An unusual partnership with Shopify (SHOP) is now attempting to restore some of the status quo while providing the software-as-a-service (SaaS) startup with a potentially lucrative growth engine.
Apple turned the digital advertising world on its head in early 2021.
With an update to iOS 14, iPhone users were warned when an app wanted to track their actions and had to opt-in to allow it to continue.
Last year, this caused a multibillion-dollar disruption in internet advertising, affecting companies such as Alphabet’s (GOOGL) Google, and Facebook parent Meta Platforms (META), which rely entirely on targeted ads for the majority of their revenue.
Shopify unveiled Audiences last year, a platform designed to discover and target high-interest shoppers through digital advertising. The technology collects data from collaborating Shopify Plus businesses, allowing merchants to pool their customer data.
The collected data can subsequently be sent to Google and Meta’s digital advertising systems and used to target comparable customers or those who purchased similar things from other stores.
This assists merchants with one of their most difficult challenges: finding new clients who are ready to buy.
Audiences initially integrated with Facebook and Instagram advertisements when it began in early 2022, but it has lately grown to include Google Search, Google Display Network, Gmail, and YouTube.
Furthermore, Shopify recently enhanced Audiences’ capabilities, allowing merchants to incorporate all product categories within their stores rather than focusing just on individual items.
This provides merchants with a plethora of new alternatives for targeting potential customers, allowing them to focus on expanding their reach, boosting conversions, or both.
Audiences can also support many advertising campaigns, each with a different goal, at the same time.
The nicest thing about Shopify Audiences is that it is meant to avoid Apple’s consumer privacy restrictions by incorporating merchants’ first-party data in order to target customers who are most likely to make a transaction.
This provides a vital lifeline to Meta Platforms and, to a lesser extent, Alphabet, as both firms have been negatively impacted by Apple’s regulations, while also presenting an essential development area for Shopify.
The approach of gathering data from its merchants to find high-interest buyers is straight out of e-commerce rival Amazon’s (AMZN) playbook. Advertising has become a crucial development area for Amazon in recent years.
The e-commerce giant has quickly risen to become the third-largest digital marketer in the United States, trailing only Alphabet and Meta Platforms.
Amazon’s ad revenue of $9.5 billion increased 30% year on year (excluding currency swings) in the third quarter, beating both of its competitors.
Audiences offer merchants ad-targeting capabilities similar to those supplied by Amazon while stretching beyond the confines of a single digital retail sector – including Google search, Instagram, and YouTube.
This means that if Shopify can replicate even a part of its greatest competitor’s advertising success, it might result in a significant new market for the company at a time when online sales are down.
Shopify’s third-quarter sales climbed 22% year over year, pulled down by challenging comps, a strong dollar, and slower e-commerce penetration, after experiencing near triple-digit growth at the height of the pandemic.
Introducing a potentially lucrative revenue source would provide a much-needed lift to Shopify at a key stage in its history.
According to Harley Finkelstein, Shopify’s president, Shopify is targeting investments with a “far shorter-term payback,” and Audiences are a significant priority. “Merchants, especially right now, want to be able to find more customers,” Finkelstein previously stated.
While estimates differ, the online advertising business is predicted to exceed $700 billion in 2023 and surpass $1 trillion by 2027. If Shopify can take out even a small portion of the market for itself, it might be the next step in the company’s development.
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