Shopify seeks to make the operation of an online store more accessible and cost-effective for small business owners and independent retailers, offering a self-service ecommerce platform.
Shopify was founded in 2004 by Tobias Lutke (“Lutke”), Daniel Weinand, and Scott Lake. The concept behind the Company was developed after the three founders attempted to launch an online store for snowboarding equipment business but found that there were no adequate ecommerce solutions available to meet their needs. Lutke, a computer programmer, subsequently set about building his own ecommerce platform, which the founders used to launch their online store under the name Snowdevil.
The founders reamed their Company Shopify in 2006 and began focusing on the commercialisation of the ecommerce platform developed by Lutke. The Company launched an API and app store in 2009, allowing third parties to develop applications and integrations for the Shopify platform, increasing the functionality offered to customers. In 2015 the Company sold a portion of its shares on the New York Stock Exchange, raising more than $130 million in its initial public offering.
Shopify is among the most popular providers of ecommerce solutions to small and medium sized businesses, serving over 325,000 merchants across more than 150 countries worldwide. The Company continues to trade on the New York Stock Exchange and has a current market capitalisation of $4.45 billion.
Business model of Shopify
Shopify provides online ecommerce solutions to a range of individual and commercial customers. The Company’s customers can be organised broadly into two key customer segments:
- Independent Retailers, comprising independent and or individual designers, artists, online sellers and resellers, and small retail businesses; and
- Commercial Retailers, comprising larger retail businesses across multiple retail sectors that do not have their own online sales channels.
Shopify provides its commercial ecommerce solutions to a number of high-profile businesses and organisations, including Google, the Los Angeles Lakers, Tesla, World Vision, The Herschel Supply Company, and Mozilla.
Shopify primarily serves customers across North America, with the US comprising its largest single market. As an online business, however, the Company serves a global customer base, with the UK and Australia comprising significant markets for the Company.
Shopify provides value to its customers in the following ways:
- Its brand identity and reputation, with the Company established as a leading provider of ecommerce solutions, having one of the most recognisable brands in the industry, particularly in its core North American markets;
- Its accessibility and ease of use, with the Company operating a simple-to-use online platform that enables customers to set up and manage online stores independently without assistance from Shopify staff or technical expertise;
- Its technology and innovation, with the Company utilising proprietary technology in the development of its online platform, and committing substantial resources to the development of new and innovative technologies;
- Its cost-effectiveness, with the Company offering reasonably priced solutions to its customers, with its pricing structure comparing favourably to those of its competitors; and
- Its breadth of functionality, with the Company’s platform offering a broad range of tools and functionality, enabling customers to set up and operate online stores of different kinds, including Facebook stores, and utilising international payment gateways, and search engine optimisation tools.
Shopify operates as website at www.shopify.com, through which the Company provides information on its platform, its functionality and tools, its pricing options, and commercial solutions. The Company’s website also functions as the gateway to the Company’s ecommerce platform, which customers can register for through the Shopify homepage.
Shopify principally serves its customers directly through its ecommerce platform, which provides a range of tools and functions to suit a range of online stores, including customisable storefronts, website building tools, website analytics, email marketing, and order fulfilment tools. Customers are able to select pricing plans and make payments online. Shopify also offers its customers functionality through its mobile app, Shopify Mobile, which is available on iOS and Android devices.
Shopify also operates a dedicated customer support organisation that is available to assist customers in the development and maintenance of their online stores.
Shopify operates principally self-service business. Customers are able to set up an account, design and operate an online store, subscription fees, manage inventory, and process payments online without the direct assistance of Shopify employees.
Shopify provides ongoing assistance to its customers, operating dedicated customer support teams, the members of which can be reached 24/7 over the phone, by email, or via an online chat service. These support personnel are able to provide tailored assistance and respond to complaints and queries on a case by case basis. The Company additionally offers a wide range of online resources, including user guides, FAQs, video, and podcasts.
Shopify also manages an online community forums that allow Shopify users to interact with one another, discuss common problems, share ideas, and collaborate on projects. The Company also operates several social media profiles – including with Facebook, Twitter, YouTube, Instagram, Pinterest, Google+, and Snapchat – through which it is able to publish company updates and interact directly with customers.
Shopify is an ecommerce solutions provider. It operates of a cloud-based, multi-channel ecommerce platform, designed primarily for small and medium-sized businesses. The Company’s software allows merchants to manage their retail business across multiple sales channels, including online and mobile storefronts, social media storefronts, and physical retail outlets.
The Shopify platform offers users a single view of their business and customers and allows them to manage products and inventory, process orders and payments, ship orders, build customer relationships and leverage analytics and reporting all from one integrated location. The Company’s platform includes a range of tools and functions, including a mobile-optimised checkout system, international payment processing tools, analytics tools, and email marketing.
The Company also offers functionality through its Shopify Mobile app for iOS and Android, which enables user to track and manage their business on the go.
Shopify works in close collaboration with a network of partner companies and organisations, in order to ensure the reliability and usability of its platform. These partners can be organised broadly into the following categories:
- Supplier and Vendor Partners, comprising suppliers of services, tools, equipment, and technologies that assist in the development and maintenance of the Company’s online platform;
- Development and Integration Partners, comprising software and application developers and systems integrators who assist in developing new functionality for the Shopify platform, as well as integrating third party functionality into its solutions;
- Affiliate and Marketing Partners, comprising a range of companies and online businesses that help to extend the Company’s own in-house marketing reach, in return for commissions on new business driven to the Company; and
- Strategic and Alliance Partners, comprising market leading companies from a range of sectors, with which the Company collaborates on joint marketing, branding, and other projects.
Shopify has a number of key partnerships in place. Notably, the Company maintains a partnership with a single payment service provider, Stripe Inc, which supports the Company’s payment functionality. The Company also has partnership with several app developers, notably Zapier, Langify, and Vantage, and is reported to be planning a sales partnership with Amazon.
Shopify’s key resources are its technologies and intellectual properties, its online platform, its IT and communications infrastructure, its network of partners, its research and development facilities, and its personnel.
While Shopify utilises a number of proprietary technologies in the development of its online platform, searches of records published by the US Patent and Trademark Office identified no patent applications filed in the Company’s name, either as applicant or assignee.
Shopify also owns and or leases several properties in Canada, notably its office locations and research and development facilities.
Shopify incurs costs in relation to the development of its technologies and platform, the maintenance of its IT and communications infrastructure, the management of its partnerships, the procurement of services, the implementation of marketing and advertising campaigns, and the retention of its personnel.
In 2015 Shopify recorded total operating expenses in the amount of $128.82 million, comprising sales and marketing expenses of $70.37 million, research and development expense of $39.72 million, and general and administrative expenses of $18.73 million.
Shopify generates revenue through the provision of ecommerce solutions to small and medium sized businesses via its online ecommerce platform. The Company principally derives its revenue in the form of monthly subscription fees paid by its community of users, with a smaller portion of its revenue coming from its provision of merchant solutions.
Shopify subscriptions come in three tiers, each of which provides differing levels of functionality. Subscriptions start out at $13 per month for a basic account, rising to $54 per month, for a standard account, and to $107 per month for an advanced account.
In 2015 Shopify generated revenue for the year in the amount of $205.23 million, up considerably on the $105.02 million recorded by the Company in 2014. The majority of the Company’s revenue, around $111.98 million was attributed to its subscription business, with $93.25 million attributed to its provision of merchant solutions.