|From: Glenn Petersen||11/28/2020 7:26:39 PM|
|Can Shopify Compete With Amazon Without Becoming Amazon?|
If the key to Amazon’s success has been to put the customer first, for Shopify the key has been to put the merchant first.
By Yiren Lu
New York Magazine
November 26, 2020
In March, the business of Ox Verte, an organic catering company in Manhattan, came to a standstill. Its roster of corporate clients — start-ups that offered free lunches, salespeople with round-table breakfasts — had all implemented work-from-home policies. Events and conferences were canceled for the foreseeable future. If Jessie Gould, the Ox Verte chief executive, hoped to keep her staff employed and her vendors paid, the only path through the pandemic, it seemed, was going to be retail sales. Instead of catering to offices, they would make deliveries to homes. In addition to ready-to-eat meals, they would sell grocery boxes that appealed to health-conscious consumers newly wanting (or forced) to cook. Ox Verte already had a website, but it wasn’t particularly well suited to taking individual orders, so to enable the pivot, the company put up a new online storefront using Shopify, an e-commerce platform based in Canada.
Unlike Amazon, which is an online marketplace where customers go to buy stuff, Shopify is a software platform visible only to merchants. You don’t go shopping on Shopify the way you do on Amazon; Shopify doesn’t list products directly on Shopify.com. Ox Verte used Shopify’s e-commerce software to handle payments and manage inventory. These features have made Shopify popular among “direct to consumer” brands that don’t want to share their profits or see their brand weakened on Amazon or other marketplaces run by a third party, like Wayfair or Walmart. “The whole spirit of the D.T.C. space is owning the relationship with the customer, having that direct line, and Shopify gives you that control much better than Amazon does,” says Paul Munford, an angel investor and the founder of the popular direct-to-consumer newsletter Lean Luxe.
Though Shopify’s operations are by nature low-profile, the company’s success has made it a linchpin in what Ben Thompson, the author of the tech newsletter Stratechery, recently referred to as the “Anti-Amazon Alliance.” (Another member of the would-be alliance, whose name recognition probably resonates more than Shopify’s: Google Shopping.) In the last few years especially, Shopify has struck up partnerships with ad giants like Facebook and taken on the kind of real-world functions that Amazon dominates. The dream for businesses that sell online has long been to have the ability to offer things like two-day shipping, easy returns, premium customer service and overall operational efficiency without having to be on Amazon’s website. Except for established juggernauts like Nike, individual businesses seem unlikely to realize that vision. But in creating software infrastructure that can be shared between merchants, Shopify has not only strengthened the competitive prospects of existing e-commerce businesses; it has also facilitated the emergence of new ones — including, as it turns out, my own.
In April, months after I started reporting this article, I left my full-time job as a software engineer with the intention of creating my own start-up. The plan had been to take some time to conduct user interviews and then figure out a product. But with the onset of the pandemic, my business partner and I saw an opportunity and decided to move immediately. We started an Asian grocery-delivery service, Mellow Groceries, that would let people shop from grocery suppliers in Flushing, Queens, many of which were only taking orders on the Chinese social-media app WeChat. And so I became a user of Shopify myself.
It’s one thing to report on software as an abstraction and quite another to actually use it as a paying customer. Our experience with Shopify was impressive. We uploaded a spreadsheet of product information — images, prices, categories — picked a template for our digital storefront and out popped a fairly sophisticated-looking e-commerce website. There was already a checkout page, which was integrated with various payment providers. Customizable purchase and shipping confirmation emails could be sent automatically to customers. When an order came in, we would get an email alert. There was a dashboard to track the behavior of visitors to the site. Within two days, we were open for business.
Like many other merchants, we were betting on the way Covid-19 was accelerating the spread of e-commerce generally to propel us specifically. It took eight years for e-commerce as a share of retail sales in the United States to grow to 12 percent from 5 percent. It took only the 12 weeks between March and June this year to reach 16 percent from 12 percent. In one sense, Amazon seems to be the biggest winner of the pandemic when it comes to shopping — the company’s stock price has been up by as much as 86 percent since the beginning of the year. But Shopify has benefited too: As supply chains evolved, wholesalers turned to retail sales and local businesses went online. (Through mid-November, Shopify’s stock price has risen 125 percent this year.) In the dark days of April and May, when even Amazon’s usual performance sputtered and those with Prime subscriptions faced delivery dates months into the future, consumers for the first time in years turned elsewhere — their neighborhood hardware store, their local fishmonger, the organic catering company that brought them lunch at the office — for e-commerce purchases. And they found that, often thanks to Shopify’s unseen capacities, the experience was actually pretty good.
Which is not to say that Shopify is the panacea for businesses that want to be online. As my partner and I would discover, while Shopify solves some challenges of starting an e-commerce store, it leaves others unresolved. In a landscape where customer attention is the scarcest resource, Shopify’s very identity as a neutral platform and invisible infrastructure is perhaps both its greatest asset and its greatest limitation.
The story of the last two decades in e-commerce has been, to a large extent, the story of Amazon’s rise, from humble reseller of books to default shopping destination and computing engine of the internet. Books have been written to explain its success, but the simplest answer lies in plain sight, in Amazon’s mission to be a place where customers can find anything they might want to buy online at the lowest possible prices. What will make customers happy? What will make them want to come back and buy again? The company has sought to address these questions again and again. When I buy something on Amazon, I know that it will be delivered for free and in a couple of days; if something is wrong with the purchase, I’ll be able to return it, no questions asked, without even a shipping label or packaging — I can just hand it over to U.P.S. All that convenience alone is worth the $119 annual Prime subscription.
The pampering of Amazon’s customers has been a boon both to them and to Amazon, securing its dominance, but the merchants — the other panel of the triptych — have not fared as well. Since Amazon first opened up its marketplace in 1999 to third-party sellers, 1.7 million of them have signed up, drawn in by Amazon’s huge customer base, sales volumes and its ability to fulfill orders. That last service, Fulfillment by Amazon (F.B.A.), means that a company doesn’t even have to store, pick and pack its own inventory.
Third-party sellers now account for about 60 percent of the commercial activity on Amazon; a big part of the reason Amazon can claim to be “the everything store” is because of these vendors. Yet their proliferation has, paradoxically, undercut what power they can exert. Individually, they have little brand recognition and little negotiating power against the marketplace. Today, if a business lists an article of clothing on Amazon for $50, Amazon gets $8.50 in commission; if the seller opts to advertise on the site, Amazon likely gets at least another $6.50. And if Fulfillment by Amazon is used, Amazon’s total cut gets closer to 40 percent. Amazon ships F.B.A. products in its own envelopes or brown boxes, highlights competing vendors on the site and charges extra for things like early reviews and dedicated account managers. Amazon monitors and collects pricing data and, until last year, prohibited sellers from offering their goods more cheaply elsewhere. (The company’s current policy says it monitors prices to prevent “practices that harm customer trust.”) One brand I had made plans to interview, upon hearing that I would be writing about the ways in which Shopify could compete with Amazon, decided it was no longer willing to talk to me. (Amazon says it has a “mutually beneficial relationship” with its third-party sellers and that “our interests are well aligned.”)
The story of Shopify’s rise, then, is in many ways a reaction to Amazon’s. It’s about a new generation of e-commerce merchants who want a shot at securing control by going out on their own. If the key to Amazon’s success has been to put the customer first, for Shopify the key has been to put the merchant first. After Warby Parker kicked off the direct-to-consumer phenomenon in 2010, Shopify has, by removing the technical barriers to entry in e-commerce, played an outsize role in fueling a boom that has since produced indie favorites like Gymshark, Brooklinen and Allbirds. (The New York Times’s merchandise store is also on Shopify.)
Now that companies like Shopify have turned software into a commodity, what distinguishes you isn’t whether you can write code, but whether you have something to say and an audience to say it to. The roles of “creator” and “influencer,” which began as ambiguous, relatively fringe side gigs, have become aspirational career paths: 86 percent of Gen Z and millennials recently surveyed said they would post sponsored content for money, and 54 percent said they would become social-media influencers. Influencers, in turn, have realized that it’s more lucrative and meaningful to promote their own products rather than someone else’s. With Shopify, celebrities like Kylie Jenner can leverage their pre-existing audiences on Instagram or Snapchat into billion-dollar e-commerce businesses seemingly overnight.
For these sorts of e-commerce brands, what’s being sold isn’t just some product with utility. It’s a feeling, a community, an identity. Shopify, being the blank canvas it is, is much more suitable for this kind of projection than Amazon, which, by virtue of being Amazon, effectively eclipses individual brands on its site. When you buy something from Amazon, you don’t remember whether it’s from Pvendor or Achiou, or some other third-party seller. You’re certainly not likely to tell your friend about it. But when you go to the Allbirds site and purchase a pair of their wool sneakers, you’re making statements, to yourself and to the world: You’re a card-carrying member of the technorati; you’re basic and proud of it.
Allbirds is one of Shopify’s biggest merchants, and it eschews selling through Amazon or other intermediaries like Foot Locker, despite the fact that doing so would be a shortcut to growth. The hits Allbirds would take to the integrity of its brand and pricing power aren’t worth it to the company. “Amazon is designed to commoditize products to the lowest common denominator of what they stand for,” Joey Zwillinger, Allbirds’s co-founder and co-chief executive, told me. “They would love to devolve us into a feature-and-benefit set and then put every knockoff in the world next to us, and then just drive everybody down to the lowest price, even if you’re sacrificing quality.”
On a snowy day in Ottawa this past winter, I visited the company’s headquarters to meet with Harley Finkelstein, Shopify’s chief operating officer at the time (he is now president). With an ebullience that matched Shopify’s soaring stock price, Finkelstein seemed to embody both the company’s wide-reaching ambitions and its Canadian wholesomeness.
Time and time again, we’ve seen that the personalities of leaders leave an imprint on the culture and ambitions of a company. Elon Musk (Tesla and SpaceX) is an intense iconoclast. Sergey Brin and Larry Page (Google) are former academics. Tobias Lütke, the chief executive of Shopify, was an early contributor to the popular open-source programming framework Ruby on Rails and a well-known enthusiast of the video game StarCraft — he recently made a public offer of an internship to the pro gamer known as SeleCT, declaring that his gaming accomplishments were “enough of a C.V.” Both Lütke, who is 40, and Finkelstein, 37, are active on Twitter, where Lütke has noted that he has rarely worked more than 40 hours a week (unlike Musk). At a time when Silicon Valley was chasing no-holds-barred growth, Shopify waited almost five years to raise significant amounts of venture capital, and despite the demands of various investors that the company move to Silicon Valley, it has remained based in Ottawa.
You get the sense, when talking to Finkelstein, that he relishes that Shopify has succeeded despite these departures from Silicon Valley orthodoxy. You can also tell how closely he and the company embrace the notion that they are the good guys. Lütke has said, “Amazon is trying to build an empire, and Shopify is trying to arm the rebels.” It’s an interesting thought, less hawkish than defensive, as though plucked from a galaxy far, far away.
Like Lütke, who came up with the idea for Shopify after creating software for an online snowboard shop, Finkelstein had firsthand experience as a merchant: During law school at the University of Ottawa in the late 2000s, he sold custom-designed T-shirts to pay for tuition — and he did so using Shopify’s software, he says, to easily “set up a beautiful, scalable online store.”
The company has come a long way in the decade since then. In the third quarter of 2020, Shopify’s gross merchandise volume was $30.9 billion, more than double what it was a year ago. About a million merchants use the platform. Most of these are small- and medium-size businesses that pay $29 a month for the basic software plus a per-transaction credit-card processing fee. But some 7,100 Shopify merchants subscribe to Shopify Plus, a premium version of the software that enables much more customization, costs in the thousands of dollars a month and now accounts for 25 percent of Shopify’s monthly recurring revenue.
In addition to providing software, Shopify has been expanding its offerings on e-commerce’s “back end” — in logistics, shipping and fulfillment. Last year, it introduced Shopify Fulfillment Network, a direct competitor to Fulfillment by Amazon. Instead of building or taking over its own warehouses, it created a network of seven existing third-party logistics providers (known in the industry as 3PLs) and retrofitted their software and hardware to closely integrate it with the Shopify platform. For Shopify merchants, this has meant a much more unified offline-online experience. And for the 3PLs, it brings them business. “One 3PL owner said to me, seven out of 10 merchants who are walking through the door are on Shopify today,” says Thomas Epting, who is the director of Shopify Fulfillment Network. “Individually, no one of them is big enough for me to want to go after, but collectively, if you deliver them to me in this easy way to fulfill, then I want that business all day long.”
In contrast to Amazon, which exercises complete control over its platform, Shopify tries to maintain a partnership ethos. In May, it partnered with Facebook to open Facebook Shops, a new feature that allows businesses to create storefronts right on Facebook and Instagram. For the announcement, Mark Zuckerberg brought Lütke on camera with him, effectively defanging what could have been viewed as a competitive threat.
And unlike Facebook itself, Shopify has successfully built a true ecosystem for developers on top of its platform, akin to Google’s Android operating system. Shopify fulfills what’s known in the software development community as the “80 percent use case,” which means it provides 80 percent of the features that merchants need and third-party developers supply the rest — building customized apps for, say, reviews, or discount codes for influencers to give away. But Finkelstein is keen to point out that while Shopify made a billion dollars in revenue last year, Shopify app developers made almost $7 billion as a community. “There’s a start-up in Winnipeg that employs 400 people,” he says, “and almost all they do is create Shopify apps.”
Through Mellow Groceries, my business partner and I got a peek into this thriving, global Shopify community online. We paid for several Shopify apps to add ZIP-code checking and shipping categories onto the site. From a teenager in a 2018 YouTube video, we learned what to do when we were getting tons of add-to-carts but no sales. (That YouTuber now has 243,000 subscribers.) On the subreddit r/shopify, I learned what the term “drop-shipping” means: It refers to an e-commerce model in which the retailer keeps no inventory but instead simply ships its products directly from its supplier to the end customer. The stereotypical drop-shipper fulfills its orders from the Chinese e-commerce site AliExpress, or even Amazon, but we too were in effect drop-shipping groceries from Flushing grocery suppliers. There is, in these online communities, an almost jubilant rejection of formal education, a sense that anything is possible if you are young, hungry and ready to hustle.
This, of course, is a particularly rosy view of entrepreneurship. The reality is that while many merchants have made money as Shopify stores, many have not. Drop-shipping, in particular, has prompted criticism for luring in the young and ingenuous — because even though drop-shippers do not handle inventory, they still have to pay upfront for any advertising or marketing. The need to reach customers has spawned a cottage industry of so-called gurus, many of whose marketing materials evoke get-rich-quick schemes. (“I’m 24, graduated college, never had a job and make 500k a year off e-commerce!”)
Similarly, a partnership ethos sounds great and offers flexibility and reach, but there are also real drawbacks in trying to align the incentives and interests of so many parties. Facebook and Shopify currently present a united front, but it’s hard to imagine, given how important commerce is to the monetization of Facebook’s platforms, that Facebook won’t eventually try to cut Shopify out of the equation. And Shopify Fulfillment Network will need to balance the customization that brands want with the standardization that is necessary to yield efficiency. Part of what enables Amazon to offer two-day delivery, after all, is that everything is shipped in the same kinds of packaging by Amazon employees trained from the same manual.
My partner and I spent our days posting blurbs on Facebook groups, talking to moms on Nextdoor, the neighborhood social-media site, and experimenting with various kinds of referral programs. Naïvely, the one thing we didn’t want to try was paying for digital advertising, in part because grocery margins were already razor thin, and if we had to pay to acquire customers, we would have lost money on every transaction. Perhaps as a result, we were never able to generate more than a handful of orders a day, far from the thousands we would have needed to break even.
We weren’t the only ones finding the direct-to-consumer food business challenging. In October, Jessie Gould wrote on Medium that Ox Verte was winding down its home-delivery service. “The world has changed dramatically,” she said, and Ox would have to as well. She planned to take some time to figure things out, but the ambition was to build a company that would provide plant-based food to an even broader audience. “For the past six years, Ox has transformed the way NYC office workers eat, and I believe that we can do the same for all American families.”
As for my business partner and I, we closed Mellow down after a month, having stumbled upon what many other Shopify merchants well knew: You need two components to build a successful e-commerce business, the software that runs the online store and the marketing to get customers to come to the store. A large part of what makes marketplaces like Amazon so attractive to merchants — why they keep selling there despite the lack of data transparency and the costs — is that it provides both components. Shopify, on the other hand, only provides the former. If you sell a product for $10 on a Shopify store, you’re paying 59 cents for payments processing and maybe a few dollars more for storage and fulfillment, but that doesn’t include any marketing. When I asked Finkelstein about this during our interview, he acknowledged it, albeit euphemistically. “There is this resourcefulness that is required,” he said. “That’s what’s exciting about commerce and retail in 2020. It’s about who can figure out how they can connect best with a potential set of customers.” The gist of his response was that building an e-commerce brand today is essentially a marketing exercise; it’s the one thing that you, as the entrepreneur, can’t outsource to Shopify.
You can, however, outsource it to the big ad networks. For most of the mid-to-late 2010s, the playbook for a direct-to-consumer brand was straightforward: a Shopify site and Facebook ads. Let’s say you spend $15 to manufacture a sweater, pay another $15 to market it through Facebook ads, then sell it for $80 on your Shopify store and pocket $50. The problem was that Facebook, like Amazon, is a landlord who knows how to squeeze blood out of a stone. By early 2020, the same brand was paying $75 per sweater to Facebook and losing money on every transaction. Even for brands that were able to keep down their C.A.C., or cost of acquiring a customer, they often found it was a strategy that didn’t scale up. As they went from spending $500 a day on Facebook ads to $5,000 a day, the digital audiences they were targeting remained roughly the same size, driving up the costs of getting consumers while also challenging their patience. “It’s the easiest time in the world to make something and build a business to 20 million” in annual revenue, says Allbirds’s Zwillinger. “Now, getting beyond that — you need to have great business strategy and great product.”
He draws a line between truly distinctive, innovative products with strong organic marketing (like Allbirds, of course) and white-label razors, toothbrushes, phone chargers and groceries gussied up in fancy packaging that constitute a good proportion of the direct-to-consumer world. The former, he believes, can make a go of selling their wares exclusively on Shopify, while the latter are commoditized products that will ultimately have to go to Amazon, because that’s where their customers are.
Brooklinen, for instance, a well-funded direct-to-consumer sheets company that runs on Shopify (and has blanketed the New York subway system with ads), began selling on Amazon as well two years ago. “We got a report that we had thousands of people searching for Brooklinen on Amazon search,” Justin Lapidus, the company’s senior vice president for growth marketing, told me. “And that more than 90 percent of those people were ending up buying other products that were not Brooklinen.” For Brooklinen, it was a worthwhile trade to give up some profit in exchange for access to a market it otherwise wouldn’t be able to tap. “A lot of people just say they only buy things on Prime,” Lapidus said.
Shopify got to where it is today by expressly not being a marketplace, by presenting an alternative direct-to-consumer model. But in doing so it has accumulated the clout, power and cash that matches that of many marketplaces and dwarfs the majority of its clients. There is a world in which Shopify could wield this status to direct traffic toward brands. There is a world, in other words, in which Shopify could become a marketplace itself.
When I raised the possibility with Finkelstein in February, he said “not now, not at the moment.” And yet, only months later, in May, Shopify started a new consumer-facing app called Shop, which it described as a “digital assistant” for customers making purchases from Shopify merchants. Built from an earlier app called Arrive, which let you track the progress of your packages, the app is, if not a marketplace then an aggregator at least. Businesses you’ve already purchased from are pinned, Instagram-stories-style, for easy access, while a section underneath displays new products and recommendations. On another tab, a recently added pandemic-era feature allows you to browse local businesses on Shopify. Because you still have to leave the app to make purchases, Shop resembles Google Shopping more than Amazon, and it lacks the convenience of a single cart. It’s a product that reflects the philosophical tug-of-war between Shopify’s original antimarketplace stance and its stated ideal of helping merchants be as successful as possible.
Because what if the way to help merchants is to bring them customers through more consolidation? In a recent post on the industry blog 2PM, Web Smith, an e-commerce pundit, bemoaned the absence of a Shopify ad during last year’s Super Bowl. The sporting event, he pointed out, would have been a great chance to highlight selected Shopify-powered brands, in a medium that would have been prohibitively expensive for any one of them individually. “Imagine a $5.7 million 30-second advertisement that sent tens of millions of Americans to marketplace.shopify.com,” he wrote, envisioning such a site. “When those potential customers, developers and consumers arrive, they’d see a curation of Shopify’s greatest brands — new and old, established and fresh.”
In talking to merchants, it becomes apparent that it isn’t so much that they dislike marketplaces inherently; it’s that they dislike the symptoms that marketplaces typically engender. Every brand would love exposure to huge amounts of passing traffic — just not if that means they have to be a serf to the feudal lord of the marketplace. For Zwillinger, an ecosystem closer to that of Alibaba’s Tmall, where companies maintain control of their brands and pricing, would be appealing, especially if consumers go there. “If you can build that market,” he said, “that truly would be the antidote to Amazon.”
The reality is that Shopify long ago ceased to be just an agnostic builder of e-commerce websites. Shopify Capital is a profit-seeking funding program that is able to provide loans and cash advances to merchants precisely because Shopify has access to a great deal more merchant data than banks do. Shopify may have an avowed aversion to kingmaking, but offering loans or advances to merchants is just that, only in another form, Smith argues. Given that it’s already happening, Shopify might as well go even further.
Indeed, Shopify’s products today range from Shop Pay, which competes against Apple, Google and Amazon Pay, to Shopify Fulfillment Network, which competes against Fulfillment by Amazon, to Point of Sale hardware, which competes against Square. Many of these initiatives are new and some will probably not pan out. Still, if even a portion succeed, they will bind Shopify merchants much more closely to the platform in a way that its core product, the site builder, which by this point is largely commoditized, does not. But if there is any reassurance for merchants that Shopify won’t become like Amazon, it’s that in this interim period Shopify needs the merchants as much as — and perhaps even more than — merchants need Shopify.
“You think about the three classic axes of business: convenience, quality and price,” says Nikhil Basu Trivedi, a venture capitalist who has invested extensively in the e-commerce space (he is a shareholder in both Amazon and Shopify). “Amazon is very difficult to beat, I think, on both convenience and price. So really the way to go off on them is by offering differentiated, high-quality products.”
In this, Shopify is aided by a shift in the culture that it helped bring about. In the future, “everyone will be doing entrepreneurial stuff, even if you don’t call yourself an entrepreneur,” Finkelstein told me. “You’ll see more people who have a great following on Twitter decide that they’re going to monetize that.” He went on to say: “The idea of having a safe job is something our parents had.” And why not? The cost of failure in entrepreneurship, he claims, is trending toward zero.
Toward the end of our interview, Finkelstein made a statement about how Shopify was the company best positioned to “own entrepreneurship” the way that Facebook owns social and Google owns search. At the time, it felt a bit too slick for me. But then I thought about it. Mellow Groceries was in many ways an expression of a certain perspective on the world that I had — that Asian groceries were hard to access in New York and that in the middle of a pandemic there were people who would pay for that access. If I had had to write the code myself for a whole website to test that idea, I probably wouldn’t have attempted it. Ultimately, I did not succeed as an e-commerce merchant, but Shopify made it possible for me to try.
Illustrations by Jaedoo Lee
Yiren Lu is a writer and software engineer in New York City. She last wrote about the Chinese super-app WeChat.
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|From: Glenn Petersen||1/13/2021 2:59:26 PM|
|Shopify just made a $2 billion windfall on Affirm IPO, six months after their partnership|
PUBLISHED WED, JAN 13 20211:16 PM EST
UPDATED WED, JAN 13 20211:54 PM EST
Ari Levy @LEVYNEWS
-- As part of a partnership formed in July, Shopify owns over 20 million shares of Affirm.
-- Based on Affirm’s stock price after its debut on Wednesday, Shopify’s stake is worth about $2 billion.
-- It’s the latest boon for Shopify, whose shares almost tripled last year as the pandemic forced more consumers to the web for purchases.
Shopify just came off a huge growth year as the Covid-19 pandemic spurred massive growth in online shopping. Now it’s starting 2021 with a bang thanks to an 8% stake in Affirm, the year’s first notable tech IPO.
Both companies have seen their businesses explode since early last year, when Covid-19 forced physical retailers to close, giving consumers even more of an incentive to shop online.
Shopify’s stock price almost tripled in valued in 2020, as retail chains, restaurants and grocery stores turned to its software to create quick web storefronts, manage payments and keep their businesses running. Its market cap has surpassed $140 billion. Affirm, founded in 2012, partners with retailers to offer consumer loans, allowing buyers to pay for items like Peloton bikes, Dyson vacuum cleaners and Oscar de la Renta handbags in installments.
The two companies forged a partnership in July for online lender Affirm to become the exclusive provider or point-of-sale financing for Shop Pay, Shopify’s checkout service. As part of the deal, Shopify was granted warrants to buy up to 20.3 million shares in Affirm.
With Affirm’s Nasdaq debut on Wednesday, Shopify’s stake is worth about $1.9 billion. Affirm jumped 98% to $96.84 as of early afternoon in New York.
Shopify’s 2020 rally
With the partnership, Affirm became the provider of Shopify’s new “buy now, pay later” financing service called Shop Pay Installments, which launched for some U.S. merchants late last year.
Affirm said in its prospectus that the Shopify deal allowed it “to significantly expand the number of merchants and consumers on our platform.” Shopify serves more than a million businesses, and said in October that third quarter gross merchandise volume more than doubled from a year earlier to $30.9 billion.
A the time of the announcement, CEO and founder Max Levchin told CNBC that Shopify and Affirm will have a “tightly integrated partnership” that lets merchants “flip a switch” to have the product go live.
“We expect massive uptake,” Levchin said in the interview. “By making the integration so easy, we expect it to be extremely close to total ubiquity.”
The merchant diversification that Shopify provides is important for Affirm, which counted on Peloton for 30% of revenue in the latest period.
But gaining access to Shopify’s expansive customer base came at a steep cost — Affirm gave Shopify the right to buy over 20 million shares at a penny each. A quarter of shares issued in the original warrant vested in July. The remaining 15.2 million vested with the IPO.
Shopify is Affirm’s third-biggest shareholder. The only bigger owners are founder and CEO Max Levchin, whose 11% stake is worth $2.7 billion, making him the latest member of the so-called “PayPal mafia” to become a billionaire, and Jasmine Ventures, which is part of Singapore’s sovereign wealth fund GIC and owns 9%.
The next top holders are Lightspeed Venture Partners, Peter Thiel’s Founders Fund and Khosla Ventures.
Shopify shares were little changed on Wednesday, trading at $1,188.73.
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|To: Glenn Petersen who wrote (48)||2/18/2021 4:47:33 AM|
|From: Glenn Petersen|
|Shopify Slips After Warning Revenue Growth Will Slow in 2021|
By \ Danielle Bochove
February 17, 2021, 6:22 AM CST
Updated on February 17, 2021, 3:44 PM CST
-- Company says it will ‘aggressively’ reinvest in products
-- Gross merchandise value nearly doubles in 4Q to $41.1 billion
Canadian e-commerce firm Shopify Inc. says it will take advantage of “unprecedented opportunities” in 2021 to speed up innovation and expand into new markets, but warned that its growth rate will slow.
Revenue will grow “rapidly” this year but not as quickly as in 2020, when it increased 86% to $2.93 billion, the company said Wednesday. It didn’t give specific guidance on earnings for the current year. The arrival of vaccines could see some consumer spending rotate back to bricks-and-mortar retailers, Ottawa-based Shopify said.
Shopify fell as much as 8.8% in intraday trade in New York before recovering to close down 3.3% at $1,425.
Revenue in the fourth quarter was $978 million, soaring past analysts’ forecasts for $910 million, propelled by a boom in online shopping during the global pandemic. The company said it plans to reinvest gross profits “back into our business as aggressively as we can.”
Shopify is investing in product marketing and in-country sales teams in countries where it already has a good foothold, President Harley Finkelstein said on a conference call, but intends to take a “meticulous and very strategic approach” to international expansion.
“Some other countries that we have on our radar, we don’t think it’s the right time to go really deep. That will happen in the future,” he said.
Gross merchandise value -- the broadest measure of product sales flowing through Shopify’s platform -- was $41.1 billion in the fourth quarter, up 99% from the same quarter a year earlier, helped by soaring demand for online shopping during the global pandemic. Full-year GMV was $119.6 billion.
“I think you have some profit-taking and I think investor expectations were very, very high,” Jefferies analyst Samad Samana said of the share decline. On the earnings, Samana said: “We view it as a capstone to an incredible 2020, a year in which they saw growth that nobody could have anticipated.”
Shopify will spend money to improve its software platform and develop its payments, shipping, capital and Shopify Plus products, the company said in a presentation to investors.
Other highlights in the earnings report:
The company posted fourth quarter adjusted earnings of $1.58 per share that beat analyst estimates of $1.21 per share.
-- Revenue of $977.7 million was nearly double the $505.2 million a year earlier.
-- Shopify expects the first quarter of 2021 to contribute the smallest share of this year’s sales and Q4 the largest.
-- Retailers from from Under Armour Inc. to Coach parent Tapestry Inc. have seen continuing strength in online sales as the pandemic lingers. That said, bricks-and-mortar retailers are still hoping for a recovery in 2021 as vaccination efforts gain momentum.
Some analysts have questioned whether Shopify’s growth trajectory is sustainable. However, big Wall Street names continue to pump billions of dollars into online retailers.
Since it was founded in 2004, Shopify has expanded from a core software business, helping businesses get online quickly, to providing an array of services to companies including payments, lending, and shipping.
(Updates share price in paragraph three)
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|From: Glenn Petersen||4/28/2021 5:28:21 PM|
|Shopify surges after e-commerce boom fuels big earnings beat|
PUBLISHED WED, APR 28 20214:00 PM EDT
Annie Palmer @ANNIERPALMER
-- Shares of Shopify soared 11.4% on Wednesday after the company crushed expectations in its first-quarter earnings report.
-- Shopify executives warned that revenue growth could moderate this year as Covid-19 vaccine rollout speeds up and consumers return to stores as more states start to lift coronavirus restrictions.
Shares of Shopify jumped as much as 11.4% on Wednesday after the Canadian company, which makes tools for companies to sell products online, reported first-quarter results that crushed analysts’ expectations.
For the first quarter, Shopify posted revenue of $988.6 million, which was up a whopping 110% compared with a year prior and trounced consensus estimates of $862.7 million. Adjusted earnings per share were $2.01, more than triple Wall Street’s projected 75 cents per share.
Shopify’s net income was boosted by a $1.3 billion unrealized gain on its investment in online payments company Affirm, which went public in January. As part of a partnership formed last July, Shopify owns more than 20 million shares of Affirm.
Shopify became one of the biggest winners of the pandemic-fueled shift to e-commerce, as many brick-and-mortar stores temporarily shuttered and people opted to stay indoors to slow the spread of the coronavirus. Shopify’s stock price surged in 2020 on the back of that momentum.
Investors are now hoping Shopify will continue to attract more businesses who are looking to build a digital presence, even after the economy continues to reopen and consumers head back to physical stores.
Shopify cautioned that it expects revenue to keep growing in 2021, but at a slower rate than what it experienced last year.
“Our full-year 2021 outlook is guided by assumptions that remain unchanged from February: that as countries continue to roll out vaccines in 2021 and populations are able to move about more freely, the overall economic environment will likely improve; some consumer spending will likely rotate back to offline retail and services; and the ongoing shift to ecommerce, which accelerated in 2020, will likely resume a more normalized pace of growth,” Shopify said in its earnings release.
On Wednesday’s earnings call with investors, Shopify executives said that even in areas where economies have reopened, merchants are still seeing strong demand.
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|From: Glenn Petersen||5/19/2021 4:45:01 AM|
|Shopify stock pops after Google announces online shopping expansion|
PUBLISHED TUE, MAY 18 20213:33 PM EDT
UPDATED TUE, MAY 18 20216:33 PM EDT
Jennifer Elias @JENN_ELIAS
Annie Palmer @ANNIERPALMER
-- Google is deepening its partnership with Shopify by letting the company’s more than 1 million merchants make their products more discoverable in Google Search and elsewhere.
-- Shopify’s stock rose following the announcement.
-- Google and Shopify are increasingly competing against Amazon in the e-commerce and advertising markets.
Google is deepening its partnership with Shopify by making it easier for the company’s 1.7 million merchants to reach shoppers in Google Search and across some of its other properties.
The move comes as Google and Shopify are ramping up their efforts to compete against Amazon in e-commerce. Amazon is also increasingly competing with Google on search ads for commercial queries, which typically mean a consumer is actively considering a purchase, and is expected to earn 19% of all search ad revenue this year, compared with about 57% for Google, according to eMarketer.
Shares of Shopify popped as much as 4% on the news, closing up more than 3% on the day.
Google made the announcement during its conference for software developers, Google I/O, which kicked off on Tuesday. The company didn’t offer many details about the integration, but it said it will allow Shopify businesses to appear across Google Search, Maps, Lens, Images and YouTube “with just a few clicks.”
In a blog post, Google said this will make Shopify merchants’ products more discoverable across its various properties.
“We believe you deserve the most choice available and we’ll continue to innovate on shopping every step of the way,” said Bill Ready, president of commerce and payments at Google, during a presentation at I/O.
Separately, the company announced other enhancements to its e-commerce functionality: For instance, Google’s Chrome browser will persistently display shopping carts when people open new tabs, so they can return to shopping after doing other tasks.
At the start of the pandemic, Google said it was waiving commission fees for merchants that participate in its “Buy” program, which allows consumers to search for and check out retailers’ products directly on its platform without being directed to retailers’ sites. The company also said it would be opening its platform to third-party providers, including PayPal and Shopify, to allow retailers more buying options outside of its own platform.
Google is trying again to ramp up its e-commerce efforts, as the pandemic has created long-lasting demand for online buying, which Google’s competitors have cashed in on.
In a blog post, the company said, “As we eliminate barriers like fees and improve our technology, we’ve seen a 70% increase in the size of our product catalog and an 80% increase in merchants on our platform.”
Shopify stock pops after Google announces online shopping expansion (cnbc.com)
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|From: Glenn Petersen||6/2/2021 9:46:37 AM|
|Building the anti-Amazon: How loans and payments help Shopify compete|
Merchant loans, payments and other services have helped the online storefront provider grow explosively.
June 2, 2021
The pandemic supercharged Amazon's ecommerce machine — but the same phenomenon strengthened a rising rival, Shopify, which takes a very different approach to selling online.
The company positions itself as a counterpoint to Amazon by enabling smaller merchants to create their own stores and develop their own relationships with customers.
Financial services have become a big part of the company's business. By providing payment processing, point of sale systems and loans, Shopify is seeking to provide everything a small business owner needs to operate a business online. The goal is to become an all-in-one business dashboard for these merchants.
Shopify had revenue of $988.6 million in the first quarter, up 110% year-over-year. Its gross payments volume, a measure of gross merchandise volume processed in-house through Shopify Payments, was $17.3 billion in the first quarter, or 46% of GMV processed, up from 42% in the same period a year ago.
Merchant solutions revenue, which makes up the majority of Shopify's business and includes Shopify Payments, Shopify Shipping and Shopify Capital, grew 137% to $668 million in the first quarter.
We spoke with Kaz Nejatian, vice president of product for merchant services at Shopify, who manages about half of the Shopify product team, including banking services, billing, payments, taxes and foreign exchange.
This interview has been lightly edited for clarity.
How do you decide which fintech products to build yourself versus work with a partner?
This is the meta question we always ask. We care about the merchant experience and the merchant pain. And if we can solve it while partnering, we will. So the product we use is called Shopify Payments. We actually co-built that product with Stripe, it didn't exist before Shopify and Stripe built it together.
So we think something similar is true for our banking products. We have partners in the space, we have Stripe and a bunch of banks underneath them. So yes, we're partnering, but we're literally building that from the ground up.
We don't want to be In the finance space, it's just that banks refuse to deal with our merchants. If I could find banks that will serve our merchants, we'd get out of the business really fast. The problem is the institutional banking system is stacked against merchants.
We think the banking system is inherently unfair to small merchants, and especially unfair to small merchants who don't come from prestigious schools in big cities. The banking system probably works fine if your name is Mike. But it does not work fine if your name is Muhammad.
Shopify loaned $308.6 million in the first quarter, up from $162.4 million a year ago. Why has Shopify Capital become such a big part of your business?
When the pandemic hit, literally every single bank and online lender withdrew money and said, "Nope, we're not doing loans." That same day Shopify said, "We're doubling down, we're putting a couple hundred million more into the system today." The reason for that is we don't view our Capital business as a cash cow designed to make money off lending.
We view it as a way of making our merchants successful. If our merchants are successful, we're successful in the long run. So our time horizon on payback is different.
So the second thing is, we fund our merchants from $200 up to $1 million. One of our merchants, a T-shirt company [called] Cuts Clothing, has used Shopify Capital 10 times. We've funded them with $2,000, then tens of thousands of dollars, then hundreds of thousands of dollars. They got a $1 million round from us in 2020. These guys would have been laughed out of a bank.
We think of it as a runway extension model for our merchants to help them grow. And we don't look at things [that] banks look at, [like] business plans or credit scores or personal guarantees. We look at millions of data points on the Shopify platform to underwrite each merchant.
Merchants don't need to provide data?
The way Shopify Capital works is that we just underwrite you based on the data already in Shopify. We don't ask for any information. There's no application process. We predict what will happen with extra capital for the business. And if the business is better off with extra capital, we make an offer.
So the types of companies you would want to find would be different from competitors?
Yes, the majority of the reason we're in this business is because banks would reject our merchants over and over again. We have so many stories of minority entrepreneurs who've been rejected by a bank and then see, "Oh, I have an offer from Shopify!" Because merchants know they're ready to grow — and we know. And banks don't.
What's Shopify's goal in terms of payments?
There's just over 700 payment processors for Shopify. Shopify has been accepting cryptocurrency since 2014 — one of the first places to do it. Our general strategy here is we want our merchants to be able to sell to customers with their preferred payment method whenever possible. So we have our own Shopify Payments product, which is a credit card processor. We have Shop Pay, which is the highest converting payment wallet on the internet. We've shared that the Shop [app] now has tens of millions of users.
The single largest problem for our merchants today is usually from the parts of the world where payments on the internet are broken. This is why we invest so much of our time thinking about how we can expand payment processing options for our merchants.
So we have Shop Pay, which I think is the best payment on mobile. And we also have bank payments on Shopify, we allow alternative methods like installments, we have local pay methods in dozens of countries. And we're always working on adding more options into the system.
Why have your own app?
We think of Shop as a shopping destination that allows our merchants to establish deep relationships with their buyers. And the meta effect of Shop is that the future of commerce must be decentralized and led by brands, and not centralized and basic.
Look, I think centralized marketplaces have a place, but it's not a great thing for the world where brands can't build a relationship with the consumer, right?
And what centralized marketplaces have done is they've promoted a consumerist vision of the world where you can buy everything. But none of it has any value. None of it has any story behind it. And that's just not great for the world.
How many people are actually paying Shopify with crypto?
It's not high right now. It is some, it's not nothing. What we think is super interesting is the way crypto helps trust between merchants and buyers. And that's what we're working on. Think about provable ownership — how a merchant can transfer to a buyer a proof of ownership and authenticity. Like, this is internet-native, authentic ownership that allows creators to put their name on a tangible thing. And we think that's super interesting.
When you buy a T-shirt from Cuts, you want people to know it's from Cuts. It's an ethically-made, comfortable T-shirt made by a brand you respect. We think cryptocurrencies are a super interesting way to prove ownership. And that's something that shakes the foundations of "big is good."
What's the goal with your point of sale system?
The all new point of sale is available in the U.S. and Canada; we've launched in the U.K. and Ireland. It's not just a point of sale system. What it's designed to do is turn what would have been cashiers into salespeople, and to extend the relationship. So Allbirds, a Shopify merchant — when you buy something online and you can pick it up in store. If you live in New York, you just buy it at Allbirds and go pick it up. It's just down the street from you. You could also walk into a store, buy a thing, and say, "Hey, look, I'm going to go for dinner, could you just please ship this to my house because you have my address?"
Why Shopify is pushing into financial services - Protocol — The people, power and politics of tech
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|From: Glenn Petersen||6/16/2021 12:25:55 PM|
|Shopify’s payments push is about ‘arming the rebels’ against Amazon|
The goal isn't just to make it easier to sell on Shopify — it's about making it easier to sell anywhere, says Shopify VP Carl Rivera.
June 16, 2021
Shopify, which began as a software company that helps merchants set up online stores, has been going through a serious transformation.
The Canadian tech company has steadily expanded to other products and services, including lending to merchants and offering shoppers " buy now, pay later" deals.
On Tuesday, Shopify announced another major shift. The ecommerce company said it would give merchants on Facebook and Google access to Shop Pay, its payments and checkout tool — including those that don't use Shopify.
It's a big move that underscores Shopify's transformation, IDC analyst Jordan Jewell said.
"They're mostly a payments company in terms of revenue," Jewell said. "They're bringing in two-thirds of their revenue or more from merchant solutions. That part of the business is growing much faster than the subscription revenue."
This trend has become more pronounced during the pandemic. Last year, Shopify's core subscription software business posted revenue of $279 million in Q4 of 2020, up more than 50% year-over-year. But its merchant solutions business, which includes Shop Pay, grew even faster and became an even bigger part of the company's total business, recording revenue of $698 million that quarter, more than double the previous year.
Shopify's momentum and its aggressive expansion to new areas are turning the spotlight on its rivalry with the giant of ecommerce, Amazon. "Amazon actually views them somewhat as a threat," Jewell said.
That competition has been brewing for years. Jewell cited Shopify CEO Tobi Lutke's famous quote in 2019 when he said, "Amazon is trying to build an empire, and Shopify is trying to arm the rebels."
It's a view that Carl Rivera, Shopify's vice president of product who is spearheading the Google and Facebook payments deal, reaffirmed in an interview with Protocol. He also explained why the company is reaching out to non-Shopify merchants.
This interview was edited for brevity and clarity.
Why give non-Shopify merchants access to your checkout and payments tool?
It's pretty straightforward. Shopify's mission since forever is to make commerce better for everyone. After some time, we realized that the best way for us to make commerce better for everyone is to not just think about the merchants, but also to think about their customers and how we can accelerate them through the checkout. Now, we're not just going to think about Shopify merchants. We're also going to think about all the merchants and all customers.
What were the hurdles? What were the things that you and other team members were worried about?
A general truth for product development is that the simpler something feels, the harder it is to build. You think about bringing what is the easiest way to check out from an online store to millions of merchants — obviously there were a ton of technical considerations that we had to take into account to make this experience a reality.
Can you give an example?
A large part for us is: How do we work with authentication and identity? How can we ensure that this is super fast and super secure at the same time, and figure out how [those] transition and handshake moments should happen? That was something we spent a lot of time talking about and discussing.
It's tougher because you're dealing with merchants who are not in your world, so to speak.
When you're building on your own platform, you have full control of every aspect and angle. And when you're building together with a partner, it requires a super close collaboration and a really high level of trust where you can really open up and say, "Here's where we're at with that product. Where are you at in terms of receiving the right API calls," and so forth. This wouldn't have been possible if it wasn't for the very high level of trust that exists between us and these partners. I've been super encouraged to see the news coming out from both of those companies over the past. You can tell that they're increasingly taking commerce more and more seriously.
Shopify clearly grew during the pandemic. Your merchant solutions business, which includes payments, is accelerating much faster than the core business.
Shopify is in the business of making merchants successful. When we think about payment volume, we think of it mostly as a proxy for merchants' success. We will do whatever it takes to make our merchants successful or any merchants that use Shopify services. We know that Shop Pay is one of the things that makes merchants more successful. This is fully why we're pursuing this opportunity.
There's just an abundance of players in the payment space. I continue to be surprised just how little innovation there's been in this space. And so we don't compare ourselves to any payment provider or any wallet in particular. But we find that we stand out quite a bit just by thinking about this space a little bit differently.
What I got from that response is that there's more to come when it comes to payments.
It's certainly fair to say that Shop Pay is in the beginning of its journey. We think very highly of this product. We already see what kind of results it brings. It's certainly no secret that we have even higher ambitions for this product, and look forward to seeing it continue to grow.
There is also the view that you're increasingly becoming a competitor with Amazon.
I think Amazon is an incredible company that has had a lot of success over the years. They're taking an approach to ecommerce that is working really well for them. We're taking a very different approach that seems to be working superbly for Shopify. We're bullish about the path that we're taking. This is the first product that we're launching to non-Shopify merchants and we're going to see how this transpires and see what use they get out of it.
Can you talk about how Shopify went through the past year when the pandemic was raging?
It was a crazy time. We were gearing up for the launch of Shop, which is something that we've been working on for a long period of time. Then the pandemic happened. All of a sudden, all bets are off. Tobi [Lutke] sent out an important letter to the entire company and said this is probably one of the most important times in the history of this company where we need to show up for our merchants. We cut timelines for all of the projects that we were pursuing. We asked ourselves the really hard questions, like "Is this the thing that's going to drive the most merchant impact today? Can we get it out yesterday?" I think Tobi said this best about ecommerce: COVID didn't change anything. It just accelerated all of the things that were already happening. That's really what's happening. It's not that we changed trajectory or changed the path. We just accelerated all of the paths that we were already on.
Tobi also famously said that Shopify's goal is to "arm the rebels" — the merchants — against Amazon. You're laughing. How do you reflect on that statement as you're pursuing these new initiatives?
I think that the rally cry of arming the rebels is a great one. We truly try to as much as possible democratize ecommerce. We believe that the future of commerce benefits from more voices, not fewer. What Shopify is doing is really leveling the playing field where these first-time sellers get a really sophisticated, super-advanced platform that allows them to compete.
So giving non-Shopify merchants access to your technology is a way of arming even more rebels.
Yeah, I totally agree with that sentiment. I think that's absolutely right. Again, our mission is not to make commerce better for Shopify merchants. It is: Let's make commerce better for everyone. The future of commerce will benefit from more voices, not fewer.
Why Shopify took Shop Pay to Facebook and Google - Protocol — The people, power and politics of tech
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|To: Glenn Petersen who wrote (53)||7/28/2021 12:13:30 PM|
|From: Glenn Petersen|
|Shopify beats revenue expectations on resilient online shopping trend|
By Chavi Mehta
July 28, 2021
2 MIN READ
(Reuters) -Canada’s e-commerce giant Shopify Inc beat second-quarter revenue expectations on Wednesday, on the back of a resilient online shopping trend precipitated by the COVID-19 pandemic.
“Shopify fired on all cylinders in our second quarter, keeping our merchants well equipped to seize the opportunities presented in a post-pandemic retail era,” said Amy Shapero, Shopify’s chief financial officer.
U.S.-listed shares of Shopify rose 2% in premarket trading.
Shopify’s value nearly tripled over the last year due to unprecedented growth of the e-commerce sector as customers looked towards online shopping as the only viable alternative during the pandemic.
“I think the Delta variant and re-emergence of COVID-19 ends up further ingraining the shift to digital commerce for consumers,” said Ygal Arounian, analyst at Wedbush Securities.
“It is likely that, even if we are not getting full closures, physical shopping is one area consumers pull back on, given how comfortable people have become shopping online,” he added.
Net income rose to $879.1 million, or $6.90 per share, from about $36 million, or 29 cents per share, a year earlier. The jump in net income was due to the inclusion of $778 million of unrealized gains on its equity investments, Shopify said.
The company’s revenue rose 57% to $1.12 billion for the quarter ended June 30, compared with analysts’ average estimate of $1.05 billion, according to IBES data from Refinitiv.
This is the first time ever that Shopify’s quarterly revenue has surpassed $1 billion.
Gross merchandise volume, a widely watched figure for the e-commerce industry’s performance, rose 40% to $42.2 billion in the quarter. Analysts on average had expected $40.49 billion, according to IBES data from Refinitiv.
Excluding items, the company earned $2.24 per share, above estimates of 97 cents per share.
Reporting by Chavi Mehta in Bengaluru; Editing by Krishna Chandra Eluri
Shopify beats revenue expectations on resilient online shopping trend | Reuters
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