Shopify Going Public!
Shopify filed their S-1 IPO filing to the SEC yesterday, and it gives a great look at what seems to be a well positioned business in an exploding industry. Even though at Current Commerce, we don’t always think a platform that relies so heavily on 3rd party development for advanced functionality (and is not open source) is the best option for many businesses, Shopify is great at what it sets out to do. For a small business wanting to quickly and easily setup an eCommerce store while also extending the functionality with little to no coding, it is a great option.
I do also have to admit that Shopify’s business model really is pure genius. It has a very simple platform that greatly incentivizes and fosters a developer community to build apps/themes on their platform. Shopify gets a percentage of the cost of the app (similar to Apple’s App store) merely for providing the platform and marketplace. These apps increase the power of their platform, increase customer switching costs, and drive revenue… all at no direct cost of development or support to Shopify. However, there can be support and operational issues for the customer that can arise from this model, but that is for another post.
Outside of the coveted platform model which they seem to be executing nicely (with over 900 apps in their marketplace), their partnership with Stripe allows payment processing to drive 36.5% of their current revenue. With this revenue being driven directly by their customers’ sales, it aligns Shopify’s interests with their customers to help drive sales and removes any market bearing ceiling on the amount of revenue they can acquire per customer. I wouldn’t be surprised if they further drop their subscription fees to focus on the land grab of those businesses willing to use their payment processing.
Speaking of dropping prices… it will be interesting to see how the eCommerce market, and specifically the eCommerce platform market evolves with the recent explosion of players into the market. With Big Commerce, Square Space, and hundreds of other eCommerce solutions vying for market share it should be an interesting next couple of years. I am especially interested to see how the hosted vs free & open source model shakes out! Hosted solutions might be getting all the attention lately, but let’s not forget the open source (and free) eCommerce solution, WooCommerce is still the #1 installed eCommerce shopping cart software on the web. How these two competing approaches will evolve with the all-in-one ease of a hosted solution to the affordability and flexibility of open source can open a whole other discussion on potential market trends.
Either way you look at it, Shopify is leading a new era of eCommerce and it is an exciting time we are happy to be a part of. It seems like we aren’t far away from primarily shopping from our phones only to have Amazon deliver our product within hours from a drone out of the sky. The market is evolving so quickly that the opportunities out there can be tough to imagine for many of us. See how Shopify sees the eCommerce market opportunity in the excerpt from their S-1 Filing below.
Excerpt from Shopify’s S-1 IPO filing to the SEC
start of excerpt –
Industry Overview and Market Opportunity
Consumers now dictate how, when and where to interact with merchants and their expectations continue to rise. A disappointing experience may lead to the permanent loss of customers and damage to the merchant’s reputation on social media. The challenges facing merchants include:
Selling Across Different Channels. Consumers expect to be able to transact through multiple sales channels without losing functionality or experience, making it increasingly important that a merchant has a single view of its business and customers.
Making Transacting Simple, Seamless and Secure. Consumers expect every interaction to be quick, problem-free, intuitive and secure.
Keeping up with the Latest Technology and Innovating. Consumers expect an experience on par with that provided by the most innovative retailers.
Building and Growing their Brand. In a world where consumers have more choices than ever before, a merchant’s brand is increasingly important.
Scaling their Business. As a merchant’s business grows, it must be able to handle increased traffic and ensure availability 24 hours a day, seven days a week.
Managing their Business Anytime, Anywhere. To keep pace with consumer demands, merchants need to be able to manage their business on the go using their mobile devices.
Traditionally, merchants have been forced to address their commerce needs through one of two means:
Complex Software Built for Enterprise Merchants. Software built for the largest merchants is not designed for SMBs. It is expensive and complex, requires significant technical knowledge and training to install and maintain, and typically takes a long time to deploy.
Cobbled Together Patchwork. Whether a merchant is starting from scratch or building on top of legacy solutions, the process of piecing together a patchwork of disparate technologies is time consuming, complicated and costly. The result is a system that, by its nature, lacks full integration between the applications provided by the various vendors and may only be as good as its weakest component.
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