Third & GroveThird & Grove
Jun 20, 2018 - Justin Emond

Adobe’s Magento Acquisition is the Best News Shopify has had in Years. Here’s Why.

By now, you may have heard that Adobe is purchasing Magento for almost $2 billion. After the announcement, Mr Market reared his ugly head again as Shopify shares plunged nearly 6%.

However, this drop is simply an indicator that the deeply-flawed analysis of the entire deal has become conventional wisdom.

In fact, this acquisition is the best thing that has happened to Shopify all year. Let’s look at why.

The first thing you have to understand is that the retail apocalypse is pure myth.

Yes, retail stores are closing in record numbers, but new ones are also opening in record numbers. Digital brands are going retail, and retail brands are going digital. We are in the midst of a retail transformation.

In the last year, I’ve personally spoken with Magento executives and they reported only moderate losses as brands switch over to Shopify Plus.

But what they fail to recognize, and what this acquisition accelerates, is that the new digitally-native brands— like Nice Laundry and Gym Shark –are launching or moving to Shopify Plus, and will scale on that platform forever.

The momentum is palpable; just listen to the founder of The Hundreds, one of the most iconic street brands in the world, talk about how every merchant he met with kept saying the same thing: Shopify, Shopify, Shopify.

Yes, Magento is losing only a modest number deals to Shopify Plus today, but the real issue is that the platform isn’t competing for the universe of deals coming in the future of retail and commerce. And at this crucial inflection point —which is driving a ton of change that I’ve dubbed the third-wave of digital commerce—Magento is being acquired and repositioned by a large enterprise software vendor.

The pain inflicted by Shopify on the Magento ecosystem will only get worse over time. Demography—it turns out—really is destiny.

The richest Kardashian is not who you think.

The richest Kardashian is allegedly twenty-year-old Kylie Jenner. Think about that for a second. Not Kim, not Kris, but one of the youngest kids in the clan with the least screen time. How is this possible?

The money wasn’t inherited; it was earned by scaling Kylie Cosmetics outrageously fast. I mean really, really outrageously fast.

On Shopify Plus, Kylie Cosmetics apparently processes 15,000 orders a minute (I attended an event where the agency that built and supports the site shared this information during a public panel). All of that scaling effort, for free!

We built one of the largest Magento 2 stores in the world, so believe me when I tell you that scaling a Magento site takes an ocean of patience, a building full of servers, and a slush fund budget that would make a kleptocrat giddy.

All of the hallmarks of the brands driving the future of commerce—digital only, bootstrapped, agile, massive scale with a tiny team and budget—are all things Shopify Plus handles well, and Magento doesn’t. And having Adobe for a parent company won’t help.

Bolt-on acquisitions are where great products go to die.

The Adobe Magento acquisition doesn’t close until the third quarter of this year. The stated goal is to fill the commerce gap in Adobe’s Experience Manager product, itself a loosely-integrated collection of acquired parts that companies use to run large websites.

Since Magento is focused on the mid-market and Adobe is focused on the enterprise market Adobe has two challenges: integrate the technology into their flagship project and reposition the market for Magento.

Compounding the difficulty of overcoming these two gargantuan challenges is the dismal historical track record of acquisitions. Despite our 150-year love affair with acquisitions in America, studies consistently show that between 70% and 90% of acquisition fail. Why should this acquisition be any different?

Time to market is going to be the most critical factor at play here. I can confidently predict from my direct experience that Magento won’t be well-integrated into Adobe’s product offering until at least January 2020.

My agency works with startups, mid-market companies, and some of the most iconic brands in their sector and around the world. This means I see up close how large companies manage their business units, many of which are the result of acquisitions.

Big companies move slow. I mean really, really slow. We were once told by a major player in the financial services space that getting a VPN account would take at least three months, and might not even be possible. Three months!

The innovations that have dramatically changed our day to day lives—like smartphones, Uber, grocery delivery, and self-driving cars—are mostly less than a decade old. An integrated Magento won’t exist until 2020, two years from now. Who knows what retail or content experience platforms will look like then.

The mid-market just opened up

Adobe sells AEM (their customer experience product) to big companies with big budgets and big schedules.

We once replatformed the main websites of two major product lines at one of the largest technology companies in the world in a third of the time and with half the budget Adobe projected it would take. Adobe does not focus on mid-market companies, which just happen to be Magento’s sweet spot.

Shopify Plus is enterprise-grade, used by brands all around the world, scales infinitely (for free), and offers an app ecosystem that has far outstripped the Magento extension ecosystem.

Complex organizations that need custom commerce solutions will always exist. The SaaS cloud will likely never work for a client that needs complete code control, highly custom integrations, and non-standard “browse and buy” commerce experiences. Magento is, and Adobe Magento will be, a very strong choice for these use cases.

But the mid-market presents a massive opportunity for Shopify Plus to establish dominance, and today’s growing mid-market brands are tomorrow’s enterprise customers who will remain happy on Shopify as they continue to scale. Shopify is extremely well positioned to take advantage of this vacuum because it is a platform business.

The bigger platform businesses grow, the stronger they become, and the stronger they become,  the more valuable they are for customers. The more valuable they become, the more people they attract, and the more people they attract, the bigger they get. It’s a wonderful, virtuous cycle.

Shopify Plus is a platform business. Magento is a software license shrinkwrap business with a fake cloud product (Magento Enterprise Cloud is white labeled).

From a cloud platform perspective, Magento is about as innovative as a Blackberry from 2015.

Magento isn’t dying; it just left the field to go compete on the basketball court at the assisted living facility up the road.

I’m not suggesting that Magento is going to die on the (Adobe) vine. That isn’t going to happen. Magento will provide real value to Adobe enterprise customers who want to add commerce capability, or customers that need to support unique integrations or custom experiences beyond the typical “browse and buy” approach. But now, not only is Magento being pushed out of the mid-market by competition from Shopify, Adobe itself is refocusing the platform on the really big enterprise.

Adobe’s acquisition of Magento, one of the biggest competitors to an ever-strengthening Shopify, is opening up an entire market ripe for Shopify to dominate. And Shopify is well positioned to capitalize on it.