As someone who worked developing Shopify apps (NOT a Shopifyt employee to be clear), I can attest to the incredibly high percentage of shops that evaporate from the platform on a nonstop basis.
Something like 80% of the people that would install our apps in their shops would be gone or in limbo after a couple months. (Not an app uninstall, their shops actually no longer existed.)
The charts we see from Shopify like this always say "Number of merchants" and the number climbs up towards a million, but at what point do they start excluding their delinquent/disappearing merchants? I'm not convinced they're factoring in churn.
A huge part of Shopify's revenue comes from Shopify Plus. We're also fellow app developers[1], and we've noticed that if you offer value to their higher end businesses, you'll be running at churn rates that are much lower than what you'd think you'd get with the "average Shopify merchant".
Something like 70% of small businesses fail[2], so it's not surprising you'll see a large amount of churn if your audience is the broad set of all merchants, including those that are probably just kicking around the idea of spinning up a drop shipping business on the side. That doesn't mean there aren't great businesses in the Shopify ecosystem.
You are right the churn is very high because one thing shopify can't do is get traffic for those online stores. So non tech savvy goes to Shopify open a store, because it's easier than running $5 VM to manage many similar e-commerce platform. But then that person needs to work himself for traffic acquisition on his own site which is expensive and after a while stops it. Launching a store is easiest thing to do with plethora of other platforms besides Shopify. On Amazon the story is different, store owner focus on to bring real traffic where buyer has a intention to buy. So from day one store owners focus is on getting sales. On Shopify first problem is getting traffic then convert to sales then to manage sales and delivery, store owner does all these which can be done on plethora of other tools including closed source or open source, with similar ease of use.
Whether it's Amazon or eBay they are spending a lot on getting traffic to those vendors who sale through them. Shopify has been a loss making entity for last three years without significant money on traffic acquisition for it's vendors, they do spend to get more store owner traffic not on buyer traffic. [1]
So I am not sure if Shopify can even be compared with eBay or Amazon. Reason eBay is affected is due to Amazon nothing to do with Shopify which is just a tool to launch an online shop.
. you operate under the assumption that amazon is driving traffic fairly. in reality, there are at least 17 pieces of flair on each search page. remember that most scrubs do not use ublockorigin!
. "getting traffic" is also called networking. making connections with diverse groups. it is part of building a brand, reputation, and yes a client base. trying to avoid that step often makes your business trivially replaceable. for commodities that is actually fine, but many shop owners are not selling commodities.
. you are spot on about shopify having many alternatives. perhaps the competition will benefit shop owners as a whole. i can hope.
This seems like a "feature"? Not to discount the churn numbers - but being able to quickly and at low cost set up a high quality commerce site where folks don't have to be heavily invested seems like they're providing the service as intended.
I enjoy the Shopify experience from the Vendors that use it and do stick around.
I suppose as a user you could definitely look at it that way.
As an investor I'd be worried about losing their churned-out merchants to other platforms like Etsy and Woocommerce and Weebly and about ten other platforms hacking away at their knees. To be fair to Shopify though, I think they know they've already lost the battle for the little merchants and have fixated on other things.
I think you'll find the churn is mostly small businesses that go nowhere, not losses to other platforms.
Magento is probably the biggest loser to Shopify after making v.2 impossible for smaller merchants to maintain so they're moving their v.1 stores to Shopify instead. Shopify is also way simpler for your work-from-home new mum than setting up a WooCommerce store.
The only reasons to go to WooCommerce would be support for a specific payment gateway or content management which Shopify is still lacking. Maybe ongoing fees for some functionality that is standard in WooCommerce or can be had for a small one-off fee is a turn-off for some as well.
Coming from a background building stores in Magento 1 & 2, WooCommerce, ZenCart/OpenCart and now wrapping up a fairly complex Shopify integration I'm warming to it.
There are tons of scammers using Shopify. They’ll put up dozens of storefronts selling name brand sneakers or AirPods at “90%” off and stuff like that.
Of course, they never ship product (because they don’t have any) or if you’re lucky you get some super low quality alibaba knockoff.
With all due respect, if you are foolish enough to believe you can buy name brand sneakers and AirPods at 90% off from anywhere, you had it coming. There are many ways a scammer can set up a quick site, hook up a payment processor and start taking money. This is not a Shopify problem. It’s an internet-wide problem.
As a consumer, at least in Europe, I have a bunch of rights executed via the retailer. If I have a serious doubt the retailer will be around in 2 years, I'll choose a different one. This should limit Shopify's prospects of international growth.
Seeing this point remembered here will help some, but overall you A. either won't know you're shopping at a shopify.com store or B. you'll not care because the company is too big to fail (Tesla).
This explains how I got scammed on Shopify last summer. I’m not talking about a missing product label or receiving a counterfeit item. I paid $1200 for a Shopify product (drone) and received a box with a poster tube inside of it that said “the world is yours”. Nothing else. The merchant was gone that day. The real scammers live on Shopify.
Indeed -- same position here. The trouble with developing Shopify apps is that your own application churn is additive with Shopify's. While that's the case with every platform, Shopify's churn rate is eye-wateringly high.
What you might be seeing a lot of these days is that app dev companies go around buying up other well-established apps and/or their development companies just because they can't find an app to make or get traction with apps they make at this point in the game. Even with great teams and money coming out their ears, they're having a hard time getting established with new apps.
There are 20 apps all doing the same thing competing with each other and all of them have had years head start, so having zero reviews compared to hundreds of favourable reviews can almost be insurmountable for a newcomer. Having said that, if you have 50 subscribers for your possibly obscure app, you can still eke out a good living.
Keep in mind there's a review process though, so just because you make it doesn't mean it will be published in their marketplace. Shopify tries hard to maintain an air of fairness but a large part of getting visibility with your app is who you know, too.
Re: "Keep in mind there's a review process though" - My experience of this is that Shopify wouldn't approve my App because there were existing Apps in their store which they thought were too similar.
So make sure it's sufficiently differentiable to existing Apps (no, I don't know what that means either!)
It's difficult, as others have mentioned. I have a few legacy side projects on Shopify. At this point, I would say treat it as a marketing channel for your SAAS, but don't rely on it solely as a means of distribution.
Some merchants on it are professionals and operate their business that way. Many merchants (and I don't have a percentage) are somewhere in the prosumer to wantrepreneur range and have unrealistic expectations.
Much of Shopify's strategy here, in developing a developer ecosystem, is to have developers effectively do technical support for its customer for free. I've troubleshooted (more times than I can count) theme, general platform, and other app issues. A while ago when Shopify was down after a merchant installed my app complained that I broke their Shopify store when in fact the entire Shopify platform was having a hiccup.
Sure but churn is a poor stat to look at. Shopify could minimize churn by only taking on big pre-established brands. But that probably wouldn’t be best for the company. So high churn it is, which hasn’t hurt them yet.
I guess it depends on why you're interested in the user number to begin with. I mean, from an investor standpoint, their profits keep growing so I'm not as interested in the exact number of merchants actually using the platform (assuming it's still a reasonably high/diverse number).
A big factor in their churn rate is the fact that a significant chunk of their growth has come from make money online gurus. Search YouTube for “Shopify dropshipping” or similar and you’ll see what I mean. It became viral among the scam artists, who all came up with different systems to sell, with one thing in common among them: Step 1 is to go open a Shopify account.
When the systems that most of these gurus sell fail to work, their students simply abandon their Shopify stores. I would never buy shares of Shopify for this reason. For now, they continue to grow because there are still thousands of gurus pushing Shopify, but we are reaching the end of that cycle. As soon as a new fad takes hold among the gurus, Shopify will be a ghost town.
Nothing you say is backed by data. Their revenue keeps growing with Shopify payments (they take a share of every transaction), which is an entirely different metric than the number of stores. If those were all empty store with no sales that would show. But that’s not the case. Also huge growth with their enterprise solutions shopify plus. Read their financials, it’s all there and easy to understand.
And none of the data you pointed to disproves anything I said. Additionally, there is some data to back up my position: while it’s true that it would be impossible for anyone to have data on how many accounts have been opened due to the guru effect, a quick search of YouTube should help you understand the gigantic scale of this issue.
Here’s why you have not disproved a single thing I said. Most of these gurus are preaching facebook ads + Shopify + dropshipping. As long as these students keep putting money into FB ads, and the gurus keep recruiting people, Shopify payments sales volume will continue to grow - whether or not the guru students are actually making a net profit after expenses. But of course that won’t continue forever, as people don’t have infinite sums of money to lose, and most will lose money.
Right now, there is still enough momentum to keep it growing. I would imagine that within a year though, you’ll start seeing it level off or start to decline, as the gurus move onto the next fad. Once that starts happening, the whole house of cards comes tumbling down.
Of course they are, there are many more gurus pushing them today than there were in 2014, and those that still remain from 2014 will necessarily have grown their revenues. Further, because the guru quotient was relatively minor in 2014, the businesses that used Shopify back then would tend to be more solid than those that have been brought into the fold in the last 2 years. That won’t continue forever, and the internet marketing world is already starting to show signs of Shopify fatigue. Courses aren’t selling as well, etc. The fact that they are at 2x what they were in 2014 does not disprove that their growth is being driven by a fickle source that is soon to end.
I just want to make a note that Tobi (Shopify's CEO) has made great contributions to Rails open source ecosystem with projects like Liquid and ActiveMerchant, which he started:
We leverage these projects daily, so it's awesome to see his company doing so well. In addition, we're on Shopify's platform as a app developer, so his company has added a lot of value, both commercially and non-commercially to developers, not just e-commerce merchants.
I can't agree more with this comment, for anybody using Jekyll, it's worth noting it is the templating language it uses, and my experience pretty much resembles this.
I know that a lot of activity on Shopify is from ambitious but deluded people setting up dropshipping businesses. Shopify is just selling picks and shovels to a lot of prospectors in a particularly unfruitful gold rush. I'm wondering whether they'll see a contraction as the enthusiasm wears off.
Your point is accurate, but they also power some massive eCommerce businesses and growing number of enterprise shops.
Their biggest investments are for their subscribers that ACTUALLY sell stuff. Dropship-dreamers are super scared of actually subscribing but they are the vocal majority because of guru's and such.
Its all about growing GMV / PLUS / CAPITAL / FULFILLMENT and those are all hitting +50% YOY
> but they also power some massive eCommerce businesses and growing number of enterprise shops.
This makes no sense. Why would any company that starts making serious money continue to give SquareSpace money for a template. There's nothing you can do in SquareSpace that you can't do better in a custom app running on one of the many free software CMS's out there. I don't get this.
For lots of brands, the core competency is marketing and every other aspect of the company is outsourced. E.g. Kylie Cosmetics which has 360M+/yr in revenue and uses Shopify.
I don't think this is true - I believe it's only their merchandise store that's on Shopify. Car purchases are done through their own, custom platform.
That said, there are definitely plenty of huge merchants running on Shopify turning over hundreds of millions of dollars through the platform - we work with quite a few of them.
I can give Squarespace $10 a month and get a beautiful page with modern templates, https, hosting, CDN, and a CMS that even my graphic designers can use.
Or I could get Wordpress, pay for hosting, pay a developer, buy an ssl certificate, leave wp admin on a default url and get hacked...
Now I know how to fix those things with cheap hosting, Lets Encrypt, etc... but my graphic designers don't. $10 a month is very very cheap for a business.
I run a non-Shopify online store and maybe like 80% of my competitors are running a Shopify-powered drop-shipping operation. There's always new ones of these Shopify stores popping and and disappearing every few months.
Tesla runs off of Salesforce, not Shopify. You can pretty easily validate this but viewing the website resources and Ctrl-F-ing for "shopify" and "salesforce".
I might be drinking the amazon koolaid but Shopify’s online service and physical product distribution can’t even come close to what amazon has developed. They’re not a real threat. Amazon is really at least 15 years ahead in distribution and operations. We’re using robotics to automate a ton of processes. Jeff Wilke revolutionized the fulfillment centers. Shopify’s platform mainly sells niche things at low throughputs. Amazon is about how can we sell more in the same amount of time so we can continue lowering prices to get more customers and keep selling more.
> Jeff Wilke revolutionized the fulfillment centers
After 7 years in Amazon Fulfillment, I'll say this: we're doing a mediocre job- fortunately no one else is doing much better. But still, we've got 25 years of legacy software and processes to carry with us wherever we go.
There's a lot of potential for a new entrant to radically and rapidly innovate and compete inside the warehouse. Shopify's business model is different enough to make the fulfillment problem different in a few fundamental ways that might let them undercut further. Lots of potential.
There's also a great big Shopify office opening not too far from Amazon Toronto. And wouldn't you know it, there's a big chunk of Amazon Fulfillment right here in this office. I'm expecting to see poaching begin soon, just like when Uber opened here and hired a lot of Amazon Flex talent. (Non-competes sure are hard to enforce in Ontario).
I really hope they can prove themselves a viable competitor.
> After 7 years in Amazon Fulfillment, I'll say this: we're doing a mediocre job- fortunately no one else is doing much better. But still, we've got 25 years of legacy software and processes to carry with us wherever we go.
Mind expanding more on the specific kinds of baggage holding back fulfillment at Amazon?
To avoid any NDA troubles, I'll keep it pretty generic: a facility designed and built in 2009 is going to be very hard to modify such that it's operating any differently than it did it 2009. Physical things are harder to upgrade than software. Built a new robotic system? That's great for new facilities, but what happens to the ones that predate it? Amazon has hundreds of facilities.
And on a software front, those older facilities are using different physical processes which need different software than the new tech. How do you architect the whole thing such that the increasing complexity of this ecosystem doesn't create exponential work as it needs to all integrate together and be maintained?
Shopify, by contrast, isn't carrying that legacy on their back. They're potentially on the same exponential curve, but they are much farther on the left and maybe they can find a way to make it a smaller exponent. Maybe. We'll see how it goes.
Except Amazon are terrible to deal with for even a merchant doing a few million with them. Both through the market place and direct.
They damage your stock (or maybe the robots do), then return it.
They claim money from you after random audits, which after wasting time you find you don't owe.
They randomly deactivate your products and you can't speak to anyone to get it fixed.
They charge very high fees. Even direct to Amazon you have all the kick backs to pay.
The lure of Amazon is not fulfillment (there are loads of logistics houses it there). It is the giant customer base. I look after some Shopify stores, and they just can't do the volumes that Amazon do
What matters more then operations is customers. Operations just makes amazon a low cost leader and in that regard sure. But Shopify can beat Amazon through the platform of independents providing more selection and brand connection that may allow customers to be willing to pay a bit more
Well most of the time when I order something from a third-party vendor, it doesn't come in an Amazon box, so I suppose it is handled by the vendor, not Amazon.
More than half of the items bought on Amazon and from a 3rd party seller but fulfilled by amazon. It arrives in an Amazon box in 2 days and most people don't realize it was from a 3rd party seller.
I've been working with Shopify for close to 10 years as an owner of multiple profitable stores and as a full stack developer. If you work on the custom development side you'll see a lot more successful businesses run on Shopify.
I don't see the churn rate as a big problem for Shopify. Their revenue is pretty tied into the customer's revenue and expenses, not the amount of unique subscriptions. On top of subscription revenue, they have credit card processing and shipping labels which would be higher than the subscription cost for shops with high revenue.
IMO I don't really see Shopify and Amazon as really being in the same space unless Amazon makes a real push into curation and I think that would require a radical change in how Amazon works with sellers. I see Amazon as more of a competitor to Walmart, Target, etc.
That's a gem in plain sight! All this time (months? years?) I've been copy-pasting the url into Google. After clearing site data and going incognito, I'm in. Thank you!
Shopify is so expensive and for a small-time shop hosting and paying the shop fee eat up your first 2-10 sales easily, where is the free platform that only charges per sale?
You can say all you want about bad the platform is, but the fact of the matter is that you can setup and start selling on a proven platform for almost nothing.
I would say not. You have hosting and you have to deal with maintenance, security and backups. Your Shopify fees cover that and the payment processing fees are comparable.
Unless there is some feature that WooCommerce can throw in for free that would require paying a Shopify developer an ongoing fee (wishlist functionality is probably one) your monthly fees are going to be similar.
Square's online store is probably the best for being able to sell without paying a platform fee for most features. But it is much less feature rich than Shopify.
More importantly. eBay is profitable. Shopify is not. I have no idea why people overindex on revenue instead of profit - especially for public companies.
We've banned this account for repeatedly breaking the site guidelines. Continuing to do that will get your main account banned as well, so please don't.
Seems legit to me. Kids can go from 25 cents to 50 cents quite easy by selling a second lemonade. The needle is much tougher to move with bigger costs and bigger amounts.
I'm asking if buying something on eBay technically means paying eBay (revenue) that they then pay out to the seller in a way that it wouldn't with Shopify's Stripe integration.
Buying something for $100 using eBay’s credit card service does technically imply paying $100 to eBay, but eBay would not recognize $100 in revenue. eBay’s revenue from that transaction would only be the fees they collect, mainly the final value fee which is 10% in most categories plus 2.7% in payment processing, and any other fees they charge.
Similarly, Stripe does not recognize the full value of every transaction as revenue, only their fees.
eBay's marketplace (eBay.com) revenue should be the amount that's their listing fees and percentage of the final price that they take. The amount that the sold goods are worth should be the gross merchandise volume. See https://investors.ebayinc.com/fast-facts/default.aspx for their current numbers. Looking at their fees: https://www.ebay.com/help/selling/fees-credits-invoices/sell... , it seems to be 10% to 12% for common things. For the recent quarter, their GMV is $21.5B and revenue is $2.2 billion so that seems about right (this is minus StubHub and only their primary marketplace).
Ah, I didn't dig deep enough. There is the bit about $153 million in Subscription Services revenue which they say is due to mainly the monthly recurring revenue. Their Merchant Solutions seems to be related to the payment fees which is $208 million. My guess is a majority of the stores do not sell a significant amount of merchandise (so the monthly fee is a majority of the Shopify merchant cost) and merchants who do sell significant amounts of goods are able to negotiate a special lower payment fee rate (which most merchant platforms do).
From the growth numbers listed in the report, the gross merchant volume (and therefore the Merchant Solutions revenue) is increasing so maybe more merchants are being successful or the existing successful merchants are selling more. The Merchant Solutions revenue is growing about 18% faster than Subscription Services.
Shopify seems to be trying to make more merchants successful (more merchants selling more goods) versus just making it easy to open (and close) unsuccessful stores.
Hopefully Shopify is able to capitalize on increase in merchandise volume if they haven't been able to negotiate a good deal on the payment processing fees themselves. While they might make profits (and not just revenue) from their monthly fees and their App Store, I just can't imagine a merchant platform which does not capitalize on gross merchant volume since that's where the significant profit comes from (like eBay, for better or worse).
This title is very misleading. Shopify has surpassed eBay in market cap, but is in a very different business. Same wrt amazon. Conflating market cap with market ownership is just confusing.
However, I really hope Shopify can figure out a way to make it easy to find quality sellers and replace Amazon’s dumpster fire of a third party marketplace. Trying to buy electronics or household products on amazon is a complete crapshoot these days.
I don't get it at all. In my model, Shopify spends 75% of Gross Profit on sales to simply maintain existing customer levels. It doesn't seem like customers are very sticky, so they constantly have to pay huge amounts for sales to get new customers.
So, what's the best case scenario? They go from $800m in revenue now to $5bn? Even if they don't increase R&D, that means they're profiting $500m a year. That's an 80 P/E for what I consider to be a very optimistic 6x revenue growth extrapolation. Is there some other huge business (like Facebook's untapped user data in 2012) that isn't making itself known in their financials?
I think the fact that their enterprise sales are growing is a huge indicator. Its replacing legacy ERP systems in sales organizations because of the flexibility and value add.
I run a consulting company[0] for Amazon suppliers, and about 90% of our clients don't have "real time" inventory counts. 50% are someone automated but 100% have to enter at least 1 order MANUALLY each month because outdated technology. ORders with hundreds/thousands of line items entered manually will seriously mess up your day.
eBay started out as a tool to connect you between a seller and a buyer, evolved to empower merchants, because of competition they became a landlord mall operator. Their DNA has always been to drive traffic for growth.
Amazon started out as a store to sell you a book, grew selling you other that can be stocked and packed like a book, evolved to ask others to sell too, because of competition they became a landlord mall operator. Their DNA has always been to drive traffic for growth.
Shopify gives you a dumbed down version of a selling tool. It was easy enough, paired up with Alibaba's rise, a subculture of dropshipping dropsurfing gurus selling you on how easy it is, they've now convinced most people to give it a try.
But their DNA has never been to drive traffic for growth. There's been no indication that's their strategy as they've only unveiled more tooling for owner operators.
Eventually they'll peak, run out of people wanting to give it a try and the whole thing collapses.
Shopify is more like Rovio having a hit with Angry Birds, growing rapidly, then watching sales drop 40% shortly thereafter.
Also, having down Shopify dev back in 2014-2016, their app ecosystem is a mess, more akin to a medium sized POS company's third party ecosystem.
This interview with Shopify's CEO about how the company grew / his mindset was interesting [1]. He said a lot of things that sounds similar to the author’s quotes in the article.
+1 to the podcast. He seems to be a calm guy and it is good to hear about his thought process and the vision he has.
Interestingly he loved playing video games and he owes playing video game to help him in critical thinking.
> he owes playing video game to help him in critical thinking.
I often hear people attribute part of their success to things they already did, and I think it's usually just a combination of survivorship bias and other similar effects. I've heard people say similar things of nearly every substance or activity: "I am successful and doing X is part of the reason" where X can be anything from illegal substances to something mundane like coffee. Usually when X is something one likes, one tends to find it interesting.
This has been on my mind after recently debating with friends whether some substances like weed or shrooms should be legal and them basically saying they shouldn't because they know people who have taken them and turned their lives for the worse. Then I brought up how you can say similar things about video games (which IMO they are addicted to) and they quickly said it's different and you need to perform some impossibly complex studies to determine anything.
This is likely part of the reason echo chambers form everywhere. If ideas confirm our own beliefs, we hold them to much lower standards than when they don't.
Yup. Everything is ex-post-facto rationalization chock full of survivorship bias with no way for you to accurately calibrate for the difference in personal and temporal circumstances and accurately map what outcome you would have if you do X.
It's not worth listening to anyone's advice. Only experiment with your own life and find what works for you or die trying.
Value is captured at the point of sale for everything, not just ecommerce. Also, there’s a number of successful publicly traded logistics companies in the $20b to $70b range.
I’m kicking myself for not investing in Shopify when I saw it in the 100s this year. Given the size of my average investment I could have made a good $20k in profit. Wondering if I’m making the same mistake again. Could this be another $1000 stock?
Meh, I bought it back in 2016 in the 20s. Also bought Twilio around then. Hit some downturn/burnout freelancing and sold it not long after. You win some and you lose some.
I can’t think of many (any?) other large tech companies that stuck with Rails at scale. The CEO being a core Rails member makes this an edge case, like Basecamp.
Something like 80% of the people that would install our apps in their shops would be gone or in limbo after a couple months. (Not an app uninstall, their shops actually no longer existed.)
The charts we see from Shopify like this always say "Number of merchants" and the number climbs up towards a million, but at what point do they start excluding their delinquent/disappearing merchants? I'm not convinced they're factoring in churn.