When Scott Lake and Tobias Lütke founded Shopify in 2004, they were just two friends trying to start their own online snowboard shop. Nearly 20 years later, Shopify powers over 1 million businesses in over 175 countries. This Ottawa-based company has revolutionized commerce by making it easy for anyone to sell online.
The Accidental Origins of Shopify
In 2002, German programmer Tobias Lütke moved to Canada to be with his girlfriend. While working for a web development firm, Lütke befriended co-worker Scott Lake. Both snowboard enthusiasts, they decided to start an online store selling snowboards and other gear.
The platforms available at the time for setting up e-commerce sites proved frustrating. None offered the combination of affordability, customizability and ease-of-use that Lütke and Lake desired.
Lütke decided to solve the problem himself. He began building an e-commerce platform tailored specifically to their fledgling shop‘s needs, using a new framework called Ruby on Rails.
By 2004, their snowboard business stalled due to lack of inventory. But their side project showed promise. Sensing a larger opportunity, Lütke and Lake pivoted to launch that e-commerce software as a stand-alone service – Shopify.
Shopify Takes Off: 2010 and Beyond
For the first few years, Shopify saw modest growth. But by 2010, funded by $7 million in Series A financing, Shopify began evolving the platform in ways that appealed to a broader range of small business owners.
Key moves included:
- Launching an API to facilitate third-party integrations
- Releasing mobile apps so merchants could manage stores on-the-go
- Rolling out features like abandoned cart recovery to boost sales
- Acquiring POS software provider Jet Cooper to bridge online and brick-and-mortar commerce
Shopify also ran high-profile contests and marketing campaigns, like 2010’s “Build a Business” competition, to attract entrepreneurs. The $100,000 grand prize went to the contestant who built the highest-grossing Shopify store in just 6 months.
These efforts drove exponential growth. Shopify’s user base expanded from under 100,000 in 2012 to over 1 million by 2020. Their roster now included big names like Gymshark, Allbirds and Staples. Revenues rose steadily as well, reaching $2.93 billion USD in 2021.
Bringing Brick-and-Mortar Businesses On Board
Historically, Shopify appealed mostly to digital-first e-commerce brands. But in 2013, Shopify began targeting traditional physical retailers with services like in-store point-of-sale (POS) systems.
The goal was to centralize operations for merchants with both online and brick-and-mortar presences. Key releases included:
- Shopify POS: Allowed merchants to manage in-store and online sales through one interface.
- Retail hardware: Shopify offered POS hardware like iPad stands, receipt printers and swipe readers.
- Buy Buttons: These embedded buttons let customers purchase items from a merchant‘s website without leaving the site.
According to Shopify, retailers that adopted these omni-channel solutions saw 2.5X higher growth than single-channel merchants.
How Does Shopify Make Money?
As an e-commerce platform aimed at empowering entrepreneurs, Shopify had to strike the right balance between profitability and accessibility.
Their pricing model seeks to align costs with each merchant‘s size and sales volume. Plans range from $29 to $299 USD per month, with customizable upgrades available through Apps and extra features.
Additionally, Shopify charges credit card processing fees on transactions. These range from 2.4% + $0.30 down to 0.5% with higher tiers and volumes.
Other merchant services like shipping labels and Buy Button also come with commissions. And Shopify generates hardware revenue from sales of POS systems.
This diversified income stream has proven lucrative. Gross Merchandise Volume (GMV) – the total sales facilitated on Shopify stores – reached $175 billion in 2021. Shopify‘s cut of those transactions represented over 80% of their annual revenue.
Shopify Controversies: Free Speech vs Accountability
Given its vast merchant network, Shopify often faces pressure regarding platform oversight. They aim to remain neutral, neither censoring legal merchants nor policing counterfeits at an Amazon-like scale. But this hands-off approach has sparked tensions.
In 2017, #DeleteShopify started trending on Twitter as users demanded the platform drop far-right news site Breitbart over ideological objections. Similar calls came later regarding merchants selling Confederate flags or firearms.
Shopify typically resists this pressure. They even publish an annual "Transparency Report" detailing takedown stats and hate speech enforcement. Their CEO argues that enabling all legal commerce protects free expression – even for objectionable sellers. But critics counter that Shopify should still enforce ethical community guidelines.
Striking the right balance between freedom and accountability continues proving challenging. Going forward, evolving societal expectations around big tech self-regulation may force Shopify‘s hand.
The Shopify Impact: Leveling the Playing Field
Before Shopify, selling online required technical expertise most entrepreneurs lacked. E-commerce giants like Amazon and eBay also took hefty cuts of seller revenue while demanding exclusivity.
By making easy-to-use commerce tools accessible, Shopify empowered millions to turn side hustles into thriving businesses. Even mammoth merchandisers like Budweiser and Victoria’s Secret have used Shopify services alongside their own sites.
Their platform democratized entrepreneurship. It let creators promote their own brands rather than get siloed as minor vendors on marketplaces like Etsy or Walmart.com. In many ways, Shopify shifted the retail landscape to one with less dominant gatekeepers and barriers to entry.
They also fueled innovation by connecting developers with merchants. There are now over 6,000 apps on Shopify’s marketplace, offering custom services from SEO to accounting.
As a result, Shopify stores see much higher average monthly sales than sellers on eBay or Etsy. By one estimate, Shopify powers around 9% of US e-commerce – more than eBay and Etsy‘s shares combined.
The Future of E-Commerce is Shoppable
Shopify’s offerings will likely expand as they cement their role as the "operating system" for multi-channel commerce.
Upcoming products seem optimized for social and experiential retail – embedding Shopify tools into emerging spaces like video commerce, digital events and even the metaverse. Expect more blurring between physical and digital worlds.
For example, Shopify is developing mobile shopping assistant apps to simplify in-store purchases, including scanning items to pay instantly.
VR/AR capabilities can already render digital products in physical showrooms. And features like tokengated commerce aim to help creators monetize digital communities on platforms like Discord.
As commerce continues decentralizing across apps, channels and virtual worlds, Shopify seems poised to provide the connective infrastructure tying it all together.
Just like Shopify once served Tobias Lütke and Scott Lake’s snowboard startup dream, it now fuels over a million entrepreneurial aspirations and counting. The company remains guided by that same mission its founders stumbled into nearly 20 years ago – making bold ideas and passion projects shoppable with ease.
