A Deep Dive Into Shopify’s Business Model
How Shopify grew to become one of the most popular and successful e-commerce platforms.
Owning a business and setting up your online store (which is especially important following the Covid-19 pandemic) can seem like a daunting task, especially without any coding skills. From both a design, analytical, and user perspective, there are a lot of boxes to check off when creating an online store that is easy to navigate and ultimately drives sales. However, with Shopify all of this is made easy for business owners who want to get up and running in the digital space! Let’s break down what the highly successful e-commerce platform is and its business model.
What Is Shopify?
Shopify is an e-commerce platform that allows merchants to create an online store and sell their products for a monthly subscription fee to anyone in the world. With over 1.75 million sellers, they handle all aspects of the B2C and B2B e-commerce process from displaying your products on your digital storefront, advertising your products, collecting payment, and shipping. They also offer a marketing platform for your site with a built in blog, SEO tools, and marketing campaigns with Facebook and Google Shopping. Whether you’re just getting started and building a business from scratch out of your living room or an established business with multiple retail locations, Shopify has the tools to take your business to the next level.
Shopify’s Business Model
Now that we discussed how Shopify can help business owners, let’s take a look at how the platform has generated $2.10 billion dollars in revenue in 2021 with their successful business model.
First things first, what’s a business model? A business model is defined as a set of planned activities designed to result in a profit in a marketplace. Looking at e-commerce business models specifically, it aims to use and leverage the unique qualities of the Internet, web and mobile platform.
The Shopify business model is also known as Software as a Service (SaaS). SaaS is a model in which software is licensed on a subscription basis. The software is hosted in a central cloud infrastructure and made available on the internet, either from a desktop or website application. However, in the year 2018, Shopify obtained more than 50% of its income through another source, which they call “Merchant Solutions”. Shopify merchant solutions primarily make money from payment processing fees from Shopify Payments, transaction fees, Shopify Shipping, Shopify Capital, referral fees from partners, and sales of point-of-sale (“POS”) hardware.
Shopify’s Subscription Plans
Let’s break down the different subscription plan options. There are different options for Shopify users: Basic Shopify, Shopify, Advanced Shopify, and Shopify Plus. They suggest Basic Shopify, which is $29 a month, for new businesses or online businesses new to selling. The Shopify subscription, which is $79 a month, is suggested for fast growing businesses with 1 retail store. Advanced Shopify, which jumps to $299 a month, is best for growing businesses with 2+ retail stores. Finally, Shopify Plus is aimed at corporate customers and is a separate plan for $2,000 a month with better omni channel sales features. See below for a further breakdown of what’s included in these plans.
Value Proposition, Competitive Advantage and Marketing Strategy
With all of the above in mind, Shopify’s value proposition is essentially that it can do everything you need it to, all on a single platform. According to Shopify’s blog post, their key investment themes for 2022 include helping merchants build buyer relationships, go global, grow from first sale to full scale, and simplify fulfillment. This care for their customers and desire to help their businesses flourish with a unique customizable digital store is what many business owners find attractive. On top of this, what makes them stand out from their competitors is the ease of use and constant innovation through their Shopify Apps, such as Shopify chat, its native chat function during the third quarter of 2019, which allows merchants to engage in real-time chats with the customers.
By word of mouth, seeing success from other online stores built with Shopify, and educational material that Shopify posts on their blog and social media channels, they continue to acquire new customers. In fact, the number of shoppers who bought from Shopify merchants increased by 52% from 2019 to 2020.
What’s Next?
While there are many more aspects of what makes Shopify’s business model so successful, it is clear why they’re the go-to platform for business owners who want to take their products online. It gives everyone the opportunity to sell and build their brand, which is especially important during a time when small businesses were hurt and are doing whatever they can to stay afloat. Social e-commerce continues to grow, so I’m curious to see how Shopify will integrate in the social space and compete with programs such as Instagram Shopping. Are you interested in selling products online? Would you turn to Shopify to get up and running?
