SHOPIFY

Tobias Lütke was a programmer from Koblenz, Germany who moved to Ottawa, Canada in 2002 because he fell in love with a Canadian woman. He wanted to sell snowboards online through a store called Snowdevil.

The problem was that every e-commerce platform in 2004 was absolute garbage. They were expensive, ugly, and painful to use.

Most required a computer science degree just to set up.

Lütke was a Ruby on Rails developer — one of the early ones, when Rails was still a brand-new framework. Instead of suffering through the existing tools, he just built his own e-commerce platform from scratch.

Snowdevil launched on the custom-built platform, and it worked beautifully. Other small business owners saw it and started asking if they could use the same software.

Lütke teamed up with Daniel Weinand and Scott Lake. In 2006, they launched Shopify as a product — a hosted e-commerce platform that let anyone set up an online store without knowing how to code.

The first year was slow. They had about 100 merchants.

But the product was so much better than everything else that word spread. By 2009, they had launched an API that let developers build apps and themes for Shopify stores, creating an ecosystem that would become one of their biggest advantages.

Shopify charges merchants a monthly subscription fee — $39/month for Basic, $105/month for Shopify, and $399/month for Advanced. Enterprise clients pay more through Shopify Plus.

On top of the subscription, Shopify takes a cut of every transaction processed through Shopify Payments (2.9% + $0.30, similar to Stripe). If merchants use a third-party payment provider, Shopify charges an additional 0.5-2% fee.

The genius of the model is stacking revenue. Subscription fees are the base layer.

Payment processing is the second layer. Then there's Shopify Capital (lending money to merchants), Shopify Shipping (discounted shipping labels), Shopify Email, the app store (Shopify takes 0% on the first $1M in app revenue, then 15%), and Shopify Balance (banking for merchants).

Every new service extracts more value from each merchant.

Shopify Online Store is the core — build and run an e-commerce website. Shopify POS (Point of Sale) handles in-person retail with card readers and inventory management.

Shopify Payments is the built-in payment processor powered by Stripe. Shop Pay is the accelerated checkout — it saves customer info so returning buyers can check out in one tap.

Shopify Capital provides cash advances and loans to merchants based on their sales data. Shopify Fulfillment Network was their attempt to compete with Amazon on shipping (they scaled it back in 2023).

Shopify Markets handles cross-border selling — currencies, duties, and translations. Shopify Audiences uses anonymized data to help merchants find new customers on ad platforms.

Shopify grew by being the anti-Amazon. Their pitch was simple: Amazon is a marketplace where you're one of millions of sellers with no brand identity.

Shopify lets you build your own brand, own your customer relationships, and control your destiny. "Arm the rebels" became their unofficial motto.

The app ecosystem was a multiplier. By letting third-party developers build apps, themes, and integrations, Shopify created a marketplace of 8,000+ apps that extended the platform's functionality infinitely.

Need email marketing? There's an app.

Need inventory management? There's an app.

This meant Shopify could stay focused on the core platform while the community built everything else.

The Shopify Partners program turned freelance developers and agencies into a sales force. Partners who built stores for clients earned recurring revenue from referrals.

Over 10,000 agencies worldwide now specialize in Shopify development. It's basically a franchise model for tech.

COVID was rocket fuel. When physical retail shut down in March 2020, every small business in the world suddenly needed an online store immediately.

Shopify's new store creation surged 71% in Q2 2020. The stock went from $400 to $1,700 in less than a year.

The Amazon problem looms over everything. Amazon controls roughly 40% of US e-commerce.

Every Shopify merchant competes against Amazon, and many of them sell on both platforms. Amazon can always undercut on price, offer faster shipping, and has nearly unlimited resources.

Shopify's entire business depends on convincing merchants that owning their brand is worth more than Amazon's convenience.

The post-COVID hangover was brutal. After the pandemic boom, Shopify's stock dropped 80% from its November 2021 peak.

The company had hired aggressively during COVID, expecting the e-commerce shift to be permanent at pandemic levels. It wasn't.

In May 2023, Lütke laid off 20% of the company — about 2,300 people — and wrote a public letter admitting he had bet wrong on how much of the COVID shift would stick.

The fulfillment pivot was expensive. In 2019, Shopify announced the Shopify Fulfillment Network — their plan to build a warehouse and logistics network to rival Amazon.

They poured hundreds of millions into it. By 2023, they realized it was a money pit that distracted from their core business.

They sold the logistics operation to Flexport and wrote off the investment. Lütke called it "taking the medicine."

Bessemer Venture Partners, FirstMark Capital, Felicis Ventures, Georgian Partners, OMERS Ventures