Shopify – Focus On Payments, Fulfilment & Competitive Dynamics

Could you give an overview of the Shopify business and its evolution? I think people are aware that it appeals to many businesses, predominantly SMBs, because it’s a comprehensive, out-of-the-box solution with modules, features and functionality added over time. The company also seems to have broadened its approach and perhaps focused more on larger customers, which is what you did there. Could you discuss the broadening of the platform and its solutions and also targeting larger customers?

Why do you think Shopify has been so successful? Many people probably wonder how the company got to where it is, as I think many companies have tried to do the same. It has become a leading enabler of all types of commerce and is often discussed in relation to e-commerce, but its recent focus has been on physical stores and fulfilment. You mentioned its ease of use and the speed with which someone can go from signing up to selling, which I imagine is quite key, but are there other things that have been critical to Shopify’s success?

Could you estimate Shopify Payments’ contribution to merchant solutions revenues? How could that trend over the next 1-3 years? Payments and fulfilment are very important regarding how people think about the company, its growth and competitive positioning. It’s interesting that Shopify Payments seems to account for the highest percentage of merchant solutions revenues by quite a bit.

Where do you think Shopify’s fulfilment is? The company launched its fulfilment offering in mid-2019 and acquired 6 River Systems a few months later to enhance that. It seems to have finished figuring out the right approach and it’s really around execution now. I think it has discussed a USD 1bn investment in fulfilment. You referenced Amazon Prime, which I think recently discussed prioritising two-day shipping. How do you think about Shopify’s fulfilment opportunity and its strategic importance?

How will Shopify execute its fulfilment strategy? The company has figured out what it wants its approach to be and how much money it needs. It has been very successful in multiple ways where many other companies haven’t, and I assume strategy and execution have been key to that. However, this is a very big undertaking. What does Shopify have to do around money and time to make it work? Do you expect any risks there?

Initially it was thought Shopify would have a capital-light approach to distribution and fulfilment but now people seem to be realising the approach will be more about investing its own resources and building these out itself. How do you think about this around CAPEX? You mentioned some numbers earlier around DCs [distribution centres]. Do you know how many DCs the company has now and what you’d expect in 1-3 years?

What might be the cost per DC if Shopify builds additional DCs? It seems as if nine DCs are possible by 2025 and tripling its current capacity would require some pretty substantial resources.

How much of a driver are payments to Shopify’s customer growth and retention? You mentioned the company spends a lot of time thinking about payments and you discussed subscriptions regarding ease of use. We also mentioned checkout and making the payment process easier, which is key in e-commerce because if that isn’t smooth, you’ll lose business. I think some people think Shopify’s payment process is restrictive because the company has a primary partner and doesn’t give pricing options, though you mentioned the incentives of Shopify Payments.

Could you outline which elements Stripe and Shopify each contribute to Shopify Payments? It’s well-understood that the companies work together on Shopify Payments. Do you have any thoughts on the related economics?

What’s the best way to think about the competitive landscape for Shopify vs Commerce Cloud/Demandware and Adobe/Magento? Most of Shopify’s competition is concentrated in is above the SMB category, above the client level where the company is thought of as most focused. It says its TAM for SMBs is over USD 150bn. Moving upmarket, which Shopify is doing, means encountering mid-market and enterprise competition, whether from Commerce Cloud/Demandware, Adobe/Magento, or more recently BigCommerce.

Does that rough USD 2m saving when shifting from Adobe/Magento, Commerce Cloud/Demandware to Shopify even out? It seems there could be charges associated with transactions which might not necessarily be accompanied by those other solutions. Alternatively, is that an absolute benefit that would hit as soon as you’re talking about making that switch in implementation?

How do you think about Adobe/Magento as a competitor? I understand it announced a partnership with PayPal towards the end of 2021, presumably because it recognises the benefits economically and also regarding volume discount consistency and so on. I think many people would recognise Adobe/Magento sunset Magento 1 which gave many other players the opportunity to gain market share. I think the reviews of Magento 2 have not been universally positive. You’ve discussed relative strength in B2B and obviously there are benefits of being part of the larger Adobe Systems company and ecosystem. How would platforms such as Shopify, especially Shopify Plus, stack up against Magento and Magento 2?

You mentioned Shopify has around two million active customers but only about 12,000 have upgraded to the highest subscription level, which I presume is Shopify Plus. That seems a small percentage. Perhaps that’s because, as companies become bigger and their needs become more comprehensive, Shopify isn’t as powerful or customisable or doesn’t offer as many choices as BigCommerce, though Shopify does offer a lot of modules, features and functionality. I think the company’s ability to continue moving upmarket is something people wonder about. You discussed some of the limitations in terms of a merchant with only 20 stores, and I’m sure there are other similar impediments where larger customers can’t scale as effectively with a Shopify solution. How would you address that? Our Specialist in a recent Forum Interview on BigCommerce [see BigCommerce – Mid-market Positioning & Competitive Considerations in E-commerce Solutions – 31 January 2022] said there’s a lot of pricing parity between Shopify and BigCommerce. What are your thoughts on BigCommerce? There could be cost benefits, but what about BigCommerce’s power and flexibility?

I think BigCommerce is perceived by many people as a headless commerce company and it seems to be trying to position itself in open SaaS. Is that a fair characterisation? Do you think these headless offerings, whether from BigCommerce, Commercetools or Fabric, are significant threats to Shopify? Alternatively, are you talking about rounding errors at this point?

Do you think Shopify will move in the direction of headless commerce, perhaps parallel with all it’s done and built? I think you indicated that the company has some kind of headless offering. Could it buy a headless company, based on wanting to keep people on-platform, even if it’s in a headless context?

What are your thoughts on Shopify’s management? The company has been thought of as fairly well-managed, but it seems to have lost a lot of talent over the past year or so, many high-profile executives and managers who are well-respected. Has that or might that impact the company? Is it a reflection of people thinking Shopify’s performance peaked?

What are your thoughts on Shopify’s company culture? I think people talk about that quite a bit. There was a clear impact during the pandemic with a tremendous groundswell of demand and needs that the company was suddenly expected to help many customers with, especially as they transitioned from bricks-and-mortar stores to e-commerce. The growth of that levelled off and then Shopify underwent these executive and management departures.

Did the pandemic make people realise that e-commerce is here to stay and that there are a huge number of possibilities, or are people longing to be in stores and Shopify’s achievements may experience backsliding? During coronavirus, e-commerce was prioritised more than ever, but now there’s a normalisation. What’s your outlook for this?

What is your 1-3-year outlook for Shopify?

What might be the biggest risk for Shopify?