape I suppose is “fixed” but many questions remain.
There are serious concerns that the “Tobi and Harley show” (which has been getting increasingly distrustful of serious management in particular and outside management specifically in the past 3 years) may have reached the end of its useful life at Shopify, in very much the same way as “what got you here won’t get you there.”
A few details:
Shopify is laying off 20% of its workforce, after laying off 10% last July — clearly not enough in the past.
Shopify is selling Deliverr to Flexport, 6 River Systems to Ocado
Shopify reported solid GMV growth of 15% (on top of 13% in Q3), with revenue up 25% from prior year, though they don’t break out how much is Deliverr.
Shopify losses widened to $193 million or 13% of revenue, up from losses of 11% of revenue in Q4 2022. Shopify expenses have not been going in the right direction, and needed to reset to pre-pandemic breakeven levels. I am optimistic that this level of cuts will allow them to be there.
Subscription solutions revenue continues deceleration. 11% y/y in Q1 vs 14% y/y in Q4. MRR does seem to be accelerating, however. Driven by the growth in Plus and POS Pro.
Witness some of the distractions and miscalculations, some of which continue today:
Buying a robotics company, 6 River Systems
Buying a fulfillment & delivery company, Deliverr
Continued “solo entrepreneur” messaging while simultaneously trying win some of the largest businesses in the world.
What is Shop App?
Continuing insistence on the lack of value driven by professional management (even in today’s news), all the while lamenting the growth of their stock.
Referring to its company vision as main and side quests, like it were playing a video game. Hardly reassuring.
I'll wrap by saying, the most insidious part of Shopify's release this morning is their continued belief and insistence that they can code their way out of this problem: the cult of the crafter. This indicates that Shopify has not yet fully internalized the reasons for its missteps.
The lack of a serious management team. Not necessarily a great place to be.
The big question remains: which of these quests is the main quest?
Behind Door A: Shopify the Enterprise eCommerce software company
Behind Door B: Shopify the Entrepreneurial eCommerce Upstart, Arming the Rebels
Behind Door C: Shopify the payments and financial services business
Tobi and Harley sit in the forest in front of these three doors, patiently waiting for a sign to appear as to which door to pick. It may be time for someone else to choose.
Shopify Reports Bad Earnings and Chucks Its Fulfillment Business
When Shopify changed its earnings call time from aftermarket to before opening, you know something bad was going to happen. Popular press reported about layoffs, but you knew from the rumor mill that something was going to happen with their fulfillment business.
Well, it happened. Shopify is out of fulfillment. Here are the details:
Shopify sells both 6 River Systems and Deliverr for stock deals. 6 River Systems goes to Ocado, and Deliverr goes to Flexport.
Shopify sheds a lot of cost in the process.
It’s unclear if this acquisition comes with the warehouse leases, including one in California that only closed a few months ago!
At the risk of repeating myself, I have been pretty critical of Shopify’s Fulfillment business in the past few years. Let’s outline the issues:
First, most of the functionality they wanted they could have partnered for, instead of bought. So they never should have been in the business to begin with.
Second, they should have hired a Supply Chain expert internally before evaluating the space. Over the time of Shopify Logistics, they had multiple leaders and while some have great reputations, none were able to either effect change at Shopify to change the poor trajectory.
Third, they bought a robotics company. Now, robots are about efficiency to handle high volume. Shopify is not able to promise volume, and certainly has no volume to optimize like Amazon does. It’s almost like saying, hey I want to buy a men’s dress outfit. Maybe I should buy the socks first, rather than the shirt and pants. That’s what I felt like Shopify buying a logistics business was like.
Fourth, they never had a plan for how they would get brands to about a Shopify Logistics service, or what its unique selling proposition would be. Like still, I couldn’t tell you why if I was already in a 3PL prior to Shopify buying Deliverr I would ever want to switch over.
Fifth, they never seemed to be very honest on earnings calls or with investors about their plans.
So there’s that. The bigger question is after flailing around with the 6 River Acquisition for a few years, why they ever thought, hey we have this bad bet, let’s light another $2 billion on fire. I mean, kudos to my friend Harish Abbott. He pulled off a Michael Rubin-level move here.
Lastly, does it seem to anyone else like they divested these business for the price of a few glass beads? What is Flexport really worth? Let me give you a hint, not $8 billion dollars - with apologies to Dave Clark CEO of Flexport, if it’s one-third of that valuation they are lucky to have it. We all saw what happened to Instacart recently when it revalued itself 2 or 3 times downward. If that happens to Shopify the deal gets even worse.
So you have some percentage of a declining asset which you already owned part of by the way. Sounds like Shopify may still be doubling down on its bad bets even now, but at least all those costs and distractions are off the balance sheet, except for the equity stake.
[References:]
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Hey, Watsonians, this is Rick. Want to get my take on a burning question and have me answer on this podcast? You can start a topic on the RMW Commerce Community and just ask!
The Community is full of eCommerce diehards just like you talking about important eCommerce issues. Last week the hot topic was VInny O’Brien, Hendrik, Aaron Sheehan, and others speaking about the BigCommerce Feedonomics partnership with The Hut Group for marketplace integration.
You can contribute to the conversation at community.rmwcommerce.com.
We’ll be right back…
It’s That Time Friends, for our Investor Minute. We have 7 items on the menu today.
First
Brand Aggregator and New Platform Kite Raises $200 Million Dollars
Sometimes I wonder how I should cover companies in this section of the podcast. Look I value the risk every startup is taking, but you’re here for my opinion right?
Well Watsonians, sometimes these opinions almost write themselves.
Listen to this:
“We believe that intelligent customer acquisition and a synergistic supply chain that run on predictive, assistive and evaluative AI. We call it the Kite Effect.
The more products that utilize the platform, the more the platform adapts and learns.”
OK seriously, 2020 called and wants its aggregator pitch back. Good luck with that.
Second
Cincinnati-based same-delivery platform Frayt Raises Series A
The company raised $7 million from Refinery Ventures and plans to use the funds to expand is markets. The company has customers like Kroger and Firestone. I suspect they are targeting Instacart and Doordash customers one at a time.
Link: https://www.finsmes.com/2023/04/frayt-raises-7m-in-series-a-funding.html
Third
Identity and Wallet Provider ID.me Raises $132M in Series D Funding
ID.me has been a big success over the past decade, expanding its reach from its roots in military and government websites, but also to other eCommerce situations where you need to verify identity to prove membership.
True story, I interviewed with the early version of ID.Me back in 2010 called Troopswap before I moved to New York City. Blake Hall is a tremendous entrepreneur and wish him success.
Link: https://www.finsmes.com/2023/04/id-me-raises-132m-in-series-d-funding.html
Fourth
Brand Licensing Firm WHP Global and Express Buy Bonobos from Walmart for $75M
Well, while the shine is off DTC-focused brands, there are always new players looking for opportunities. Walmart has sold off a number of its direct to consumer brands recently, and recall Walmart paid $310 million in cash for the brand in 2017. Due to its licensing roots, WHP Global will own the intellectual property, while Express will operate the eCommerce and stores.
As you may know, I’m an advisor to WHP+ which is the digital arm of WHP Global.
Link: https://wwd.com/business-news/financial/bonobos-sold-walmart-whp-express-mens-fashion-1235612404/
Fifth
eCommerce aggregator Razor Group raises an $88M Series C
Razor Group is a larger eCommerce aggregator based in Berlin. Over the past few years, the company has acquired a number of other aggregators including Valoreo and factory14. As part of this fundraising, Razor Group has acquired another player Stryze. It’s not that surpising that if you are a well-capitalized aggregator who has even marginally profitable you are able to acquire other aggregators. The big question is, are their assets actually worth anything?
Link: https://techcrunch.com/2023/04/17/razor-group-aggregator-stryze/
Sixth
Electrolyte mix maker Cure raises a Series A from Lerer Hippeau
The company is one of the only female-founded hydration brands, and its competitor Liquid IV was acquired by Unilever in 2020. In another sign of the times, the company already has a 40% penetration in retail, with a 60% eCommerce penetration.
Link: https://techcrunch.com/2023/04/17/hydration-cure-beverage-foodtech-series-a/
AND FINALLY …
LL Cool J’s brand Rock the Bells Commerce and Content Business Raises $15 million Series B from Paramount Global
As part of this deal, Paramount will get first rights to new content from the brand for film and TV, as well as the rights to livestream the brand’s upcoming festival.
Of course It’s great that he’s into the mix of Content and Commerce, but personally I’d rather get a remix of Mama Said Knock You Out.
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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 production partner for the series is CitizenRacecar. The show is produced by Jose Baez; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
