In this episode of Acquired, hosts Ben Gilbert and David Rosenthal discuss the remarkable journey of e-commerce platform Shopify, from its pivot from a snowboard shop to a technology powerhouse with a $35 billion market cap. Shopify's IPO in May 2015 marked a significant milestone, with the company's market cap surging from $1.3 billion to $35 billion in just four years. The founders, including CEO Tobias Lütke, attribute much of their business acumen to unconventional sources like playing StarCraft. Shopify's success is partly due to its focus on enabling merchants to sell both online and offline, while continually expanding its services, including payment processing and logistics. Despite skepticism from critics like Citron's Andrew Left, Shopify has proven to be a value-creating platform, empowering over 800,000 merchants and fostering entrepreneurship. The episode also touches on Shopify's environmental efforts and its recent initiatives like the Shopify Fulfillment Network.
"Today, the company ipoed in May of 2015 with a market cap of $1.3 billion. In the ensuing four years, it has 27 x that and today has a market cap of $35 billion."
The quote indicates Shopify's significant growth in market capitalization from its IPO to the present, highlighting the company's success.
"The founder and CEO, Toby Lutka, is an absolutely fascinating character that I can't wait to dive in on the history and facts here."
The quote emphasizes the significance of Shopify's CEO, Toby Lütke, as an interesting and influential person in the company's story.
"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs, and in fact, now is the largest startup focused accounting firm in the US."
The quote highlights Pilot's role and scale as a provider of financial services for startups, emphasizing its growth and importance in the startup ecosystem.
"Toby received this, and he was enamored. And he was enamored with two things about it. One was that he could program it and hack it and build things for it, and he could take it apart and put it back together and add hardware to it."
The quote describes Toby Lütke's early passion for computers and programming, which played a significant role in his future endeavors and the creation of Shopify.
"So, yeah, they do that, and they're like, okay, let's shelve the snowboarding project. We can use it as a demo site, which it still is today, for Shopify, and start working on this software."
The quote explains the strategic decision to transition from an online snowboarding gear retailer to a software company, using the original retail site as a demonstration for the newly developed e-commerce platform.
"Toby heads on over to GoDaddy's domain name generator, plugs in. I need a name. And comes up with jadedpixel.com."
This quote explains the origin of the company's initial name, Jaded Pixel, which was later changed.
"Scott at this point makes a major contribution to this budding software company right before they launched. And he's like, yeah, I don't know about this jaded pixel thing as the product name. Maybe we should reconsider that. And mercifully, he comes up with Shopify."
This quote highlights Scott's significant role in rebranding the company to Shopify, a name that better reflected the company's focus on simplifying shopping.
"The initial feature set that they ship with is pretty basic, and they're inspired by kind of the whole rails kind of design philosophy of minimalist functional, but have everything happen on the web in the browser."
This quote describes the simplicity and functionality of Shopify's initial product offerings, which were web-based and inspired by Ruby on Rails design philosophy.
"They figured this out pretty quickly. People started trying it and thinking like, oh, this is super cool. I can get set up. But then pretty quickly they realize either they start selling a lot and then they're like, wait a minute, I'm paying a lot of money to Shopify here because their fees are just scaling linearly with my sales."
This quote explains the initial challenges Shopify faced with its transaction-based business model, which was not well-aligned with merchant incentives.
"What if we look at this kind of SaaS idea and instead of charging on a usage basis, what if we just make it really simple? We'll charge $29 a month and you get a full featured commerce package in a box from us."
This quote details Shopify's strategic pivot to a SaaS model, which simplified pricing and offered a comprehensive commerce solution for a flat monthly fee.
"They made over a million dollars in revenue in 2008. They also. Part of that was driven by they landed their first major customer that year, which was Tesla Motors, which started selling the roadster on Shopify."
This quote highlights Shopify's early success and the significance of securing Tesla Motors as a major customer.
"And what are these tests that he's running? They're super cool. So the first one is... they launch the build a business competition on Shopify."
This quote describes one of the growth experiments that contributed to Shopify's rapid expansion and user acquisition.
"In 2013, they launched Shopify point of sale for offline sales... syncing your online inventory with your offline inventory."
This quote explains Shopify's expansion into offline sales solutions, which was a strategic move to cater to merchants with physical storefronts.
"They start this whole other division that's going to go out and purely attack those. And so now Shopify plus and these big customers is over a quarter of the total revenue of the company."
This quote discusses the introduction of Shopify Plus and its focus on large enterprise customers, which became a significant revenue source for the company.
"In 2014, they cross 100 million in net revenue... and then in April of 2015, the company files to go public."
This quote marks a major milestone for Shopify, indicating its financial success and the decision to become a publicly traded company.
"On May 20, 2015, they priced the IPO at $17 per share, which equates to pricing to a $1.3 billion market cap. Think about this, is a $35 billion market cap company today."
The quote explains the initial public offering (IPO) price of Shopify and its market cap at the time, highlighting the significant growth in market cap to $35 billion within four years.
"In 2013, it was 1.6 billion."
The quote provides the GMV figure for Shopify in 2013, which is used to illustrate the rapid growth of the platform's usage by comparing it to the $7.7 billion GMV in 2015.
"Shopify became the target of an activist hedge fund investor, a short seller named Andrew left at Citron. He released a report on Shopify decrying the company as a get rich quick scheme."
The quote describes the criticism faced by Shopify from short seller Andrew Left, who labeled the company as a scheme, reflecting the skepticism some investors had about Shopify's business model and rapid growth.
"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics."
The quote introduces Statsig as a tool for product teams to improve their feature rollout process and understand the impact of changes on business metrics, highlighting the value proposition of the sponsor's product.
"The stock is trading in the mid $120 a share."
This quote provides context for the stock's performance post-Andrew Left's report, indicating that the stock did not decline as predicted by the short seller.
"Isn't Amazon going to just take over all of e-commerce?"
The quote captures the bear case concern that Amazon's dominance in e-commerce could overshadow Shopify's business model, questioning the long-term viability of Shopify's platform.
"Shopify did $14 billion last year in GMV... for every $14 spent, Shopify is able to capture a dollar of it."
The quote outlines Shopify's revenue generation in relation to the GMV, indicating the company's revenue model and potential for future growth based on the volume of sales processed through the platform.
"This is the first chink in that armor, right, where the actual business model of an aggregator being Amazon could be maybe not the seeds of its own undoing, but Shopify is able to successfully compete precisely because it has a different product and business model."
The quote explains that Shopify's unique approach is making a significant impact in a market largely controlled by aggregators such as Amazon. Shopify's different product and business model cater to a specific customer segment, allowing it to compete effectively.
"So really what we're saying is there is an unaddressable opportunity by the aggregator in this market that also happens to be very large."
This quote indicates that Shopify is tapping into a large market opportunity that is not fully served by existing aggregators, highlighting the potential for growth and significant valuation.
"It was a strangely empty space... there wasn't really anyone who would have come in and done exactly what they did when they did it otherwise."
This quote reflects on the lack of competition and the unique market position that allowed Shopify to thrive when it entered the market, highlighting the importance of timing and market gaps.
"But the problem with open source software like that, with how they were doing it was people had to take the software and host it and install it either on Prem or whatever, where Shopify was just like, yeah, we host, we're SaaS, you don't have to deal with that."
The quote contrasts Magento's open-source model with Shopify's SaaS model, emphasizing the convenience and simplicity of Shopify's approach, which better suited the market's needs.
"Selling online with Shopify is easy. We take care of hosting, bandwidth and security so you can focus on your business."
This quote from Shopify's early days shows the initial value proposition that focused on simplifying online selling for businesses, which has since evolved to include a broader range of services.
"Such a huge competitive advantage."
This quote refers to the strategic advantage Shopify gained by being embedded in the developer community, which helped in the early adoption and spread of their e-commerce platform.
"Merchants pay for advanced services as they become larger and more sophisticated. So the effective take rate for Shopify actually goes up as their customers grow the business."
The quote explains how Shopify's revenue model benefits from the growth of its customers, as they tend to use more advanced, and thus more expensive, services over time.
"You're only really a platform if the value of the ecosystem on top of the platform is larger than the company that owns the platform."
This quote, referencing Toby Lütke's view influenced by Bill Gates, defines a true platform as one where the ecosystem's value surpasses the platform owner's value, illustrating Shopify's strategic approach.
"This is no brainer. At least a solid A in terms of what they were able to get out of going public when they did."
The quote assesses Shopify's IPO timing as highly successful, suggesting that the benefits of increased visibility and market timing outweigh potential drawbacks like earlier dilution.
"Shopify has enabled so much innovation and so many creative entrepreneurs to become merchants and lower the barrier for entrepreneurship."
This quote highlights the positive impact Shopify has had on the broader economy by empowering entrepreneurs and promoting innovation through its e-commerce platform.