Shopify’s share price fell off a cliff yesterday, as analysts accused the company of being built on ‘Get Rich Quick’ promises. The lens through which the report was written focuses mainly on financial punditry rather than an understanding of the ecommerce platform market, however…
It would be fair to say that Shopify is an immature company, albeit with a great product.
At it’s annual gathering for developers and partners in San Francisco earlier this year, the themes in the collateral and speeches of the leaders were unashamedly about entrepreneurialism, and with good reason. Shopify has helped an ecosystem of agencies, application developers, designers, marketers and merchants create successful, money making businesses.
Perhaps Shopify is guilty of making it too easy to create an online shop. The platform allows a relative novice to be taking credit card payments for products in minutes. Yes – minutes. But there is absolutely no guarantee that the store will be a success – or even cover its costs.
Its the same for lots of technology. Just because someone can create 2 hours of HD video on their iPhone, doesn’t mean they are going to win an Academy Award for Best Film. The comparison is not quite the same though – Shopify doesn’t dissuade people from starting a new business and in some cases, promotes business models which could be seen as ‘get rich quick’ schemes.
Shopify does advertise against keywords like ‘Drop Shipping’ and the featured App on their app store is a ‘Drop Shipping’ product which tempts people to create stores with no stock ‘in a few clicks’. Again – there is nothing wrong with drop shipping as a concept – its a disruptive model that is used by stores like Amazon, but Shopify suggests in some of their marketing and blog articles that anyone can create a store with no products and the implication is that they can get rich doing it. What they don’t focus on, is the fact that for most people, it doesn’t work.
The fact is that there is a massive amount of churn on the Shopify platform, especially in markets that don’t conform with the liberal trade laws of Canada and the US. Shopify does not localise its advertising, which means that it is offering the same ‘anyone can do it’ message in markets where creating a business of any kind requires a licence, digital payment methods like PayPal, don’t work and import duties wipe out any margin from drop-shipping.
Shopify is fundamentally a very good ecommerce platform. It can legitimately go head to head with systems like Magento and enables high volume merchants to get on with selling without the worry of IT and development. Much of the company’s growth will come from migrating existing stores from another platform.
The number that people should be focusing on is the number and value of the transactions through the platform, not the number of stores.
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