EP 76 - Shopify invests in email, End of location intelligence, E-commerce not eating retail, it is retail

Part 1 Video start 0:13 - Shopify’s investment in Klaviyo improves Shopify’s enterprise cred & may signal acquisition

Part 2 Video start 7:10 - The golden (lead?) era of hyper detailed location data intelligence is coming to an end

Part 3 Video start 15:39- At Covid start  E-commerce was eating retail, turns out it is retail

Reference Articles:

1. Shopify makes $100M strategic investment in marketing automation startup Klaviyo
2. Location Data RIP - The end of location intelligence?
3. Retail v. E-Commerce: Back to the trend line?

Transcript Ep 76:

Greg: And here we are, again for Episode 76 of the Near Memo with David, Mike, and Greg, where we talk about local search commerce, social media, and other stuff as it interests and excites us. And today we're going to be talking about Shopify and its strategic investment in Klaviyo. We're going to be talking about the potential end of precise geolocation data under the weight of privacy legislation regulation.

And we're also going to be talking about kind of the age old debate between eCommerce and traditional retail and why that has become kind of a misnomer with Benedict evidence PO post recent post kind of as the jumping off point. So we're going to start off with David and. and the Shopify investment. Why was that interesting?

Sure.

David: That's great. Minor disclosure. I own a handful of shares of Shopify. As I've said, many times on this podcast, just a big fan of the company generally was disappointed that they had to lay off a thousand people. I think it was just last

Greg: week, but, and most of their, most of their, most of their SEO team, right.

David: strangely but generally a fan of the company and think that they've got their finger on the pulse of what small businesses need. I thought this announcement this week actually signaled a move to. Perhaps protect their existing more enterprise customer base. I'm not sure you could say that they have a true quote unquote enterprise customer, but they're a very large, you know, medium size business customer base in that.

It was a twofold announcement. The first was that they're investing a hundred million dollars as a strategic investment in Klaviyo Klaviyo. I went on crunch base just this morning to look this up. So they've raised a lot of money in the last two years, even. And, you know, you could argue that the previous two rounds, they were probably arguing at a very good time for fundraising for tech companies, but to take another a hundred million already on the heels of a 300 and some million dollar investment last year.

Signals that maybe they're, you know, they, they may have spent a little too aggressively in the last year or two and they, they needed the cash infusion. They have been around quite a while. I think that they're, they were founded in 2012. First seed money was 2015. So that's a, you know, pretty long runway already.

So they may be sort of feeling. This is a, both, both sides may be feeling like this is a, a sort of prelude to an acquisition. So that was the, the first piece of the, the announcement. The second piece was that they are, that Shopify now will sort. Give Klaviyo preferential treatment for presumably things like marketing automation and email marketing within their Shopify plus customer base app store, or what have you.

And so that is again, another indication of sort of. Klaviyo's market is a little bit more upstream of the typical, what we sort of probably perceive as the typical Shopify customer. I have helped a number of merchants, probably around a dozen merchants. Get set up on Shopify in the last two to three years.

I think it's an excellent platform. I think that they're default email product actually is quite good. They released it maybe two or three years ago and it is very simple to use pulls directly. Not just content, but also the, the theme that you're using within Shopify to to build the emails it's a very easy, good, great user interface.

And of course the, the. Audience segmentation is sort of baked in by default to what customers have bought for you, from you on Shopify. So I think that they're, they're maybe saying, okay, we, we have two different customer bases here. We have the very, you know, very small merchants for whom our existing product is a great fit and our larger merchants at the same time, need something a little bit with, with a few more bells and whistles, and we're not going to sort of try to combine.

Both customers into the same email marketing automation product. We're going to say no, actually Klaviyo is a better solution for these larger customers. So I personally like the strategic decision and can't comment on the finances. I have no idea, you know, whether that's a smart move or not, but I think from a strategy standpoint, I think it was a really good move by Shopify.

And I think Klaviyo probably will, will appreciate the access to a fairly sizable base of, sort of larger customers that are in Shopify's.

Greg: This, this, this feels to me like they're moving in together as a pre unmarried couple to, as an unmarried couple as a prelude to, to an engagement in marriage, or this is the engagement let's, that's perhaps the better analogy

Mike: and the layoffs were the old go girlfriend or what

David: doesn't speak well, if Shopify's opinion of SEO, I guess Mike,

Greg: but, well, so, so I, I would just add by way of context.

I mean, Klaviyo Sort of core product is email. Right. And then there's some stuff built around it.

David: Personalization in particular like per personalized offers via email and also SMS. Yeah.

Greg: Right. So if you, if you do any research on marketing automation companies in air quotes, you find that there are 200 companies that use that language and.

Promotional material. It's a very, very, very crowded, lots of all in one marketing automation companies, both for the SMB space and enterprise, very, very crowded space. And so I think these guys are, you know, look, this looks like a prelude to an exit probably. And, and, you know, can't probably can't come too soon because I think just kind of breaking through you know, there are companies that are doing very well, but.

Breaking through is very hard.

David: Mike, I would agree. I would also say that a lot of the, yeah, so I, I, I like the Klaviyo focus purely on eCommerce. I think a lot of the marketing automation companies out there are either sort of B2B content type plays or are. Try to do, try to have it best of both worlds.

And I think Klaviyo seems to be pretty laser focused on e-commerce, which is another reason that it seems like a pretty good partnership slash strategic

Greg: investment for Shopify. Well, this opens the door to a debate that we can have at a later time about the, the, the sort of point solution or point solution plus a adjacent functionality versus.

all in one platform, right? Mm-hmm , I mean that this has been a, a kind of perennial debate, especially in the small business space about whether small businesses, even though clavia is directed toward the enterprise, want a kind of complete suite that's integrated that does multiple things versus sort of best of breed point solutions.

It's, it's a it's, you know, it's a, it's a discussion that probably won't won't go away, but let's move on to my story. This. Not to be narcissistic about it. Anyway I was reading about narcissism, I forget what the clinical term is. I was reading this very interesting article about some sort of narcissistic implosion, which was kind of paradoxical, you know, but anyway, that's unrelated to this.

What, what, what I wanted to talk about today was the, you were going to make a joke.

Mike: Having grown up with a narcissistic father, I can attest to the fact that you aren't even close to the ballpark.

Greg:Okay. All  right. Well, thank you. I  don't aspire to be a narcissist so there are a number of things conspiring or converging around privacy, pending legislation, the FTC and the post Roe environment.

Roe V. Wade. Overturned environment that we're facing that could signal the end of very precise geolocation data for most of the market and precise offline attribution. That has been one of the great benefits of the advent location intelligence. So I wrote about that on Monday and there was another piece that I also wrote about on connected cars and it was a based on.

I think it was the markup who had done some investigation and found dozens of companies that were behind the scenes, creating a data ecosystem, where they were monetizing data coming off of cars, location, data, you know, other, other kinds of data coming out of cars.

Mike:And so 600 data points was their standard standard set.

And then. Providers provided all, some provided some and they standardized across those 600 data points. And some of the data points were very personal things, right. It wasn't just location. Although once you add location to any data set, any anonymization, as they point out in the article is out the window.

Greg: Right? Exactly. You know, in, in, in a case like connected cars, there's a lot of data that would be, as I tried to point out really valuable for urban planning, public safety, commute times, driving patterns, all kinds of things that could be publicly beneficial, but that's not why this ecosystem exists. It exists for revenue optimization, money, you know, gen generating revenue.

Insurance other, they're not, they're not thinking about public good. They're thinking about how do we make more money or how do we mitigate our risk or whatever it is. And so this data, plus all the data coming off of smartphones, plus other sources is probably. at risk. So we've got, I, I won't go through all the legislation, we, but we've got the American data privacy and protection act, which seems to make all targeting opt in.

It's not entirely clear. We've got the FTC that's and the FCC that ask carriers about how they're using location data and whether they're abusing it and how they're, how they're marketing it. So there's the, and then, and then There's other, other things going on, basically. So plus the app tracking transparency, Apple's opt in target.

and all of this probably means that one or more one or more of these things is going to make it through the legislative gauntlet. And we're probably going to see the end of precise geolocation except on platforms like Google, which will have a kind of end to end control of the user and consent and all of that.

And it's, it's on one level. It needs to happen on another level. It's too bad because there's a lot of value for everybody from, from location. But you're probably not going to have any offline attribution data outside of the big, the big platforms. So tracking something into a store store, visit tracking movement patterns.

Mike: You mean my Android phone. Isn't going to listen to a signal in an ad and then report back on my behavior. As the TV advertisers have been doing. Exactly like this, some of this stuff is just crazy, right? I mean, oh, I

Greg: absolutely go ahead. No, it's it's totally, I mean, consumers have no idea what is possible, you know, you can track somebody's TV, viewing to a store visit and to a purchase.

Mike: And the article David Mim highlighted last week about Tim Horton's penalty, right? For egregious a breach of this tracking, a donut and a free coffee. That's their penalty.

Greg: David, you were going to say something.

David: I was going to ask if you think that at, at one or more of these legislation pieces might require Google to separate out the somebody somebody's largest Google who does have this end-to-end solution to separate out the use of location data to say, yes, you can use my location, but you may not use it to do X, Y and.

And if that's, I mean, it, it feels to me like there are such a discrete number of things like in, even in the current cookie model, which is totally broken, as you've said so many times, but like those OneTrust modal windows where it's like, you know, you can use this for this, but not these four things. And that seems like it would still work even with Google maps, assuming they they're assuming Google abided by

Greg: those selections.

Well, I mean, consumers clearly. Certain applications to have your location, or they simply won't work. Right. And Google is one of the Google maps is one

David: of them. Right. I want, I want to know, I want, I want Google maps to know where I am so they can direct me to target whatever, but they may not want me that I personally would not want Google to share the fact that I visited a target with target,

Greg: right?

Yes. That should that kind of parsing or. Segmentation of data usage should happen. The challenge. Well, first of all, Google won't lead with that, right? If, if we do get the American data protect privacy and protection act, or we do get these other things coming through, Google's not going to say, okay, we're going to split location into consumer and marketer use cases.

That's not going to happen. They'll be, they'll be, have to be compelled to do that. But the problem is that if you, if you give people too many choices, It's just becomes overwhelming. That's I I've been saying this on Twitter, that that itself is a dark pattern, right? When I go to do not sell my information and I see a list of 16 things.

Now I can go down and say, decline, decline, decline, but just that's designed to confuse and, or, or overwhelm. So the choice that

David: here could be binary, though, it could be, use my information for the purpose of the app, and then also do not sell my information. That's all, you'd really have to say. Google would be Google would be selling my information to, well, who are they?

Greg: Google house. Yeah. So that's interesting. I mean, that gets into sort of linguistic discussions of cell. You know, if Google is simply delivering analytics based on some outcome, does that constitute a sale? Arguably it does, but you could argue that it doesn't. But I think this is, I think this is a major, major development in the market.

It'd still be mature to pronounce location or location, intelligence, DOA, or dead, or. R IP, as I said in the headline, but I think that this is the direction we're heading in that it's, that it's this kind of golden era of all the tracking and online to offline attribution and all the different use cases, audience segmentation, which we're so, so valuable.

For marketers and took them so long to understand the value of that location data that I think, I think we're entering a period where that's going to be over and it's going to be fuzzy location or approximate location, and there's going to have to be modeling and other alternatives, but you're just not going to get, this is the same problem as cookies.

You're just going to not get the precise attribution that you used to be able to get. You're going to have to go back to surveys and brand lift studies and the sort of old style. Analytics that people used to use in the days before this kind of precision. All right, Mike, I can see you're chomping at the bit to talk about Benedict Evan's article on eCommerce and why that dis the, the debate between.

eCommerce and traditional retail may be a, a silly thing and not meaningful anymore. Before

Mike: we get there, I have to wonder what the origin of chomping at the bit, as it refers to a human, it sort of implies that you somehow have me in a subsidiary position where they bit my mouth constraining it. And I would contend my mouth is rarely constrained.

Yes by anybody.

Greg: all right. The, the unrestrained Mike Blumenthal. so UN Unchained, Mike Blumenthal, Unchained. That could be your one

Mike: man show. There you go. During our early in the pandemic, there was viral and frequent conversation about how e-commerce as a percentage. Retail had related, related to the percentage of re related to retail had gone up five years and we were all excited or 10 that this was, or 10 or 10 and it had leaped forward.

And then in the past six months, the counter conversation has dropped back to earth. Benedict Devin did a interesting analysis that cuz he points out that this is eCommerce as a percentage. Relationship to addressable retail one. And what is addressable retail? And two, it's not about absolute it's about relative comparison of the size of the two markets.

So first let me address the second one. He pointed out that e-commerce has continued at this higher pace, but over the last six months, particularly in the United States, Bricks and mortar retail has made a huge resurgence. Some of that is rebound effect and may settle out differently than we're seeing now.

So the, the ratio between the two may be affected but also it's a ratio it's not absolute. And that the real question is what are we comparing it to this question of addressable retail, which as you pointed out in the initial talk, it doesn't include it originally. Included all retail that wasn't saleable on the internet, I guess.

Right. So right. Cars was an example. Cars is an example, car cars, car repair,

Greg: well, real estate. Isn't part of that, but yeah, right.

Mike: It's not part of that. Right. But the reality is that that. Addressable market has dramatically changed, cuz cards now are sold online and picked up in store. For example, a Carvana or one of these other companies or Tesla as an example and food, which was 50% delivery prior to was not included in the addressable market.

And really he points out what's the difference between getting it via door dash or getting it via a bicycle deliver. Pre-internet it's the same thing. So the real question is, is the chart meaningful? And the answer to that is it probably isn't, as it's presented, the question really should be what is retail as a whole, and it's all going to include different aspects of eCommerce in real life.

And he, he suggested that maybe a better way to think about eCommerce was. Retail was just how the products were delivered rather than how they were purchased, right. That most products sooner or later are going to have some internet component to 'em. So it's kind of a spacious way of looking at it. So there was that, and I, I just thought it's important to not make decisions based on the idea that all of a sudden e-commerce has grown to halt it.

Hasn't it's growing. Fast as it was before and at a new higher level. So for example, the. Spotify decision to cut back and lay people off. He used the, the chart, I think in his, or at least the reference to it, they thought it was going to continue growing well. It is continuing to grow in an absolute sense, just not in relation to, to, to this addressable.

Retail, which is not even a meaningful segment anymore. So part of the problem is using these charts that are viral as an analytics tool without understanding 'em the second is that almost every business is going to need a mix or pick and choose between eCommerce, bricks, and mortar and delivery method.

And they're going to have to pick and choose between how they get to their customers to come up with the optimal combination for them. And so. This analysis is not no longer valid, I guess is the point of the ratio of one to the other. I

David: think the mix coming is, is really important. And you see Shopify actually, who you mentioned, I think you said Spotify by mistake, but Shopify understands this, right?

So they've rolled out Shopify point of sale in the last couple of years. And they're working with all of these sort of delivery mechanisms as well to sort of. Bring all of those pieces into the same platform, which fundamentally was pure eCommerce four or five years ago. And I don't think you could describe Shopify as that any longer.

So I think that there, that that is. That's probably the way that a lot of these e-commerce companies are thinking, and we're seeing Amazon, you know, do the same thing with its acquisition of whole foods. And now the acquisition of one medical and there's all these things that occur in the real world that Amazon is now sort of getting into as well.

So pharmaceuticals.

Mike: Yeah. Okay. I dunno if you got solicited by them last week for their new pharmacy service.

David: I did not. I did not, but it was, I, I commented about it on Twitter after the CVS CEO said, oh, people really wanted to do this in real life. And I said, not me that's, but that's

Greg: not a, that wasn't a real, that wasn't a real thing.

That's not a real thing. That was a kind of a tongue in cheek. I see. Okay. Yeah, if you'd sort of drilled into it but, so, so when I used to speak at conferences back when I was going to conferences I would, I would always point out, you know, people, people like to talk about the growth of eCommerce, and I would always point out the opposite, which is, you know, that whatever, whatever point in history, X percent was offline.

Right. But the larger point. Was the digital drove a lot of those offline purchases, right? You, it's not, it's not this sort of bright line where you've got pure offline shoppers and pure e-commerce shoppers. It was, there was a lot of crossover behavior and the, the point of sale was mostly offline, but digital was a huge component of that sale, ultimately, and that was something that it.

As intuitive as that is, it took people a long, long time to kind of come to that. And mobile really, you know, the iPhone was the thing that helped people kind of see that clearly. I think the, the, the, you know, and, and as we discussed prior to this call, I, the eCommerce number has always been sort of about hyping growth and for investors.

And it's been a kind of news hook, but it's, it's, it's a, it's a, it's the wrong discussion. And I think Mike is here, pointing out the right one is and David, the right one is what are your customers doing? What's the right mix. How are you accommodating them? According to their shopping needs and desires.

And every single business is now a digital business, every a hundred percent. If you're not a digital business, then you're going out of business at some point. I mean, there are some, probably some rare exceptions to that, but going forward, everybody has to be a di digital business. And, and so this eCommerce versus traditional retail discussion is.

This is the wrong discussion to be having. I think, as you, as you point out, we. Nothing

David: more to say we've we've solved the, the,

Mike: the bid is and

Greg: well, so let's, let's just, yes, lets the bid is, the bid is gone. Let's let's talk just for a moment about cars because I think cars are really interesting that that is a category that people would have never said you would buy online a car.

One of the biggest purchases people will over make nobody's going to buy cars online. Well, obviously Tesla has proven that wrong and subsequent to Tesla. Other EV manufacturers that make you reserve cars online, or, you know, buy them online. Ford wants to sell a hundred percent of their EVs online. And I think the way that cars are going to be sold in the future will be, they'll be a, and houses were bought online, which is an incredible thing.

So during the pandemic, so all of these preconceptions about what people will buy offline versus online are just, are just out the window. But the two. Worlds in are increasingly integrated and work together. And that's the larger point that, that ha that everybody now should be just, that should just be a given, I think.

David: Yeah. And the other, the other piece on, on cars in particular is there's also now new new models of buying cars, right? There are subscription plans where, okay. Maybe I don't wanna buy an $80,000 Volvo. Site unseen, but I try it for a year at $600 a month. And if I didn't like it, I would turn it in it's it becomes a Le like the, the barrier to entry sort of becomes dramatically lower when you don't have to fork over that kind of money.

All in. One go. So,

Mike: or in the case of BMW, you can, you can buy a subscription for a seat heater. That's right. And then probably have to, as part of that, give your data up that your butt was heated to somebody. I don't know who would be interested in it, but seems like that would be the O that's like this. I BMW literally proposed charging a monthly fee for C heaters.

Pretty bizarre. They they're all looking to become apple or Google or something. Well, I,

Greg: people have gone sort of subscription. Some

David: same consultant told them we have, you have to increase your services revenue. So

Greg: yeah, this is, this is one of the maddening things about, I think, cars in the future, especially kind of tech forward cars, like EVs is the idea that they're going to try and sneak all these subscription costs in there.

And, and Tesla's kind of the leading the way with that. And. That, that would be a very, very annoying thing. I, I own old cars right now that don't have, you know, so I'm not paying any subscriptions and I really don't want to in the future,

Mike: but, but I, I owned a 2015 Toyota Hybrid or hybrid. And every time I booted it, it told me it was a Toyota hybrid.

It's like every time I turned it on, it's like, I don't need that from the main screen I got, I know what car I have. Right. So even pre-internet they were annoying. Now they're going to get really annoying.

Greg: Right, which goes back to the whole theme of connected cars and location data, and other kinds of data and yes.

Surveillance. But we'll leave. We'll leave that discussion further discussion for, I am

Mike: fighting David for his tin hat. Here

David: you are, but this is not entirely Google related. So the, oh, okay. You can, you can be president of the tinfoil chapter of another society, so

Mike: thank you. All right. For the endorsement.

Greg: Okay, so, so, so ins another delightful episode of the near memo and we'll be back next week to spread more conspiracy theories about internet companies.