Shopify in advertising push to fill void left by Apple privacy crackdown

Shopify is seeking to fill a lucrative gap in marketing data left by Apple’s privacy crackdown by offering retailers a new way to target potential customers through the world’s largest ad platforms.

Harley Finkelstein, Shopify’s president, told the Financial Times, that after striking alliances with Meta and Google in 2022, its “Audiences” marketing tool was a key area of focus at a time when an ecommerce industry slowdown was forcing the $46bn company to make cutbacks in other parts of its business.

The new tool allows retailers to pool their customer data and upload it to Meta and Google’s advertising platforms. Marketers are then able to target ads at “lookalike” customers who might be more likely to buy their products because they bought similar items from another retailer.

The system is designed to skirt Apple’s rules against tracking iPhone users, which put a multibillion-dollar dent in the online advertising industry last year, and compete with Amazon’s fast-growing ads business.

Though Shopify Audiences is not yet a significant money-spinner for the ecommerce company, it could offer a much-needed growth opportunity at a time when looming recession and cash-strapped consumers are squeezing retailers.

“Especially right now, merchants want to be able to find more customers,” said Finkelstein.

Shopify’s stock price increased almost fivefold between the start of the pandemic and November 2021, as lockdowns forced retailers and consumers to turn to ecommerce in unprecedented numbers. However, its shares have lost three-quarters of their value since last year’s peak, leaving them close to where they were before the pandemic hit.

Tobi Lütke, Shopify’s founder and chief executive, conceded this summer that he had overestimated the pace of ecommerce growth after lockdown restrictions eased. The Canada-based company announced about 1,000 redundancies, or 14.5 per cent of its workforce, in July, largely sales and support staff.

Finkelstein said that Shopify was prioritising initiatives with a “much shorter-term payback”, including expanding its business lending arm, Capital, to new regions, and its fulfilment network, which was boosted by its $2.1bn acquisition of Deliverr in July.

While fulfilment and lending are years-old initiatives, Shopify’s Audiences marketing tool is its newest project, having launched publicly last year.

Advertising has already become a big business for Shopify’s rival Amazon, which allows third-party merchants to promote their products on its marketplace. Amazon’s advertising revenue grew by 30 per cent, excluding currency fluctuations, in the third quarter of 2022 to $9.5bn. Traditional retailers, including J Sainsbury in the UK, are already mimicking the strategy.

Apple’s introduction of a new requirement for mobile developers to obtain consent to track users between apps and websites has caused upheaval across the online advertising industry over the past 18 months. Most iPhone owners have refused to opt in, denying marketers the data they have used to target ads for years.

Many say that advertising on Facebook and Instagram, in particular, has become more expensive and less effective without the ability to fine-tune their targeting. However, no clear alternative has emerged.

Amazon is one beneficiary of Apple’s new policy, because its ad targeting is based on “first party” data: information that an advertiser holds about its own customers. Apple allows targeting based on these details but not “third party” data gathered from other companies’ sites.

Shopify’s pitch is that it can offer retailers similar targeting capabilities as Amazon but beyond the confines of the Seattle-based retailer’s online store, including through Instagram, Google search results and YouTube.

Merchants can opt in to adding their customers’ information to a pool that Shopify argues also constitutes “first party” data.

However, some retailers are nervous about sharing their data with a larger group that might include rivals, who could then target their customers.

“There’s always going to be some apprehension about sharing data,” Finkelstein said. “But that’s often offset by, net net, am I making more money, am I selling more?”