Dropship entrepreneurs

Shopify is creating a new kind of entrepreneur that exploits Amazon’s poor product discovery, powered by Facebook advertising done properly.

I keep getting ads in my Facebook and Instagram feed for interesting products at prices that make them very tempting to just buy. (I’ve been talking about these as great examples of how to use programmatic ads well. The media targeting is right but very often the creative targeting is too — the ads ‘speak to me’.)

Here are an examples of one of the well targeted ads, for bone conduction headphones:

When you click through the buy, the experience continues to be pretty slick (albeit fully growth hacked):

But the products take a long time to turn up, and the packaging is often very underwhelming:

I haven’t bought the bone conduction headphones, but here are some noise cancelling wireless earbuds I bought from an Instagram ad

I finally figured out what was going on when I read this analysis of Shopify stock by Edgar Ambartsoumian:

Edgar Ambartsoumian analysis of Shopify on Seeking Alpha

Ah ha, so these are all dropship businesses:

Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.

I think the majority of online sellers of fidget spinners and hoverboards are dropshippers. Wishaddict (the vendor of the bone conduction headphones) and TrendyShack seem to be whole stores of products dropshippable from China.

In his analysis Edgar is dubious about the sustainability of Shopify’s subscriptions business because they suffer huge churn as dropship entrepreneurs fail to find ‘their fidget spinner’, causing Shopify to have to spend more and more to find or create new dropship entrepreneurs. Meanwhile successful dropship entrepreneurs are selling their expertise on YouTube rather than building the $1m businesses they say you can.

He also says that “Mobile purchasers are typically millennial or generation Z consumers who are sharp: they think fast, act fast, and adapt fast. Within a few searches, they can locate the advertised product on Alibaba and buy it way cheaper directly from the supplier vs. the marked up price advertised by the merchant.”

I’m sure that may be true. However for less ‘sharp’ Gen X consumers (like me), the targeting expertise of these dropshippers is solving a discovery problem.

What’s the value of product discovery?

I didn’t know wireless bone conduction headphones existed. But I do like to wear headphones to listen to music while running, and have experienced a few incidents where I’ve not heard cars behind me, so I have the need for them. The dropshipper has done me a big favour by finding this product, then finding me, and showing me the product exists in a way that cut through on the feed and piqued by interest.

If I look on Amazon I can see that there are several pairs of well-rated wireless bone conduction headphones listed, actually for a bit more money that those I was targeted with. But, despite me spending tons of time and money on Amazon, they never surfaced these to me.

Now, playing at being a sharp millenial for a second, I can find similar headphones on AliExpress, for less than the dropshipper is charging.

So this comes down to ease, value and gratitude. How much do I want to thank the dropshipper for finding this product for me by purchasing through them, versus cutting them out for a few dollars less at AliExpress or a bit more convenience and reassurance at Amazon?

And can the Shopify-powered dropshipping supply chain evolve to fill some of the holes (reassurance, speed, packaging) before Amazon can solve the discovery problem?

Further reading