Shopify on Its New AI-powered Direction
Artificial intelligence is not just changing the face of commerce, but the essence of the platforms that power it, like Canadian retail technology provider Shopify. Its focus on small merchants has always been core to its DNA, but amid the latest breakthroughs in AI, the company is refocusing on larger operations, executives told WWD.
The change might sound mundane, if not for the sheer scope of the business.
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“If you think about the U.S., for example, 10 percent of all e-commerce flows through Shopify, which would make us the second largest checkout on the internet,” explained Harley Finkelstein, president of Shopify. “I think a lot of the public associates us with small businesses, which was the origins of our company…. The mission was, how can we bend the learning curve for entrepreneurship, so that more people can participate in entrepreneurship and in retail?”
Finkelstein’s perspective on Shopify began even before he joined the company 14 years ago, back when he was a law school student selling T-shirts on the platform. At the time and for years hence, the company prioritized retail beginners and indie sellers.
He pointed to brands that started small and became hits, such as Gymsharks, Allbirds, Figs, Kylie Cosmetics and Skims. “These big brands started with us, in some cases at their mom’s kitchen table or in a garage, and they’re now category leaders and have done all that on Shopify.”
Indeed, the company managed to escape an enterprise-level empty nest syndrome. The thanks go to a constant development cycle that quickly birthed new tools and features — in fact, there have been few updates by social media and Big Tech players that didn’t feature Shopify as a launch partner, with the platform often quickly integrating with the latest changes from Google, Meta, Snapchat, TikTok and others.
Now, it’s raising the level of its retail approach by heading into more sophisticated territory with artificial intelligence.
As it always has, Shopify aims to make the experience of retailing easier, but with its latest Shopify Editions event in late July, the company deployed more than 100 changes aimed at both small merchants and large retailers, as well as the ambitious in-betweens that want to scale up quickly.
AI is the jewel in this crown. A new toolset called Shopify Magic features everything from auto-generated product descriptions to an indefatigable — and, Shopify hopes, indispensable — intelligent retailing assistant dubbed Sidekick.
“[Sidekick is] trained to know all of Shopify, all of commerce, and to be able to access the merchant’s context,” Miqdad Jaffer, director of product at the company, explained to WWD. “The idea is that we wanted to be able to pick up on creative process, improve quality of the store, increase productivity and build expertise to accelerate the merchant’s business.”
Development began in November, with the arrival of ChatGPT, although Shopify’s work with AI actually precedes the OpenAI chatbot. The company applied data science to areas like fraud detection and internal systems, which used machine learning for personalization, Jaffer explained. Some of those enhancements gave retailers smarter ways to classify products, for instance, or could chart patterns like merchant similarities for benchmarking. But ChatGPT’s development kit was a whole other animal.
According to Jaffer, Shopify began exploring the tools, taking first aim at AI-assisted product description generation based on a few keyword prompts. Then the use cases for text generation ballooned.
“Maybe we could do it on emails. Maybe we could do it on subject lines. Maybe we could do it on blog posts. Maybe even on pages,” he added. “And then we started to explore, ‘Hey, maybe we can do it to help merchants as they’re navigating the admin.’ Then we accelerated that to, ‘Maybe we can just have it understand Shopify — and [even] drive Shopify.'”
At other companies, AI’s purview within the tech stack is often isolated to a few segments or use cases. Not at Shopify.
“We’re not just using AI for one particular area,” Finkelstein added. “We are embedding AI into every aspect of Shopify, from choosing your theme, to doing reporting analytics, to writing product descriptions — using it so that everyone, no matter what size they are, can actually build bigger companies faster…we think it will just propel business forward in a way that perhaps has never been seen before.”
It’s a bold approach that stands out. As bullish as the tech and retail sectors have been about AI, most platforms are still proceeding somewhat cautiously, given legitimate concerns about the imperfect nature of artificial intelligence. Incomplete or biased data can lead to kinks in the machines, with some bots already drawing hilarious, and sometimes frighteningly errant, suggestions or conclusions.
That’s why, even for Finkelstein and Jaffer, Magic and Sidekick aren’t quite set-it-and-forget-it propositions. Merchants still make the final decisions and actions aren’t automatically implemented by default. This gives the owner time to decline or adjust proposed measures. For that reason, using Shopify’s tech isn’t quite the same as running a retail empire on auto-pilot. But it’s perhaps as close as anyone has come so far.
One key distinction is between actions and actionable information. Sidekick offers both in abundance, but with the latter, it can fill the type of important gaps that separate a successful hobby from a noteworthy brand.
Finkelstein offered examples: “If your sales from Tuesday to Wednesday go up by 50 percent, you don’t have to guess how that happens. You can just ask Sidekick. Or if you have a particular workflow — every time someone buys product A, you also want to give them product B for free — you simply automate that. Or if your theme feels like a winter theme, but it’s summertime, you can say, ‘Hey, I really want to change my theme, so it’s more summer.’ That type of assistance and support didn’t exist before this new technology came out — which is why we think we’re on the precipice of this incredible entrepreneurial acceleration.”
So far, investors seem intrigued, even excited, about the promise and Shopify’s new orientation, although it’s not clear whether they’re along for the ride in the long term. The AI competition is growing fierce, with new companies pouring out new tools and old platforms reinventing themselves into AI providers.
But in that frenzied pursuit, the retail sector has emerged as one of the tech’s key targets. Shopify may also have a stronger base as a springboard, now that it seems to have put a rocky 2022 behind it.
The company beat expectations with its second-quarter results, with revenue growth of 31 percent year-over-year adding up to $1.694 billion, and gross merchandise volume growth of 23 percent. As for new sign-ups, its subscription revenue increased 21 percent.
Of course, the company owes some of its numbers to the completion of its sale of Shopify Logistics, plus the massive layoffs that reduced its workforce as much as 20 percent. The company also raised the cost for some of its plans, so its bounce back isn’t solely due to percolating sales. But either way, the results immediately drove shares up. The stock has settled back down since then, as observers appear to maintain careful enthusiasm over Shopify’s new mantle as the maker and servicer of brand giants.
From the company’s perspective, it’s a framework that has been a long time in coming.
“Five years ago, a lot of big brands began to act a lot more entrepreneurial, whether that’s companies like Alo Yoga, or Spanx or Staples, or Glossier, or Black and Decker or even Mattel, which is [around] 80 years old,” Finkelstein said. “They began to act more entrepreneurial in that they wanted a future-proofed commerce partner, whereby they didn’t have to keep migrating every couple of years.”
If Shopify’s vision pans out the way it hopes, the next Alo Yoga, Glossier and Mattel won’t have to.
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