Why FB and Shopify Need Each Other
With the iOS 14 update, Apple’s App Tracking Transparency (ATT) became an opt-in instead of an opt-out. The opt-in came in the form of an ominous warning about tracking, which most users declined.
What that means is that ad targeting became less effective. E-commerce merchants that relied on Facebook ads to reach new customers suddenly found their ads were less trackable and ultimately less performant, driving up their customer acquisition costs. This is bad news for both Shopify and Facebook. Shopify merchants are spending less on FB ads, hurting their revenue. At the same time Shopify’s revenue is also threatened since its merchants are facing higher customer acquisition costs.
Ultimately Facebook and Shopify are incentivized to figure out how to make merchants successful in spite of the Apple privacy updates. Their fortunes are tied at the hip. Facebook Shop is one solution.
In theory, it’s a great partnership - with Facebook bringing its userbase and advertising tools, and Shopify bringing its e-commerce management. While FB Shop and IG Shop have yet to take off, the motivations of each company are clear. Shopify is motivated to drive e-commerce transactions outside of the merchant’s Shopify site. And Facebook can track conversions in FB Shops in a way that Apple no longer lets them, leading to more effective advertising again.
And while Facebook might seem to want the checkout to happen on Facebook, they are also incorporating Shopify’s Shop Pay. This seems like Facebook and Shopify have somewhat agreed that Facebook does all the advertising and traffic while Shopify handles all the e-commerce infrastructure including checkout. Facebook only makes money on advertising and Shopify makes money on the tooling and checkout transaction.
Over time this may change. But this is where things are today. And merchants should invest in building up their audiences on their pages and groups as the Facebook/Shopify partnership evolves.
Credit to Stratechery for influencing our thinking on this matter. Ben Thompson has a unique take on how Shopify might launch its own advertising network in the future (which could strain the FB/Shopify long-term partnership) and his arStratechery article is worth reading.