Shopify just threw a big lifeline for meta platforms and Alphabet
Editor’s Note: This article has been corrected. Alphabet does not allow Shopify merchants to upload aggregated data to Google.
At the beginning of 2021 An Apple turned the world of digital advertising upside down. With the move to iOS 14, iPhone users received notifications when an app wanted to track their activities and required them to consent in order to continue. This caused a multibillion-dollar damage to online advertising last year, disrupting companies, including AlphabetX (google 5.34%) (GUG 5.72%) Parent of Google and Facebook Platform meta (META 2.37%)who earn the lion’s share of their revenue solely from targeted advertising.
Now an unlikely alliance with Shopify (SHOP 6.36%) aims to partially restore the status quo by providing the software-as-a-service (SaaS) company with a potentially lucrative growth engine.
Know Your Audience
Last year, Shopify debuted Audiences, a tool designed to identify and target high-interest shoppers through digital advertising. The system aggregates input from collaborating Shopify Plus retailers, giving merchants the ability to aggregate their customer data.
The resulting information can then be uploaded to Meta’s digital advertising systems (although Google limits Shopify sellers to their own raw data). This information can then be used to target comparable customers or those who have purchased similar products. It helps sellers solve one of their biggest challenges: finding new customers who are willing to buy.
Additionally, Shopify recently updated its Audiences capabilities to allow merchants to include Everybody product categories in their stores rather than focusing solely on specific products. This gives retailers much more options for targeting potential customers, allowing them to focus on expanding their reach, driving conversions, or both. The audience can also run several advertising campaigns with different goals at the same time.
Perhaps the best thing about Shopify Audiences is that it’s designed to bypass Apple’s consumer privacy measures, as it includes raw merchant data to target customers who are most likely to make a purchase. This serves as an important lifeline for Meta Platforms — and, to a lesser extent, Alphabet — as both companies have been hit by Apple’s policies, and also provides an important growth area for Shopify.
Taking a page from the Amazon games collection
The process of aggregating data from its sellers to identify high-interest buyers takes a page directly from a textbook used by an e-commerce competitor. Amazon (AMZN 3.81%). Over the past few years, advertising has become a key growth area for Amazon.
The e-commerce giant quickly climbed the ranks to become the third largest digital advertiser in the US, behind only Alphabet and Meta Platforms. In the third quarter, Amazon’s $9.5 billion in ad revenue grew 30% year-over-year (excluding currency fluctuations), outperforming both competitors.
Audiences provide merchants with similar ad targeting capabilities offered by Amazon while extending beyond the single digital retail marketplace, including Google search, Instagram and YouTube.
This suggests that if Shopify can replicate even a fraction of its biggest competitor’s advertising success, it could lead to an important new market for the company at a time when online sales are falling.
After nearly triple-digit growth in the midst of the pandemic, Shopify’s third-quarter revenue rose 22% year-on-year due to tough competition, a strong dollar, and a slowdown in e-commerce adoption. Adding a potentially lucrative revenue stream would give Shopify a much-needed boost at a critical time in its history.
The opportunity is significant
Shopify prioritizes investments with “much shorter payback periods” and, according to Harley Finkelstein, president of Shopify, the focus is on audiences. “Especially now, sellers want to be able to find more customers,” Finkelstein said recently.
Although estimates vary, the online advertising market is expected to exceed $700 billion in 2023 and grow to over $1 trillion by 2027. If Shopify can carve out at least a small segment of the market for itself, this could be the next stage in the development of the company. height.
Suzanne Frey, CEO of Alphabet, is a board member of The Motley Fool. John McKee, former CEO of Amazon’s Whole Foods Market, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Danny Vena has positions at Alphabet, Amazon.com, Apple, Meta Platforms and Shopify and has the following options: $114 long calls in January 2023 on Shopify and $116 long calls in January 2023 on Shopify. The Motley Fool is featured and recommended by Alphabet, Amazon.com, Apple, Meta Platforms and Shopify. Motley Fool recommends the following options: $1140 long calls in January 2023 on Shopify, March 2023 long calls $120 on Apple, $1160 short calls in January 2023 on Shopify, and $130 short calls in March 2023 years at Apple. Motley Fool has a disclosure policy.