Retailers   //   September 24, 2019

Microsoft, Square and other tech companies are vying for a piece of the DTC pie

A number of software businesses are increasingly looking to build all in-one platforms for early-stage, fast-growing e-commerce startups in order to win over their business.

Microsoft became the latest company to signal its greater e-commerce intentions as it announced a new product geared towards e-commerce businesses. Dynamic 365 Commerce, which will integrate with other Microsoft software, helps e-commerce businesses create personalized product pages where they can also add customer reviews.

In Microsoft’s case, its bigger goal is to win over more business from Amazon, as both have dueling cloud services business. Microsoft has been tapping into fears about Amazon’s growing influence to convince large retailers like Walmart and Kroger to use Microsoft Azure instead of Amazon Web Services.

But with its new software offering, Microsoft is courting earlier-stage businesses, and is taking a page from businesses like Shopify, that started out as e-commerce platforms but has since grown to add other services like a merchant financing program and fulfillment network, to ensure that it continues to can serve both small and enterprise-size businesses.

“Shopify started off by enticing all these small, entrepreneurial companies, but in general what we’re seeing as these businesses grow up, they are not leaving Shopify — Shopify is growing up with those businesses,” Jason Goldberg, chief commerce officer for Publicis said. “[To Microsoft] the enterprise clients of tomorrow are these small business Shopify customers of today.”

Shopify isn’t the only company to try its hand at this playbook. But, founded in 2004, it was one of the earliest companies to get in on the all-encompassing e-commerce platform. And, its playbook is worth noting as other companies are realizing how quickly e-commerce companies are growing. According to CB Insights, more than $1 billion was invested in direct-to-consumer startups last year. And, with early DTC companies like Glossier and Casper having crossed the $100 million in sales threshold, software-as-a-service companies are realizing that, if these DTC companies don’t fizzle out, they have the potential to be very valuable customers.

The traditional players
Historically, the biggest e-commerce platform players have been BigCommerce, Magento and Shopify. All three started out creating a single platform from which businesses could handle all of the tasks associated with running an online store — from designing a web page to managing inventory — for an annual or monthly fee. Cloud-based software companies like Oracle and Salesforce have also developed their own commerce-specific solutions that offer similar features, but they did not start out serving only e-commerce companies.

As BigCommerce, Magento and Shopify have have grown up, they’ve each tried to stake out their own competitive advantage. BigCommerce, for example, started going after manufacturers and distributors this year, with the launch of a platform targeted to B2B companies.

BigCommerce CEO Brent Bellm noted in an email that unlike competitors, it is not focused on getting into ancillary services point of sale or fulfillment services. “We only sell an e-commerce platform, and because of that, we have total commitment to making ours the best in the world,” Bellm said.

Meanwhile, Magento’s path to differentiation has been shaped by the fact that it was acquired by Adobe last year. Earlier this year, Adobe released Commerce Cloud, which integrates existing Adobe tools into the Magento platform. It also has some new features like an integration with Amazon’s marketplace.  The goal of the Magento acquisition has been for Adobe to build a single platform from which businesses can both create digital marketing using Adobe’s tools, and manage the online store which the digital marketing is ostensibly supposed to drive customers to.

“Together, Adobe and Magento have everything brands need to make every moment personal and every experience shoppable, from being able to bring together the right combination of data, insights, and content to address what matters for their customers,” Adobe senior director of strategy Peter Sheldon said in an email.

The new competitors
As these e-commerce companies have grown up, and started selling more products offline, Shopify has been most aggressive among the three e-commerce platforms in building more ancillary services, especially to serve these businesses offline. It started with the introduction of a point of sale system in 2013. In 2014, it launched Shopify Plus, which targeted larger enterprise merchants that are doing $1 million to $500 million plus in sales per year. In 2016, it launched a merchant financing system to provide cash advances to e-commerce businesses who didn’t want to or couldn’t raise venture capital. This year, Shopify’s eyes have turned toward fulfillment as its next big area of growth. At its annual Shopify Unite conference in June, it announced that it would spend $1 billion over the next five years to build out its own fulfillment network, and earlier this month acquired fulfillment automation company 6 River Systems for about $450 million.

As such, other companies that don’t directly compete with Shopify have rolled out more robust e-commerce offerings in the past year, like Microsoft. There’s also Square, which in March relaunched its Square Online Store, to include more functions to help businesses manage all of the tasks necessary to run an online store, as well as integrations with other platforms like Instagram and PayPal.

Shopify’s also created other competitors as its sought to maintain more control over the network of developers it has created relationships with through its app store. In March, Mailchimp announced that its app would no longer be available in the Shopify marketplace, after Shopify said that it would “restrict partners” that tried to get merchants to leave Shopify. A couple months later, Mailchimp announced a new CRM marketing service, that included features to help businesses market through more channels by supporting Facebook and Instagram retargeting, adding the ability to repurpose content already created in Mailchimp to Facebook and Instagram and a dashboard to calculate customer lifetime value. While there’s no payments processing integration or point of sales system yet available through Mailchimp, Mailchimp is taking a page out of Shopify’s playbook by trying to become the go-to-platform for small and medium-sized businesses’ marketing needs, which could make it easier to become an all-in-one platform later on.

As long as DTC companies rake in the venture capital dollars, expect more software providers to follow suit in creating their own spin on a platform that can serve all of their needs.

“It’s a safer play to sell the pickaxes than to mine for gold,” Luma CEO Terry Kawaja previously told Modern Retail.  “And so that’s the next opportunity you’re seeing companies capitalize on.”