Shopify’s Monster Year Highlights a Generational Shift to Digital (Thinks Out Loud Episode 318)

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Shopify provides a platform for businesses to sell online to customers. But their recent earnings call provides deeper insights into the generational shift to digital we’re all living through. Shopify’s customers saw a near 100% increase in merchandise sold last year. And it looks like even more is on the way.

What does this mean for your business? And, more importantly, how can you take advantage of this generational shift to digital for your business?

This episode of Thinks Out Loud breaks down the data to understand what’s really happening here. We examine what you can learn from Shopify’s success to uncover the lessons you can apply to your business. And, we look at how you can get started at putting the current generational shift to business to work for you.

Want to learn more? Here are the show notes for you.

Thinks Out Loud Episode 318: Shopify’s Monster Year Demonstrates That Customers Demand Digital Headlines and Show Notes

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• A Brief Introduction to Thinks Out Loud. As a bonus, we’ve also included this PDF document that highlights some of our core episodes to help you dig into what the show is about. We think it will help you capture the show’s essence while you’re working your way through the 300-plus episodes published so far. Download it here.
• Digital & E-commerce Maturity Matrix. As a bonus, here’s a PDF that can help you assess your company’s digital maturity. You can use this to better understand where your company excels and where its opportunities lie. And, of course, we’re here to help if you need it. The Digital & E-commerce Maturity Matrix rates your company’s effectiveness — Ad Hoc, Aware, Striving, Driving — in 6 key areas in digital today, including:
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Show Notes and Links

As always, here are the "regular" show notes, detailing links and news related to this week’s episode.

• We’re Living Through a Generational Shift to Digital (Thinks Out Loud Episode 317)
• Shopify Investor Deck Q4 2020 PDF link
• Shopift Earnings Press Release Q4 2020 PDF link
• Shopify (SHOP) Q4 2020 Earnings Call Transcript | The Motley Fool
• Customer Experience is Queen? What Does That Mean? (Thinks Out Loud Episode 190)
• Content is King, Customer Experience is Queen (Thinks Out Loud Episode 188)
• A Digital Transformation First Step: What You Can Do Right Now (Thinks Out Loud Episode 294)
• The Five Drivers of E-commerce and Digital Transformation for Your Business (Thinks Out Loud Episode 293)
• Digital Transformation: A Brief Introduction (Thinks Out Loud Episode 178)
• Two Years of Digital Transformation in Two Months (Thinks Out Loud Episode 287)
• Amazon, Google, Facebook, Apple and Microsoft Have a Secret Plan Right Now. Here’s Why You Should Care (Thinks Out Loud Episode 286)
• How to Compete With Amazon (and Expedia and Google and…) (Thinks Out Loud Episode 221)
• What We Learned About Digital from Frightful Five’s Q4 2021 Earnings (Thinks Out Loud Episode 338)

Thinks Out Loud is sponsored by SoloSegment: SoloSegment increases large-enterprise, B2B website conversion with easy-to-install software that automatically connects website visitors to the content they need to see to achieve their goals. SoloSegment does this using anonymous data and machine learning ensuring privacy compliance, addressing the many anonymous visitors, and improving the efficiency of marketing teams. Visit SoloSegment.com.

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Past Insights from Tim Peter Thinks

You might also want to check out these slides I had the pleasure of presenting recently about the key trends shaping marketing in the next year. Here are the slides for your reference:

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Running time: 18m 19s

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Transcript: Shopify’s Monster Year Highlights a Generational Shift to Digital (Thinks Out Loud Episode 318)

Well, hello again, everyone. And welcome back back to Thinks Out Loud, your source for all the digital expertise your business needs. My name is Tim Peter. This is episode 318 of the big show. And I think we’ve got a really cool episode for you.

Economic Data Supports a Generational Shift to Digital

I want to follow up on what we were talking about last time with the earnings reports from the big players from Amazon and Facebook and Google and Apple and Microsoft and others. And at the time I’d said Shopify was going to be out with their numbers in just a couple of days. And I wanted to do a follow-up to that.

And — Oh my gosh! &mdash: I really, really do because it’s insane what has happened. They had an unbelievable year. Which given what’s happened to a lot of businesses over the course of the last year, is a really telling statistic. It’s a really telling trend.

Shopify’s Monster Year

So I want to talk about their numbers for a moment, and I want to be really clear: Nothing I’m about to tell you is meant to be a commercial for Shopify, nor is it meant to be investment advice or any of that kind of stuff. Instead, it’s simply a representation of facts that you really want to be aware. And you really want to be thinking about what they mean for your business. And we’ll talk about all of those over the course of the next, you know, 20 minutes or so. So let’s talk about what’s been going on with Shopify as business over the last couple of years.

Who is Shopify?

To start, if you’re not familiar with Shopify, they are an e-commerce platform that businesses use to sell direct to customers. So if I sold merchandise on my website and you were to go there, I could use Shopify to sell you, you know, “Tim Peter hats” and shirts and things like that. People like Schwinn use them. People like Heineken and MolsonCoors use them to sell directly to their customers. Leesa, the mattress provider uses them to sell directly to customers. So they are a platform play, right?

Shopify’s Growth Trends

And they have seen three straight years of growth in gross merchandise volume. That is the volume of merchandise sold through Shopify. It’s not Shopify’s revenues. It’s what their merchants sold.

And when I say three straight years, I’m talking 2017, 2018 and 2019. We’ll get to 2020 in a minute. Don’t you worry…

So in 2017, they had about $26 billion in merchandise sold through the platform. In 2018, they had $41 billion. And in 2019 they had $61 billion. Now that’s good. That’s a compounded annual growth rate of about 32%, 33%. So that’s really good.

However the percentage increase year over year, if you look at those numbers, 26 to 41 to 61, the climbed each year. In 2017, they grew 70% from the prior year. So 26 billion was a 70% lift from what they’d done in 2016. Then in 2018 that when they went to 41 billion from 26, that was about 60% growth. So growth dropped by about 10 points. And then in 2019, when they went from 41 to 61, it fell to about 49% growth.

Which let’s be fair. We’d all love our revenue growth to “fall” to only 50% year on year. Right? That would be just terrible, right? But the trend was clear. The growth in merchandise volume sold through the platform was slowing.

2020 Was an Enormous Year for Digital

And then 2020 happened. And then last year happened. Shopify went from processing roughly $60 billion in gross merchandise volume to almost $120 billion in gross merchandise volume. They had a year on year growth rate of 95.6%! Which is insane.

You want to know what a generational shift to digital looks like? That’s what it is.

It’s crazy how big that is. And if you just look at that compounded annual growth rate prior to 2020, and if you straight line that growth for just the past few years, then it should have taken them until midway through 2022, before they got to over $120 billion sold. That’s without the 2020 numbers. Starting in 2019, it would have taken them three years to get to over $120 billion sold.

And that calculation that I just told you ignores the fact that their growth had been slowing. In reality, it would have taken them even longer than that.

How Big Is That?

Shopify states that they now account in the aggregate for almost 9% of all us retail e-commerce second behind Amazon. Who let’s be fair, Amazon’s at 39% by Shopify’s accounting. So that’s a lot larger.

But Shopify lists Walmart at number three, eBay at number four and Apple at number five with 5.8% share, 4.9% share, and 3.5% share, respectively. So they’re significantly larger in e-commerce terms than Walmart or eBay or Apple. That’s significant.

Now, as I said, a moment ago, this isn’t meant as a commercial for Shopify. And it’s not meant as investment advice by any stretch, get your investment advice elsewhere.

Why Do You Care?

But it illustrates two key points. And this is what I really want you to think about from today’s episode.

1. The first is that customers are using digital a ton to buy the products and services that matter to them. If you look at Shopify, as customers, Shopify, as customers, they include things like Molson Coors and Hallmark and Schwinn and Herman Miller and small, l-person operations, and everything in between. Customers are buying from all kinds of folks and they expect to use digital to do it.
2. And the second point is that customers are willing to connect directly with companies instead of just buying through Amazon or the other large giants. And again, note the diversity of Shopify customers base. They’re connecting with all kinds of people and people are connecting with all kinds of companies and digital is the way they want to do it.

Now there is actually a third point that’s worth noting, but I don’t want to derail us too much for today’s discussion. And that point is, as networks grow, they have to be provide ways for people to find things in that network. So there were some things in Shopify earnings where they talked about how they’ve introduced payment systems and discovery systems, so that shoppers can find Shopify powered merchants. And they’ve introduced advertising platforms so that merchants can stand out from others on the platform.

Why Networks Breed Gatekeepers

That’s what always happens with a network. It’s where Yahoo originally came from. The web started to get big and people needed a way to navigate it. It’s where Google came from. Web navigation got big and people needed a way to search it. That’s where Facebook came from; lots of people got on the internet and we needed a way to find them. And then people moved to mobile and that’s where Apple with the App Store came in because they made it easy for people to find and so on.

And I’m leaving out lots of historical predecessors of all of those companies, but you get the point. They organize the variety available on a large network. The flip side, of course of that is in as networks get large, someone by design has to provide some gatekeeping function. And if you look at the other products and services that Shopify has introduced, those down the road are potentially gatekeeping actions. And so once again, we’re going to see the power of choosing to become a dominant player in an ecosystem. But that’s not the point today.

What Do You Do About a Generational Shift to Digital?

The point is customers are using digital a ton to buy the products and services that matter to them. And that customers are willing to connect directly with companies. They don’t need to just go to the big guys.

So, great.

Let’s take it as a, as a, given that all of this is true. The question you ought to be asking right now is: What can I do about it?

What can you do about it?

And I think there are two things you really want to focus on:

1. First, you cannot ignore this moment. It’s not too late. Don’t look at Shopify as numbers and go, well, I can’t possibly get in that game. No, of course you can. I always say the best time to plant a tree is 10 years ago. The second best time is today. But if you don’t plant that tree, if you don’t recognize this generational shift to digital is the time to plant that tree, then you’re setting yourself up for long-term struggles. It doesn’t matter what industry you’re in. Digital is coming for your customers. More importantly, your customers are coming for digital. And your competition is going to be coming for you. It’s going to be coming for your profits because this is what your customers want.
2. And that’s the second key point: Ultimately, this is about what customers want. I’ve said many times that this is why customer experience is queen: You’re being compared to the best experience your customers have. When they’re connecting with you you’re being compared with every other experience they have every single day. I’m sure you’ve heard people say at some point in the process. “Well, why can’t it just work like Amazon?” even when they’re talking about things that have nothing to do with Amazon, Because that sets the bar for what the new normal is for what people expect. (Sorry. Yeah, yeah. Check your bingo card, do a shot, whatever it is, you know, “the new normal,” I’ll try to avoid that phrase. I don’t like it either.) but it certainly indicates that that’s the world we live in and your customers are asking the question internally about how well you measure up.

The Questions You Must Ask

So you want to start to look at that and ask, “What’s preventing you from making progress?” and more importantly, “What’s most important to your customers?”

People often ask me, you know, “Where do I start with this?” And that question, “what’s most important to my customers,” is the best starting place.

• What are your customers telling you about what matters to them?
• What does your search data tell you? And when I say search data, that’s both Google search and also your websites site search.
• What does your social listening data tell you what a customers talking about on Facebook or on Instagram or on LinkedIn or wherever your customers happen to gather.

Take a look at those and also use what your sales teams and your customer support teams here. And start working to close those gaps, start looking at your customer experience and say, “How do we move this towards digital more effectively in a way that matters to our customers?”

And of course, if you don’t have that data, if you haven’t been looking at your Google search data, if you haven’t been looking at your site search data, if you haven’t been listening to your social listening data, if you haven’t been listening to your sales teams and your customer support teams, then collecting the data is where you begin.

It comes back to answering the question of what is most important to your customers. Because the one piece of data that is absolutely clear — whether it’s data from the bigger players, like I talked about a couple of weeks ago, or an aggregation of smaller sellers, like Shopify represents — customers take this for granted.

This is the world we live in now. They live their lives online and they expect that you will support them while they do that. This is your opportunity. And if you want insane numbers like Shopify is seeing, if you want a fraction of the numbers that Shopify has seen — you know, you might not see 95% growth, but you might see 95% growth in your digital channel, and that might create an extra couple of points of growth for your company .— then this is your moment to take advantage of this generational shift to digital.

You can do this. It’s not too late. And I can’t wait to see how well you do.

Show Closing and Credits

Now looking at the clock on the wall, we are out of time for this week. I want to remind you that you can find the show notes for today’s episode, as well as an archive of all past episodes by going to TimPeter.com/podcast. Again, that’s TimPeter.com/podcast. Just look for episode 318. And don’t forget while you’re there that you can click on the subscribe link in any of the episodes you find on TimPeter.com/podcast to have Thinks Out Loud delivered to your favorite podcatcher every single week.

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Show Outro

With all that said, I want to say one sport, how much I appreciate you tuning in week after week after week. It means just the world to me that you do. I know we’ve all been living through a lot over the last year. And so it’s just so great to have you to talk with every couple of weeks or every week or so. And I really appreciate you doing it. So I hope you continue to stay well. I hope you stay healthy. I hope you take care of yourself. Please have a great rest of the week. Have a great weekend ahead and I’ll look forward to catching up with you here on Thinks Out Loud next time. Until then please be well. Be safe. And as ever take care, everybody.