Why Didn’t Google Acquire Shopify?

A few years ago, Google executives proposed the idea of acquiring Shopify as an attempt to challenge Amazon in the e-commerce domain. The idea was rejected as Sundar Pichai, CEO of Alphabet Inc. and its subsidiary Google, deemed the acquisition as “expensive”. 

About Shopify:

Shopify is a platform that lets you create an online presence for your business from scratch. From building a website, analytics, business tools (marketing), logistics, etc. There is also enhanced support to businesses having physical stores, through Shopify POS, they can manage a business through the Shopify dashboard.

In May 2021, Google announced its partnership with Shopify. This means the 1.7M+ merchants on Shopify are increasingly visible across all of Google’s products; search engine, youtube, lens, etc. What really made Google make this shift, from rejecting an acquisition to partnering with them a few years later? This forms an interesting use-case which I attempt to decipher.

We do not know the exact dates/year when this proposal was made. For the purpose of this analysis, let us assume that it was around 2016-2019.

What We Know:

- The market cap of Shopify was $3.8B (2016), $46.01B (2019), which is almost a twelve-fold increase! Just observing the market cap, every year Shopify has registered a solid increase from the previous one. It is difficult to look past this steady growth.

- Around 80% of Google’s revenues come from ads. In 2018, both Flipkart and Amazon cut down on their spending on Google ads just after the tech giant push for e-commerce (“shopping” tab in the search engine). They never really gave serious competition to Amazon.

-Acquiring a company meant that Google had to deal with the entire enterprise; employees, data, platform, privacy, payments, etc. Prudent steps to be taken for the seamless integration of Shopify’s platform into Google’s services.

INSIGHTS:

- Venturing into e-commerce was always on Google’s “to achieve” list.-This seemed very close to achieve as the search engine and web browser are widely used. They need to have a moat, meaning the slashing of other e-commerce giant’s money in google’s ads shouldn’t be catastrophic.

- Cost of acquisition? We do not have a figure, but it would’ve been a roughly a billion-dollar deal. The effectiveness of the deal boils down to how this acquisition can add to their revenue, value, etc.

- Acquiring Shopify meant that all the 1.7M+ merchants using Shopify’s platform would directly come under Google’s bracket. This implies the merchants have advanced visibility across Google’s products. But quality is important than quantity.

It is important that consumers search and buy from the merchants that Google would be associated with if the Shopify deal had gone through. And that the merchants are loyal.

- It’s likely that Amazon and other e-commerce giants will gradually cut down the money poured into Google’s ads. This means losing solid revenue.

The only way Google can counter this by listing products that consumers search for that prevents them from clicking on the amazon site below the one Google had recommended. Google’s products need not only have a high Click-through-rate but the customers actually need to make a purchase for Google to make any profit out of this. 

ACTION: The proposal was rejected.

Was this a missed opportunity for Google? Maybe! Let me know what you think in Community.