Shopify announced quarterly results yesterday and raised guidance. Although the market appeared to be more short-sighted and reacted poorly largely because the results were “good but not good enough”, the company continues to execute well on its long term vision.
Along with results, the company released a new report highlighting the impact of their business, which is worth reading. Shopify disclosed that they crossed 1 million merchants running on the platform. I continue to believe that Shopify as a platform carves out an important part of the market where merchants are empowered. This is in contrast to Amazon’s positioning, which aims to commoditize products. For Shopify, the key unit they work around is the entrepreneur/merchant. For Amazon, the key unit they seem to work around is the SKU.
Nothing captures this difference in mentality better than this quote from Shopify’s founder/CEO:
“With over one million businesses now built on Shopify, together we’re rewriting the rules for our modern economy,” said Tobi Lütke, CEO of Shopify. “Increasing the collective impact of these businesses is critical. That’s why Shopify provides ambitious entrepreneurs with powerful tools to be successful and connect directly with customers. Other platforms have restricted these opportunities, so we’re arming the rebels of the commerce industry. This report highlights what Shopify has always known: the world economy is better with more voices, not fewer.”
Interestingly, for those that are less familiar with Alibaba’s history, this positioning also rhymes with how Alibaba evolved to become the dominant player in China. While Alibaba is largely seen as a consumer/demand-driven platform, its roots are firmly planted on the merchant side. Alibaba was founded to empower small merchants in China. That positioning gave it so much power over the market that it was eventually able to control demand. Large merchants and brands initially refused to work with Alibaba because of the prevalence of knock-offs, but eventually it became a platform that was too large to ignore.
Shopify is different but the positioning rhymes. Amazon is large but at the end of the day still only controls single digit percentage of the retail market. If Shopify can empower the other 90-95% of the market, that would be something worth being patient for.
Disclosures: I own shares in SHOP, but have no intention to transact in the next 48 hours.