Shopify is a Whale Shark - Part 2

August 31, 2023

In Shopify is a Whale Shark – Part 1, we got introduced to The Remora Model, and we teased an explanation of how Shopify has kept a few of its remora in check.

Without further ado, meet…

Remora #1 – Dovetale

Influencer marketing has been growing like crazy. In 2023, it’s expected to reach $21.1B in spend, up 29% from last year. Why? Stores need customers, and customers are among the 700M that watch TikTok every day, or the 122M on YouTube every day, or the jaw-dropping 1.4B that are on Instagram every day.

If you could just… reach… your utility belt those people!

But there is a way! You just need to get in touch with the marketing gurus that those people interact with. Aka influencers.

That’s why this company dovetails in so nicely here...

Dovetale was launched in 2016 by Mike Schmidt, a serial entrepreneur. By 2021, they were doubling revenue every month, had 20K influencer partners, and were objectively crushing it. That same year, they released an app in Shopify’s app store so Shopify merchants could take advantage of their influencer platform, and it was yet another proof point. Shopify bought them in April 2022.

And what of the model, sir? Does this fit the model?

Sometimes it’s fun to get eaten. Um, I meant to say – sometimes it’s fun to get acquired for an undisclosed but probably really large sum of money. For me, this is a classic example of the Remora Model at work. Dovetale identified an unmet need that Shopify hadn’t quite solved, they built a successful solution, and they grew like crazy.  Shopify probably could have built their own solution, but by the time they saw Dovetale, they might have figured an acquisition was a quicker route.

Remora #2 – Remix

Remix, an open web framework, was founded in 2020 by two developers -- Ryan Florence and Michael Jackson (no! not that one!). They built React Router, which is a library for React (developer toolset for building user interfaces – the buttons and layouts of your favorite websites), and that went pretty well... The damned thing has been downloaded literally a billion times. Shopify even used Remix to build Hydrogen, its framework for custom merchant storefronts.

After that homerun with Shopify, investors finally saw the potential, and Remix raised $3M in funding from a group including angel investor Naval Ravikant.

Shopify wanted them (and bought them for $2.1B) because in addition to being a nice toolset, Remix can be used to make pages load faster. That’s right, you ungrateful oaf – Shopify spent $2.1B so you wouldn’t get impatient while waiting for your pages to load. That acquisition happened in October 2022.

So what? How does this fit into The Remora Model? 

This is the perfect example of the whale shark doing things that remora can’t afford to. Spending billions for faster page loads is a hell of an investment to make. And it’s not a problem that a small Shopify offshoot could go and solve on their own.

Remora #3 – Deliverr

Deliverr was a logistics company Shopify bought in 2022. Its platform allowed Shopify to “pre-position” popular stuff closer to the customers who were most likely to buy it. I’m stuck using past tense here because Shopify got cold feet on this one, selling the business in 2023 – roughly 1 year after buying it. In fact, Shopify had several logistics companies under its wing, and they sold all of them off earlier this year.

Wait, why?

I had the same question, and according to company filings and analyst speculation, they are just trying to cut costs across the board. They had a net loss of $3.5B in 2022 and already announced a 10% layoff in July 2022 and a 20% second cut in May 2023.

The part that isn’t getting talked about, but which is extremely relevant, is that Amazon recently announced they are getting back into shipping for things that aren’t Amazon packages…(and since I first drafted this article, they’ve now announced they will ship for Shopify merchants!)

So… the model?

Here, the point is a bit more subtle, but think about how disruptive this is to the remora. In 2021, as a logistics company working with Shopify brands, life is good. Maybe you (the CEO) even buy a huge fish tank and put it in the office. You buy a baby whale shark. You’re happy.

But then Shopify launches its own logistics. Poof – all your customers are gone. You take the whale shark home, but your husband doesn’t like it. He doesn’t care about symbiotic relationships or extremely strained metaphors.

In all seriousness – the point is that you are entirely dependent on Shopify for your existence. It’s a risky spot to be in.

So, zooming out, what are the winning strategies in these situations?

Whale Shark Strategy

  1. Encourage remora – Your customers benefit from having them around (more features, better customer service, etc.). So you need to give them space to operate, and at first you’ll probably have to actively recruit them. Preferred partnerships and official business relationships can help. The small ones and the ones that haven’t launched yet will watch carefully how you treat the best of them – don’t reign over them like a cruel lord.

  2. Pay attention – You need to be watching the remora. Some will get big and become threats to you. Some will get big and show you a customer problem you overlooked (opportunity to acquire). Treat them as a secondary set of customers – understanding their pain points and trying to solve them.

  3. Be decisive about direction – don’t be so responsive to the remora (either reacting to threats or changing based on feedback) that you forget to plan ahead. You are setting the direction here. As long as you are thoughtful about how you inform the remora about that direction (transparently and proactively, I hope), then they should swim with you.

Remora Strategy

  1. Pick an end game – Don’t be surprised by an acquisition offer, and don’t blunder your way into poking the bear whale shark. You should know from the beginning whether you want to stay a remora, get eaten by the whale shark, or become the whale shark.

  2. Start specialized – Regardless of your end game, you should start with a single customer problem that the whale shark hasn’t tackled. Don’t immediately try to be them – doing 10 things well is harder than doing 1 really well.

  3. You are not the only one – The opportunity to go the extra mile for customers, or meet unmet needs… that opportunity is attractive for your competitors too. So there will be other remora that show up to take that opportunity. Being nimble and proactively swimming in the direction the whale shark is going can help you beat competitors.

Shopify has followed the whale shark strategy quite nicely, and the result is a resilient ecosystem.

That’s important.

Despite this period of softness in Shopify’s business, those resilient 3rd parties will stick around. Some weaker partners might fade, but that just makes room for new remora ready to swim at Shopify’s pace. I think Shopify will rebound even more convincingly as a result.

Bonus Bullets

Quote of the Week:

“We’re trying to change the way people think about passwords and the way they think about how they log in,  and that’s hard because the password is deeply ingrained into society. As long as we’ve known computers, we’ve known there’s a username and password, and we’re now saying, “Hey, let’s move beyond that. Let’s get beyond that. Let’s go into passkeys, let’s go into passphrases, let’s go password-less.” And so we’re thinking about all the ways in which we can do that securely but also in a way that people will actually use the technology to keep themselves safe.”

— Jameeka Green Aaron, CISO at Okta

Quick News Reactions:

  • Why not both?: JBL announced the first smart speakers that have both Alexa and Google Assistant. Nice to see them playing nice together (and it just makes sense).

  • Mixed IPO bag: Klaviyo, Instacart, and Arm are all planning IPOs. Not investment advice, but in our uncertain economy I’m 100x more excited about AI chips than about marketing or groceries. Just sayin’.

  • U.S. Copyright Office Wakes up: They’re asking for public input on AI copyright issues. More effective than striking writers complaining about AI, but what took so long?

Tech Jobs Update:

Things are starting to look better for tech industry job hunters. Here are a few things I’m paying attention to this week:

  • Big Tech Job Posts: LinkedIn has 8,472 (+21% WoW) US-based jobs for a group of 20 large firms (the ones I typically write about — Google, Apple, Netflix, etc.).

  • Key Stats: Tech companies added 5K employees last month, a second month of increases. Tech unemployment dropped from 2.3% to 1.8%. (Source: CIO Dive)

  • Graph: Layoffs seem to be trailing off, at least for now. (Source: Layoffs.FYI)