Shopify vs Amazon

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Ethan Wu (0:36)

Pushkin.

We talk on the show nonstop about the dominant and magnificent seven tech companies, but what about the companies that compete with them? Today on the show, we're going to talk about the rebel alliance of runners-up competing with the big techs through the case of Shopify. Today on the show, what it takes to compete with Amazon. This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I am reporter Ethan Wu, joined today in the New York studio by FT reporter Anna Mutoh.

Anna Mutoh (1:10)

Hi.

Ethan Wu (1:10)

Making her podcast debut and live from the carpet, it's Robert Armstrong.

Robert Armstrong (1:15)

It's true, I hurt my back the other day doing some really strenuous journalism. And as a result, I am supine on my bedroom floor while we're recording this, because I can neither stand nor sit.

Ethan Wu (1:31)

Rob tried to write about private credit, which we talked about in the show with Katie on Tuesday, and it just injured him permanently. He's never gonna recover.

Robert Armstrong (1:38)

Yes, I saw the fee structure and it threw out my back.

Ethan Wu (1:41)

Yeah, makes two and 20 look like light work.

I mean, Rob, I gotta give you credit. Katie and I, we pushed through our colds on Tuesday, but you're really pushing through a whole lot more. So props to you, props to you.

Robert Armstrong (1:52)

Show must go on.

Ethan Wu (1:53)

But Anna has written, in publication soon in the Financial Times, an excellent piece about the story of Shopify. It gets at both interesting trends with e-commerce and the pandemic, but also, and I think where we want to bring it ultimately is how you compete with big tech companies that Rob and I are constantly shilling for on the show. It's unbeatable, increasing returns to scale. They have all these huge competitive motes.

Let's see the other side of the story. What does it take? So maybe where we start, Anna, is just with basic description.

What is Shopify? What do they do?

Anna Mutoh (2:27)

Sure. So if you're the average consumer, you may not have heard of Shopify before, but they're actually the second largest e-commerce company outside of China. They provide a very simple way of creating a online store for merchants with all the bells and whistles that come with it.

And so that's how they started off their business. They represent about 10% of market share within the e-commerce space, and that's compared to Amazon's 40%. And they've had tremendous growth over the years. They IPO'd in 2015, and the stock price is up 25 times since then.

Robert Armstrong (3:00)

Okay, I have a question.

Anna Mutoh (3:01)

Sure.

Robert Armstrong (3:01)

Their revenue is just like, they take a percentage of all your sales. And is it a totally digital business?

Anna Mutoh (3:08)

It's a totally digital business. It's subscription based.

So that's part of their revenue stream. But the other larger part of their revenue stream is through their payments business. So they have a button called Shop Pay, and they take a cut of that transaction.

Ethan Wu (3:25)

So it's running the whole kind of digital architecture for...

I mean, my understanding, Anna, is primarily small companies, right? So it's some mom and pop store, they have auto repair, blah, blah, blah. It's just two or three employees. They don't have any computer scientists on staff. They don't want to pay some horrible exorbitant fee to get a website up and running. So they pay Shopify.

Anna Mutoh (3:44)

That's how they started off. But over the years, they have started to get on board larger companies like Mattel, for example, Lord & Taylor, even Heinz.

So that's kind of the direction that they're trying to go into.

Robert Armstrong (3:56)

Are a lot of people shopping online at Heinz?

Anna Mutoh (3:59)

That's a very good question.

Ethan Wu (4:00)

I mean, I think that stuff sells itself, right?

Robert Armstrong (4:03)

I want to get my ketchup from the sort.

Ethan Wu (4:04)

Yeah.

Anna Mutoh (4:05)

You know?

Ethan Wu (4:06)

It is like the undisputed best ketchup. Like I fully buy into the Heinz branding.

Robert Armstrong (4:10)

Oh, 100 percent. Wall Street must love this business. What is Wall Street like? They like recurring revenues. They got a subscription business. And they love payments business where you're just taking a scrape as the money goes whizzing by.