The tide that lifts all boats
A rising tide lifts all boats. But to what extent are we trying to reinvent the wheel and just tripping over each other?
In the previous issue, I spoke about the proliferation of apps and solutions available to modern retail brands and how that creates a challenge of discovery and selection.
The other question in this conversation is how many apps or solutions are innovating and creating new (or better) value for modern retail brands.
I specifically referenced a rising tide lifting all boats first because this is a core part of my DNA as a human and an entrepreneur. Some of my formative years as an entrepreneur were in the open source world of WordPress. Initially, it was quite jarring for me to reconcile my capitalist nature to the ideological parts of open source. I learnt a lot from Matt Mullenweg (who I think has struck a balance as good as any in this regard).
I share this to confirm that I believe competition in any market is good. I’d like to think we have Klaviyo today because we also had Mailchimp, Omnisend and maybe even Conversio. Steel sharpens steel. Or if we flip the equation: Because we had Yotpo, we also have Loox, Junip, Okendo, Judge.me (and others) today.
What is undeniably true is that all of these nodes contribute to the greater good and growth of the ecosystem in some way. Trying to assign or quantify specific contributions is much harder, even when we can point to some examples:
- Loox pushed visual reviews forward, eventually becoming a standard across all similar solutions.
- Due to their extensive integration partnerships, Klaviyo’s segmentation capabilities beat Mailchimp’s at the time (the bigger incumbent), which became the gold standard for other ESPs.
Part of me wonders whether we need yet another review or email solution. This, however, represents less of my dilemma. What concerns me more is what this says about innovation and the “end game”.
In the last 18 months, I’ve reviewed 148 investment opportunities (probably slightly more, but this is the extent of my discipline in keeping my spreadsheet updated) for pre-seed, seed and Series A companies that broadly fit the criteria of ecommerce enablement.
Instinctively I want to believe that the next Klaviyo, Yotpo or Recharge is within those 148 companies. This new cohort of builders will innovate, push ecommerce forward and empower a new wave of retail.
Innovation is a broad term, but judging my early-stage investment bets, I think one can make a case for this to be true to some extent:
- One way to innovate is to take an existing solution and be incrementally better. Rush comes to mind in this regard, where they played in the same space as Aftership and Narvar. (Hat-tip to both Wonderment and Malomo, who are also recent incumbents with similar solutions and helping push this piece of ecommerce forward.)
- The other way to innovate is to create something brand new. Whilst surveying is not a new concept, Fairing started with a simple post-purchase survey to help brands understand attribution. (KnoCommerce is another in this space that also has a new entrant. More on the latter below.)
For all of those companies, I believe that they can become companies of consequence. Let’s say the bar for that is the ability to power a material share (20% perhaps?) of brands in the ecosystem.
But that is likely a bar too high for the many others (at least those that came past my inbox). They might become good products and good businesses but likely don’t offer much in terms of innovation (or the venture money to fuel that).
Maybe this is exactly how a rising tide lifts all boats. We need multiple companies that push trends and technology forward. And we need a handful that become Klaviyo, Yotpo and Recharge in setting a new standard.
What does the DTC stack look like for the best retail brands in 5 or 10 years? Are they still doing email marketing? Are they using Klaviyo for that? Has a challenger like Omnisend unseated them? Is there a whole new player in the space? Or is the email marketing space even more fragmented than it is today?
Even with the most optimistic view of the growth of ecommerce, I’d say the growth of new apps or solutions outpaces the market it can serve. So at some point, consolidation needs to happen to create new greenfields.
Let’s consider how that is already happening today:
- I bet that we see more acquisitions by the bigger companies as a way to accelerate their products. Shopify is leading in this regard, and their recent acquisition of Dovetale, which they spun into Shopify Collabs, is a smart way of using M&A.
- Beyond the platforms, Yotpo’s acquisitions of Swell Rewards and SMSBump are probably the best example of how to use M&A as a way to expand the solutions you can offer brands. I’ve not been through the sales and onboarding process, but from the outside, they have done a good job of combining the acquired products (along with their pre-existing solutions and the new things they’ve built, like Subscriptions) to create a better whole.
- The pandemic accelerated the amount of money that went into Shopify-focused roll-ups/aggregators/holding companies. I think Assembly (a unicorn based on their last valuation) and WeCommerce (now a publicly traded company) have used those tailwinds best. Without diminishing their accomplishments, their strategy is more “buy and hold” than “buy to aggressively innovate and grow”.
In all of these scenarios, though, we ultimately hit a problem with Software 101. The more complex a single product becomes, the harder it is to maintain and innovate. I think Harley Finklestein (President, Shopify) was very convincing about this on the most recent Limited Supply podcast.
So consolidation itself will spawn a new cohort of startups with no code debt and can solve new problems better and faster. (Heck - the only way to make money is through bundling and unbundling continuously, apparently.)
I trust that issues one through four of this newsletter have shown that I’m better at asking questions and offering opinions than formulating a decisive conclusion.
Perhaps I am pondering these matters today as I, too, am influenced by the macroeconomic sentiment. We have just come off one of the most significant bull runs ever, and ecommerce (and tech) was undoubtedly one of the major benefactors.
As we share these words today, we’re all unsure what “recovery” or “new normal” looks like.
I bet large parts of ecommerce will still mostly be the same in 10 years. And other parts will be entirely different.
Some of this will happen through consolidation.
Some of it will happen by builders remixing and creating better solutions.
And some of it will happen because a handful of builders reimagines a specific part of the game altogether.
We need all of those to be true because a rising tide lifts all boats.
In the world of ecommerce enablement
Interesting bits of company and product news coming from the diverse world of ecommerce enablement.
- Junip and Wonderment have announced a new integration. In issue 1, I spoke about Junip's new workflow builder and said, "it's the kind of feature that showcases the inter-connectedness that the best brands now require". This collaboration between Junip and Wonderment is a perfect example of how two tools create more value when combined.
- Staying in the world of reviews, Loox released new post-purchase upsell functionality. It's not dissimilar to the likes of Carthook, Checkout Promotions or Rebuy (who has new branding), except for the added bit of natively-integrated social proof. The post-purchase functionality (or logic) is still limited, and it would be interesting to see to what extent Loox doubles down on this. The other interesting takeaway is how Loox is extending beyond its normal lane of "reviews" and creating overlapping functionality that already exists in the ecosystem.
- Another company stepping outside of its lane is Okendo, with the launch of its new product, Connect. Reviews are largely qualitative feedback from customers, so extending that to other types of feedback is interesting. I've not seen a product demo, but it looks like part Fairing and part Octane.
- By now, it should be clear how recent events in the ecosystem influenced the thoughts that I shared in the main part of the newsletter above. Here's another: Retextion acquired Retention Engine. This seems like the kind of no-brainer acquisition that we should see more of because the two products create more value together. One drives subscriptions; the other helps retain them. Retextion is already talking about the "AI-Powered Retention Operating System", and it would be interesting to see how they combine these two products into a single platform or OS.
- Omnisend announced a complete overhaul of their email and forms builder and updates to their segmentation capabilities. This might not be the sexiest update I included here, but speaking from experience, this was a major project and looks amazing. In the realm of "email for ecommerce", Omnisend is a true competitor to Klaviyo's throne.
- Meanwhile, Klaviyo released a new anomaly detection feature (this is great for your automations which one probably doesn't monitor as often as one should) and updated A/B testing functionality to run tests based on purchase rate.
- In the world of physical retail, I find the pilot that Mastercard did with Payface in Brazil fascinating. In the pilot, shoppers used their biometrics versus cash, a card, or a phone to checkout. I expect to see more innovation coming to physical retail spaces. Shopify also announced their new POS Go, and Harley Finklestein shared that "brick-and-mortar shopping is coming back - it’s up nearly 14% from 2019 to mid-2022".
- SparkLayer continues to make strides as an emerging player in the B2B space with their integration with Balance (who recently raised a $56M Series B). Balance is a checkout and payment solution for B2B retail, and with this integration, SparkLayer has effectively enabled BNPL for a brand's B2B customers.
- The gift card redemption rate is a dirty little secret we don't often discuss. Effectively a material percentage of gift cards are just never redeemed. Social Snowball - an affiliate/referral solution - can now pay commissions with gift cards. Smart move to possibly reduce the cost of commissions by banking on a percentage of gift cards that won't be redeemed. This gets me thinking about Fondue, which recently announced a $10M+ raise too. I've seen a demo and part of their value proposition is also the saving that occurs when store credit is not redeemed. 🤷♂️
- Disco announced their new Partner Inbox, which makes it easier for brands to discover each other. Bumble (or whatever kids use to date these days), but for brands.
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