Platforms: E-commerce, Financial Services and Social Media

Shopify unveiled new partnerships with Facebook and a financial partner earlier this summer to roll-out the following initiatives:

  1. Facebook Shops: Online storefronts through Facebook: Manage your businesses operations and your marketing all in one place
  2. Shopify Balance for Merchants: Business cards for Online Merchants
  3. Shop Pay Installments for Consumers: Buy Now, Pay Overtime through Affirm as supported by Cross River Bank


With these new partnerships, Shopify is better positioned than ever to deepen their relationship with their merchant base.

As the worlds of e-commerce, financial services, and social media blur, merchants will face increasingly difficult competition.

At the platform level, those who are able to create the best E-comm+ Financial Services + Social Media ecosystem will remain strong.

This could be Amazon and Marcus, Wal-Mart and TikTok, Shopify and Facebook or a number of others currently operating or yet to be created.

The competition among these groups is a topic for another time, but what is certain is that the world these partnerships are creating will make it harder for merchants to become the next great direct-to-consumer brand (i.e. Dollar Shave Club).

One way to view the relative health of the combined Ecosystem vs the Merchants themselves is by imagining the balance sheet and income statement each.

As an example, Shopify + Facebook + Financial Partner have created a balance sheet and income statement with the following key line items:

Profit and Loss:

  • High Margin Businesses: memberships, subscriptions, interchange fees, advertisements

Balance Sheet:

  • Assets: Cash + IP (Tech)
  • Liabilities/ Funding: The Banks’ and their Investors’ Balance Sheet (customer deposits + funds from their investors)
  • Equity: Retained earnings fed by higher margin P&L + stockholders equity

High margins. Low funding costs. Looks pretty efficient!

In contrast, the Merchant’s financial statement looks something like this:

Profit and Loss:

  • Revenue: Varies [But, is a function of (a) quantity and quality of online ratings and reviews (i.e. a non-GAAP Intangible assets that creates a barrier to entry) and (b) dollars spent marketing to drive traffic and conversion]
  • COGS: Supplier + Delivery (Fulfillment: paid to Shopify, Amazon, Walmart or other provider)
  • Marketing: largely paid to Facebook, Google, (maybe now Tik Tok?)
  • Interest expense: Funding costs to the bank
  • Payroll: Varies
  • Other: Payments to Shopify for storefront membership (the new rent expense)

Balance sheet:

  • Assets: Cash + Inventory (supplier) + Receivables
  • Liabilities: Debt + Payables
  • Equity: Retained Earnings + Owners Equity

Notice: Nearly every line on the Merchant’s incomes statement is a function of the Ecosystem itself.

This system works really well for the E-comm, Banks, and Social Media companies, and maybe even in the small businesses in the aggregate — after-all the success of these players depends on the health of the SMEs .

However, I’d imagine that a very long tail of merchants will find that their results are too high a function of the Ecosystem and as a result, most won’t be able to differentiate themselves in a sustainable way.

In other words, if you’re playing the same game as everyone else (ad spend) and there’s only so much field time (attention) so not everyone’s going to get in the game (as determined by the price for attention).

Because of that there will be a ton of million dollar-single product DTC businesses but very few billion dollar businesses.