Shopify: The Invisible Selling Machine

Ecommerce Online Digital ShoppingFrom the ­unlikely setting of Ottawa, Shopify has ­quietly been powering an e-commerce revolution.

Shopify has done a pretty good job hiding itself from the world.
The company’s e-commerce platform was involved in purchases by more than 100 million individual shoppers in 2016, yet it is invisible by design, enabling the end-to-end operation of its customers, some 400,000 individual retail shops and brands. It proudly operates not from San Francisco or SoHo but from six floors of an inconspicuous office tower in Ottawa, a city whose much bigger success story is Justin Trudeau, the heartthrob Prime Minister whose office is a 10-minute walk away. Shopify’s cofounder and CEO, Tobias “Tobi” Lütke, a 36-year-old German-born computer programmer with ice-blue eyes and a penchant for newsboy hats and free thinking, is an introvert with a shy demeanor.
And yet the company has quietly but aggressively encroached on territory occupied by retail giants like Amazon (AMZN, -0.67%) and eBay (EBAY, +0.55%) to carve out a lucrative niche in e-commerce. Founded in 2004, Shopify (SHOP, +5.36%) has close to 2,000 employees—1,500 of them added in the past two years—and offices in five cities. Revenue in 2016 was $390 million, up almost 100% from 2015; it’s projected to grow 50% this year (it had a $37.2 million operating loss in 2016 but expects to be profitable this year). Since it went public in 2015, its stock has more than doubled. It has advisers and partners including Tim Ferriss and Tony Robbins.
Lütke’s goal is a lofty one: to make commerce easier for everybody. Just as WordPress made it easy for anyone to set up a blog or content website, Shopify lets anyone set up and run a digital store immediately, without needing any technical prowess. With subscriptions starting at $29 per month, Shopify helps merchants decide on a store and domain name, what to sell, and which design template to choose. Once the store is set up, Shopify acts as a hub for tracking inventory, shipping, sales, and marketing analytics.
Most of its customers are small and midsize businesses like Tattly, a Brooklyn-based temporary-tattoo company founded by Tina Roth Eisenberg, who noticed her daughters coming home from birthday parties with shoddy fake tattoos, and Mindzai, a Toronto-based designer toy store run by Chris Tsang, who ran his business out of his condo before leaving the corporate world to sell full-time.
Increasingly, it’s serving big names too. Celebrities like Drake, Kanye West, and Kylie Jenner use Shopify to sell their product lines, and Radiohead used it to sell its most recent album. Google (GOOGL, -0.34%), GE (GE, -0.07%), and Tesla (TSLA, +3.41%) use the company’s enterprise version, Shopify Plus, which starts at $2,000 per month, because it’s cheaper and better than building and maintaining their own e-commerce platform.
That many of these bigger, more marketable names are opting for Shopify speaks to the changing face of distribution. Businesses no longer have to pay middlemen to sell their products and can provide a more personal experience by connecting with customers directly. Why would Bose, the thinking goes, pay to sell its products only at retail when it can connect with customers directly through its own digital store? Shopify makes it possible.


Merchants large and small can use a single interface to sell through their online store, and can also avail themselves of all kinds of help with any point in the selling process—social media, shipping and manufacturing, marketing, inventory tracking—in Shopify’s app store, a selection of free and paid tools it calls Merchant Solutions. Kit, a company recently acquired by Shopify, offers an AI-driven virtual assistant that, for $10 a month, makes marketing suggestions, engages with customers who abandon their online carts, and pushes out Facebook ads. Companies like Intuit (INTU, -0.01%), Houzz, and MailChimp have built custom apps for Shopify’s merchants. (Shopify takes a cut of the revenue.)
Shopify allows merchants to sell online and through other channels: in a brick-and-mortar setting (it offers a line of physical point-of-sale devices that sync with its software), through consumer hubs like Facebook and Pinterest, and, more recently, on Amazon. The latter was a big win: For years the online retail giant had its own software product for small and midsize retailers, Amazon Webstore. But it was more expensive, and over time startups like Shopify and BigCommerce, which focused exclusively on these services and prioritized the merchant rather than the consumer, gained ground. Amazon shut down Webstore last year, recommending its customers migrate to its competitors. In January, Shopify announced an integration with Amazon that would allow Shopify merchants to sell on its massive marketplace from their Shopify stores. Shopify’s stock jumped nearly 10% on the news. It became the rare example of a company not just taking business away from the conquer-everything-at-all-costs Amazon, but likely playing a role in its decision to pack up and go home.

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Posted May 5, 2017 by & filed under E-Commerce, News.