A weekly(-ish) newsletter on commerce, media, science, tech, investing, & internet culture by Alex Taussig of Lightspeed.

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A weekly(-ish) newsletter on commerce, media, science, tech, investing, & internet culture by Alex Taussig. I am a partner at Lightspeed in Silicon Valley.

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Drinking from the Firehose #148


Last week I wrote that Shopify is the only credible competitor to Amazon in its core e-commerce business.

I suggested that introducing a "demand gen" app post-checkout would be a good way for Shopify to flex its muscle and begin to leverage the footprint of its 1 million merchants. Such a product could close the gap in effective take rate of GMV between Shopify (~1%) and Amazon (~10%) and drive significant incremental value for Shopify.

This suggestion caused a bit of a ruckus on Twitter. I wanted to take time to respond in long(ish) form to a few thoughtful counterpoints from the community.

one issue here I haven't seen anyone address yet: merchants choose SHOP (partly) because they don't drive traffic, rather they help you drive traffic. The former has complications because gradually you give away control of distribution - then might as well choose AMZN (link)
This point feels to me like a distinction without a difference. Yes, Shopify's core value proposition is that it allows you to own your store. However, I don't believe that value proposition is at odds with its potential ability to drive revenue to your store. Any channel becomes dangerous if it represents too much of your revenue, so the revenue share from Shopify in this hypothetical situation needs to be managed carefully.

A number of subscribers also pointed to Casey Winters' excellent post "Sequencing Business Models: Can that SaaS Business Turn Into a Marketplace?"
So, when we talk about businesses trying to become marketplaces, what we’re talking about usually is sellers of software to businesses trying to help those same businesses attract more buyers by aggregating buyers on their platform and aiding in the discovery of those buyers finding the businesses the company currently counts as customers. (link)
The key points in this post don't seem to invalidate the proposed strategy. The first two revolve around cultural changes and shepherding of resources to create a marketplace from a SaaS business. I'd argue this transition is a lot easier for a business like Shopify, which already derives more than half its revenue from non-SaaS business lines like payments. 

The other lynchpin of Casey's argument is that "founders need to confirm there is a demand side to this market." That seems self-evident to me. If a store exists on the internet and is transacting meaningful revenue already, why wouldn't a Shopify native ad network be able to drive even more revenue?

Casey added another point to the argument directly:
Tough to get opt in from the largest sellers to help the smaller sellers, and I don't think rev share will be meaningful. If you want to really crazy, Shopify can force roll ups of complementary products on their platform, which improves survivorship, but also customer power. (link)
My response was that, yes, I predominately see this as a feature for smaller sellers, for whom the extra revenue will be meaningful. It may be tough to convince the big sellers to bear the risk. Maybe that means this feature would only lift a portion of Shopify's GMV.

The last pushback was around whose products would be shown:
“Ads for similar or related products” means ads for a merchant’s competitors shown on the merchant’s own website. Hard to see this not causing serious backlash among Shopify SMB merchant customers even if there were shared economics. (link)
I agree that products shown should be complementary, not competitive. That may get tricky when a brand has multiple products that extend into complementary offerings (e.g. Away sells luggage and backpacks). The magic here is in the implementation, so Shopify would need to be careful not to canabalize its merchants' own sales.

I enjoyed engaging with the Firehose community on this topic, and hope we can get into it on Twitter some more in the future. Go ahead and @ me!



Ok, boomer.

"The U.S. is at the beginning of a tidal wave of homes hitting the market on the scale of the housing bubble in the mid-2000s. This time it won’t be driven by overbuilding, easy credit or irrational exuberance, but by an inevitable fact of life: the passing of the baby boomer generation."

Specifically, boomers are expected to sell nearly 12 million homes in the decade from 2027-37. That's triple those sold from 2008-18, and double those sold in the several prior decades, excluding 1998-2008. Planned communities that were built specifically for boomers may see the worst decline in value as all that inventory floods the market simultaneously. 


Epic movie production.

Epic Games* is best known for Fortnite, but you might start seeing the company credited in movies and TV in the future. That's because directors are increasingly shooting digitally rendered sets, staged in VR, all powered by Epic's Unreal game engine.

If this sounds confusing, click through and watch the video of the man on the motorcycle about half way through. Essentially, he's standing in front of a set of LED screens that change with parallax dynamically as the camera is moved.


Put a ring on it.

Apple* filed a patent application for "a finger-mounted electronic device [that] may include a body that serves as a support structure for components such as force sensors, accelerometers, and other sensors and for haptic output devices."

Analysts estimate that wearables will generate nearly 20% of unit sales for Apple in 2019, with $16 billion of run-rate revenue growing 50-60% YoY. With Watch and AirPods, a ring device would complete the triumvirate by giving users another set of sensors and perhaps even a control plane for the other two. 



New ice core evidence points to the worst year in human history: 536 AD. It was the year an Icelandic volcano erupted and dimmed the sun for 18 months. The following years were the coldest in several millennia, with crop failures throughout much of the settled world. A few years later, a bubonic plague killed between 33-55% of the population of the Mediterranean, speeding the collapse of the Roman Empire.


Tending soil.

I grew up with Mr. (Fred) Rogers, or so I am told. My memories are a bit fuzzy, but my parents assure me that I watched the show regularly. Life has come full circle now that I have children of my own, and "Mr. Rogers' Neighborhood" is one of the few TV shows we watch together.

I really enjoyed this retrospective in New York Magazine on the art of Fred Rogers and his life philosophies. One excerpt sums him up particularly well:

“If we can somehow rid ourselves of illusions,” he said. “The illusion that we are greater or lesser than we are. The illusion that we’re going to save the world. There are a lot of illusions that people walk around with. I would love to be able to be present in every moment I have.”

Disclaimer: * indicates a Lightspeed portfolio company, or other company in which I have economic interest. I also own stock directly in AAPL, ADBE, AMZN, CRM, FB, FTCH, GOOG/GOOGL, NFLX, SHOP, SNAP, SPOT, SQ, and TWLO.

Lightspeed Venture Partners, 2200 Sand Hill Rd, Ste 100, Menlo Park, CA 94025 USA Sent to — Unsubscribe