Through Shopify, the key to the success of e-Commerce SaaS

All the needs of SaaS can not be separated from the business, more from the actual scene, and the needs of the business and from the user, so how to understand customer needs, into the user, is an important part of the e-commerce SaaS. This article will focus on Shopify versus SaaS. Check it out.

If there is Amazon, why is There Shopify?

That's a question that a lot of people ask me.

According to eMarketer, Amazon is the undisputed leader of the us e-commerce market, accounting for 38.7% of transactions.

By the second quarter of 2020, Shopify's GMV had overtaken ebay's, with a market share of about 6%. While that's still a long way from Amazon, Shopify is the most likely to become Amazon's main competitor. Because its revenue is growing so fast.

Shopify is growing at almost 110% a year. So, what kind of operation model, can have such a high growth rate?

On the surface, Shopify and Amazon have similar e-commerce business models, but in fact they are following very different paths.

Amazon is a third-party e-commerce platform; Shopify, on the other hand, is a standalone online store service, also known as an e-commerce standalone site, which is essentially an e-commerce SaaS.

What's the difference? Amazon, for example, is like a big supermarket, with the advantage of a concentration of buyers, hundreds of people coming in every day. But they're not specifically looking for your product, they're just passing by your stall.

The advantage of joining such a third-party platform is that its traffic can lead to significant sales opportunities.

The downside is that it doesn't matter how big your brand is or how good your marketing is; Just like other businesses, they struggled to attract customers in front of their stalls.

Shopify is a different story. It can build you a fancy independent store of your own.

So you don't have to be in a crowd of cookie-cutter booths, but you can do it your own way, using platform services.

As for the line and not, all depends on your management ability and method.

So Shopify and Amazon are two different kinds of companies.

Amazon is an e-commerce company through and through. In addition to providing a trading platform for outside merchants, Amazon also runs its own business on the platform.

Therefore, it is inevitable that they will treat themselves favourably, using data from other businesses to assist their own business decisions.

Shopify, on the other hand, is a pure e-commerce SaaS service that only provides tools and services, without its own business on the platform. Therefore, there is less conflict of interest with merchants.

At this point, it's possible to see a difference between Shopify's business model and Amazon's.

However, the purpose of this article is not to compare the merits of the two business models, but to explore how e-commerce SaaS can become as big as Shopify.

As of this writing, Shopify's market cap is $109.8 billion. Unlike most SaaS businesses, Shopify is profitable, with an ARR of over $4 billion and an NRR of around 110%.

In the SMB-dominated SaaS world, achieving this level of revenue is really not easy. So what is Shopify based on?

Why should Shopify compete with Amazon?

Some say Shopify has gotten to where it is today because of its better tools, while others say its low cost of setting up shop has helped it attract more merchants.

In fact, these statements can not stand scrutiny and disproof. It's like moving from a market to a single-family shopping mall. If you can't sell things, it doesn't matter how good the environment is and how low the property fees are.

Shopify has 1.7 million business merchants in 175 countries. They have generated more than $200 billion in sales using Shopify. So why on earth are merchants choosing Shopify?

As a SaaS provider, there is no other way to get ahead than to build on services.

Shopify's service apparently lured them in. But at the same time there are many e-commerce SaaS in the market, such as the current hot overseas e-commerce, their services, why is not so attractive?

In general, the value of SaaS services is mainly reflected in two dimensions: one is the depth of the service; The other is the scope of business covered by the service, which can be understood as the breadth of service.

The depth of the so-called service is the degree of refinement and depth of the service. Use automated tools to help merchants handle all the details. And the breadth of service, refers to the shop may experience all business links.

Shopify excels in both dimensions, so it's easy to see why merchants have flocked to Shopify.

In the early days of e-commerce, the slogan "make the world easy to do business" was very persuasive. But entering the era of full e-commerce, in fact, all business is more difficult to do.

Shopify is taking an unconventional approach (it can't actually compete head-on with Amazon), and its philosophy is to make things easier for customers.

In other words, Shopify's services take care of the rest, including the money.

If you are inexperienced in business and unfamiliar with tools and methods, there are Experts in various fields to help you. Of course, these services cost extra.

To attract a large number of merchants, there is a key problem to solve. That is, from e-commerce platforms to independent stores, the problem of customer source must be solved.

Accustomed to the operation mode of e-commerce platform, also formed the inherent flow thinking pattern. Now separated from the e-commerce platform, no traffic how to do?

By offering channels and Buy buttons, Shopify takes a completely different approach to proactively reaching customers.

This can not only make merchants closer to customers, but also manage customer relationship one to one, and solve the problem of customer loyalty caused by traffic.

It's like fishing: Amazon puts fish in front of thousands of anglers and makes them compete for the catch. In this way, in addition to the profit thinning caused by low-price competition, the key is the lack of customer loyalty, which makes it difficult to form re-purchase.

Shopify outfitted anglers with top-of-the-line gear, then boated them separately to fish areas, where everyone caught their own fish. This way without price competition, easy to maintain a number of high loyalty customers.

In the field of e-commerce, it is very difficult to challenge the hegemony of e-commerce platform directly in the form of platform vs platform. However, with the SaaS business model, it is possible to take a different path through services.

SaaS+FinTech: How Shopify makes money

Shopify's main customer base is SMBS, so it can't charge too much. In fact, Shopify's pricing is already very low in the SaaS industry, as shown in the figure below.

Because the pricing is not high, it is still quite difficult to achieve an ARR of $4 billion only relying on SaaS subscription revenue. But raising subscription fees could drive some SMBS away.

As the saying goes, talking about money hurts one's feelings. In fact, the most hurt feelings, is never a good talk about money. Shopify's revenue design is an innovation in the SaaS industry, providing customers with value for money while ensuring their own revenue.

Analysis of Shopify's revenue composition shows that its payments and merchant services revenues account for more than 60% of Shopify's revenue. Strictly speaking, these revenues do not count as ARR.

Therefore, Shopify is not a pure SaaS company, but SaaS+FinTech. Specifically, monetize financial services by leveraging the acquisition and retention model of SaaS.

So why are businesses willing to pay these fees? The answer is to run a business "without money" and use the proceeds of sales to repay loans.

It's not hard to see why Shopify is primarily in the SMB business.

Demand for financial services is not as strong as for SMBS, because large businesses have ample capital of their own or easy access to low-cost funding.

Although Shopify has also launched a Plus version for large companies, the share of large companies' revenue has never exceeded 30 percent and is even declining.

The ecological necessity of Shopify:

E-commerce SaaS also requires customer success. But Shopify, on its own, clearly can't serve millions of merchants around the world. The only solution is ecology.

Shopify Ecology has a large Partner Program with partners all over the world who are proficient in every field, and partners actually undertake the work of CSM.

Partners operate through two platforms: the App Store, a tools platform, and the Experts Marketplace.

There are 6,000 + apps in the App Store. The core apps are provided by Shopify itself, such as Shopify POS in brick-and-mortar stores.

Other apps are provided by third parties to meet merchants' individual needs, such as product selection and tax services for different countries and regions.

Online stores seem to save a lot of hiring costs for salespeople, but in fact, a good online store needs more professionals, such as store design, product selection analysis, marketing channels, data processing, etc., all of which are indispensable.

Opening an online shop employing a lot of employees is obviously unrealistic.

Finding the right expert on the Experts Marketplace is a low-cost way to solve a problem. Even for trivial questions like "don't know what to sell to make money," experts provide data analysis results.

In an ecosystem like Shopify, it's safe to say that any problem a merchant encounters will find a solution. So making it easier for customers is not really a slogan.

Conversely, Shopify could not have grown quickly without ecology. Knowing this, Shopify takes a relaxed approach to partnerships, rather than being too granular.

You can see this in its revenue streams: 20% of revenue came from partners in 2020, but only 8% in 2018.

Ecology is integral to Shopify's success.

The reference significance of e-Commerce SaaS

1. Think outside of traffic

In the early stage of e-commerce development, the platform e-commerce of Internet + merchants was the mainstream. This business model is built on the basis of traffic flow, such as Amazon and eBay abroad, Taobao and Padoduo in China.

With the emergence of vertical e-commerce platforms, the traffic is constantly shunted; With the rise of social e-commerce businesses such as FB, Douyin and Kuaishou, traffic is not only further diverted, but also continuously "cut off".

As the business of traffic becomes more and more difficult, independent stores +SaaS e-commerce services emerge, so merchants have another option.

The development of domestic e-commerce SaaS is slow, one of the important reasons is stuck in traffic thinking, and some people even regard e-commerce SaaS as the so-called private domain traffic.

In fact, private domain flow is a very pull marketing gimmick. You can't think of attracting customers to your booth and chatting with them as your private domain. Because they turn around and go to another stall to talk longer.

In fact, businesses to establish and management, is customer loyalty, which has little to do with private domain flow.

It can be seen that traffic is not the main factor for merchants to choose e-Commerce SaaS; Do not jump out of the flow of thinking, e-commerce SaaS is difficult to make.

Create your own service blueprint

Shopify's best part isn't bundling a bunch of tools together; But to create a complete description of its service system service blueprint, which is its core competitiveness.

Shopify's service blueprint has two features: deep service and full process coverage.

First, the need for deep service. The logic of e-commerce SaaS is to help merchants operate more efficiently by providing them with complete services. So depth of service is necessary. The capabilities of a SaaS service are largely determined by the depth, or atomicity, of the service.

Implementing deep services doesn't have to be done all by yourself. It can be provided in conjunction with other SaaS, or it can be done by the developer through an API.

In-depth service for merchants' experience means that they don't have to worry about the environment and facilities of online stores and focus on their own business.

And the need for full process coverage. If only one business link to provide in-depth services, it can not well meet the needs of online business.

Because an online transaction is an intense process. Therefore, the core part of the service blueprint is best completed by one e-commerce SaaS provider, rather than several SaaS cobbled together.

This is not only complicated to implement, but also can increase the integration cost of the business, and fluency can greatly affect the user experience.

So we see that Shopify's core apps are made by itself; Non-core, personalized applications can be provided by other SaaS.

Start ecological construction

The so-called ecosystem includes SaaS ecosystem and service ecosystem, such as Shopify's 6000+App, and numerous partner services.

Ecology is important for all SaaS; E-commerce SaaS, in particular, is indispensable.

The industry ecosystem of SaaS in China is still in its early stage, especially for e-commerce SaaS. All services are done by themselves, which is difficult to scale up.

Opportunity and Competition

The opportunity of domestic e-commerce platform is not big, but the space of e-Commerce SaaS is great, will become a new hot spot of SaaS. For example, Youzan has gone far in the direction of e-commerce SaaS.

With the end of the traffic era, it is believed that there will be more SaaS service providers entering the field, and there will be more industry ecosystem SaaS and service partners.

Another question I often get asked is: will the existing e-commerce platform giants move into e-commerce SaaS?

Frankly, it's not impossible. Amazon recently launched an internal Project called Project Santos that takes direct aim at Shopify.

However, I think e-commerce platform and e-commerce SaaS are not compatible with each other. For example, for a new merchant, should it go to e-commerce platform or e-commerce SaaS? There's no basis for it.

The situation is similar at home. However, for some e-commerce fields that do not depend on traffic (such as overseas e-commerce), e-commerce platform giants may layout and enter.

However, for e-commerce SaaS, this is not a worry. Because the two are different business models, the giants have no particular advantage.

What do we expect the new world of "Web3" to look like?

From 1989, Bernas put forward the concept of the World Wide Web to now, has experienced Web1.0, Web2.0, Web3.0, now the concept of Web3.0 is becoming the eyes of investors. In this article, the author combined with practical experience on Web3 launched a series of narration, interested partners come to have a look

We have massive and low-cost access to advanced technology through centralized networks, but the downside of this approach is that it stifles innovation.

The enterprise that owns the network has unilateral power, such as who can get the right to use the network, which functions are supported, how to distribute the economy, etc.

That will make it harder for other groups like startups and creators to grow their businesses because they have to worry and focus on central platforms changing the rules and taking away their users or profits.

Delegating power to communities rather than individual businesses is what Web3 hopes to address.

1. What is Web3

I prefer to think of the term "Web3" as an evolution of what we used to call the "crypto world" with a more decentralized meaning.

Interestingly, people are more receptive to the term because it sounds less rebellious and more technologically revolutionary.

So what is Web3?

In the 1980s, when the Internet was in its earliest days, the way people interacted with the Internet belonged to Web1: Internet websites published information and consultation, and ordinary users could only browse as passive receivers of information.

The leading news portals at that time were Sina and Yahoo, also known as the PGC era (website professionals produce content).

This model is like presenting newspapers/articles/books electronically and delivering them to all Internet users beyond the time and space constraints.

What has changed is only the way information is transmitted, but it is enough to make people sigh with technological progress.

Hiring special writers is easy to control the content quality of the website, but it also results in low production efficiency, less than a few articles a day. Coupled with the limitations of each person, the content of the Internet is small and narrow.

In Web2.0, people can not only passively receive information, but also actively create content, giving people the right to express, also known as UGC.

The current public account authors, toutiao Zhihu bloggers, douyin BIG V is due to the development of web2 era.

Once you start creating for all, information finally explodes. Two obvious problems with the explosion of information are the ease with which content can be copied and transferred (web1.0 also exists, but conflicts arise when there are enough information and editors), and identity and privacy leakage.

Both can be blamed on one problem: ownership.

Web3.0 addresses this problem through a series of blockchain technologies. By returning ownership to each creator, we own the content of the Internet and give users the rights they have.

Web3 makes users the owners of the Internet, rather than a monopoly.

To sum up, the accurate Web3 concept explanation I have seen so far is as follows:

The opportunity to upgrade the network to an economy centered around crypto assets, and to build systems where the incentives for network owners, network participants, and third-party developers are exactly aligned.

The biggest attraction of Web3 compared to Web2 is the new way of ownership redistribution and value capture. In this world of decentralized, the user is no longer to be selling goods (that is, the "flow"), but one can directly join the network and capture value of participants, each participant was actually owns all the property of the network (ownership), to participate in the formulation and vote of all the major decisions, can also how much contribution by capture much value.

In Web3 project, the essence of value formation is the flow of ownership, that is, the mutual flow of asset ownership, governance rights and privacy rights among individuals.

Value itself is "demand" and "supply", while demand and supply are all kinds of ownership of different individuals. Only when demand and supply flow with each other can "value" be formed.

The value of Web3 projects is not the ownership of users (such as their identity, assets, privacy, etc., which are only owned by individuals), but the flow of individual ownership, including asset mobility, governance participation, etc.

The current phase is similar to the Web2 Internet circa 1995.

As the Web3 infrastructure stack matures over the 2020-2025 period, we expect to see the first wave of viable Web3 applications around 2023, and expect Web3 applications to be as good as or better than Web2 by 2025.

Over the past year or so, the financial sector in the Web3 world has seen significant development: multiple DeFi protocols and their stacks, multi-chain cross-chain DeFi, and so on. After the financial sector, I personally expect to focus on the development of the following sectors:

Culture and entertainment: NFT, GameFi, Creator Economy, etc.

Underlying infrastructure services: native Web3 infrastructure/tools;

Governance: Community management tools/services;

2. The Web3 world

The most amazing thing about Web3 stacks is that they don't need any centralized coordination to be put together; they are an interoperable set of networks.

In this wonderful new world, there is a series of puzzle pieces that are increasingly complete.

First, the multiple public chains are the tracks that drive it all. Addresses and domain names are our passport to identity.

Cryptocurrencies (FT) and NFTs are the digital goods of this new world economy.

Currently, cryptocurrencies (FT) are highly interoperable, such as the DeFi protocol, where users can use a cryptocurrency to communicate with each other across protocols. That means there is tremendous convenience in the digital world.

NFT is our digital identity and proof of ownership in this new world, but NFTs is a central tool for the economy of creators, enabling them to connect directly with their fans and monetize their knowledge without an intermediary.

The NFT tracking advantage of blockchain technology itself could also help creators generate more revenue from subsequent transactions.

A basket of digital infrastructure is the guarantee.

Cross-computing, indexing, data management, hosting, storage and other critical services are essential software infrastructure, as are decentralized hardware infrastructure such as video, sensors, and so on.

In addition, privacy cannot be ignored. It not only protects users' personal data, but also fundamentally expands the application design space.

Given the backdrop of massive data leaks in the Web 2.0 era, data protection may become the core of Web3 technology innovation.

DeFi is a decentralized financial system.

DeFi refers to the decentralized application of the financial sector (savings, loans and exchange).

Cryptocurrencies themselves enable low-cost, real-time, borderless, point-to-point value transfer with very low barriers to entry.

At the same time, compare any DeFi savings rate with Wall Street's and you can see the difference, and it's on a decentralized basis.

Stablecoins and central bank digital currencies.

Staboins offer the advantages of cryptocurrencies with little volatility, helping to enable the real landing of on-chain transactions and payments, including digital currency global cross-border payment systems and other broader financial services.

The central bank digital currency is a necessary means for the digital economy of all countries and the most direct way for them to join Web3.

Daos are the way to manage new domains.

The DAO is a community shared by network participants, managed by consensus rather than centralized leadership. It is a new model of network governance for people in a decentralized world. Participants make decisions and vote on proposals, and the statistics of votes and whether to implement them follow the logic of smart contracts, removing elements of human intervention and realizing true autonomy.

Gamefi and Metaverse are entertainment.

Games like Axie are examples of how decentralized technology can create new ways for creators to monetize.

In-game items such as tools and skins are NFT owned by the player and can be sold for real world money, traded on the secondary market, and passed between games. Players can also earn coins or NFT through quests and participation.

In Web3.0, production relationships, organizational governance, business competition, and value capture logic will all be restructured.

Like a world where all we have to do is keep an identity system and we can go anywhere.

This set of identities will hold all of a user's transaction data and asset data, and any application can access this information with one click if we agree.

With this identity, we can log in to any app with a click of a signature. The holding of NFT assets also allows all applications to identify user access (or other event) permissions.

In fact, this is already happening.

For example, the production of a product or content in Web2 is promoted from top to bottom, led by the team and making decisions, which naturally has certain authority.

In Web3, we encourage bottom-up innovation and community autonomy for all participants. Xiaomi "Sense of participation" period quite has this taste.

For example, the way projects compete has changed. Anything a user does on the chain is recorded and can be viewed by anyone.

It's like aggregating and publicizing all of web2's tightly guarded user data.

As a result, all project partners can target and incentivize seed users through open on-chain data analysis.

For example, Looksrare recently launched on the eve of its launch with an airdrop of users trading more than 1E on Opensea, perfectly tapping the core target users to achieve a cold launch.

This approach gives many start-up teams a fair chance to compete and acquire target users at low cost.

In addition, the migration cost of blockchain products is very low (as mentioned above, it is a set of identity system), so in the Web3 world, the products that remain will be useful and valuable to users.

In addition, on-chain achievements and data analytics will be important components of Web3, as it can map out an address's identity, user profile, and behavior patterns.

3. Trend of imagination

 The incremental market of Web2 enterprises has gradually peaked in recent years, and their growth businesses are all carried out around the stock market. Faced with this new industry, they will also be afraid of missing out. So, in 2022, there will be a lot of Web2 companies thinking about how to enter this new world and quickly build their new business models. Similar to the "Internet +" when the Internet was popular at that time, helping these Web2 enterprises to carry out "Web3 +" may be an entrepreneurial opportunity.

 The trend of good developers joining Web3 from Web2 is accelerating, and the use of development tools and blockchain infrastructure/middleware is increasing.

 The P2E model in Gamefi has creatively attracted many non-cryptocurrency users to the Web3 world (other products should also consider growth in this regard), and I think Gamefi has the best chance to be the first to break out in the Web3 world.

 Middleware/tools for software services will emerge. With the explosion of Web3 and decentralized organizations, there will be more emphasis on middleware. For example, provide first-class DAO management tools, covering software for token-holder relationships, governance, money management, and stakeholder management.

 User profile + decentralized identity. The abundance of on-chain and off-chain data can facilitate better data analysis, make user profiles self-aligned, and build a foundation for differentiated services.

It may take another 3-5 years for Web3 to reach mass adoption.

Before that, there will be an intermediate state of Web2.5, where decentralization and centralization coexist for a long time.