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   Technology StocksShopify Inc (SHOP: NASDAQ) SHOP.TO

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From: Glenn Petersen7/12/2019 1:05:14 PM
1 Recommendation   of 63
Shopify and the Power of Platforms

Posted onThursday, July 11, 2019
Author by Ben Thompson

While I am (rightfully) teased about how often I discuss Aggregation Theory, there is a method to my madness, particularly over the last year: more and more attention is being paid to the power wielded by Aggregators like Google and Facebook, but to my mind the language is all wrong.

I discussed this at length last year:
  • Tech’s Two Philosophies highlighted how Facebook and Google want to do things for you; Microsoft and Apple were about helping you do things better.
  • The Moat Map discussed the relationship between network effects and supplier differentiation: the more that network effects were internalized the more suppliers were commoditized, and the more that network effects were externalized the more suppliers were differentiated.
  • Finally, The Bill Gates Line formally defined the difference between Aggregators and Platforms. This is the key paragraph:
    This is ultimately the most important distinction between platforms and Aggregators: platforms are powerful because they facilitate a relationship between 3rd-party suppliers and end users; Aggregators, on the other hand, intermediate and control it.
It follows, then, that debates around companies like Google that use the word “platform” and, unsurprisingly, draw comparisons to Microsoft twenty years ago, misunderstand what is happening and, inevitably, result in prescriptions that would exacerbate problems that exist instead of solving them.

There is, though, another reason to understand the difference between platforms and Aggregators: platforms are Aggregators’ most effective competition.

Amazon’s BifurcationEarlier this week I wrote about Walmart’s failure to compete with Amazon head-on; after years of trying to leverage its stores in e-commerce, Walmart realized that Amazon was winning because e-commerce required a fundamentally different value chain than retail stores. The point of my Daily Update was that the proper response to that recognition was not to try to imitate Amazon, but rather to focus on areas where the stores actually were an advantage, like groceries, but it’s worth understanding exactly why attacking Amazon head-on was a losing proposition.

When Amazon started, the company followed a traditional retail model, just online. That is, Amazon bought products at wholesale, then sold them to customers:

Amazon’s sales proceeded to grow rapidly, not just of books, but also in other media products with large selections like DVDs and CDs that benefitted from Amazon’s effectively unlimited shelf-space. This growth allowed Amazon to build out its fulfillment network, and by 1999 the company had seven fulfillment centers across the U.S. and three more in Europe.

Ten may not seem like a lot — Amazon has well over 300 fulfillment centers today, plus many more distribution and sortation centers — but for reference Walmart has only 20. In other words, at least when it came to fulfillment centers, Amazon was halfway to Walmart’s current scale 20 years ago.

It would ultimately take Amazon another nine years to reach twenty fulfillment centers (this was the time for Walmart to respond), but in the meantime came a critical announcement that changed what those fulfillment centers represented. In 2006 Amazon announced Fulfillment by Amazon, wherein 3rd-party merchants could use those fulfillment centers too. Their products would not only be listed on, they would also be held, packaged, and shipped by Amazon.

In short, effectively bifurcated itself into a retail unit and a fulfillment unit:

The old value chain is still there — nearly half of the products on are still bought by Amazon at wholesale and sold to customers — but 3rd parties can sell directly to consumers as well, bypassing Amazon’s retail arm and leveraging only Amazon’s fulfillment arm, which was growing rapidly:

Walmart and its 20 distribution centers don’t stand a chance, particularly since catching up means competing for consumers not only with Amazon but with all of those 3rd-party merchants filling up all of those fulfillment centers.

Amazon and AggregationThere is one more critical part of the drawing I made above:

Despite the fact that Amazon had effectively split itself in two in order to incorporate 3rd-party merchants, this division is barely noticeable to customers. They still go to, they still use the same shopping cart, they still get the boxes with the smile logo. Basically, Amazon has managed to incorporate 3rd-party merchants while still owning the entire experience from an end-user perspective.

This should sound familiar: as I noted at the top, Aggregators tend to internalize their network effects and commoditize their suppliers, which is exactly what Amazon has done.

1 Amazon benefits from more 3rd-party merchants being on its platform because it can offer more products to consumers and justify the buildout of that extensive fulfillment network; 3rd-party merchants are mostly reduced to competing on price.

That, though, suggests there is a platform alternative — that is, a company that succeeds by enabling its suppliers to differentiate and externalizing network effects to create a mutually beneficial ecosystem. That alternative is Shopify.

The Shopify PlatformAt first glance, Shopify isn’t an Amazon competitor at all: after all, there is nothing to buy on And yet, there were 218 million people that bought products from Shopify without even knowing the company existed.

The difference is that Shopify is a platform: instead of interfacing with customers directly, 820,000 3rd-party merchants sit on top of Shopify and are responsible for acquiring all of those customers on their own.

This means they have to stand out not in a search result on, or simply offer the lowest price, but rather earn customers’ attention through differentiated product, social media advertising, etc. Many, to be sure, will fail at this: Shopify does not break out merchant churn specifically, but it is almost certainly extremely high.

That, though, is the point.

Unlike Walmart, currently weighing whether to spend additional billions after the billions it has already spent trying to attack Amazon head-on, with a binary outcome of success or failure, Shopify is massively diversified. That is the beauty of being a platform: you succeed (or fail) in the aggregate.

To that end, I would argue that for Shopify a high churn rate is just as much a positive signal as it is a negative one: the easier it is to start an e-commerce business on the platform, the more failures there will be. And, at the same time, the greater likelihood there will be of capturing and supporting successes.

This is how Shopify can both in the long run be the biggest competitor to Amazon even as it is a company that Amazon can’t compete with: Amazon is pursuing customers and bringing suppliers and merchants onto its platform on its own terms; Shopify is giving merchants an opportunity to differentiate themselves while bearing no risk if they fail.

The Shopify Fulfillment NetworkThis is the context for one of the most interesting announcements from Shopify’s recent partner conference, Shopify Unite. The name should ring familiar: the Shopify Fulfillment Network.

From the company’s blog:

Customers want their online purchases fast, with free shipping. It’s now expected, thanks to the recent standard set by the largest companies in the world. Working with third-party logistics companies can be tedious. And finding a partner that won’t obscure your customer data or hide your brand with packaging is a challenge.

This is why we’re building Shopify Fulfillment Network—a geographically dispersed network of fulfillment centers with smart inventory-allocation technology. We use machine learning to predict the best places to store and ship your products, so they can get to your customers as fast as possible.

We’ve negotiated low rates with a growing network of warehouse and logistic providers, and then passed on those savings to you. We support multiple channels, custom packaging and branding, and returns and exchanges. And it’s all managed in Shopify.
The first paragraph explains why the Shopify Fulfillment Network was a necessary step for Shopify: Amazon may commoditize suppliers, hiding their brand from website to box, but if its offering is truly superior, suppliers don’t have much choice. That was increasingly the case with regards to fulfillment, particularly for the small-scale sellers that are important to Shopify not necessarily for short-term revenue generation but for long-run upside. Amazon was simply easier for merchants and more reliable for customers.

Notice, though, that Shopify is not doing everything on their own: there is an entire world of third-party logistics companies (known as “3PLs”) that offer warehousing and shipping services. What Shopify is doing is what platforms do best: act as an interface between two modularized pieces of a value chain.

On one side are all of Shopify’s hundreds of thousands of merchants: interfacing with all of them on an individual basis is not scalable for those 3PL companies; now, though, they only need to interface with Shopify.

The same benefit applies in the opposite direction: merchants don’t have the means to negotiate with multiple 3PLs such that their inventory is optimally placed to offer fast and inexpensive delivery to customers; worse, the small-scale sellers I discussed above often can’t even get an audience with these logistics companies. Now, though, Shopify customers need only interface with Shopify.

Plaforms Versus AggregatorsMoreover, this is what Shopify has already accomplished when it comes to referral partners (who drive new merchants onto the platform), developers (who build apps for managing Shopify stores) and theme designers (who sell themes to customize the look-and-feel of stores). COO Harley Finkelstein said at Unite:

You’ve often heard me say that we at Shopify want to create more value for your partners than we capture for ourselves, and I find the best way to demonstrate this is by looking at what I call the “Partner Economy”. The “Partner Economy” is the amount of revenue that flows to all of you our partners…in 2018 Shopify made about a billion dollars [Editor: in revenue]. We estimate that you, our partners, made more than $1.2 billion.

In other words, Shopify clears the Bill Gates Line — it captures a minority of the value in the ecosystem it has created — and the Shopify Fulfillment Network should fit right in:

What is powerful about this model is that it leverages the best parts of modularity — diversity and competition at different parts of the value chain — and aligns the incentives of all of them. Every referral partner, developer, theme designer, and now 3PL provider is simultaneously incentivized to compete with each other narrowly and ensure that Shopify succeeds broadly, because that means the pie is bigger for everyone.

This is the only way to take on an integrated Aggregator like Amazon: trying to replicate what Amazon has built up over decades, as Walmart has attempted, is madness. Amazon has the advantage in every part of the stack, from more customers to more suppliers to lower fulfillment costs to faster delivery.

The only way out of that competition is differentiation; granted, Walmart has tried buying and launching new brands exclusive to its store, but differentiation when it comes to e-commerce goods doesn’t arise from top down planning. Rather, it bubbles up from widespread opportunity (and churn!), like that created by Shopify, supported by an entire aligned ecosystem.

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From: JakeStraw2/6/2020 11:12:01 AM
1 Recommendation   of 63
The Bull Case for Shopify Stock Is More Relevant Than Ever

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From: JakeStraw2/12/2020 9:23:42 AM
1 Recommendation   of 63
Shopify forecasts full-year revenue above estimates
Shopify reported worldwide sales of over $2.9 billion between Black Friday and Cyber Monday, up about 61% from the same period in 2018.

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From: Glenn Petersen4/17/2020 6:41:31 PM
   of 63
Shopify Surges After CTO Touts ‘Black Friday Level Traffic’

By Jeran Wittenstein

April 17, 2020, 10:42 AM CDT

Shopify Inc. shares are on track for a record high after an executive said the e-commerce company was experiencing traffic similar to peak holiday levels and predicted even more growth.

“As we help thousands of businesses to move online, our platform is now handling Black Friday level traffic every day!” Chief Technology Officer Jean-Michel Lemieux said Thursday on Twitter, referring to the day after Thanksgiving that is one of the busiest shopping days of the year. “It won’t be long before traffic has doubled or more.”

Shopify gained as much as 11% on Friday, after rising 5.9% on Thursday. During the course of its current seven-day winning streak the stock has gained 50%, adding $23 billion in market value.

E-commerce companies like Shopify have been among beneficiaries of the coronavirus pandemic as home-bound consumers shift more of their purchases online and avoid going to physical stores. Inc., the world’s biggest online retailer, saw its shares rise to a record on Thursday and is on track for its biggest monthly gain in more than two years.

While the traffic surge doesn’t necessarily translate into an equivalent amount of revenue, it’s a positive sign for the business, according to Colin Sebastian, a Robert W. Baird & Co. analyst.

“This is another positive indicator for the strength of Shopify’s platform, and a more positive signal for Shopify’s ongoing business trends,” he wrote in a research note.

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From: Glenn Petersen5/11/2020 12:09:53 PM
   of 63
Shopify is cutting into Amazon's market share:

Amazon's Empire Is Vulnerable to 'Rebel' Incursions

Business turmoil sparked by the Covid-19 pandemic is creating opportunities for rivals from upstart Shopify to retailers such as Target and Costco.

By Tae Kim
May 8, 2020, 8:00 AM CDT

Last October, Shopify Inc. CEO Tobi Lutke said his company’s goal was to “arm the rebels” against the Inc. empire. Since then, the mantra has become a rallying cry for Shopify’s employees and the merchant customers that use its e-commerce store software. And now, the business turmoil sparked by the Covid-19 pandemic is creating an opportunity for the online seller rivals to gain some valuable ground over their giant competitor.

Amazon is widely considered one of the biggest beneficiaries of the e-commerce boom, as self-isolating consumers shift their shopping behavior to purchase more online. The numbers are bearing out the trend: While most companies are suffering from dramatic business slowdowns, Amazon last week posted first-quarter revenue of $75.5 billion, up 26% from a year earlier, and projected continued momentum by giving a sales growth forecast range of 18% to 28% for the June quarter. 1 Amazon’s growth hasn’t come without issues, though. The company has faced severe logistical challenges to meet demand – including the rapid hiring of 175,000 additional workers. And the stress put on its supply chain and delivery networks, along with the prioritization of certain essential items, has led to shipping delays and many shortages for its customers. Questions revolving around workplace safety have also dogged Amazon.

With Amazon so much in the spotlight, it may be surprising to know that consumers are increasingly going elsewhere for their online shopping needs. In fact, several e-commerce sellers are showing dramatically faster growth rates than the tech giant. On Wednesday, Shopify revealed the aggregated online sales of its merchant customer base grew 46% in the first quarter and accelerated further in April. That news came after online furniture retailer Wayfair Inc. said it had revenue growth of roughly 90% so far in its second quarter, a significant increase versus the 20% growth it generated for the three months ended in March.

Traditional retailers are flourishing as well. On April 23, Target Corp. said its online business had risen more than 275% month-to-date to that point, while electronics retailer Best Buy Co. also pointed last month to recent triple-digit growth trends for its website. Costco Wholesale Corp., meanwhile, reported April e-commerce sales growth of 86%.

For all the antitrust scrutiny Amazon has gotten for crushing the competition in e-commerce with its leading 37% share in the U.S. last year, according to eMarketer, these recent numbers point to share losses for the tech giant. Rivals now have an opening to show they, too, can delight customers with good service and build consumer loyalty. And if they can take advantage, perhaps the e-commerce race isn’t over yet.

What is the clearest signal investors, at least, are noticing the progress? On Wednesday, Shopify briefly surpassed Royal Bank of Canada as the most valuable company in Canada for the first time. Yes, the rebels may have a fighting chance.

Amazon first-quarter revenueincludes its sales at its online and physical stores, third-party seller services, subscription services, AWS cloud-computing sales and other businesses.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Tae Kim at

To contact the editor responsible for this story:
Beth Williams at

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From: Glenn Petersen6/15/2020 11:31:07 AM
   of 63
Shopify Advances After Deal With Walmart Expands Its Reach

By Matthew Boyle
June 15, 2020, 5:00 AM CDT
Updated on June 15, 2020, 9:40 AM CDT

-- Move is retailer’s latest attempt to grow online sales, profit

-- Walmart will bring 1,200 Shopify sellers to its site this year

Founded in 2006, Shopify has become the platform of choice for businesses large and small that are looking to get online cheaply and quickly.
Photographer: Andrew Harrer/Bloomberg

Walmart Inc. has partnered with e-commerce giant Shopify Inc. to expand its third-party marketplace site and grab more of the pandemic-fueled surge in online shopping. Shares of the Canadian technology company rose on Monday.

The world’s largest retailer aims to add 1,200 Shopify sellers this year, Walmart executive Jeff Clementz said in an interview. The company’s marketplace site, which already offers more than 75 million products, grew at a faster pace than Walmart’s overall web business in the first quarter, and third-party sales are typically more profitable as the sellers pay a fee when a sale is made and often shoulder the delivery costs.

The collaboration is Walmart’s latest attempt to expand the scale and profitability of its $21.5 billion U.S. e-commerce business, which is gaining ground on market leader Inc. but continues to lose money. In recent years, Walmart has rolled out a fulfillment service for third-party sellers, allowed customers to return marketplace items in its physical stores and jettisoned millions of third-party items that didn’t meet quality standards.

On the Rise

Walmart now has about 45,000 different merchants on its marketplace site

“There are many Shopify sellers who were already on, but we have not penetrated their base to the extent possible,” said Clementz, who is vice president of Walmart Marketplace. “There’s a tremendous opportunity.”

Shopify’s U.S. shares rose as much as 7.6% to $799.02 on Monday in New York trading. Walmart stock was little changed.

For Shopify, the deal -- expected to be announced as early as Monday -- provides its network of millions of merchants access to Walmart’s customers, and follows a May linkup with Facebook Inc. that allowed retailers to import Shopify product catalogs to the social-media giant’s new Shops service.

“Few companies in the world match the sheer size and scale of Walmart,” said Satish Kanwar, Shopify’s vice president of product. The deal opens the door for small and medium-sized businesses “to access the 120 million customers who visit every month.”

The deal is “a win-win for both companies,” said Juozas Kaziukenas, founder of Marketplace Pulse, an e-commerce researcher. Still, the partnership diverges from Shopify’s typical strategy of acting as a platform for brands competing with large retailers, he said.

Founded in 2006, Shopify has become the platform of choice for businesses large and small that are looking to get online cheaply and quickly. Monthly fees start at just $29, which buys a virtual shop and everything that’s needed to run it, including tools to manage payments, inventory and shipping.

The Ottawa-based company claimed the second-largest share of online retail sales in the U.S. last year, and its meteoric growth has made a billionaire out of German-born founder and Chief Executive Officer Tobi Lutke.

Slow Start

Walmart introduced its marketplace site in August 2009, but progress was glacial at first as the retailer was focused more on its massive brick-and-mortar business and slow to recognize Amazon’s growing clout. That started to change when Doug McMillon became CEO in 2014, and accelerated when he put Marc Lore in charge of the retailer’s U.S. e-commerce division after acquiring his online startup,, in 2016.

Lore quickly added millions of new third-party items from small vendors who were happy to have an alternative to Amazon’s dominant site. Later, he took a page out of Amazon’s playbook by offering shipping services for third-party vendors through Walmart’s massive logistics network.

“We need to start playing offense,” Lore said at a February investor conference.

McMillon wants to get even more out of the business, especially after shuttering Jet last month. “We don’t think that we’ve done everything we must do, and should do, to support marketplace sellers in terms of the tools and services that we have available,” he said at the conference, just weeks before virus-related stockpiling sent traffic to Walmart’s website soaring. First-quarter U.S online sales rose 74%, more than twice the growth rate that Walmart had previously forecast for the entire year. Walmart has since withdrawn its financial guidance due to the pandemic.

To bring more direction to the marketplace business, Walmart named Jeff Shotts to run it last summer as part of a broader restructuring that sought to better integrate the online business with its physical stores, which often act as e-commerce distribution hubs.

On and OffClementz said the two companies had been in talks on and off for years, but discussions heated up over the past six months. A recent pilot test with several Shopify sellers went well, and he foresees eventually having thousands of sellers on Walmart’s marketplace.

The Shopify partnership shows that “competition in this important segment of online retail is heating up,” Moody’s vice president Charlie O’Shea said. While Amazon remains the “unquestioned leader,” Walmart’s ability to offer space in its massive network of stores is an important advantage and could attract vendors, he said.

There are risks to opening the doors to more and more sellers. Walmart’s marketplace, along with Amazon’s, has faced criticism over the years for carrying offensive items like Confederate flags. In recent years, Walmart has pulled about 20 million items off the site that didn’t meet its quality standards.

Though Amazon’s marketplace is open to virtually anyone who goes through an online registration process, Walmart’s is invite-only so it can vet sellers. It also uses machine learning and keyword recognition technology to spot suspect sellers.

(Updates share trading and adds Moody’s comment in third-to-last paragraph. A previous version corrected details of fees paid by Walmart marketplace sellers)

Published on June 15, 2020, 5:00 AM CDT
Updated on June 15, 2020, 9:40 AM CDT

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From: LONGshan6/20/2020 3:56:37 PM
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Kim Kardashian reached a deal with Spotify for a criminal-justice podcast. SPOT near all time high.

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From: SI Ron (Crazy Soup Man)7/9/2020 12:03:58 PM
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To: Glenn Petersen who wrote (24)7/23/2020 7:33:15 PM
From: Ron
1 Recommendation   of 63
The biggest tech company that many have never heard of: Shopify

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To: Ron who wrote (27)7/26/2020 1:32:46 PM
From: Glenn Petersen
   of 63
Only Amazon takes in more money online, dollar-wise, than Shopify’s sites, which in aggregate brought in more than $60 billion in 2019, $20 billion more than the year before.

An amazing company. Thanks for posting that piece.

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