- Shopify officially launched its first foray into advertising last month.
- Its new tool is meant to help merchants struggling to target customers after Apple's iOS changes.
- Merchants and experts say it has its limitations.
Last month, Shopify made its first big foray into digital advertising: a tool called Shopify Audiences, meant to help merchants find customers on Facebook and Instagram.
After nearly a year of testing with merchants, Shopify Audiences comes as Apple's privacy changes make it harder for brands to target and measure digital advertising — especially on Facebook. Meta's Facebook expects Apple's targeting changes to shave $10 billion off its revenue this year. At the same time, direct-to-consumer brands that sell on Shopify — and once heavily leaned on Facebook to find customers — have slashed ad budgets as acquisition costs grow.
Shopify's tool uses machine learning to anonymously pool purchase-intent data across its merchants and shoppers, and requires that merchants opt in to sharing their data with Shopify. Shopify Audiences is only available to Shopify's Plus merchants, and Shopify plans to expand the tool to other platforms like TikTok and Snap.
Insider spoke with two merchants, one marketing agency, one retail consultant, and one research analyst about how Shopify's new tool could change how merchants acquire customers.
While they said Shopify's first advertising product fits well with its overall mission of serving merchants, some expressed doubt that the tool in its current iteration would completely solve the biggest issues that online sellers are facing in customer acquisition today. Representatives for Shopify did not return Insider's requests for comment.
'It seemed like they were cutting out a lot of our ability to use audiences'
Chase Waters is the digital marketing director at Trove Brands, which owns the DTC brands BlenderBottle, Owala, Avana, and Whiskware. The company decided to try an early test of Shopify's new ad tool with BlenderBottle and Owala after being approached by a Shopify representative in June 2021. The company has seen a 600% return on ad spend for BlenderBottle while using Shopify Audiences.
He said that Trove had been looking to add another way of targeting audiences after Apple's iOS changes in 2021 made Facebook advertising less effective.
"It seemed like they were cutting out a lot of our ability to use audiences, or really isolate the right audiences that we wanted to target," Waters said. "And with people opting out of tracking with iOS 14, we felt like this was just a good way to reach new people and people that we previously probably couldn't reach."
He said that Shopify Audiences has generally helped the brands to target new audiences they weren't reaching with their existing targeting.
However, the tool does have some downsides.
"After, I'd say two to three weeks, the audiences kind of slow down. The performance isn't quite as good," Waters said.
He added that the team aims to update their Facebook audiences about once a week to make sure their performance remains strong.
Kirten Parekh, the cofounder and CEO of gut-health-products brand Klora, said that it's very early days for his brand — it was launched about two months ago — and Shopify Audiences.
His cofounders, Daniel and Jonathan Snow, own a digital-marketing firm called The Snow Agency and have seen how the efficacy of Facebook advertising has declined. But Parekh thinks Shopify Audiences could help the Klora team learn more about its audience and more efficiently target its ad spend.
"We're very hopeful that if this actually works, it's going to change the whole game," Parekh told Insider.
Rick Watson, the CEO and founder of RMW Commerce Consulting, said that in his view, Shopify Audiences will likely not solve all of merchants' advertising problems. He said one of the problems is that merchants don't need to go through Shopify to get access to the kind of data that Shopify provides. Instead, merchants could upload their own shopping data to Facebook to find audiences.
"It's interesting, but the traffic is not unique and Facebook already has a ton of data," he said. "Is this going to double anyone's ad performance? I don't think so."
Jesse Pujji, the cofounder of the marketing agency Ampush, said that Shopify's tool simplifies the process of creating audiences for Facebook ads and can be combined with Facebook's own tools, which is helpful to find people interested in specific types of products.
That said, Pujji estimated that Shopify Audiences could generate a modest 5 to 10% increase in advertising efficiency compared to Facebook's own audience tools.
'This is very early innings for them'
Waters said that Trove is constantly testing new advertising strategies and that it will continue to test the best ways to use Shopify Audiences.
He also said that the company's existing positive relationship with Shopify was a factor in its willingness to test the new product in the first place.
That dynamic is a key part of Shopify's overall strategy: The more enticing its suite of services, the more likely it will be able to attract and retain merchants. Shopify's merchant base exploded during the pandemic, reaching more than 2 million in 2021. Its merchant additions were lower in the first quarter of 2022 than in the same period last year, though the company said during its May earnings call that it expects that trend to improve going forward.
"As far as Shopify is concerned, any way that they can improve the experience on their platform is definitely a positive," Angel Zino, a senior investment strategist at CFRA Research, told Insider. "This is a market now where advertisers are looking for better opportunities, for better ways to advertise because of some of the privacy changes that are clearly going on."
Zino said that digital advertising could pay off for Shopify, as it would likely have better margins than fulfillment, where the company has been investing heavily lately. And Shopify Audiences' efficacy could improve over time as more merchants opt in to sharing their data.
"This is very early innings for them, and there are significant opportunities ahead," he said.
