Potshots, scandals & downgrades

But also new growth opportunities for Shopify and a window into Shopify’s inner workings (Image credit: pixabay.com)

Larry MacDonald is a regular contributor to The Globe & Mail and author of The Shopify Story: How a Startup Rocketed to E-commerce Giant

Topics in today’s post:

• YouTuber takes a potshot at Shopify

• Open banking and stablecoins becoming growth opportunities

• Scandal engulfs Shopify

• Context podcast offers views into Shopify’s inner workings

• Shopify stock downgraded to a hold by Zacks (Nov. 14)

YouTuber takes a potshot at Shopify

A YouTube channel, called MyWifeQuitHerJob, offers lots of free e-commerce advice followed by pitches to buy training manuals and courses on how to start and run a business online. It also occasionally takes potshots at Shopify, the latest titled: “Forget Shopify! These Alternatives Can Save You $500/Mo.”

However, a more accurate title for the article might be: “If you have hardly any money, know how to code and have lots of time to handle the technical aspects of an online store (e.g. hosting, security, software updates etc.), then you might prefer another company other than Shopify.”

Host Steve’s main complaint about Shopify is that, it looks cheap at subscription rates as low as US$29/month but then there are apps to buy from their apps store to round out your store. According to his calculations, the average price of an app is US$66/month and the average store “uses 6 to 8 apps, which means paying US$400 to US$500 a month.

However, most Shopify stores paying that much for apps likely have large sales and earnings that amply cover the cost of the apps. As for new store owners, there are dozens of free Shopify apps that enable them to build out in various ways. They rest of Steve’s knocks, IMHO, are either small change or only anecdotal in nature with no attempt to show they are statistically significant.

Steve then says the best alternative to Shopify is WooCommerce on WordPress, because: you can sell anything you want, including sex toys, firearms, and certain chemicals (this is good?), your store will not be shut down (even if it sells racist paraphernalia?), many of the WooCommerce plug-ins are free (but what about the others that have to be purchased or charge annual fees) and WooCommerce is better at attracting traffic via content creation through blogging (true, but Shopify is moving into this space with the recent launch of their own WordPress plugin for Shopify stores).

Then comes Steve’s caveats for WooCommerce, which seems to nullify the whole argument. Quoting:

“Now, there are downsides. With Shopify, they take care of everything. The hosting, the security, the updates . . . . But with WooCommerce, you are on your own. You’ve got to get good hosting. You’ve got to stay on top of plug-in updates. And sometimes plugins conflict with each. And if you’re not technical, you might need a developer on call. And Woo Commerce can run really slow if you don’t optimize it.”

You can see the problem here. If you need to call in a developer, that can be as expensive as Shopify’s fees if not more so; if you take care of the technical side yourself, that is less time spent on marketing and other business functions, so there is a significant cost in terms of foregone opportunities to advance your business and genrate income.

Open banking and stablecoins becoming growth opportunities

After years of delay, open banking now appears to have a green light. Legislation now in Parliament will require banks to provide financial data to fintech and e-commerce companies at a customer’s request. Also on the way is regulating stablecoins as payment instruments instead of securities. Both measures would seem to be a boost for Shopify.

Scandal engulfs Shopify

A scandal emerged this week at Shopify when it was discovered that some salespeople were manipulating the commission structure to claim larger payouts than they were entitled to. Blame has been laid on aggressive sales targets, a new commission structure and going easy on reporting requirements.

The Logic ran with the revelations like it was a major scoop and gave it bait-clicky headlines, even though a Shopify spokesperson said the fraud involved less than 10 salespeople, and The Logic’s own estimate of the damage was in the “tens of millions of dollars” (seems like a drop in the bucket of the billions that Shopify rakes in every quarter). “This had no impact on our financials,” declared the spokesperson, which also eased shareholders’ worries that a major revision in quarterly revenue figures was looming.

This outbreak of malfeasance coincided with the departures of the senior executives leading the sales team, Bobby Morrison and his lieutenants, leading to speculations that it was the trigger for their exits. The damage was apparently minor but it did seem to reveal that the sales team was unhappy with way things were being run, especially concerning those aggressive sales targets and the cheaters.

Context podcast offers views into Shopify’s inner workings

Shopify is now publishing episodes from a weekly podcast hosted by CEO Tobi Lütke, called Context. It was released for many years only internally to Shopify staff as a way to keep them in the loop on what was going on in the company. Now people outside Shopify have a window to see inside. It can get technical in parts but some nuggets are to be found even for those who are not hardened techies.

The latest episode was released on Nov. 19, featuring a talk between CEO Tobi Lütke and Product Lead Vanessa Lee, who has spent 8 years at Shopify rising from the lower ranks of product managers to leading all of product management. They talked about the process of developing and shipping tools for merchants to use.

There was a certain playfulness to the session, with Vanessa delivering quips like: “I aspire to be the Asian mom you never had.” That broke Tobi up and had him grinning ear-to-ear. But for the most part, there was serious discussion of what’s going on inside of Shopify.

One of the highlights: Tobi said he spends time checking out what founders are pitching during the Demo Days event (like this one) at incubator Y Combinator. “This gives me an appreciation for what people identify as problems worth solving; often, there’s lots of companies trying to solve the same or different problems, so I find interesting case-studies on how to solve problems from different angles.”

Shopify stock downgraded to a hold by Zacks (Nov. 14)

“Shopify benefits from a growing and diversified merchant base and strong free cash flow, supporting long-term expansion across products, AI and global markets. But rising competition from Amazon, Adobe and MercadoLibre poses meaningful challenges. These rivals are strengthening their platforms, pressuring Shopify’s market share and merchant stickiness. At the same time, Shopify’s rich valuation, trading far above industry averages, raises concerns for investors despite solid fundamentals. Given the mix of strengths and challenges, investors are advised to retain this Zacks Rank #3 (Hold) stock at present.”