CLICKING WITH CUSTOMERS
Making online shopping a simple experience has helped Shopify become a major player in world of e-commerce,
When a five-button water dispenser arrived at Shopify’s Toronto office, the head of marketing had it replaced with a machine that has just one option.
“Some of the smartest companies are those that let people do what they do best and clear away all of the distractions,” said Craig Miller, the company’s chief marketing officer, who heads up the company’s growth team from Toronto.
“It’s to that level that almost sounds crazy,” said Miller. “But it’s so no one has to spend any time to figure out how the water machine works.”
That singularity of focus is apparent in everything about the Ottawa-based online store builder, from customized log-in greetings to its latest feat: the addition of “buy” buttons on Facebook, Pinterest and Twitter.
The “buy” button is a deceptively simple victory that could transform every corner of the Internet into a marketplace for stores built using Shopify’s storefront designs and managed using its suite of metrics, marketing, inventory, shipping and payment tools.
It’s one of the ways Shopify is carrying out its mission to “make commerce better for everyone,” and in so doing ensure that it is the network powering all of those interactions.
Like many of the most buzzworthy tech companies, Shopify disrupted a burgeoning market. It wedged itself between unappealing low-end web design software and agencies that charged tens of thousands for custom-built websites, allowing people to build small empires during their lunch breaks or after work.
CEO Tobias Lutke, German-born and now Ottawabased, discovered the niche market in 2006 when he tried to find an e-commerce platform for his online snowboard store.
A coder, Lutke built his own platform, the basis for Shopify, which is now the back-end provider for 200,000 merchants, including big names such as Budweiser and Tesla Motors.
Richard Davis, a tech-investment analyst at Canaccord Genuity, remembers his first encounter with Shopify three years ago when it was generating less than $10 million in revenue, a fraction of the $52.8 million (U.S.) booked in its most recent quarter.
“At first meetings, I always ask management why they started the business,” he wrote in a note before the company’s public launch.
“The answer from Shopify essentially was, ‘all the other stuff we tried was garbage.’ ”
That, he said, was his first hint it was a promising young company. He grew more impressed when Shopify’s customer base catapulted ahead of its biggest competitors, U.S.-based Bigcommerce and U.K.based Volusion. Shopify now has more customers than the two combined.
Shopify has since become Canada’s tech darling and one of five members of the country’s “unicorn club,” an exclusive group of startup companies worth $1 billion either on public markets, or based on estimates of their sales and growth potential.
It went public in May and now has a market capitalization of $3.2 billion. Despite his admiration for the company, Davis couldn’t bring himself to recommend its shares because excitement about Shopify’s growth potential made it too expensive to justify for a company that has yet to turn a profit.
Shopify earns revenue in two ways: small and medium-sized businesses pay for monthly subscriptions that range in price from $9 to $179, and it offers Shopify Plus, a more expensive boutique experience for high-profile clients. The company also makes money from services such as payment processing, in which Shopify earns a percentage of each sale by one of its merchants..
Shopify-based stores have sold more than $12 billion in products since its launch. And with e-commerce sales expected to see double-digit growth to top $3.5 trillion in the next five years, analysts are effusive about the company’s growth possibilities.
They believe there’s a potential market of 10 million customers in the 150 countries in which it currently operates, though Lutke prefers to characterize the customer base as anyone who wants to build a website or sell things.
Shopify’s runaway growth is embodied in the ongoing construction at its Toronto office as the company adds another floor to make room for its ever-growing roster of employees, as well as a rooftop patio where employees can relax with a pint poured from the office keg.
Mobile is the immediate focus for Shopify, but it is also constantly trying to predict future trends. It is weighing the importance of developments such as Bitcoin and shipping drones, so that it can start building software to beat competitors to market, but launch only when it believes consumers are ready.
Meanwhile, it continues to chip away at small details to make commerce incrementally easier. Miller gets excited when he talks about the company’s latest conquest on that front: developing code that eliminates the need for online shoppers to choose a credit card type when filling out a payment form.
In many cases, Shopify solves challenges through partnering with an existing company. It recently joined with Amazon to provide tools and services to small businesses in its online marketplace and with Uber to make same-day deliveries in three U.S. cities.
Shopify has tapped into a megatrend in commerce and has positioned itself to become the backbone of a complex network for selling across many channels — from screens to pop-up shops, said Raymond James analyst Terry Tillman.
However, he added, like many highgrowth tech companies, the question is whether it can live up to analysts’ lofty expectations a decade from now.