{"id":8596,"date":"2019-02-17T14:40:23","date_gmt":"2019-02-17T19:40:23","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/collaboration-not-competition-shopifys-ecommerce-platform\/"},"modified":"2019-02-17T14:40:23","modified_gmt":"2019-02-17T19:40:23","slug":"collaboration-not-competition-shopifys-ecommerce-platform","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/collaboration-not-competition-shopifys-ecommerce-platform\/","title":{"rendered":"Collaboration not Competition: Shopify\u2019s eCommerce Platform"},"content":{"rendered":"

Shopify\u2019s Platform<\/strong><\/p>\n

Shopify\u2019s powerful eCommerce platform allows merchants to launch eCommerce stores in minutes, not months. With Shopify, merchants have access to countless out-of-the-box features that allow them to strike the right balance between incorporating features proven to increase sales and ensuring their unique brand image is represented through their site. Before Shopify, small merchants struggled to create and maintain digital storefronts. Building sites from scratch is complex and expensive, and though solutions like Amazon give merchants a way to reach larger audiences, they offer merchants little control over the shopping experience. With Shopify, merchants can build storefronts that provide rich, unique customer experiences without software development expertise and without managing the complex vendor relationships required when building a site from scratch.<\/em><\/p>\n

\"\"<\/a>[1]<\/a><\/p>\n

Key Platform Elements<\/strong><\/p>\n

Partner & Developer Ecosystem<\/em><\/p>\n

Core to Shopify\u2019s innovative platform is its developer and partner ecosystem. The developer network allows 3rd<\/sup> party developers to build applications that extend Shopify\u2019s native functionality, while the partner network encourages freelancers and design agencies to become \u2018Shopify Experts\u2019 and help Shopify merchants create and customize their storefronts.[2]<\/a> Recently, Shopify enhanced its app store with machine learning algorithms to measure the results that different apps deliver and provide merchants with personalized recommendations that are well suited to their stage of growth.[3]<\/a> By emphasizing the contributions of the design and developer communities, Shopify turns potential competitors into partners while also vastly expanding their reach. Historically these professionals would contract directly with merchants to build and maintain storefronts, but due to the high costs of these relationships, this route was closed to many small merchants.<\/p>\n

\"\"<\/a><\/p>\n

[4]<\/a><\/p>\n

Alignment with Amazon<\/em><\/p>\n

Though Amazon is the enemy of many eCommerce businesses, Shopify has aligned itself with Amazon by making it easy for merchants to categorize and list products according to Amazon\u2019s format and track Amazon sales all via their Shopify account.[5]<\/a>,[<\/a>6]<\/a> Though in many cases merchant success on Amazon leads to Amazon entering the market and effectively cutting out the merchant, Shopify merchants are often small and sell niche items that do not attract Amazon\u2019s attention. [7]<\/a> By providing integration to merchants, Shopify makes it a no-brainer for merchants to use both platforms (rather than picking one \u2013 because in many cases merchants would choose Amazon due to its reach).<\/p>\n

Payment Processing<\/em><\/p>\n

Another important component of the Shopify platform is its integrated payment processing solution. All eCommerce merchants collect payment from their customers, and every eCommerce platform offers integrations with a number of payment processors (e.g. Stripe, Vantiv, BlueSnap, etc), but often these solutions require relationships with the payment provider. Shopify Payments, however, is an out-of-the-box integration with Stripe that allows merchants to begin accepting payments from customers immediately without any separate accounts.[8]<\/a> Shopify does, of course, earn revenue on all payments processed on their platform, but the rates that they offer merchants are very competitive. And, the prospect of this additional revenue incentivizes Shopify to continue developing tools that drive merchant revenue sales.<\/p>\n

Conclusion<\/strong><\/p>\n

These features of the Shopify platform create strong network effects. Shopify continually enhances the platform to drive growth in order to earn incremental payment processing fees. Merchants are attracted to the simple yet comprehensive platform. As they see revenue growth, merchants utilize partners and 3rd<\/sup> party apps to further develop their eCommerce stores. Shopify\u2019s growing customer base incentivizes partners and 3rd<\/sup> party developers to join the ecosystem, and app recommendations from the machine learning algorithms improve as the customer base increases. As this entire ecosystem grows, the platform becomes stickier because merchants would struggle to replicate the integrations and channel distribution functionality with other eCommerce platforms.<\/p>\n

 <\/p>\n

Sources<\/strong><\/p>\n

[1]<\/a> \u201cShopify: An Overview,\u201d Shopify Investor Deck Q4 2018, February 2019, https:\/\/s2.q4cdn.com\/024715446\/files\/doc_financials\/2018\/q4\/Investor-Deck-Q4-2018.pdf<\/a>, accessed February 17, 2019.<\/p>\n

[2]<\/a> Hilary Milnes, \u2018It\u2019s their moat\u2019: How Shopify built an $800 million partner ecosystem,\u201d Digiday, December 20, 2018, https:\/\/digiday.com\/retail\/shopify-partner-ecosystem-800-million\/<\/a>, accessed February 17, 2019.<\/p>\n

[3]<\/a> \u201cShopify Introduces a New Smart App Store,\u201d Shopify Press Release, September 5, 2018, \u00a0https:\/\/news.shopify.com\/shopify-introduces-a-new-smart-app-store<\/a>, accessed February 17, 2017.<\/p>\n

[4]<\/a>\u00a0\u201cShopify: An Overview,\u201d Shopify Investor Deck Q4 2018, February 2019, https:\/\/s2.q4cdn.com\/024715446\/files\/doc_financials\/2018\/q4\/Investor-Deck-Q4-2018.pdf<\/a>, accessed February 17, 2019.<\/p>\n

[5]<\/a> \u201cWhy Shopify Matters Now that Amazon Webstore is Gone,\u201d BuyBox Experts, October 22, 2018, https:\/\/www.buyboxexperts.com\/why-shopify-matters-now-that-amazon-webstore-is-gone\/<\/a>, accessed February 17, 2017.<\/p>\n

[6]<\/a> Adam Levy, \u201cShopify is Turning Another Competitor into a Partner,\u201d July 19, 2017, The Motley Fool https:\/\/www.fool.com\/investing\/2017\/07\/19\/shopify-is-turning-another-competitor-into-a-partn.aspx<\/a>, accessed February 17, 2019.<\/p>\n

[7]<\/a> \u201cWhy Shopify Matters Now that Amazon Webstore is Gone,\u201d BuyBox Experts, October 22, 2018, https:\/\/www.buyboxexperts.com\/why-shopify-matters-now-that-amazon-webstore-is-gone\/<\/a>, accessed February 17, 2017.<\/p>\n

[8]<\/a> Shopify, \u201cPayments\u201d, https:\/\/www.shopify.com\/payments<\/a>, accessed February 17, 2019.<\/p>\n","protected":false},"excerpt":{"rendered":"

Three key features of Shopify's eCommerce platform are mutually reinforcing and create strong network effects for the company. 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