Shopify Is Flying High
June 25, 2019 | Contributed by: Neal Polachek
Few companies in the SMB SaaS ecosystem have gained the traction or attracted the spotlight as Shopify (SPOT) has. Investors have rushed to participate in the Shopify evolution, doubling the value of the company over the past year ($153 v. $320 share price). What exactly is driving this remarkable valuation?
Before we go there, let’s take a quick look back in time.
Shopify launched in 2004 after its founders were frustrated in their efforts to set up an online store for their snowboarding business. They found the eCommerce tools available at the time sorely lacking. So, like any good entrepreneurs, they set out to build something that would work for their snowboard shop. By 2009, they had realized the power of the API, leading developers to build applications for “Shopify” stores. By 2010 they had built a mobile app so that merchants could run their shops from the palms of their hands.
We’ll spare you the complete Shopify biography. What’s most important is that Shopify has figured out how to build a huge customer base — 820,000 merchants in 175 countries — that relies on the platform to orchestrate its modern commerce activities.
Earlier this month, Shopify released its State of Commerce Report. The comprehensive report surfaces a few trends important to merchants. First, brand loyalty appears to be a growing trend among buyers, with 73% of North American respondents agreeing that “once they find a product or brand they like, they stick with it.” My sense is that consumers are also saying is that once they have a genuine, compelling buying experience, they will demonstrate considerable loyalty as long as the experience remains the same or improves.
Another interesting finding is that the peak browsing time in the U.S. is midnight. This probably reflects browsers from the east coast (midnight) to the west coast (9 pm). In either case, it speaks to the need to deploy chat during what we used to consider off hours to aid the customer journey during these peak browsing periods.
Finally, the study points out that “marketing” continues to be the biggest challenge businesses face with more than 30% of merchants stating that marketing is one of their biggest challenges, followed by building a brand at 22%. Associated with this finding is that merchants’ direct channels deliver 80% of their revenue today, while social media currently plays a smaller role in revenue generation.
Last week at its Unite partner and developer conference in Toronto, Shopify launched its new fulfillment network, which we will take a close look at in an upcoming post. In this forthcoming post, we’ll examine what the fulfillment network means to merchants and analyze Shopify’s revenue mix. What does its combination of software subscription and gross merchandise value (GMV) transaction fees say about the overall SaaS market going forward?