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In addition to the rapid increase in the number of stores, Shopify's revenue has also risen steadily. In the early morning of February 17, 2022, Beijing time, Shopify released its 2021Q4 and annual financial reports. Full-year revenue was $4,612 million, up 57% year-over-year, and gross margin was $2.48 billion, a significant increase from $1.54 billion in 2020.
Shopify said that in 2021, its merchandise turnover reached $175.4 billion, accounting for 10.5% of the nation's retail e-commerce sales. 3%, ranking second. Amazon, which ranks first, has a 41% market share, and the third and fourth places are Walmart (6. 6%) and eBay (4.2%).
In fact, in addition to the e-commerce sales business, Shopify has also built an app store, an ecosystem with many developers as the core. After the earnings release, Shopify's president, Harley Finkelstein, said on a conference call that Shopify's third-party developers made $411 million in 2021, and in 2021, app developers on Shopify grew by nearly a third compared to 2020.
So, how exactly is Shopify's ecosystem built?
Shopify app ecosystem
Shopify's founding dates back to 2005 as an online store selling skis.
Harley Finkelstein once said, "We wanted to sell skis online, and there were only two ways to sell things online, one was to put the goods on the e-commerce platform, the biggest at that time was eBay, and there were several others. The e-commerce platform is indeed a good place to sell goods, it is not expensive, and it is relatively easy to start operating. But the downside is that it's more like renting customers from shopping platforms and not being able to really build their own brands and businesses. There is a second way, which is to spend money to build a large corporate e-commerce website, which is about hundreds of thousands to $1 million. Oracle had one, SAP had one, ATG, Hybris, and IBM WebSphere, but they were not only expensive, they were not easy to operate. ”
"We weren't happy with either way, so we ended up developing our own software to sell our skis. So, the following year, the app became available to other merchants; it was called Shopify. Harley Finkelstein said.
In fact, the prototype of Shopify is very simple. As early as 2004, many of the components needed to run an e-commerce website already existed, although the form was still rudimentary and difficult to use. After a little hassle, you can open a merchant account to accept credit card payments; a third-party warehouse can help you put inventory; and UPS and Fedex can help you deliver. And, of course, you can also run very cheap ads on Google. What's missing is the software that links all of them together.
However, in fact, these basic building blocks are far from meeting all the needs of e-commerce. Therefore, using Shopify's open platform and API interface, some developers began to try to launch their own applications through Shopify to serve merchants.
In the early days of Shopify's entrepreneurship, the growth of the app ecosystem has always been slow. Until 2009, when the app store first iterated, there were fewer than 12 apps in it. It wasn't until 2013 that the number of apps in the Shopify App Store grew to 100. At this point, the 100 apps were managed by a team of 3 people, including an intern.
In just a few years since then, the number of apps on Shopify has grown several times. So, in order to solve the problems caused by the growing number of apps, in 2017, Shopify plans to update the app store again. In September of the following year, Shopify launched a new app store with more than 2,400 apps. According to Shopify, 85% of merchants using the company's platform rely on apps to run their businesses. At this time, there are more than 600,000 merchants who have built e-commerce businesses through Shopify.
In the years that followed, especially after the COVID-19 outbreak, the number of apps increased dramatically in addition to the rapid increase in the number of Shopify stores. Third-party data platform Store Leads shows that as of now, 4938 developers have released 7870 apps.
It was these applications that allowed Shopify to complete its further evolution.
In June 2021, Shopify also announced that it would remove the share of the first $1 million in revenue earned by developers in the app store in a year. After developers earn $1 million, they will be charged 15%, down from the previous 20%.
The app store runs out multiple unicorns
Shopify App Store, the first platform to build is the Shopify App Store launched in 2009, developers can call the Shopify API through it, create new plugins, so as to provide specific functions that merchants may need, such as TikTok launched the app in the Shopify App Store, after the merchant downloaded, you can directly access TikTok for Business Ads Manager in Shopify.
With the help of Shopify, many companies have also been born in this application ecosystem. Through these third-party applications, the Shopify App Store also implements advanced applications such as bulk order management, bulk inventory management, secure payment, email marketing, SNS marketing, SEO, and advanced data analysis for merchants. Among the best-selling apps are Trust Hero (secure payment), Privy (email marketing), Sales Notification (order alerts) and other features.
With the development of Shopify, many application companies have also gained the enthusiasm of capital, and many application companies born in Shopify have become unicorns.
In April 2021, Fatima Yusuf, Head of Partnerships for Shopify's App Developer Ecosystem, wrote that SaaS businesses are attracting a lot of VC attention and funding around the world, with Klaviyo raising $200 million in Boston and Yotpo in New York; Bold Commerce raising $27 million in Canada; Xentral raising $20 million in Germany; and Holded Raised $18 million in Spain.
Immediately after May 2021, Klaviyo raised $320 million in new funding in its Series D funding round, which increased Klaviyo's valuation to $9.15 billion. A few months later, in August 2021, Xentral raised $75 million in Series B funding from Tiger Global and Meretech.
Shopify doesn't seem to be a "happy land" for SaaS companies in China, though. A domestic SaaS company focusing on cross-border marketing business told Zhixiang that the current competition between Shopify marketing applications is very fierce, although its company has listed applications in Shopify, but Shopify is not its strategic focus, the future business focus will still be to cooperate with more smooth relationships with Chinese website construction companies, bet on China to form its own independent station ecology, and inject marketing resources into platforms such as Shopline.
Shopify's challenge
After several years of development, Shopify's app store is far larger than competitors like BigCommerce, which also presents it with challenges.
After the 2021 Q4 earnings release, analyst Paul Treiber asked on a conference call how Shopify decides which technical features will be developed in-house and which will be left to third-party partners who develop apps for its app store.
Shopify founder Tobi Lütke replied, "If most merchants need something most of the time, it gets into the core." ”
Lütke notes that, like payment gateways, initially, Shopify allowed the use of many third-party payment gateways in the app store. But after a while, the need for payment gateways became clear for most merchants, so Shopify built a payment gateway on its own, and now it's the standard for Shopify subscriptions.
In fact, Shopify has also been controversial about this ecosystem because of its own role in it. In February, Twitter user Ryan Breslow tweeted, "Shopify is eating up its ecosystem." ”
Ryan Breslow said that in the early days of development, Shopify benefited from this ecosystem, but as Shopify grew, they made a decision to prioritize openness and commitment to empowering the community, or copy these apps as their own products, sell them, and earn direct revenue.
According to Linkedin, Ryan Breslow is the founder and CEO of the settlement tool Bolt. Ryan Breslow said on Twitter that Bolt was founded in 2014 and focused on Shopify early in its development. But then, Shopify launched its own Checkout feature, and in 2017, Shopify launched Shop Pay, both of which are similar to Bolt.
Ryan Breslow also said that many negotiations with Shopify have failed, and eventually had to shift the focus of the business to BigCommerce, Adobe, Salesforce, SAP, PrestaShop and other platforms.
But Craig Miller, a former Shopify CMO, said on Twitter that Ryan Breslow's complaints contain multiple inaccuracies and, more importantly, that it's not a good idea for third-party companies to create features on the platform that most users need.
Blair Beckwith, who previously served as Shopify's head of developer relations, also explained in an interview with the media how to handle the relationship between developers and Shopify. Blair Beckwith said they'll try to show developers which areas Shopify will be entering in the future and advise them to stay away from those areas.
"These are areas of concern to us, which means we're going to build a lot of functionality into that space." Therefore, if you want to be safe, it may be better to stay away from these areas. Blair Beckwith said.
But Blair Beckwith added, "But I don't think developers should see these spaces as completely prohibited either." The shipping industry is a great example; we want to focus on building the best shipping solution for a typical Shopify merchant. If you're going to build something that targets the same market segment, then this might not be the best idea. If you're going to solve unique problems in a unique way, serving different market segments or different needs, this could be a good choice. ”
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