3 Key Topics in Ecommerce: What Institutional Investors are Thinking About (Week 12)

Shopify, Meta, Google, TikTok, Reddit, Pinterest, Snapchat & More: The State of Digital in Ecommerce

NYC a Wrap, Back in Miami for Tech Month!

TikTok Office in Times Square, NYC.

Had a great time in NYC last week for the Whalies, a visit to the Times Square TikTok Office, industry meetings, and a day at our agency office. The one MAIN thing I miss about NYC is the food. Truly world class. I think I had the best 2 steaks of my life at Catch Steak (Porterhouse & Bone-In Ribeye). Also I went to Leitao, which was also one of the best meals I’ve had in a while. If you’re in the city, check these 2 places out, can’t miss.

Last week, I dropped a podcast with one of my favorite people in DTC: Rabah Rahil. Our convo was raw, spontaneous, and off-the-cuff. I had no idea what questions were going to be asked ahead of time. We covered Klaviyo controversy, what brand I would start today, TikTok Shops, 2024 predictions & more.

Check it out here:

💥 THURSDAY THIS WEEK: I will be going LIVE on Twitter and LinkedIn with Rabah and Jess from Fire Team on Episode 6 of the The DTC Shoooooow! this Thursday, April 18 at 1PM EST.

Set a calendar reminder so you can tune in live!

Today’s newsletter will focus mostly on the topics that I covered in my industry meetings last week. Over the past few years, I’ve been consulting for large investment funds in the public markets. These meetings cover many of the names that we’re all familiar with in the e-commerce and digital marketing sectors. It’s always incredibly fascinating hearing the questions & conversations that arise from these meetings. It gives me an entirely new perspective on how to approach data, updates, and hot topics across our landscape.

Below, I will hit on the main topics that continued to come up throughout my meetings and my take on them.

3 Main Topics came up routinely last week.

Here’s what’s on the mind of many major public market investors:

KeyBanc: One of many NYC Meetings last week discussing the State of the Industry.

1. What is the Average Media Mix for Ecommerce Brands at the Moment?

The most important thing for investors in a digital marketing platform? Simply put: ad revenue & competition/threats for share of market.

As such, media mix split, how it evolves over time, and overall budget magnitude (incremental vs taking share from another platform) are the main drivers for bullish vs bearish sentiment in a stock.

Here’s the current paid media mix we’re managing across our portfolio:

Meta: 75-80%

Google: 15-20%

TikTok: 5-10%

Bing/Microsoft: < 1%

Pinterest: < 1%

Snapchat: < 1%

To be honest, the above split has been this way for a long, long time. Further color below:

Meta: Still king. Meta has been king for years and, if anything, has pulled away from the pack even more over the past couple years. Nothing comes close in terms of robust ad products, scalability, stability (yes, still more stable than any other TOF platform I can think of), upside opportunity for the future, innovation, and the ability to generate awareness and conversion all in the same channel. Meta gets a ton of heat, and some of it is warranted, but lets not bite the hand that feeds us. Without Meta ads, I’m not sure where the world of digital marketing would even be today.

Google: Steady & stable. Totally reliant on Meta budgets. Meta generates demand, which increases search volume for brand and non-brand keywords. Scalability on Google is solely dependent on other top of funnel demand generation. Given that it leverages high intent users, Google will always have better “performance” than Meta. But it wouldn’t really perform at all as a standalone channel. Curious to see what Gemini AI search results do to paid search budgets, ad load, and performance. Time will tell.

Performance Max is what it is with really no innovation or exciting features outside of maybe the Twitter and Pinterest partnerships which will be driving placements natively in those platforms via display ads. Curious to see what level of visibility Google will give on how these placements will perform. Could be a nice tailwind for Twitter and Pinterest ad platforms if there is some semblance of traction via the Google partnership.

YouTube is YouTube. Not great. Worth spending on if you’ve saturated your Meta and TikTok channels. But it hasn’t really been a needle mover for any brand I’ve seen.

TikTok: Rollercoaster. Gold rush to TikTok Ads happened right when the economy tanked in late 2021, early 2022. Everyone thought Meta was broken from iOS14.5 and users weren’t purchasing anymore there. They rushed to TikTok but soon realized the grass was NOT greener on the other side. A year later, budgets fled back to Meta as TikTok was quickly written off. Finally, 6 months ago TikTok Shop burst onto the scene and interest in TikTok as a channel returned with a vengeance. TikTok Shop hasn’t produced a measurable increase in overall TikTok paid media budgets, but I have noticed it continues to outperform TikTok Ads that drive to the website (instead of Shop). This is a strong signal that as brands find increased traction on TikTok Shop organically, they will be able to juice up their TikTok ads budgets. I view this as incremental media budget, not a shift away from a different platform.

Bing/Microsoft: Similar in nature to paid search on Google. Brands scaling on Google Ads should also invest time & budget into Bing. No brainer. If you want to explore Bing as a channel, I can actually get your brand cash back on some of your ad spend. Free money. Reach out to me if you want to explore Bing (it does not require your brand to engage with my agency on retainer services).

Pinterest: A little recent appetite from large clients of ours to deploy experimental budget on the platform. No results to speak to as of the moment. But this is the first interest in Pinterest I’ve seen in quite some time. Will monitor closely and shed light on what we’re seeing once I have sizable data to look at. Only immediate tailwind I can think of is the Google partnership to potentially ignite renewed interest. Biggest problem here is the user behavior on Pinterest being more aspirational/long-term purchase consideration cycles. People like to “pin” items that they may purchase months later during the summer, etc. Hard to measure impact of a channel when lag time is this significant. I don’t have high hopes for this channel, but would love to be proven wrong.

Snapchat: We wrote off Snapchat in 2020 after conducting some in-house experiments and realizing no revenue impact of going full cold turkey $0 Snapchat budgets on select clients. Snap lost credibility by getting way too aggressive on their attribution models that advertisers unfortunately trusted early on. I have hopes Snapchat will return with some semblance of viability for ecommerce brands as it does have a pretty engaged audience. But it’ll take low (or no) risk ad credits to bring our $$ back on the platform. If Snapchat is so confident in its new ad products and performance, it should put its money where its mouth is to try and win over advertisers again.

What I want to test: Connected TV. Curious to see what this can bring in with some experimental budget. Attribution models is one hesitation I’d have.

Platform many investors asked me about: Reddit. $RDDT went public this past month and so it’s garnered some interest in what it could do for paid media in the ecommerce world. I tested Reddit ads years ago on my own brands and performance was abominable. I’ve yet to hear of a brand deploy Reddit ads that generated positive performance. However, I heard of a non-ecommerce business that sees Reddit as their most successful channel. Now that they're public, we’ll see Reddit make an emphasis on making this a viable channel. I have significant doubts it will work. User behavior on Reddit (from my perspective) is more for research. In ecommerce, someone may see an ad for a jeans brand on Meta or TikTok, then go to Reddit to research what users are saying about the fit, comfort, value, etc. While the user is on Reddit, it’s rare they’d see a display ad there and lose focus to go buy another ecommerce product. I’ll be tracking this more closely now that Reddit has gone public.

2. What is Happening in Social Commerce? How does this impact Overall Brand Investment & Strategy?

Social Commerce: the term used to describe ecommerce transactions that are completed on a social media platform (not a brands website). TikTok Shop and Meta Shops are examples of social commerce.

Everyone knows how bullish I am on TikTok Shops and the future of Meta Shops, so I won’t rehash that here.

Two main considerations:

  1. How does Social Commerce impact brand budgets?

    Incremental. Investors fear that this will impact paid media budgets as there will be less paid media “creative testing.” To this, I counter with the argument that brands will now uncover more winners faster, which means more scale-ready creatives in the paid social campaigns.

    I believe social commerce brings an “upper, upper” funnel that never previously existed. By investing in the affiliate and organic social worlds, brands are investing into creative. By investing in creative, with the right approach, brands will be getting 50+ pieces of content per month (through affiliates, influencers, and in-house creators) that will be posted organically on affiliate influencer pages and the brand page. Since attribution in social commerce is a 1:1 closed system (impression and conversion all within the same app), it is very easy to track creative performance. If 10% of creatives drive revenue organically, this means the brand uncovered 5 winners that can easily be scaled w/ paid media dollars (spark or non-spark- if brand has usage rights. Keep in mind spark code amplification with paid media dollars subjects you to paying out affiliate commission). If you don’t have usage rights, you have no choice but to run it via spark. We have a strategy to optimize gaining affiliate full usage rights using one of my favorite DTC tech solutions (but not naming names here).

    Overall, I have no fears and have not seen paid media budgets shrink in order to accommodate investment into social commerce organic and affiliate channels. The only thing IMO that’ll be impacted is GTM strategy for new ecommerce brands. I’d recommend most investment goes into social commerce prior to scaling paid channels.

  2. What does Social Commerce mean for Shopify?

    As I mentioned above, I believe social commerce to be an upper, upper funnel. A funnel that never would have existed if not for the affiliate marketplace enabling scale without high risk of upfront payments. This means that it serves as a new low-cost customer acquisition channel that does not cannibalize a brand’s own DTC channel.

The two main risks for Shopify really lies within merchant processing and first- + zero-party data.

Merchant Processing: Right now,

  • TikTok Shop processes the transaction and cuts Shopify entirely out of the transaction. For both organic AND paid conversions. Which is wild to me. TikTok Shop should NOT charge 8% processing fees for paid media conversions. The math doesn’t math if a brand needs to pay CAC + 8% processing fees + COGS. I’ve seen this 8% figure already deter a massive Shopify brand that TikTok won’t be able to onboard until this rate comes down.

  • Meta Shop does NOT process the transaction. This means Shopify KEEPS the merchant processing revenue which is a massive part of its business. I fear for Shopify if (when) Meta decides to process the transaction and retain the processing revenue. I’d be super curious to see how Shopify would react to this. There’s really not much they can do. At the moment, this means Meta Shop processing fees (2-3%) pale in comparison to TikTok Shop, but I believe this will change when Meta begins processing transactions.

  • Because this is an entirely incremental channel (IMO), even in a doomsday scenario where TikTok Shop and Meta Shops cut Shopify out of merchant processing revenue, there will still be the rest of the DTC transactions processed by Shopify. At the moment, brands are incentivized to acquire customers on TikTok Shop but move them over to DTC so they can own all first and zero party data of the customer, control communications to them (email & SMS), and take advantage of lower processing rates and less strict customer service policies. So, Shopify has that as an advantage at the moment.

First- and Zero-Party Data: Right now,

  • TikTok Shop owns the customer and all communications to them. We’ve heard rumblings about TikTok Shop launching its own CRM that will allow brands to communicate directly to its TikTok Shop customers. This is interesting and a threat to the DTC channel as Shopify would lose alignment with merchants desiring more volume on DTC vs social commerce. The more benefits Shopify retains over social commerce, the more impervious it will be to social commerce threats.

  • Meta Shop does NOT own the customer or communications. In fact, Meta Shop actually allows the brand to collect emails on the Meta Shop! I even called this out nearly a year ago:

Once Meta re-emphasizes Shop and relaunches the Affiliate Marketplace, don’t be surprised if Meta tried keeping all data within its walled gardens. This would be an issue, but like I said before… the more that social commerce pushes brands towards prioritizing DTC purchases, the more brands will want to move their social commerce customers over to their DTC channel, which will actually be a good thing and protective for Shopify.

Overall - If I’m Shopify I’m a bit uneasy about the momentum Social Commerce has at the moment and what it might mean for merchant processing revenue. There is no world that I can envision where Social Commerce takes over an entire brand’s DTC channel and causes it to churn from Shopify. However, anytime there is uncertainty with macro changes happening, it’s always cause for concern. I mean, on the flip-side, Shopify could launch the biggest affiliate network on the planet with the amount of customers it has in its system. These customers are all “affiliates” waiting to happen 🤔

3. AI Innovation on Paid Media Platforms

I’ll speak to the main 2 ad platforms in paid media: Meta and Google.

Meta: Meta’s Advantage+ Shopping Campaign continues to evolve with innovation and updates. Recently, Meta added an “engaged” audience segment in addition to “new” and “existing” audiences so advertisers can discern where spend and performance measures at each level of the funnel. An example of how I’d define an “engaged” audience in Meta would be someone who has engaged with the brand, but has never purchased (ex: website visitor w/ no purchase, ATC w/ no purchase, etc). This gives more transparency into incremental impact ASC is bringing brands, which is a common critique of ASC.

Meta also launched Product Level Video (which I wrote about in detail a few weeks ago) that leverages AI to discern which video (or picture) to show which customer in DPAs. Lots going on in the “Meta”-verse… yet not so much in the “metaverse.”

Google: Google’s Performance Max is what it is. No real innovation or further opportunity gleaned from it yet. Google is stable and not changing much. Not necessarily a bad thing, right? Just not exciting.

What’s DTC Twitter without drama? Somehow The Whalies became a source of drama and criticism across a few topics.

  1. The “live stream count.” Ppl went nuts that Triple Whale claimed to get over 1.5M live streams because they “weren’t transparent” about it being an aggregate view count rather than a live view count. Man, some people are just upset at the world or have too much time on their hands. Yes, Triple Whale partnered with Twitter. Yes, CEO of Twitter (Linda Yaccarino) posted about the event because they’re prioritizing video and they were proud of how well it was received. No, Triple Whale did not pay the CEO of Twitter to tweet about them.

  1. “People were paid to attend and speak at The Whalies.” Pretty wild out of left field accusations here. The cackling voices got so loud that Ron Shah had to defend himself and come forward that NO, he was not paid to attend or speak at the event. In reality, he volunteered to speak with Jimmy Kim (CEO of Sendlane) who paid Triple Whale to speak. This is common practice at ANY industry event large or small. Companies generally pay for the opportunity to give keynotes, speak on panels, etc. It’s essentially an advertising/marketing opportunity. Get over it.

The louder voices tend to be ones that are jealous that they aren’t getting opportunities that others are paving for themselves. Rather than hate and criticize, focus on what will move the needle and bring happiness to your own life & business.

What I’m Listening to 🎧

Beats of the Week: Melodic Afrohouse in Rio de Janeiro, Brazil by Phikey

Great backdrop, great beats, tropical latin vibes. Life is good when you have this mix on. Turn up the volume and get some deep work done!

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Yours truly,

Jonathan Snow

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