Shopify - Distracting Us With New Shiny Objects
AI, ai, the Entrepreneur and Strategy
Recently, Shopify released its Q2 2023 earnings report, however, with all the financial engineering and talk-around happening, it was hard to figure out what is going on with Shopify’s growth story. And of course, you can’t trust the investment analysts — they go with the stories told to them to remain in the good graces of Shopify. So they can be well-positioned to receive future investment banking business. Therefore, to get to the truth we have to put aside the Plato-like fascination stories and apply some applied intelligence. Nevertheless, feel free to review the highlighted earnings report posted below, and judge for yourself.
Q2 Highlights
- Revenue increased 31% y/y to $1.7 billion (compared to 25% Q1)
- Merchant solutions up 35% (compared to 31% Q1)
- Subscription solutions up 21% y/y (compared to 11% from Q1)
- $1.6 billion operating loss due to accelerating stock options related to logistics business ($1.7B one-time acceleration of stock-based compensation related to the sale, including severance) (Q1 Operating loss was $193 million, or 13% of revenue,) == 5.8% operating profit if we assume it’s $100 million.
Shopify’s CEO Tobias “Tobi” Lütke, in coordination with the coming earnings report, dedicated an entire video presentation about the many new “AI features” Shopify is releasing. These new AI features have also come along, conveniently, at a time Shopify has decided to cut its workforce by 20% and increase its AI usage significantly. AI apps now seem to be evolving as part of Shopify’s new growth story shift.
Rick Watson, chief executive of RMW Commerce Consulting, an e-commerce consultancy firm based in New York, in the commentary to the Globe & Mail, said Shopify’s new AI features are “just the latest shiny object for the company.” The new AI features are not necessarily an authentic development or fit for sustainable long-term growth; instead, it’s more of a distraction away from Shopify’s growth challenges — its headwinds.
These new “AI features” Shopify is coming out with are based on the hot new technology called Generative AI — machine language, underwritten by Large Language Models (LLMs) — that pushes the fallacy that the machine can interpret natural (human) language. But it can’t — AI is just giving the impression that it can, however. So Shopify is selling the illusion that its platform can produce general intelligence outputs but it’s really selling new distractive shiny objects.
A couple of those new AI features are, “Sidekick,” an AI assistant that entrepreneurs can ask questions to “…Sidekick, the new service will provide entrepreneurs with a round-the-clock assistant to answer any business questions, as well as provide advice and insight.” However, Sidekick is nothing more than a fancy chatbot running on OpenAI’s ChatGPT-type technology. So there is no way a chatbot can play an insightful advisory role where strategy is concerned. Lütke of course knows this as he hedges, by saying Sidekick “will not question your vision. But if there is a big change you want to make, it’ll be able to help you with that, too.” The key words here are, “will not question your vision,” because it can’t! It has no capacity or capability for that. However, insightful strategic vision advisory is exactly what entrepreneurs need help with the most!
Sidekick is also similar to Microsoft’s recent release called Copilot. Microsoft’s new 365 Copilot combines the power of large language models (LLMs) with a company’s internal data from Microsoft Graph and the Microsoft 365 apps: Word, Excel, PowerPoint, Outlook, Teams and Microsoft Power Platform. The Business Chat feature works across the LLMs, the Microsoft 365 apps, and your data — your calendar, emails, chats, documents, meetings and contacts. So with Microsoft’s dominance in the ‘Office’ space, it is difficult to see how Sidekick can compete with the whole of Copilot/365 offering infused with AI.
So the question becomes, how many solutions can the entrepreneur possibly manage, or even want? No real entrepreneur out there is going to be spending their day being fascinated and fiddling with apps!
Still, Copilot is also an AI illusion, a new shiny object that provides a new admin efficiency tool with a souped-up chatbot. Again, what the entrepreneur needs most is a robust growth-focused enterprise solution that can respond in the context of the entrepreneur’s business model. Copilot falls short of that! It’s grounded…limited to its corpus of internalized data.
Competing in a transforming world where everyone has access to the same technology, inherently evens out the playing field for all players — apps don’t fundamentally provide any real growth-oriented advantages. Therefore, business always comes back to fundamentals. So what is required is not launching new distractive AI features, but building effective strategy solutions that combine applied intelligence with artificial intelligence.
The other main AI feature released is called “Magic,” a way of helping entrepreneurs generate titles, descriptions, and other content. Another unimpressive ChatGPT-based chatbot.
Also, outputs from Generative AI/ChatGPT have shown to be riddled with errors, not coming authentically close to interpreting natural language in the context of general intelligence. Therefore, anything that causes more problems than it solves or its inaccuracies require fact checking, does not build confidence and will not be sustainable as a viable go-to long-term solution. Fascination will end when reality sets in.
ChatGPT doesn’t know what it’s talking about, said Vint Cerf, a “founding father of the internet.” Also, “You Are Not a Parrot And a chatbot is not a human,” says linguist Emily M. Bender, who is very worried about what will happen when we forget this. Bender is a computational linguist at the University of Washington, and her work illustrates what large language models, or LLMs — the technology behind chatbots like ChatGPT — can and cannot do. She says people are conflating predictive word formulations with real meaning.
In other words, “chatbots that we easily confuse with humans are not just cute or unnerving. They sit on a bright line. Obscuring that line and blurring — bullshitting — what’s human and what’s not has the power to unravel society.” Says Professor Bender.
But of course, we all know why the bullshitting is so rampant — MONEY! And the big tech aristocracy that runs the world does not care about anything else but money, stock price, and market share. They just want you to buy their products, that’s about it, so don’t be a sucker for the AI illusion.
For example, A handful of companies control what PricewaterhouseCoopers called a “$15.7 trillion game changer of an industry.” Those companies employ or finance the work of a huge chunk of the academics who understand how to make LLMs — they have sold their souls for money. And hypocrites like Geoffrey Hinton. The so-called father of AI now comes out after helping to build the-Frankenstein, and talks about how it will destroy humanity. There is no morality in AI, just money! And Hinton surely got his share during his time at Google.
At the end of the day a world dominated by ChatGPT usage as a creator and standard, creates a world where everything ends up being a different shade of very pale grey. You should certainly utilize technology and would be crazy not to take advantage of useful AI tools. But there’s a limit! The basic laws of nature — economic laws of diminishing returns come into play. Human general intelligence, therefore, is irreplaceable and when it comes to success in business, the human mind becomes even more valuable in an advancing artificial intelligence-fused world.
Generative AI can’t provide vision based on sensory inputs and cognitive surveys, understanding of environments, the universe, people, experiences and change dynamics. Layering data upon data is not experience-based or ‘deep learning,’ just more data to predict and perform tasks. Experiences are embedded in our cognitive selves which included our biology — how we feel is a factor in how we think, and behave. So general intelligence is complex — about 100 trillion neural network connections of complexity.
Back to Shopify; with no metrics in place to determine or even quantify Shopify’s growth claims relative to the introduction of its new AI features. Shopify is just playing the highly profitable AI illusion story game. So dumping unproven AI features onto the entrepreneur does not mean anything nor is it useful to them, and the random use of “AI tools” not based on any underlying strategy, is shooting in the dark.
“AI is sort of like an attempt to replace Shopify’s focus on logistics. Except it’s harder for analysts and investors to understand how that will work because it can’t currently be attached to any real hard numbers,” said Watson.
All in all, Shopify is a sound business model and a highly useful platform for entrepreneurs. However, it is a fallacy to believe that technology alone is the most important thing in business growth and that all you have to do is introduce it, and enterprise value will magically appear. Introducing new unproven technology and getting customers to pay for it is not only disingenuous but risky for Shopify. Ultimately if you can’t deliver strategy value, you open yourself up to unsatisfied customers leaving your platform altogether. They will begin to sniff out bullshit and begin to look elsewhere to fill that now-identified need — the cat will be out of the bag. Bigger sustainable growth problems will emerge, sending Shopify back onto the new shiny object treadmill.
What is true, however, what has been proven throughout time is that strategy is the most important thing for business success. A good strategy is often the difference between winning and losing!
A robust strategy application would combine AI/data-ecosystems functionality with the executive functions of general intelligence — applied intelligence — human entrepreneurial skills and determination remain among the core determining factors for winning. And will remain so until proven otherwise! In the end, entrepreneurs don’t care about fascination or more apps, what they care about and what they want, is to get things done!
Shopify is making the classic strategic growth mistake of putting the cart before the horse — putting technology ahead of strategy. “Each month I feel like I could just as easily wake up and see Shopify ending up a Shop App experiment," comments Watson. Shopify could end up inadvertently savaging itself.
Shopify has been successful because of its simplicity, its platform is a useful utility. However, they’ve overestimated customer growth because of new economy hype. They’ve also gotten caught in the market hype — pleasing the equity markets and the promoter/analyst crowd. The more Shopify relies on technology rather than solidifying a really useful and leading business model, the more its vulnerability increases. At the end of the day, business good models and strategy are still #1, technology is second, so don’t put the cart before the horse.
Briefly, according to Harvard Business Review (HBR): Companies are pouring millions into digital transformation(DT) and AI initiatives — but a high percentage of those fail to pay off. That’s because companies put the cart before the horse says HBR, focusing on a specific technology (i.e., we need machine learning, AI apps!) rather than doing the hard work of fitting the change into the overall business strategy first. HBR also found in a survey of directors, CEOs, and senior executives that DT/AI execution risk is their #1 concern. And that 70% of all DT initiatives do not reach their goals. Of the $1.3 trillion that was spent on DT in a previous year, according to HBR, it was estimated that $900 billion went to waste.
On the other hand, applied intelligence puts business strategy before technology and then matches the technology to the strategy. The proper sequencing — putting the horse before the cart. Useful Aristotle-like use of knowledge that interweaves human general intelligence with artificial intelligence/data ecosystems is the future of intelligence. And it will be led by applied intelligence, the real ai! So ai solves the proverbial business transformation gap problem by offering a practical real-world utility equation, for getting strategy done.
AI is here to stay, there can be no doubt about that! And it’s beneficial to humanity’s progress but when fantasy tries to replace reality, we have to keep our heads. We need to clearly understand the long, unwinding human evolutionary story of technology, automation and progress. Therefore, we are only at the very beginning of the 5th Industrial Revolution (5IR) — finding the optimal balance between human-AI collaboration for the future of work.
Therefore, the ability of entrepreneurs to enhance and build their vision, and execute intelligently with confidence, in changing globalized environments will ultimately determine business success. Success remains a very human thing. Accordingly, applied intelligence helps to maximize the growth trajectory and also acts as a countervailing force against the relative devaluing forces of AI.
Powered by human critical thinking, ai helps formulate contextual, fact-based, insightful strategy visions that can be capitalized on — to thrive in the 21st century. The Real ai enables innovation and creativity that can be harnessed through general intelligence and artificial intelligence — in the best interest of humanity.
