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This Week’s Top Headlines

• 📈 Earnings season: Q2 earnings season kicked off last Friday as the banks reported, while Tesla and Netflix had their earnings calls on Wednesday afternoon this week.

  Key talking points:

  • Tesla (Earnings Deck): the impact of price cuts throughout 2023 on Tesla’s margins; early discussions about licensing the company’s “Full Self Driving” technology to other companies.

  • Netflix (Shareholder Letter): The company is sunsetting their lowest priced ad-free tier in the US and replacing it with an ad-supported version (The Verge); the decision to cracking down on password sharing appears to paying off as the company added 6M new subs (AV Club)

• 🐭 Disney’s next move: Disney’s CEO Bob Iger sat with CNBC for a 40 minute interview (transcript via CNBC) on all things Disney, including the possibility of selling off some of the company’s major assets and looking for a strategic partner for ESPN

• 🪟Microsoft starts to monetize its AI features: Microsoft is introducing AI-features to Microsoft 365 enterprise customers— for a price: $30/month per user (Microsoft press release). This is nearly as much as they charge businesses for access to its Office suite of tools ($36/month)

• 📣 SAG-AFTRA strike coverage: If you want to learn about the ongoing SAG-AFTRA and WGA strike and the issues at the heart of it, The Hollywood Reporter and Deadline both have great coverage of all the latest developments.

One Big Topic: A Hero’s Sidekick

Last week Shopify CEO Tobi Lutke tweeted out this video introducing Sidekick, an AI-powered assistant for Shopify merchants:

In the video, in between tangents about the heroism of entrepreneurship, Lutke gives us a preview of how Sidekick can help Shopify merchants. Using text-based prompts, Shopify entreprenuers can tap into Sidekick to access “everything Shopify knows”. Here’s an excerpt from the video of Lutke describing Sidekick:

Based on the prompts shown in the video, Lutke is not exaggerating on the potential utility that Sidekick offers. Some of the prompts and actions shown in the video include:

• Analyzing sales data to explain a slowdown in sales

• Executing a sales promotion for a specific category of products

• Changing the products featured on the merchant’s landing page

• Updating the site’s theme and generating new marketing copy

Shopify’s business model succeeds by acquiring and retaining the most merchants and helping them scale. They accomplish this by developing a complete stack for merchants with complementary features, like Shopify POS for brick & mortar sales and Shopify Audiences for improved ad targeting. The introduction of Sidekick is another example of offering complementary products in service of building the most valuable platform for merchants.

It’s clear the uses cases shown in the Sidekick demo have value to merchants— all of those are tasks are ones that we can imagine merchants thinking about or executing as a regular part of managing their ecommerce storefront. But how did Shopify know to build these specific capabilities into their AI-assistant? In addition to access to thousands of merchants to presumably conduct market research, Shopify has the distinct advantage of running on app store for its platform where it can observe the leading-edge of its own platform in real time.

Shopify’s App Store & the Amazon Playbook

Shopify’s App Store gives developers the opportunity to build and sell apps that adds new functionality to the Shopify platform, making for a much stickier platform than without an App Store. It also enables Shopify to monitor demand for new functionality without requiring the company to build or test that functionality themselves.

If that competitive advantage sounds familiar, it’s because it is. Amazon has leveraged a similar advantage to launch and strengthen their in-house brands, including AmazonBasics. Here’s what that playbook looks like for Amazon:

1. Observe organically: Through Amazon’s ecommerce marketplace, brands will introduce new products and develop new categories organically over time.

2. Test the winners: If a particular category can achieve enough of critical mass that it’s worthwhile for Amazon to develop their own offering, Amazon can leverage its relationship with manufacturers to develop a similar product.

3. Compete through scale: With their new product on the marketing competing head to head with similar offerings, it’s possible for Amazon to compete on price (via better cost structure from scale agreements), preferred placements in search results and ads, and higher fidelity customer data than its competitors.

The end result of this strategy often ends with Amazon offering similar (copycat?) products as the incumbents, and even occasionally in government intervention.

With Amazon’s example in mind, it’s easy to see how Shopify ran the same playbook in the development of its Sidekick assistant. (We won’t pass judgement on the rightness/wrongness of the strategy here.) Searching Shopify’s App Store produces over 600 apps with “AI” in the title and nearly another 300 apps with titles that include “GPT”.

A key benefit of operating their app store is that Shopify has effectively farmed out early stage feature-development. Like other app stores, there’s value for developers to build for the platform (2/3 of Shopify apps are paid), but the greatest value accrues to the owner of the marketplace. For Shopify, that happens in the form of both new feature validation and direct monetization (Shopify takes a 20% rev share on any app store revenue earned).

Shopify hasn’t specified yet when Sidekick will be available, either for testing or a full rollout. When it is available, I’d be interested to see whether / how Shopify users start adopting it into their everyday workflows, as it represents a tangible and valuable use cases for GenAI. If successful, this adds to Shopify’s already impressive tool kit for merchants and entrepreneurs.