Friends of Third & Grove were startled when we announced our recent breakup with Magento. As the team behind one of the largest Magento 2 stores in the world (measured by GMV, and likely also when you measure by traffic), we can legitimately say we know Magento as well or better than anyone on the planet.
Our reservations with Magento are based on our deep software engineering expertise, our experiences working with Magento versions 1 and 2 over four years, and our knowledge of what drives commerce engagement for clients.
Beyond the serious technical limitations of the platform and the headwinds driving change for third-wave commerce platforms, the most serious issue lies in Magento’s culture. Shopify understands that in a platform-driven future the culture of the ecosystem is crucial to success.
We shall see that unlike traditional solutions like Magento the platform nature of Shopify means that creating a culture of shared success, commitment to diversity, and putting the needs of the customer first are the most likely pre-conditions for economic success.
Understanding the Power of the Platform
Platform businesses are eating the world. Brook Manville sums up the phenomenon expertly:
“Venture investor Marc Andreessen famously wrote ‘software is now eating the world’— encoded intelligence dominates business. A new book (Platform Revolution) wants to update the slogan. Author Sangeet Choudary (and co-authors, Geoffrey Parker and Marshall Van Alstyne) think the new omnivore is really “the platform”: the digitized, open and participative business models creating commercially connected ecosystems of producers and consumers. The networks and markets forming around—and orchestrated by— Google, Airbnb, Uber, and other virtual exchange enterprises are the maws into which traditional companies are now disappearing.”
Later in the article, Manville quotes from an interview with the author Sangeet Choudary:
“Brand will become more important, because ultimately, differentiation will move beyond creating efficient market connections toward overall end-to-end experience. For example, Airbnb has to compete long term on that, and not just matching people with nice apartments. That leads back to questions of culture. Over time, even for some businesses that are initially commoditized, community will start to matter more.”
Shopify is a platform business that brings together people who need to run an online store (the merchants) with experts (people who make Shopify Apps to extend the features of the platform, people who design your store, etc) and provides technology all parties can use to succeed together.
Magento is not an ecosystem. The Magento code is a standalone piece of software you can use to solve a particular problem any way you want. Sure, there are extensions and agencies (just like with Shopify), but the way Magento is sold means that there is no common arena with a set of rules designed to encourage value creation among developers, designers, merchants, app developers, and agency owners.
The culture of Magento is about extracting fees, while the culture of Shopify is one of shared, common success.
It’s About What is Best for the Customer
Last year, I was pitching with the Shopify Plus team to build a new direct to consumer online store for a major global consumer packaged goods company. After we made the finalist round, we had the opportunity to dig deeper into the client’s requirements.
Pretty quickly, it was clear that if we proceeded the way the client wanted, Shopify Plus wasn’t going to be a good fit. To my (pleasant) shock, the Shopify Plus sales representative said—without promoting—that she didn’t want to sell a solution that wasn’t a good fit for their needs, and that perhaps we should withdraw our bid. (In the end, the client decided to shift their strategy in a way that makes Shopify a great solution, and we won the deal.)
Third & Grove has two principles, and the first is that we don’t take referral fees from partners. We believe that our role is to be zealous advocates for our client’s technology and we can’t be unbiased if we are taking fees.
This came in stark contrast to what a Magento representative had said to me last year (this person is on the Magento payroll): “We don’t care about people using Magento, we care about licensing fees.”
I spoke at Imagine, Magento’s annual conference in 2017 but I didn’t attend this year. I recently caught up with a colleague who did, and he said to me, “It was a bunch of people in a room talking about how much money they were going to make; it was unseemly.”
It is important to run a business professionally and to ensure you can make a profit on the expertise that you provide. But in consulting (at least), you must always align your interests with the best interests of your customers. To do otherwise breeds short-term relationships, short-term success, and short-term businesses.
Diversity Wins
I spent last week in Toronto attending Shopify’s annual partner conference, Unite. The three-day conference was full of great announcements about upcoming changes to the platform, valuable conversations and networking, delicious food, and surprisingly beautiful weather (Canada is not known for warm days).
While the surprise visit from Canada’s Prime Minister Justin Trudeau was inspirational and unexpected, it wasn’t the most startling thing about the conference.
Instead, it was the realization that this was the first technology conference where I saw a parade of women take the stage. It was refreshing to see the CEOs (clearly genuine) belief that diversity is good for business and the customer.
The purpose of a business is to provide great value to the customer. You shouldn’t encourage diversity because of altruism, you should follow the data and research: Diverse teams win more.
By aligning ourselves with partners that believe in the value of diversity and empowerment we can, in a small way, live up to our own values.
A Rising Tide Lifts All Boats
During the Shopify Unite conference, the CEO shared a chart showing how the revenue of the Shopify Partner ecosystem outpaced Shopify’s revenue in both 2016 and 2017. The team was immensely proud of this fact and considered it a model for the future of the business.
What a contrast! I’m sure that many business leaders in other organizations would look at that disparity and immediately look for ways to capture more of that revenue for themselves.
Shopify closely controls the ecosystem where merchants, developers, and agencies play, and they set a clear example that it is about shared success and the empowerment of all participants. This commitment to a culture of shared success produces better outcomes for the merchants, for the agency partners, and for Shopify itself by creating a wonderful feedback loop.
The Wind is at Shopify’s Back
The rapidly changing retail and consumer buying market forces that are fueling the emergence of the third-wave of commerce platforms is not the only force pushing Shopify Plus adoption forward. The fact that Shopify is a platform business means that their commitment to the shared success of all players in the ecosystem best aligns their own interests with the interests of merchants, partners, and developers. It’s no surprise that we see this commitment flowing from the top of the organization on down and why we see the very model of the Shopify ecosystem strengthening adoption of the platform.