How Hydrogen Inherits Shopify's Power Of Platform
Jun 19, 2024
By Paul Phan8 mins read
How Hydrogen Inherits Shopify's Power Of Platform

Hello hello friends of Weaverse, how are you doing?

I can’t believe it’s been 02 months since our last newsletter. Between building new Hydrogen themes, releasing new features, and talking to customers (did I mention I love talking to our users?) - I barely had time to write.

This month’s update is all about new feature releases, interesting stories and (hopefully) insightful take on the Shopify ecosystem.

✍🏻 The Best Writing About Headless, WebDev, and Everything In Between

🌍 Global Sections

Global Section is now available in Weaverse.

You can now easily create reusable content and use it across your Hydrogen storefront. When an edit is needed, just update your Global section once and it will propagate the changes everywhere on the site!

🎨 Hydrogen Themes for Health and Beauty

A little while back, we launched our Pilot Theme, a Hydrogen theme that's designed as a starting point for your own Shopify Hydrogen storefront. I believe one of the biggest hurdles for Hydrogen's wider adoption is the lack of theme starters. Additionally, if we want Liquid developers to get on board with Hydrogen, we need to make the switch as smooth as possible.

So I built Pilot. And we didn’t stop there. We’ve just launched another new Hydrogen theme, tailored for Health and Beauty brands. It’s called Naturelle. Check out the demo here.

Naturelle is designed for Health & Beauty brands

And we're not stopping here either. ;)

More Hydrogen themes are coming, designed to bring the same UI excellence, flexibility, performance, and accessibility you love from the Dawn theme. The only difference is that now you can use it with Hydrogen storefronts.

🌊 How Hydrogen Inherits Shopify Power of Platform

Let’s travel back to the past. The year is 2006.

In 2006, Amazon had over 13,000 employees. It was growing fast. It expanded its product range - adding electronics and general merchandise. It introduced new services like Amazon Prime, which offered expedited shipping for a small annual fee. The company reported net sales of $10.71 billion, a 26% increase from $8.49 billion in 2005. Operating income for the year was $389 million, and its net income was $190 million. In 2006, Amazon was already a dominant force in eCommerce.

Meanwhile, Shopify was still unknown to most. It had only been founded in the previous years and had not yet made a significant impact on the industry.

It was a risky move, entering the same market as Amazon. Unlike Amazon, which operated as a massive online marketplace, Shopify provided a platform for small businesses to create their own online stores and sell directly to consumers. This approach requires a leap of faith because when you build tools for small businesses to go online, you must have faith that some of these businesses will survive and be able to pay you. You had to have even more faith when the statistics showed that 90% of businesses went under in their first 02 years.

Yet, this is the faith that Tobi Lutke, Daniel Weinand, and Scott Lake had when they founded Shopify. It’s precisely the power of Shopify.

Aggregator vs Platform. Amazon vs Shopify.

In his 2019 blog post on Amazon and Shopify, Ben Thompson at The Stratechery defines Amazon as an aggregator, whereas Shopify is a platform.

Aggregators are companies that control distributions. They’re the heavyweights of their industries, competing predictably and systematically. They compete systematically and predictably. They have at least one of seven Competitive Powers - scale economies, network economies, cornered resources, switching costs, branding, and process powers.

They’re the likes of Google, Airbnb, Netflix, Uber and Amazon. And they all share 03 key characteristics:

  • They have a direct relationship with users, whether through payments, accounts, or regular usage.

  • They incur zero marginal costs for serving users—digital goods often mean no production, distribution, or transaction costs.

  • They operate demand-driven multi-sided networks with decreasing acquisition costs. For example, as users flock to Amazon for superior discovery and curation, merchants join to meet demand, creating a virtuous cycle that lowers customer acquisition costs over time. Consequently, Amazon enjoys winner-take-all effects, continually increasing their value to users - lower shipping cost, faster shipping time - and making it difficult for competitors to lure them away.

In short, Aggregators are nightmares to compete against. But Shopify managed to pull it off.

If you think Shopify doesn’t compete against Amazon, then you might be mistaken.

Shopify positioned itself at the opposite trench of Bezos’ arm of techno-capitalists.

Amazon, thriving off a COVID-19 boom, prioritizes the customer above all, even if it means alienating small businesses by copying their products or inviting new competition to lower prices and speed up shipping. Shopify, however, is all about the merchants, showing in their famous tagline “Commerce for everyone” and “making entrepreneurship cool”. If Amazon’s obsession with customer service and endless selection makes it the “everything store,” Shopify wants to be the everywhere store.

“Amazon is trying to build an empire, and Shopify is trying to arm the rebels”

Amazon allegedly saw the threat, and had its own Shopify in 2015, called Webstore. 80.000 companies used Webstore to power their online presence. Bezos could crush Shopify if he wanted to, given the financial and engineering power it had. Yet, the problem is that the premise of Webstore contradicted Amazon’s oft-cold, ruthless attitude towards merchants - which resulted in poorly designed products that eventually pushed its users (merchants) away.

In their column on Shopify vs. Amazon, Bloomberg reported:

"Amazon execs from that time admit that the Webstore service wasn’t very good, and its sales were dwarfed by all the rich opportunities the company was seeing in its global marketplace, where customers shop on Amazon, not on merchant websites.

At the time, the company was also developing house brands such as Amazon Basics, and Webstore sellers had to get comfortable with the possibility that the tech giant might see their success and knock off their best products. It was a “fox-in-the-henhouse problem. Merchants were sleeping with one eye open,” says a former Amazon executive who worked on Webstore, who spoke on condition of anonymity because he wasn’t authorized to speak publicly about the issue."

The Power of Platform

Unlike Amazon, there’s nothing to buy on Shopify.com. Instead, millions of third-party merchants use Shopify to power their online stores. These merchants handle customer acquisition, product differentiation, and sales through their unique strategies.

The magic of Shopify is in its diversity and the collective success of its merchants. A high churn rate among merchants means low entry barriers, driving innovation and increasing the chances of capturing successful businesses. Shopify benefits from its merchants’ success without risking individual failures. A high churn rate can be both a positive and negative signal: the easier it is to start an e-commerce business on Shopify, the more failures there will be, but also a higher likelihood of capturing successes.

In a sense, Shopify is like an incubator.

Shopify even made its own short film celebrating Shopify entrepreneurs

Shopify’s model leverages the best of modularity—diversity and competition across the value chain—aligning everyone’s incentives. Every referral partner, developer, theme designer, and now 3PL provider competes narrowly while ensuring Shopify’s broad success because a bigger pie means bigger slices for everyone. This is how Shopify can be Amazon’s biggest competitor in the long run, while being a company Amazon can’t compete with. Amazon seeks customers and brings suppliers and merchants onto its platform on its terms. Shopify, meanwhile, empowers merchants to differentiate themselves, bearing no risk if they fail. “Amazon is trying to build an empire, Shopify is trying to arm the rebels.” Lütke remarked on this competition a few years ago.

That said, it’s tough to claim rebel status with a Death Star-sized market cap. To keep the rebel spirit alive, Lütke needs to make Shopify invaluable to the larger retailers and DTC brands while supporting smaller ones struggling with supply chain issues and inflation.

This is where Hydrogen comes in.

How Hydrogen Inherits The Power Of Platform

Shopify's Hydrogen aims to bring headless commerce to everyone. That’s the vision, anyway. Making it a reality will take some time.

In truth, 80% of merchants don’t need headless Shopify stores. A native Shopify setup, powered with third-party apps, is more than enough for merchants to make their beer taste better. Headless commerce is better suited for enterprise merchants with the resources and engineering skills to implement it properly. These are the merchants who care deeply about UI excellence and storytelling, have specific data integration or performance needs, or are committed to creating omnichannel or personalized shopping experiences.

Hydrogen provides a set of standards for eCommerce that reduce the risk of making bad decisions, because great flexibility often comes with great responsibility, especially with Webdev at enterprise scale. You can still be flexible, but Hydrogen reduces the overhead of making those technical decisions upfront significantly, making it easier for larger merchants to quickly launch their online stores without sacrificing flexibility or customization.

With Hydrogen, Shopify can finally be a platform for all - from small merchants to enterprise businesses.

  • Branding is important for enterprises. With Hydrogen, they can build an elevated brand experience, differentiating themselves with unique UI designs and personalized customer journeys, something that a traditional setup might not easily allow, while still being able to get the full benefits from Shopify's backend.

  • The time to launch can be a lot faster. Just like Shopify makes it easy for small businesses to start with minimal risk, Hydrogen provides a set of standards that streamline decision-making when it comes to complex webdev setups. It cuts down the overhead of building custom solutions from scratch, offering flexible yet structured tools that can adapt to various needs.

  • One of Shopify’s biggest strengths as a platform is its vast ecosystem of third-party apps and services. Hydrogen inherits this power of the platform, allowing seamless integration with 3rd party tools. Whether it’s advanced analytics, marketing automation, or custom checkout experiences, Hydrogen ensures that merchants can leverage the best tools they want to use - Shopify or not, without sacrificing flexibility or performance.

I’d like to end this article with my usual disclaimer: I’m an advocate of Hydrogen, so my argument can be flawed. If so, comment down below, I’m excited to learn other perspectives!

That’s all for this week.

Until I see you again, take care.