Shopify (NYSE: SHOP) recently purchased Primer, an augmented reality app that allows users to digitally preview the effects of changing tiles, wallpaper and paint on homes, for an undisclosed fee. In a blog post, Primer said he was “thrilled to have the opportunity to fulfill” his “founding belief in creating large-scale, immersive shopping experiences at Shopify,” and will close the app on the 10th. July.

It may come as a surprise that Shopify, which provides self-service e-commerce services to small businesses, purchases an AR app. But it also wouldn’t represent Shopify’s first step into the nascent AR market, which could still grow at a 48.6% CAGR between 2021 and 2028, according to Fortune Business Insights. Let’s dig deeper into Shopify’s AR efforts to see how they complement its business.

Image source: Getty Images.

Why is Shopify interested in augmented reality?

Back in 2018, Apple and AlphabetGoogle has upgraded its mobile browsers with the ability to display 3D and AR objects without an external app or headset. These updates prompted Shopify to launch Shopify AR later in the year. The new tool has allowed businesses to add AR functionality to their websites.

Pure Cycles, one of Shopify’s early augmented reality users, used the tool to allow customers to place digital models of bikes in their homes. Buyers could then see if the bikes would fit into their living spaces and examine them up close with their smartphone camera.

Another early adopter, online home furnishings retailer HORNE, allowed buyers to place their products virtually in their homes. We’ve seen big retailers like IKEA add similar AR functionality before, but AR tools can be especially useful for online-only retailers like HORNE, as buyers may want to interact with home furniture virtually before making a purchase.

Today, MicrosoftThe Bethesda store from Instant Brands, Instant Pot from Instant Brands, Allbirds, and other well-known brands all use Shopify AR. Last year, Shopify said that interactions with products featuring 3D and AR models achieved a 94% higher conversion rate than those without.

At the end of 2019, a Nielsen survey also found that 51% of consumers were willing to use AR tools to rate products. That percentage likely increased last year as the pandemic accelerated online shopping trends around the world.

Therefore, it makes sense for Shopify to integrate more augmented reality tools into its platform, which is already helping businesses launch their own ecommerce sites, process payments, fulfill orders, and manage marketing campaigns.

Will Shopify’s AR ecosystem expand its moat?

Shopify already serves over 1.7 million businesses worldwide, and it’s often seen as the decentralized disruptor of Amazon‘s (NASDAQ: AMZN) centralized proprietary and third-party marketplaces.

But Shopify still faces competition from other ecommerce platforms like Wholesale trade (NASDAQ: BIGC) and Adobe‘s (NASDAQ: ADBE) Magento. Shopify already enjoys advantages over the two companies: Its “lean” option is cheaper for small merchants than BigCommerce, and its cloud-based platform doesn’t force businesses to use their own servers like Magento.

Shopify is also growing faster than the two competitors. Its revenue jumped 86% last year, while BigCommerce revenue grew only 36%. Adobe’s digital experience revenue, which includes Magento, grew 12% last year.

BigCommerce and Magento both offer support for AR functionality, as well as integration with third-party AR authoring apps like Threekit. Magento users can also access Adobe’s Project Aero AR tools and other extensions.

Therefore, purchasing Primer – which already works with dozens of tile and textile brands to preview home improvement results – could further widen Shopify’s gap in the AR market. Its technology could also benefit other furniture and design companies on Shopify.

The main points to remember

Shopify’s purchase of Primer was likely modest, as the startup has fewer than a dozen employees and won’t significantly increase revenue. Nonetheless, it still highlights the growing importance of AR services in online shopping and how Shopify is constantly rolling out new tools for merchants.

This ongoing development could help Shopify push back its competitors like BigCommerce and Magento, and allow it to recruit even more companies to challenge Amazon and other large online retailers.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.