- Shopify’s App Store is maturing, with more than 10,000 apps for merchants to download.
- Shopify invested in some of its biggest partners, some of which are considering IPOs.
- It’s getting harder for smaller app developers to stand out from the competition.
As Shopify’s app ecosystem matures, it’s becoming a make-or-break moment for some developers and partners.
Shopify’s App Store has more than 10,000 apps that merchants use to help them with functions such as marketing, shipping, and store design. It’s a competitive advantage for Shopify and a place where developers of all sizes can thrive, thanks to accessible developer tools, plentiful community events, and a favorable revenue-share model.
It’s an exciting time for the Shopify ecosystem’s largest, most successful companies. The email and SMS-marketing startup Klaviyo has reportedly filed confidentially for an IPO, and more startups could go public, too. If they succeed in the public markets, it’s a positive sign for the Shopify ecosystem. Shopify has also stepped up its investments in some of its most successful ecosystem companies, including Klaviyo and Yotpo.
Meanwhile, the dynamics are tricky for smaller companies since Shopify launches its own solutions that could compete with partners. Some are worried that it’ll become more difficult for new providers to break through in an increasingly competitive space.
All these factors, combined with ongoing economic uncertainty and cost-cutting by merchants, are a call to action for third-party developers: it’s time to level up.
Upcoming IPOs will be a test
Some Shopify ecosystem companies are eying the public markets, even in a year when IPO activity has been slow. The retention-marketing platform Yotpo has been the subject of IPO rumors for several years, as has Shopify’s logistics partner Flexport. Attentive, which builds SMS-marketing software for online sellers, has said it would explore an IPO for sometime in the next one to two years.
“While we are in a great place from a revenue growth and cash on hand standpoint, we will want to make sure the market conditions are favorable and we are doing what is best for our employees and investors,” Amit Jhawar, the CEO of Attentive, told Insider.
All eyes will be on Klaviyo when it eventually makes its public-markets debut, which Reuters reported could happen as soon as this September. It would be the first IPO for a startup born in the Shopify ecosystem. A Klaviyo representative declined to comment on reports that it had filed confidentially for an IPO.
Ben Parr, the president and a cofounder of the personalized-marketing startup Octane AI, said a Klaviyo IPO would be a bellwether for the entire Shopify ecosystem.
“If they pop in their IPO, then investors will start writing more checks in the space,” Parr said. “If they don’t pop and the market is bearish on them, then it will be a negative signal to the ecosystem.”
While COVID-19 lockdowns boosted the entire e-commerce industry, a return to a normal shopping patterns has brought retrenchment. Economic uncertainty has led retailers to reevaluate their technology, cutting costs where possible. That will make it even more important for Shopify’s app partners to ensure their solution is differentiated from competitors.
Parr said that many consumer apps and brands such as those in Shopify’s orbit aren’t profitable.
“They’re going to have a really difficult time if investors sour further on investing in the space,” he said.
A ‘shared focus’
Shopify recently launched a website for its own venture arm, Shopify Ventures, focusing on companies that build software for Shopify’s merchants. Its investments include bets on Stripe, Yotpo, and Flexport, all of which have been floated as potential IPO candidates in the coming years.
Previously, Shopify invested in Affirm shortly before it went public, earning the Canadian e-commerce company a $2 billion windfall in the buy now, pay later software provider’s IPO. It similarly took a 6.5% stake in the cross-border e-commerce company Global-e before its May 2021 IPO. Shopify also made a $100 million investment in Klaviyo in 2022.
“When our ecosystem app developers succeed, so do our merchants,” Sid Murlidhar, the director of ecosystem partnerships at Shopify, told Insider. “This shared focus is why we’re committed to ensuring a healthy Shopify ecosystem that fosters innovation, scale, and speed.”
Competing with partners
At the July product event Shopify Editions, Shopify unveiled more than 100 new product updates, including apps such as Shopify Subscriptions and Shopify Collective that could compete with partners.
This tension is inherent in many tech companies working with third-party software, but it’s not the first time that Shopify has been accused of stifling competition in its ecosystem.
“With all major app ecosystems like Shopify’s, there is a balance between building core features for your platform and relying on strong partnerships,” Jhawar said.
Shopify seems aware of the dynamic at play. During Editions, Shopify’s vice president of product, Glen Coates, said the subscription app is meant to be basic and that merchants with more complex needs should look to a “great collection of subscription apps on the Shopify App Store.”
It could be harder for less-established software businesses to stand out, especially if Shopify launches a competing solution. Shopify’s new Collective tool could compete with Convictional, a startup helping retailers to quickly onboard vendors onto their websites.
“It’ll become really difficult for new entrants, new app providers, to come in and build a track record for entrepreneurs, mom-and-pop shops who are looking for something that’s basic in functionality,” Chris Grouchy, a cofounder and the president of Convictional, said.
At the same time, Roger Kirkness, a cofounder of Convictional, said less than a third of Convictional’s customers are on Shopify, and the competition is a “good thing” because it exposes smaller sellers to a problem Convictional is trying to solve.
Shopify must become a “curator” of tech solutions if it wants to be successful in the long term, Rick Watson, the CEO and founder of RMW Commerce Consulting, said. That means its core software offering can’t fall behind.
“They always need to ask themselves the question: ‘If I were going to rebuild Shopify again today, how would I build it?'” he said. “If the answer is everyone now expects this new feature that no one knew about five years ago, then they kind of do need to build it.”
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