Hey Readers,

Welcome to the AdExchanger Commerce Newsletter.

This week, we’re catching up with Shopify, which, in the past couple of years, quietly became one of the most important players in online advertising, despite rarely being thought of in the category.

Once upon a time, the idea of Shopify involving itself in advertising at all was unspeakable.

The company was, and is, all about merchant services. As Shopify advances into ad tech and marketing data solutions, it faces tough choices about which merchants to promote and when. Merchants want tech that works for them. They don’t want another platform with pay-to-play advertising where sellers must defend their own brand names in searches.

Shopify is launching ad targeting and attribution solutions, though, as a necessary part of its merchants’ growth prospects.

Its initial ad product was a merchant data co-op called Shopify Audiences, which launched in 2022. A clothing retailer, for example, puts in their data and receives lookalike and prospecting audiences for campaigns using Google, YouTube, Facebook, Instagram, Pinterest, Snapchat, TikTok and Criteo, the media partners for the program so far. Merchants agree to share their data through the product because they end up with more traffic to their sites.

Shop Campaigns, which launched last year as Shop Cash Offers, is a bigger step into advertising.

Merchants spend Shop Campaigns ad budgets on Shopify’s platform, which creates a new revenue stream in paid media, according to Andrius Baranauskas, Shopify director of product.

Merchants set their customer acquisition rates and daily budgets, much like they would with an ad platform rub by Meta or Google, and Shopify does the optimization and ad serving.

Shop Campaigns is a big step into handling marketers’ advertising budgets. But inventory is limited to sponsored product listings in Shopify’s marketplace app, called Shop, and on Meta’s apps. But Shop Campaigns will eventually extend to other platforms as well, according to Baranauskas.

“You can say ‘ads.’ That’s what our pillar is called,” he quipped, alluding to advertising’s onetime almost verboten status for the company.

AdExchanger caught up with Baranauskas to discuss Shopify’s advertising ambitions and the delicate balance between merchant growth and Shopify’s own bottom line.

AdExchanger: Do you think of Shopify’s advertising services primarily as part of a bundled package for merchants or as its own growing revenue line?

ANDRIUS BARANAUSKAS: Our business is to make merchants successful. That’s first and foremost. And then we make money doing that.

So, if you look at Shopify Audiences, it’s part of Shopify Plus [its premium subscription product, which costs a minimum of $2,300 per month and maxes out at $40,000 per month for large sellers]. And we have merchants who are upgrading to Shopify Plus because of Audiences and those products, which naturally creates and allows us to capture value there.

Another product, Shop Campaigns, is something that merchants are actually paying for directly. So that creates a revenue stream. But the balance, as a whole, is to help merchants grow their business.

What is Shop Campaigns?

This is different from Shop Audiences in that it actually allows you to put your marketing on autopilot.

When merchants create a Shop Campaigns campaign, they set the customer acquisition cost, which is fixed, and a daily budget. They also choose where to promote themselves and their products. That can be in the Shop app, or it can be extended to Meta. Merchants only pay for the new customers they convert, and they also get full access to the customer data. [In other words, it is not a Facebook or Instagram-owned sale.]

In the future, we’ll have other platforms as well, but right now it’s just Meta and the Shop app.

It’s a great product for merchants starting their marketing journey. Marketing in general is extremely intimidating. There are so many different platforms, and results are unpredictable. Campaigns simplifies that part.

For Shopify Audiences and other advertising products, my impression is that Shopify models audiences, so it isn’t deterministic targeting or attribution. Is that right?

I think the core of Shopify Audiences is still driving audience lists, which can be for multiple clear use cases.

One is retargeting lists, which allows you to ethically retarget more customers that you would do otherwise. We leverage Shopify’s scale and volume, being able to identify and target customers that otherwise have only the online store as a touch point. That’s pretty deterministic in nature.

There are other use cases where that audience is used as a seed to create larger lookalike audiences for prospecting new customers. We have other products on Shopify, such as Shopify

Email, that allow you to communicate to customers on file, and Shopify Forms, for example, which allows you to capture leads.

Am I misremembering, or was retargeting recently expanded from a Shopify Plus product to all merchants?

Retargeting is one of the use cases for Shopify Plus. We recently reached the stage where more than half of the merchants using the product doubled or more their retargeting audience. So that’s a clear value center.

What we did earlier this month that you’re recalling was to launch a Shopify Audiences trial. We opened up Audiences to non-Plus merchants. It’s a limited product – limited to the retargeting use case – and it’s available for 45 days. It’s a way that merchants can actually get value out of it and come to understand the product. Then they can consider whether it’s worth it to upgrade to Shopify Plus.

One thing that’s surprised me about Shopify Audiences especially is that the benefits (media budgets and performance marketing conversions) accrue to other platforms, while Shopify earns only relatively small set fees. Apple, Amazon, LinkedIn, etc., wouldn’t accept ad tech vendors profiting off of them disproportionately. How do you feel about this dynamic, where Shopify creates immense value for other platforms, but doesn’t profit from directly itself?

What I see my role as is to help our merchants grow their business. And when merchants grow their business, we make more money.

I don’t think Shopify would be where it is if our merchants did not have access to these tools to grow. It’s all very much interconnected.

It’s very hard to judge who should get a bigger slice of the pie. Whether there’s a problem that someone else makes more money, it’s probably not for me to comment on.

This interview has been lightly edited and condensed.