Shopify is taking on e-commerce giants

Small businesses rushed to get online during this pandemic. And suddenly, all kinds of companies wanted to help with that: Amazon, Facebook, Etsy, Intuit and Shopify, the Canadian company that helps merchants create websites, enable payments and ship goods to customers. Shopify had unprecedented growth last year. It revamped its Shop app, which tracks shipments, to include local shopping collections.

And it’s got deals with so-called marketplaces, like Facebook and Instagram, Walmart and Google, to let merchants on its platform also sell on those platforms. I spoke with Harley Finkelstein, the president of Shopify. He told me a draw for small-business owners is that Shopify lets them own their own customers. The following is an edited transcript of our conversation.

Harley Finkelstein: Their data belongs to them, they control the personal information of their customers. And unlike a marketplace, we do not force merchants to give us any independent rights to use their data. The only thing that we are allowed to do is to provide them with better insights, better information, of which they can make better decisions based on their data. So, for example, if we see that you are getting a spike in traffic coming from Pinterest, we may encourage you to activate the Pinterest channel and try to see if you can actually find more customers there.

Molly Wood: And is it only their data, or do you give them insights that are based on similar retailers or anything like that? Are you aggregating at all?

Finkelstein: Not really, no. I mean, we’ll give them very broad industry macro trends. We really don’t aggregate data in that way, simply because each of those businesses are really independent.

Wood: And then, I want to ask you about your, kind of, frenemy placements. In some ways, Shopify has positioned itself as David up against Goliath. But, like you said, you’re working with some of these Goliaths — Facebook and Instagram. What is the risk in being both allies and competitors with some of the biggest names in commerce?

Finkelstein: So I don’t think we actually compete, necessarily, with the marketplaces. I think our merchants do. But we also have to ensure that we are future-proofed against what may be the future retail trends. And in terms of that competition, I guess, in technology you certainly do feel a little bit of “co-opetition,” I suppose, where there should be cooperation and some competition. But the positioning of Shopify being at the center of commerce, and not being a marketplace, not being a discovery tool, gives us an opportunity to really play with all these different surfaces, wherever consumers might be found.

Wood: But there are elements of your business that compete with elements of some other businesses, like Facebook Pay versus Shop Pay, or even the Shop app, which seemed like it might be headed in the direction of a marketplace versus Facebook Shops?

Finkelstein: There’s no intention of turning something like Shop, which is really more of a shopping assistant app…. Really, the idea of the Shop app is to be a consumer shopping assistant, so that if you’re buying off five different sites plus a marketplace, the Shop app can tell you where all of your packages are. They can provide you with incredible real-time order tracking. It can help you with things like Shop Pay, which is our accelerated checkout, which has now processed over 137 million orders. But the idea of the Shop app is really a way for our merchants on Shopify to have a deeper relationship with existing consumers. So we all know that the cost of customer acquisition is certainly going up in some categories. And we’re not Facebook, and we’re not Google, and we’re not necessarily discovery platforms or social media platforms. But one thing we can do is to increase LTV — lifetime value — of the relationship between a consumer and a brand. And that really is the purpose and the objective around Shop. There is no plan to create a marketplace there.

You’d also mentioned Shop Pay and Facebook. Look, I think social media, I think you’d probably agree that social media in places like Instagram are the town squares of the current digital world. And if that is the case, and consumers are using social media for more than just connection, they’re using it also for things like commerce, then it’s really important that any merchant of ours that wants to sell on those platforms is able to use the best tools, the cutting-edge technology, and Shop Pay is one of those things.

Wood: I have to ask you about reports of fraud on the platform. Reports have said some storefronts on Shopify appear to be fronts for collecting shopper data, which is something, of course, that’s happened to every e-commerce platform. How are you dealing with it?

Finkelstein: I think, as you mentioned, this is certainly an industrywide problem. And more than anyone, we’re committed to being part of the solution here. We absolutely do not condone the behavior of bad actors. And right now, we employ multiple teams who handle any violation of the Shopify AUP, our accessible-use policy, whether that’s lettered copyright or trademark infringement or even just fraud complaints. And the way that we look at this is that we have this policy, the AUP, which outlines exactly what the activities are that are permitted on our platform. And when we see a store that’s in violation of it, they’re removed. And so we encourage consumers to report potential unacceptable behavior and to contact not just us, but also the credit card companies to file these disputes. And we’ve already, to date, have terminated thousands of stores and routinely implemented new measures to address fraud and other activities that violate those policies. So it’s not just having teams in place. We also have the technology, we have machine learning and AI algorithms that are constantly looking to figure out [if there] are merchants on our platform that are doing things that are inappropriate, that are unsavory. And so it’s a constant process. Are we ever going to get to a point where it’s perfect? No. But we’re going to continuously make steps to make that better.

Wood: Do you see a world where you’re coming for Amazon? Where third-party sellers on Amazon say, “We’d rather be on Shopify,” new entrepreneurs are saying, “We’d rather be on Shopify” and consumer sentiment is saying, “We’d rather buy from local merchants, even if they’re not local to our town”?

Finkelstein: I can’t really speak for the strategies of other companies. Because we are only successful when our merchants are successful, we are one of the only businesses that exists to promote fair competition. We empower merchants to own their relationships with their consumers, not rent them from marketplaces. But there will always be competition. I think while others will stay hyperfocused on centralization and their own selfish interest, we believe in more voices, not fewer, when it comes to retail.

Related links: More insight from Molly Wood

If you are getting the sense that this is a company that’s sort of in everything and doing everything, you are not wrong. Last week, Shopify started a competitive esports organization called Shopify Rebellion and will field a pro StarCraft II team immediately. Maybe that’s why they sold off $1.5 billion in stock this week to fund future growth.

But listen, every company president is going to tell you they are in a fruitful co-opetition with the big guys. But even though Shopify is still a very distant second behind Amazon in terms of e-commerce competition, Amazon just last month bought a straight-up Shopify competitor called Selz, based in Australia, in a deal that was only made public on Tuesday. A piece about this at InvestorPlace notes that a lot of merchants shifted to Shopify, away from Amazon, in the early days of the pandemic because Amazon had prioritized essential items. So merchants that relied on Amazon for all their sales suddenly couldn’t sell anything that wasn’t like toothpaste or toilet paper. It irritated Amazon enough that, according to The Wall Street Journal, the company created an internal group called Project Santos to copy Shopify’s business model. Amazon, obviously, has not confirmed this.

But also, merchants do want more control over their customers and their data, as evidenced by even big companies like Nike dumping Amazon for their own e-commerce sites. Amazon is not going to take that lying down. And as we talked about last year, Facebook also launched a storefront and payment platform that would seem to compete with Shopify and called it Shops. So I hope Shopify doesn’t spend all that new capital on esports because they may be co-oping, but it seems like the big guys are competing.

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