Shopify App M&A

TLDR:

Hotlanta is no joke.
Shopify App M&A
Tool: Onepassword

Hello from Hotlanta

I’m down in Atlanta this weekend visiting some family and it feels like I went from straight winter to Summer. It’s almost 80 here (26 C) and coming out of mid-30s F all week in NY always reminds me of how

For the 950 peeps who are giving me some of your time. Thank you! Hopefully today’s newsletter will be more fun/light while interesting.

Let’s dive into some fun wild M&A ideas in the Shopify App space, before I pop on to this Delta flight to Vegas for Shoptalk.

Let me know if you’re going to be in Vegas this week. It’d be great to catch up.

Shopify App M&A Brainstorming

Every now and again I like to run play predication on M&A in the space. It’s a fun experiment to see how to combine other businesses to unlock new strategies or ideas for my own. It’s a concept called Lateral Thinking. The concept is to think outside the box to see what you can uncover by tackling other’s hypothetical problems.

This is more theoretical and fun than the typical newsletter. Hope you enjoy reading as much I enjoyed writing this.

Some disclosures before we get started today:

• I don’t know what these companies balance sheets look like. Whether they have the ability to be acquiring or want to be acquired.

• I’m excluding Gorgias because that’s too close to home.

• And Klaviyo because they seem to always build new features vs. buy.

Ironic considering unbundling was Shopify’s entire value prop back in the day, but it looks like we’re ending this market’s unbundling phase and heading back into a bundling phase.

So let’s have some fun and start with one of the most active acquirers in the space…

1) Yotpo ($436m raised) should acquire an Order Tracking tool + Returns provider.

Yotpo’s M&A strategy has worked pretty well for them so far in their aspirations to become the Shopify Marketing Cloud. Yotpo Loyalty (S’well Rewards) and Yotpo SMS (SMSbump) are the #1 and #3 providers in their respective categories.

Since Yotpo Reviews is still the most installed 3rd Party Shopify Plus Reviews App that gives them dominant positions in 3 core Shopping experiences. All in the purchase conversion and retention experiences.

Acquiring Order tracking + Returns bolsters their post-purchase suite of products, and more importantly it’ll enrich their Marketing suite with better data.

Reviews/UGC + Loyalty + Returns + SMS + Order Tracking = they’d own virtually everything after the purchase. There are still some other core areas like email, but they’d provide brands with a virtually one-stop shop for post-purchase needs.

The other important reason to acquire those 2 categories is they’ll 1) automatically become a top player in a low penetration category, Returns, and 2) own a player in the quickly emerging Order tracking space. This is more crucial than it appears.

A SaaS company at Yotpo’s scale needs to think of themselves through a different lens than most other apps. How do they balance the distribution tools they offer and data enrichment tools to make the modern eCom stack successful.

Owning both types allows Yotpo to capture more margin at more competitive prices across the stack. It also provides the Mid-Market/Ent brands migrating onto Commerce Components and Plus with a familiar sales motion.

Tool that Needs to be on your radar

Onepassword. Cyber crimes are going to cost businesses $10.5T by 2025 and are expected to grow 15%/yr from now until then. The greatest exposure startups have to cybercrimes are employees entering their password when logging into tools.

I’m terrible about password sharing, but it’s a lot easier, and cheaper, then getting everyone unique logins to every tool. We use Onepassword across everything I work on (Gorgias, BV, side projects) to store and share passwords across the team. It makes it easier to create and store real security level passwords, and share them with team members in a secure way.

It’s a little bit of a pain to get used to, but once you do it makes your life easier and presents peace of mind.

2) Loop ($125m raised) + Shogun ($114m raised) should merge.

Then acquire a Loyalty and Reviews provider.

Today each company is their category leader with strong penetration in a core eCom shopping experience. But there are multiple players entering their fields that will force market compression and potentially slow their future growth.

If Loop and Shogun teamed up to be a super app they’d own the onsite experience. There’d be a suite of onsite tools for developers to plug in and customize for brands across the shopping journey. As the community navigates towards Headless, combining these 4 core areas would allow brands and agencies to easily design and build a store with all the pre-baked components they’d need.

It’d also give Loop (4% Plus penetration) and Shogun (9%) much more market share. There’s probably some overlap today, but in all likelihood there’s a good market acquisition play to grab more land for all companies involved. LPs, Reviews/UGC, Loyalty, + Returns/Exchanges would all be one budget item for an eCom manager/agency.

3) Attentive ($863m raised) should acquire a Reviews + Upsell/personalization app.

This is the most expensive idea, but could also be the most worth it. Attentive has raised the most capital in the space and scaled their SMS offering to 11% of Plus stores. But they have to go multi-product to successfully IPO if they want to retain their $6.9bn last round valuation.

To the same distribution + data enrichment point above, Attentive is in a similar spot as Yotpo. The major difference I see is Attentive’s positioning is more acquisition than post-purchase focused.

While they’re an SMS tool, generally considered a retention channel, they make a concerted effort to position the brand as an acquisition tool focused on new customer growth.

For context Attentive has already acquired Privy and Tone to sure up their SMS offering, but up to this point in time they have basically operated as a pure play SMS offering.

Rolling up Reviews + Personalization to enrich their core product, SMS, and extend their offering into other core acquisition-focused shopping experiences. The Reviews/UGC data would enrich product recommendations which would be pushed across the site + SMS.

Deeper insights into onsite activities would feed SMS with better targeting data. They’d also be able to take SMS engagement data and feed it into the onsite interaction engines to provide a more seamless onsite/offsite experience.

The other crucial factor to consider in this acquisition, the other 2 services are significantly higher Gross Margins products than SMS, which is an incredibly low margin for a SaaS business (Carrier fees). Not only would this extend their product lines and selling opportunities, but it would add a considerable amount of profit to each customer who bought the Attentive suite vs. just Attentive SMS.

It seems the 800lb guerilla in the room is also the existential question for Yotpo and Attentive. “What are they going to do about Email?” Klaviyo dominates the space (with 59% Plus market share) and has set a high bar for feature expectations at this point. Even if Yotpo and Attentive executed the strategies above they’d still need an Email offering to complete their Shopify Marketing Suite Infinity Gauntlet.

🧠 The Takeaway

While fun and completely theoretical, it’s interesting to see how businesses could evolve with some key acquisitions. We’ll see what happens in the next 24 months, but I predict there will be a lot of roll ups in the space.

1. Yotpo needs more data enrichment for the distribution channels it has. Adding Returns and Order Tracking would cover the modern post-purchase experience.

2. Loop and Shogun should merge then acquire Reviews + Loyalty to become the site-in-a-box app.

3. Attentive should buy a Reviews/UGC provider and Personalization/uspell to bring in high-margin, conversion focused apps that also supercharge SMS to build its Marketing suite.

👷 What can you do about this?

1. Do any of these ideas apply to your business?

2. Who could you roll up or be the company rolled up to plug holes in core buying experiences for your customers?

3. Share your ideas and let me know what would be a great acquisition you’d like to see in the space.

As always. Stay confident, connect with your customers, and keep crushing it.

Jeremy Horowitz

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