Deliverr was Shopify’s biggest acquisition. And selling it confirms a big change in Shopify’s strategy. When the Canadian firm acquired it, it wanted to build an end-to-end logistics platform for millions of its merchants.

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Now it wants to go back to doing what it does best, “building incredible software for ecommerce,” as noted by the company’s president Harley Finkelstein in an interview. He also said that after going on a side quest to develop their own fulfillment and logistics businesses, they realized that they could could offer those services more effectively by integrating with Flexport.

In addition to Deliverr, Shopify also sold its second biggest acquisition ever, 6 River Systems, to Ocado, a global fulfillment solutions provider headquartered in the United Kingdom. 6 River Systems builds warehouse automation system comprised of software and autonomous mobile robots (AMRs).

In today’s post, I look back at all the companies Shopify has acquired to date and the main themes that emerge from company’s M&A efforts.

Here is a list of all the companies Shopify has acquired.

1) Acquhires: Dev and Design Agencies

If we look at the early acquisitions - from 2010 to 2016 - the company mainly acquired design and development agencies, and studios - to basically acquhire talent. The most notable in this group are Jet Cooper and Select Start Studios. As a result of these acquisitions, the company ended up acquiring people who held leadership roles at Shopify and some continue to do so.

Here are the notable ones.

Satish Kanwar
He joined Shopify in 2013 as Director of Operations after his design and UX agency was acquired by them in 2013. His role kept changing and he has been leading company’s M&A efforts since late 2020 as the Vice President of Product Acceleration.

Adam McNamara
Adam was Shopify’s Vice President for Product from 2012 to 2014. He joined as a result of company’s acquisition of Select Start Studios, a Canada-based development agency.

Robleh Jama
Robleh became part of Shopify after his studio product studio Tiny Hearts was acquired by the company in 2016. He had initially joined as Sr. Product Lead and currently serves the company as Director of Product (Blockchain).

Here is a complete list of notable leaders and employees Shopify hired as a result of its acquisitions.

The most notable Shopify acquhire came in 2019: Helpful. The Canadian company was a studio-like venture that built different products: AI-powered Employee Directory, Asynchronous Video Messages at Work, and Live Interactive Audio.

As a result of its acquisition, Shopify brought Farhan Thawar and Daniel Debow to its leadership team - who have been serving the company as Vice President and Head of Engineering, and Vice President for Product Demand respectively since then.

Helpful was acquired for about $6 million and as Shopify wasn’t a publicly listed company until mid-2015, it did not disclose the terms of acquisition for most of these companies. But it would be safe to assume that the Canadian software firm did not spend a lot of money on these acquisitions as it had raised a little over $120 million before its public markets debut - $100 million of which was raised in a Series C round in December 2013.

The acquhires, in my opinion, have been the most successful acquisitions for Shopify.

2) Acquisitions for Software

From 2016 onwards, Shopify started acquiring companies for their products. The first in this series was its acquisition of Kit which was a virtual marketing assistant that helped businesses use messaging to market their stores. The product is still live, and has evolved into Shopify Inbox.

The other notable acquisitions in this category include:

Dovetale: an influencer marketing platform that Shopify acquired in 2022. It is still live, and now known as Shopify Collabs.

Oberlo: a dropshipping app for Shopify merchants which was acquired in 2017 and shut down in 2022.

Another notable acquisition for software (apparently for people who built the software) is Tictail, a Sweden-headquartered marketplace for fashion, home décor, and art. This acquisition helped Shopify build the leadership team for Shop app. Siavash Ghorbani joined as Vice President, Engineer (Shop & Shop Pay), Carl Rivera as Vice President, Product (Merchant Services & Shop), and Kaj Drobin as Director of Product (Shop). All three of them are still serving Shopify in these roles.

Here is a list of all the top executives who joined Shopify as a result of acquisition and are still with the company (based on their LinkedIn profiles).

The most expensive Shopify acquisition in the ecommerce software space has been Donde Search, a visual search experience for online stores powered by AI, computer vision, and NLP, which it acquired for $51 million. It is not clear what happened to the software but Donde’s co-founder Liat Zakay still serves Shopify as Director of Strategic Growth (EMEA). Interestingly, she’s the only female leader the company has hired as a result of an acquisition.

This category of acquisition has produced mixed results for the company. It has had both hits and misses.

3) The nine-figure acquisitions

The third theme that emerges from Shopify’s acquisitions is the companies it paid a lot of money to acquire. The companies it paid nine-figures for (ten for one). These include Deliverr, 6 River Systems, and Handshake, a B2B ecommerce marketplace, it acquired in 2019. Handshake is still operational. These are also the companies Shopify acquired to apparently expand its business.

Deliverr and 6 River Systems have been complete failures as Shopify divested both the firms within four years of acquisition. Deliverr was part of Shopify for just a year. The Canadian firm has taken an impairment of $1.6 billion as a result of this divestment.

And there are concerns that the company will take another hit whenever Felxport gets a new valuation as the container prices have dropped by more than 80 percent in 2023 which means that the company’s revenue must have also taken a big hit.

Shopify’s divestment indicates a big shift in company’s strategy as it now apparently wants to focus only on building software for ecommerce but these were the most expensive acquisitions of the company, costing Shopify over $2.5 billion. On the other hand, the acquhires and acquisitions that the company mainly made for software cost it less than $100 million collectively.

Handshake may be the only acquisition in this category which has proven to be somewhat successful for the company and we can’t be certain of that as well.

So, overall, Shopify has fared badly whenever it acquired a company for expanding its business.

TL;DR: Shopify’s best acquisitions were its acquhires. The worst acquisitions have been the most expensive ones.

And then… the Tech Bros Moved On.

Their CEO Joey Zwillinger stated during the quarterly call (PDF) last year:

“...2022 came to a challenging close as we ended the year below our guidance range, ending the year with nearly $300 million in net revenue, representing 7% YOY growth. Our adjusted EBITDA for the year was negative $60 million. Like the industry, we were impacted by weakened consumer demand – but we also made some strategic and executional missteps that impacted results.”

Back in 2014 Brown, the just retired All White soccer player, teamed up with engineer Zwillinger to make sustainable leisure footwear from Merino wool.

People loved the product and an NPS score of 86, great retention with 53% of sales coming from repeat customers in 2020 and the fact that they sold eight million pairs of shoes to over four million customers globally was the proof.

But looking closer one would have noticed it’s not all smooth sailing from there.

Allbirds were making an operating loss of about $29.2 million 2020 yet the company has transitioned to what it calls “full-funnel” marketing. That’s Latin for “we raised a ton of cash, and we’re now pouring it into television and print.”

As per the IPO prospectus, they spent a little over $55 million in 2020 and $44 million in 2019 on marketing.

And generated $219 million and $193 million in net revenue respectively.

Given 54 percent in 2019 and 47 percent in 2020 revenue was generated by new customers leaves us with around $100 million new customers revenue each year.

They also vaguely mentioned that the “average order value further expands from a strong level of $124 on a gross basis in 2020”. So assuming $100 net AOV given that’s the price of their best-seller as well.

So all gets us to assume around 800,000 new customers in 2020 which leads us to estimate a CAC of $69 a 25 percent increase from the 2019 level.

Now, there’s no mention of CAC value and trend in the prospectus.

Customer Acquisition Costs are mentioned only 3 times while brand awareness is mentioned 27 times.

Now, imagine everything described above happened before Apple privacy changes so I wouldn’t be surprised if the CAC doubled.

So, there were only a few options for them to continue growing and attempt to become profitable at the same time.

1. Reduce CAC

2. Increase average revenue per customer (ARPU)

And all that while reaching new customers.

CAC reduction

Everyone who ever managed paid media acquisition knows that you can’t scale it indefinitely. Once the core audience is saturated growth plateaus and CAC starts increasing with every extra dollar spent on ads.

Reducing paid media CAC would have been virtually impossible unless they tried to reach new audiences via successful new product line development but that later.

The other alternative is to invest in brand as a means to increase organic growth and the word of mouth referrals so as to reduce blended CAC while keeping paid CAC stable.

And the most feasible ways to build brand for a shoe company are content creation and/or standing for something bigger than selling shoes.

Content creation

Let’s look at Allbird's competitors who succeeded as content creators.

Two companies stand out here.

If we plot their content strategies onto the Entertainment Value Curve we see why.

Allbirds could have tried to position themselves somewhere along the curve, yet they focused on product promotion at times trying to be funny, at times inviting occasional celebrity.

A quick comparison of their Lindsey Lohan featured Unexpected Athlete (42K views, 800 likes) with Salomon’s ft. Rich Roll Dear Rich video (300K views, 5.6K likes) shows where they are falling short.

Allbirds’ video is a celebrity featuring ad.

Salomon’s is a story many viewers would connect emotionally with.

With this video, Allbirds is competing in a very saturated market for the hearts and minds of the “always a fashionista sometimes a runner” audience with the market leaders launching collaborations with fashion houses i.e Adidas x Stella McCartney or Prada.

And this is the race Allbirds can’t possibly win.

Salomon taps into the network effects of an interconnected community of trail runners, starting a growth loop that feeds on itself.

Brand with purpose

Now, the brand indeed tried to stand for something bigger than shoes.

After all, a B-corp focused on sustainable and environmentally friendly practices in its supply chain.

Even their Allbirds’ original prospectus was filed as an SPO — a “Sustainable” Public Equity Offering. The company later amended its prospectus to include no mention of an SPO.

What they missed, however, is being sustainable and environmentally friendly is not a moat.

And it's not just the competition from established players, there are plenty of purpose-driven newcomers making a more compelling sustainability case.

One such example is Kilian Jornet’s NNormal.

Making the bold and loud statement that true sustainability is about using less and buying less and if Kilian can complete his unbelievable endurance wins only with 4 pairs of shoes you surely can.

Increase ARPU

Getting current users to spend more would inevitably require launching new products both in the same category and developing new categories.

Product development

As their product portfolio expansion strategy, Allbirds went from sneakers for the office to sneakers for trails.

What they seem to miss is that there’s a huge difference between buying fashion and buying sports gear.

I’ll get a little personal here as someone who spent a little fortune on sportswear especially running, hiking, and mountaineering gear.

Do you know what I’m thinking about here?

God bless The North Face 🙂

Because many times it was the gear from the right brand to spare me from a few bruises… to say the least.

So what are the chances of me switching because Allbirds claimed that they rigorously tested their shoes?

In the end, their CEO also admitted.

“We made a decision to diversify our product beyond the core DNA of what has made us one of the most beloved brands in footwear in an effort to reach a younger, fashion-forward and performance-oriented consumer…And while these products did succeed in attracting new consumers to our brand, they had lower conversion and sell-through than our classic styles across channels. Ultimately, we have come to recognize that our over-investment on newness came at the expense of focus on consumers who are loyal to our brand”

It all started so well but then a niche brand decided to raise tons of venture capital funding on the premise of unlimited growth and the belief that everyone on earth who wears shoes would need their sneakers.

Raised over $350 million before going public before its IPO in 2020 (at $14.50 per share), just to be bought back private after only 2 years when the share price was slashed to just $3.55.

What went wrong?

As simple as Scott Galloway put it “it has no business being public”

For years companies like Casper were able to raise substantial amounts of money by focusing on hypergrowth in hopes to achieve profitability later.

However, the more saturated the market has become the harder it got to be able to convince the markets that growth at any cost is justified.

At the time of filing for an IPO

Casper generated $312.3 million in revenue over the 9 months preceding the filing

Of which DTC sales were accounting for 83% of total

The average DTC order value (AOV) was $710 and $820 for retail

And

Casper was losing $157 for every mattress it sold

Yet, in its S-1 prospectus

Marketing is mentioned 170 times
Brand Awareness 23 times
Customer Acquisition Costs (CAC) 0 times.

What we know is

From 2016 to September 2019 they spent $422.8 million on marketing

That resulted in them acquiring 1.4 million customers

Back-of-the-envelope math and we have a CAC of $302

Now, they say that 16% of the customers repurchased at least once over a period of time. This is quite expected as people change mattresses every 9-10 years.

But that gives us CAC vs. LTV of only 1.4 where the industry expects it to be at least 3.

Now, coming back to unit economics:

AOV $710
Repurchase rate per customer 1.16
The average revenue per user (ARPU) is $824
COGS $367 (50.7% gross margins over last 3 months)
CAC $302

=

Profit Contribution (PC3) $155

This is what was left to run other aspects of the business including general and administrative expenses, expansion costs, sales, and marketing expenses (not directly related to advertising and customer acquisition)

So, in order to break even Casper could have reduced marketing expenses and/or increased marketing efficiency.

But it seems that neither has been done.

It’s been mentioned that Caper primarily grew via ads (e.g., Facebook, Google, Twitter, YouTube), paid influencers, affiliate programs, and channel partners.

A risky tactic - for non-frequent products such as mattresses with good PMF you would expect for every user acquired to receive at least 0.3-1 additional user via referrals and word of mouth.

And this is how product-market fit for infrequent products should look like.

Clearly, Casper had strong PMF but had likely been spending on users who should have been acquired organically or through the referral program.

Moreover,

As confirmed by the numbers in the prospectus brand awareness was of much higher priority for Casper than CAC and profitability.

The below google search strategy shows us they went after all traffic possible regardless of intent and bid against themselves increasing cost per click which clearly contributed to the CAC increase.

This SERP gymnastic could have played out well if the main KPI was users or DAU/MAU type of metrics but when we talk about CAC or profitability we have to justify every click we spend budget on with revenue it brings in.

Not to mention, they lead users to 3rd party retail partners who charged them fees with every sale so the costs would go higher than the advertising spent.

The same goes for extensive brand campaigns on social media leading traffic to news outlets.

Even their famous SEO strategy was built on the assumption that everyone who sleeps is their customer implying unlimited TAM and infinite growth.

Surely attractive but quite an overreach.

Yes, you can drive a lot of traffic by educating people about the importance of sleep and targeting queries such as “what to do when you can’t sleep” but these audiences are more suitable for sleep aid supplements stores rather than a mattress company.

You can argue that these are long-term investments but if you are spending your marketing budget NOW or someone who maybe convert in 7 years investors will not buy it.

Casper seemed to have an exciting referral program and probably their focus on the customer experience translated into a great WOM spread

But it is also likely they were targeting each customer via multiple channels increasing overall spend on each customer without a clear understanding of what actually drove the purchase.

Shopify is shaking things up with the launch of Commerce Components, a new unbundled platform designed specifically for big retailers.

CCS combines the best of both worlds for enterprise retailers: access to Shopify's high-performing foundational components (like their checkout, which converts 72% better than a typical checkout and 91% better on mobile), plus flexible APIs to build dynamic customer experiences that integrate seamlessly with a retailer's preferred back office services.

What this basically means is that the large enterprise clients who have been shying away from Shopify for different reasons can use its modular components without migrating to Shopify or Shopify Plus. They won’t have to give up their existing tech stack to use any of the components. The company is offering over 30 components across various categories, including, Storefront, Cart and checkout, Core commerce, Data and compliance, Shopping and logistics, and omnichannel.

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Harley Finkelstein, the President of Shopify, commenting on the launch of Commerce Components, said:

“We’ve always approached innovation at Shopify by anticipating what retailers need, then providing those solutions. Commerce Components by Shopify opens our infrastructure so enterprise retailers don’t have to waste time, engineering power, and money building critical foundations Shopify has already perfected, and instead frees them up to customize, differentiate, and scale.”

Arpan Podduturi, the Vice President of Product at the company, speaking about Commerce Components, said:

“It’s optimized for retailers who’d prefer to use individual components of Shopify in an a la carte way - integrating those components with the rest of their commerce stack.”

Shopify has been making different efforts to attract large retailers to its platform and they seem to be working. Supreme, a popular streetwear brand just switched to Shopify. 2022 had also seen some large brands come to Shopify.

That’s it for today. Don’t forget to spread the word about PinPop.

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Keep an eye out for the next issue.
Z

Welcome to the inaugural edition of PinPop, your one-stop shop for all the juicy gossip in the world of DTC and ecommerce!

It's been a bit of a snooze-fest in the DTC IPO department this year, but 2021 saw some major players make their debut on the stock market, like Allbirds, Warby Parker, and Honest. In this first issue, we're gonna take a look into how these companies have been faring on the stock exchange.

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Check out this quick chart we whipped up:

For comparison, NASDAQ is down about 34% YTD and NYSE is down 11%.

Of these companies, it looks like Honest is having the toughest time. Its market cap is now just 56% of the total funding it's raised. Allbirds is doing a little better at 175%, Warby Parker is at 297%, and Hims at 578%. Hims has done much better than others in the industry with just 5% dip in the market cap YTD.

Overall, it's been a rough year for DTC, just like the rest of the tech industry. A private startup that went bust was Haus. The DTC alcohol brand closed its doors after failing to secure Series A funding. They had raised a total of $17 million before shutting down.

That's all for now, folks!

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See ya next time,
Z