Shopify — the love child of Canada
Shopify is Canada’s most famous tech. company based in Ottawa. They let anyone open up an online store to sell their goods. This simple concept have been successful beyond most investors wildest imagination.
As a merchant you get the benefit of a great looking online shop with shipping, marketing, and payments solutions delivered as plug-and-play. On top of that, you can customize your store through the Shopify app store where you find all types of functionality.
What companies have they acquired?
In these weekly musings we look at acquisitions and what we can learn from them. I found 10 companies in total Shopify acquired through its history. Let’s have a look at them and what type of acquisitions they were.
- Select Start Studios, 2012 — Talent acquisition of mobile engineers.
- Jet Cooper, 2013 — Talent acquisition of design talent.
- Kit, 2016 — Technology acquisition of top rated Shopify app for store owners to run Facebook and Google ads via text messages.
- Boltmade, 2016 — Talent acquisition of engineers and designers to work on Shopify Plus.
- Tiny Hearts, 2016 — Talent acquisition of engineers.
- Oberlo, 2017 — Product acquisition of Shopify app to import inventory directly from AliExpress.
- Return Magic, 2018 — Product acquisition of Shopify app to handle returns.
- Tictail, 2018 — Business and talent acquisition of online marketplace business to help Shopify merchants get increased reach.
- Handshake, 2019 — Business acquisition to expand customer and merchant base.
- 6 River Systems, 2019 — Product acquisition to improve fulfillment.
That’s quite a list — let’s try to break it down.
What does this tell us about Shopify’s business?
The list of acquisition tells us a story about how Shopify has evolved through different phases in their business.
Phase 1: This opportunity is huge and we need more people to meet the demand.
Their first 5 acquisitions up until 2016 were all, mainly, talent acquisitions. The need in the market for their product was still huge and they struggled to keep up with the demand. They acquired talent to accelerate their product roadmap.
Phase 2: There are obvious holes in the product we could fix to increase retention and average revenue per customer.
The next 2 acquisitions were both apps for Shopify. It seems they acquired them to quickly fill out missing features they wanted in their main product. Shopify could have built the same features in-house but acquisitions is the faster path. Also, copying popular apps and building them into the main product would have discouraged other Shopify app developers.
Phase 3: Need to keep expanding and organic growth has slightly stalled compared to earlier levels.
The following 2 acquisitions were both directed to acquire more customers in new markets. The organic growth might have stalled of and the product has all the major features wanted. For a good price it makes perfect sense to acquire more merchants onto Shopify.
Phase 4: Need to build deep defensibly and monetize other parts of the ecosystem. T
he latest acquisitions, 6 River Systems, shows how Shopify is moving into logistics. This tells us a few things.
- They see fulfillment and shipping as a competitive advantage they need to invest in (to compete with, e.g., Amazon).
- Earlier Shopify mainly made revenue form the merchants. Now, they want to earn a percentage of the shipping fees as well. That is, they have started to monetize other parts of the ecosystem to keep growing.
I would not have been surprised to see acquisition in the payments space either (which you can also monetize) but it seems Shopify decided to instead build it with their product Shop Pay.
How risky has their acquisition strategy been?
Shopify have managed to stay disciplined and overall taken on very low risk acquisitions. All the talent acquisitions are by definition smaller and does not come with a lot of risk.
Then, they moved into acquiring products in their own marketplace. They already know what their merchants want and went for it. Almost zero risk from a revenue point of view.
The last three acquisitions were all of larger size. However, they managed, once again, to minimize the risk. Shopify already had an offering to meet both the needs of small and larger merchants when they acquired Tictail and Handshake (the 2 eCommerce companies). Since Shopify knew they could meet the needs of all merchants, they did not take the risk to keep the acquired businesses. They only wanted to move over the merchants to Shopify. The question, then, boils down to the questions — “Can we migrate over enough merchants to Shopify to make money out of buying this business?”.
A similar analysis applies to 6 River Systems (the fulfillment company). Shopify already knew they wanted to get into fulfillment at this stage. They also knew how much volume was shipped and hence the potential revenue. The main risk was to understand the cost to integrate the company but given the strategic importance of shipping that almost becomes unimportant as well.
Right now, Shopify are focused on attracting more merchants and monetizing larger parts of the ecosystem but what’s after that?
Shopify is all about making it easier to start a business online but they have already started expanding into the physical world with their shipping capabilities. Another future opportunity is to expand into the physical world of merchants. What better way to enable more people to start a business than to provide them with manufacturing? A 3D printing company or similar business could be the next big opportunity for Shopify the coming years.
The only question I ask myself is how they would de-risk an opportunity like that, as they have done with their other acquisitions. I imagine they will either acquire a smaller company, partner with a third party, or build it on a small scale themselves first to understand what customers want. After that, they acquire a larger company when they know they have product market fit and want to move faster.
Either way, I am sure we will see interesting acquisitions from Shopify in the future.
Thanks for reading, if you have any questions feel free to send them over and I would be happy to explore 🤓