If Amazon is the 800-pound gorilla dominating the e-commerce space, then Shopify is the 600-pound tiger lurking around the corner.
Since its founding in 2004, Shopify has slowly but steadily grown into one of the world’s largest e-commerce platforms serving both small, independent merchants as well as large, established brands such as Anheuser-Busch InBev, LVMH Moet Hennessy Louis Vuitton and Tesla.
The key to their success, using data, analytics and artificial intelligence to help merchants sell more products.
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Putting the Power of AI into the Hands of Merchants
At this point in time, AI is only available to a select few. Mostly these are large companies with access to massive, high velocity data sets and ample funding. However, Shopify is using its scale to provide all of its merchants with machine learning-enabled insights.
In a recent interview with AI News, Vincent Chio, Data Science Lead at Shopify shared a few examples of the AI/ML tools they offer merchants, “we use machine learning in our fulfillment network to predict the closest fulfillment centers and optimal inventory quantities per location to ensure fast, low-cost delivery of our merchants’ products. Our business chat app, Shopify Inbox, is built on a natural language processing foundation that helps merchants convert conversations into sales.”
According to recent reports, Shopify also recently filed a patent for MySizeID, an AR-powered virtual dressing room.
In a recent article of Shopify’s tech blog, the company shared its Playbook for Scaling Machine Learning. Though we encourage you to read the full piece, these steps include:
- Identify A Problem Worth Solving
- Ensure You Have Enough Data
- Identify Your Model’s Downstream Dependencies
- Understand Any Existing Solutions
- Optimize For Product Outcomes
- Create Well-Defined Pipelines
- Decide How to Deploy Your Model
- Build Trust In Your Models
- Encode Best Practices In Your Platform
- Automate Things!
Shopify Capital: A New Model for Data Monetization
Imagine getting a small business loan without having to apply for it. Sounds too good to be true, doesn’t it?
However, that’s exactly what Shopify is doing, representing a new approach to traditional data monetization. First, Shopify’s machine learning models analyze over 70 million data points, including previous sales history and store performance, to identify eligible merchants and calculate the loan amount. If a merchant accepts a pre-approved offer, which range from $200 to $1,000,000, they can generally receive funding in two to five business days.
In an interview with TechCrunch, Solmaz Shahalizadeh, Shopify’s VP of Data Science and Engineering explained, “Our model allows us to predict merchants’ minimum sales with 90% accuracy while helping us make more proactive, pre-qualified offers as quickly as possible.” She also emphasized that the company’s model also aims to eliminate any biases that exist in the current financial system when it comes to educational background, ethnicity, race or gender. “We don’t ask for a business plan. Our models see the business performance and its potential and makes an offer based on that.”
The results of this approach have been impressive. To start, the company has given out over $2 billion in loans so far. In addition, using propensity score matching, Shopify’s data science team has been able to quantify the impact of these loans. As described in detail on Shopify’s tech blog,
“With high statistical significance, backed by robustness checks, we concluded that the average difference in the geometric mean of GMV in the following six months after adopting Shopify Capital for the first time is +36%, bounded by +13% and +65%. We can now say with confidence that Shopify Capital does indeed help our merchants—and not only that, but it validates the work we’re doing as a data team. Through this study, we were able to prove that one of our first machine learning products has a significant real-world impact, making funding more accessible and helping merchants grow their businesses. We look forward to continuing to create innovative solutions that help our merchants achieve their goals.”