Shopify launched its latest advertising business line on Wednesday, called the Shopify Product Network.
The Product Network shows items from across participating merchants where? Shop App? even if it that item isn’t carried by the store any given person is browsing. For example, someone buying home supplies from a Shopify merchant’s site might search for “organic cleaning supplies” or some particular soap fragrance.
If that merchant doesn’t carry anything that fits the search, the customer could see some of the closest-to options from that seller, interspersed with products from other sellers in the network with items that do fit the bill.
And the Product Network placements aren’t necessarily triggered by a search; they can also natively appear in another merchant’s homepage, nearly indistinguishable from other items sold by that merchant. The purchase occurs in one cart, and the shopper might have no idea that “sold by” label means it’s from a different Shopify merchant.
The Shopify Product Network is emblematic of the company’s advance into advertising. Shopify has kept ad revenue and ad tech at arm’s length, even while tactically monetizing its data and trying to increase the subscription value of its ecommerce product suite, which has come to include data-driven marketing.
Shopify is different from other retail media platforms, though, because it does function on behalf of such a large part of overall open web shopping, Amanda Engelman, the product director for Shopify’s advertising business, told AdExchanger. She was formerly Target’s director of product for developer platforms working on the Roundel business.
With Shopify, she added, “it’s just a different approach to the world.”
The Shopify angle
The new Shopify Product Network is cosmetically similar to platform ad products like Google’s Performance Max, Meta Advantage+ Shopping and Amazon Performance+, in the sense that advertisers aren’t really in control of the campaign. A seller sets a target cost per acquisition, and the platform optimizes to hit that number. The advertiser gets back a quantity of budget spent and total attributed conversions.
Bing, bang, boom.
However, Shopify’s version has important differentiators.
For one thing, are these even ads?
“It’s a great question,” Engleman said. “But I probably wouldn’t say so.”
If the new network placements are ads, it might be a problem, because of the minimal disclosures. The placements are akin to actual native product displays. The new network could even lead to comical situations where shoppers find an item on one site and become loyal repeat buyers, even personal advocates for the product, having no idea that it comes from a different merchant, and isn’t even stocked by the seller they buy it from.
And unlike the other platform PMaxes, Shopify has a much more amorphous cost and payout system. Google PMax and Meta Advantage+ campaigns may be in a black box, but at least inside that black box are discrete ad units sold at some real-time rate, and which can be added up to then be divided by conversions. Shopify is making some judgement about what an individual product placement on a page is worth, and how many times it will show an item from across its network in different merchant feeds. But it is not the same thing. And merchants are paid a commission for other items they sell.
Shopify’s whole structure and purpose is different than standard retailer or payment media networks, Engelman said.
The Target Roundel business is fundamentally about driving sales to Target. But Shopify’s ad business must optimize for success across a huge merchant network.
If one niche merchant doesn’t carry a product someone is looking for, that shopper may bounce from the session and go to a different site.
“That may mean making different trade-offs than a typical network,” Engelman said. The Shopify Product Network, for instance, is more about merchandizing decisions than ads, she said. For instance, she added, if there isn’t an item that is a strong contextual fit for a shopper or product search, the network placement doesn’t run. It’s not like other ad networks that have set ad placements – literally carved-out spots on the page – which they always want to fill.
The monetization levers
Another factor that has defined Shopify’s entrée to advertising is its reluctance, in a way, to earn ad revenue.
One reason big platforms like the Shopify Audiences partnership program is that Shopify takes no share of the media budget. The Audiences product is a built-in benefit for Shopify’s premium subscription tier. It models and builds customer prospecting segments to activate across other channels (Google, Meta, Pinterest, TikTok, Snap and Criteo), but takes no cut of the CPM.
With Shopify Product Network, the company is wading further into the ad industry, but still avoids over-monetizing ads, or monetizing ads at all.
Remember, the Product Network “ads” aren’t ads, but fully native product displays.
Also, Shopify is being conservative with its Product Network placements, at least as in the early days, according to Engelman. One area where the company might improve its monetization of the product is by generating better personalized results for people on any given Shopify merchant page.
“Today, it is very contextually driven,” she said. In other words, no product is going to appear on merchant pages that aren’t a fit. The network won’t put a grill in a feed full of men’s clothing, she said, even if Shopify suspects that individual is in market for just such a grill. Also, the Shopify model behind the Product Network does take into account a given merchant’s vibe when deciding if there’s a fit.
Shopify will also sharpen the monetization aspect of the Product Network as its optimization and recommendation models start to account for higher commission opportunities on items in the network compared to a given shopper’s propensity to purchase, Engelman said.
Some merchants might prioritize merchant network products with higher commissions, while Shopify’s model would display an item with a likelier chance to buy. Those are the types of real-time judgements that will improve with experience and scale.
And the product is a revenue driver for merchants that opt into the new network, since the merchants collect a commission when Shopify inserts a third-party product. The payouts can be in cash or go directly to Shopify’s platform ad credits. Engelman said merchants and marketers for those sites like that option because those earnings contribute to off-site ad spend, and can feel like free marketing budget support.
The big prize for Shopify merchants though is the chance to retain customers who might have departed on a sale entirely, and instead have a larger transaction value.
Most ad platforms think of “growth” only in terms of acquiring more ad revenue. For Shopify merchants, and for Shopify, “growth” is attached to metrics like average order value and storefront visits, Engelman said.
Shopify also wants its merchants to do better regardless of which ad channels or platforms they use to run campaigns, she said. “We just are flipping that over to look at it a little bit differently.”
