Download Cards, "eCommerce", and Covid Commerce

Two Truths and a Take, Season 2 Episode 15

In June 2011, my band The Fundamentals headed out for our first multi-week long tour, playing shows across Canada. It was a wild time: we were opening most of the shows for an Australian band called the Resignators, and we found out halfway through the tour that their guitarist had been one of the founding members of GWAR. (If you know, you know.) We also fell victim to a couple of pretty bad van breakdowns, including one at the end where we got stuck in a tiny logging town in northern Ontario for about a week. All in all, it was a 10/10 summer. 

There was one issue, though: we had a hard time selling our music. That’s not ideal. We came up with a workaround, but it wasn’t a great one; and I got to thinking about it a bunch this week as I’m settling into my new role at Shopify.

Here was the problem: 

In the old days, the way that music worked was you recorded a demo tape, you took it to a record label, and if they liked it, they’d put up money for you to go record an album. Recording wasn’t cheap, so you needed a label to put up that cash. Then you’d go on tour, play shows to promote and sell the album, and then the record label would make most of the profit but you’d still get paid if you were a hit. 

In the 2000s, two things happened. First, the internet took off and we all started downloading music: first from Napster, then from whatever file-sharing P2P network of choice, then iTunes. The economics of the whole business got threatened, so record labels had to get a lot more careful with how they spent money. Second, recording got cheaper. You could record, mix and master something decent-sounding for a few thousand bucks - a lot better than before, although still not quite friction-free. 

As a consequence, the relationship between bands and record labels got rearranged a bit, and not really in the band’s favour: it became an increasing expectation that bands would bring an already recorded album to a record label, and the label would decide if they liked it or not. If they did, they’d manufacture and distribute it for you, and then send you on tour. 

We were in that boat. We had not yet recorded a full-length album, because we weren’t quite there yet. We had a pretty good EP that we’d recorded (an EP is like a short album), we wanted our fans to listen to it, and we needed to make some gas money. We had our product, and we had fans who wanted the product. The problem is that you can’t really charge all that much for an EP; like 5 bucks max is considered reasonable. But after designing a cover, printing and manufacturing the album, and shipping, we’d be barely breaking even - without the scale of a record label, we’re stuck paying retail for our own product. 

The frustrating thing here is that we owned the digital recordings, and most people listened to these files digitally. The CD form-factor itself was an unnecessary obstacle, except for it did one really important job: it gave us something to physically sell at our shows. But that’s a steep tradeoff: we could only sell something if we were willing to surrender any profit on it. 

In the end, we found a solution that was both perfectly reasonable, and at the same time, perfectly silly: digital download cards. 

I couldn’t find any old pictures, but you can imagine them: they were nice, laminated cards with our name and artwork on it, and a code you could use to download an mp3 of our music. They were a lot cheaper than CDs, and they did the job: they moved a digital file from our computer to their computer, and moved money from them to us. They were a small but nice physical item that fans could take home from our show. They checked off every box we needed.

They look right on paper. If you’d asked us to spec out a solution to the problem, this is probably what you’d get. But they were also … just, wrong. We sold some, sure. They did the job we asked them to do. But it was a job that didn’t make any sense anymore. 

In hindsight, we can see that period of time was exactly the inflection point out of the pre-internet world of music, where bands played shows in order to sell their music, and into the post-internet world of music, where everything streams for free, and bands effectively give away their music so that you’ll come to their shows. Our digital download cards were a pretty accurate snapshot of a single point in time, but they 100% missed the line that emerged out of many points over time.

I’ve been keeping this story in mind over the past week as I get onboarded and acquainted with the big internal machine inside Shopify. Our mission is to make commerce better for everyone. The individual jobs and tasks associated with that mission are vast and complex; on my team, Shopify Money, we have enough work to do to keep us busy for years before we run out of really obvious things to make. This is a good thing. 

A lot of commerce today is still made up of “analog parts”: the equivalent of physical CDs, still around from another world, but who are mostly still here out of inertia. But another big chunk of commerce today is made out of download cards. We’re in the middle of this big transition from pre-internet commerce to post-internet commerce, and in the middle, there’s this period we call “eCommerce”. 

eCommerce is made of download cards. It’s a collection of bits and parts and products and services, all of which work fine and do a job that makes sense in the old context, but just aren’t necessary anymore. Or, at least, they won’t be necessary eventually. They gets the job done, but aren't the best or final form of anything. 

Soon there won’t be anything called “eCommerce", or any sharp distinction between online or offline merchandising for most of what we buy. I think this should be obvious to anyone who spends any time in this world. The COVID lockdown has accelerated this transition; not because it’s tilting more transactions towards the internet, but because it’s making really clear that no one actually cares about the difference between online versus offline. The core of interaction between the merchant and the customer really is the same. If we’re lucky, the outcome of all of this won’t just be more online commerce, it’ll be better commerce.

That being said, the urgent priority right now is to help businesses make it through the Covid crisis, right now, without dying. For businesses like us, it means shipping a lot of online workarounds and hacks to help out. For merchants and customers, it means embracing these workarounds that support business as usual in any way possible. This is good, but it’s potentially misleading. It’s like a huge sign that Digital Download cards have product market fit, when really, they’re just a notable but misleading passing point in the context of a broader transformation.

“Covid Commerce” is what we have to do right now, but we should be mindful that some of the things we’re building, in hindsight, will be download cards. They were necessary in the moment, they replicated the job faithfully, but they’re not the future. Hopefully as we get back to normal, we’ll have made enough progress on what actually matters in commerce that we can move past them soon enough. 

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First thing this week: I’m guessing that some of you are into watches. If you are, I highly recommend this blog from my friend Howie, who’s a watchmaker in Vancouver:

The Dialed-in Watchmaker | Howie Woiwod

(Also, if you have a watch that’s precious to you and that needs repair, you should get in touch with Howie about it. He will do a better job than anyone you know.)

Here are a couple timely callbacks to older issues:

First off, this piece by Packy McCormick with an interesting take on what I’d written on positional scarcity a while back:

Wackos and Zoomglüts (What Hey Arnold can teach us about supply gluts) | Packy McCormick 

Second, here’s a graph on how the Covid crisis rapidly changed our grocery / restaurant spending dollars (original tweet here), which isn’t surprising in that it shows that things changed (obviously they did), but more the fact that this massive shift away from Cooking as a Service takes us to a ratio we haven’t seen since… 1997. That’s not that long ago! Goes to show how much things have changed in the past 25 years. 

Here’s an interesting piece on a huge but often overlooked reason why the biggest companies have an advantage over everyone else: they’ve become the de facto regulators of smaller companies. 

The new gatekeepers: private firms as public enforcers | Rory Van Loo, Virginia Law Review

And finally, for this week’s comics section: folks, we’ve got a really good one this week. The original tweet is fine, but it’s the retweet that, uh, ok why don’t you just work out for yourself what happened:

As Zack put it, I do honestly feel bad for whatever social media intern hit that retweet button. But you know what? I’ve been laughing about this for two whole days now. And now so can you. 

Have a great week, 

Alex