According to Wikipedia, "Shopify Inc. is a Canadian multinational e-commerce company headquartered in Ottawa, Ontario. It is also the name of its proprietary e-commerce platform for online stores and retail point-of-sale systems." So, it is a very user friendly way to open up online stores, process online payments, and it has a rich collection of plug-ins and add-on services that integrate with it easily and simplify marketing, web design and so much more. The company stock has done incredibly well during our Covid lockdowns and related fallout. On March 17th price per share was CAD $500.45. Today, it is $1,315.62 (as of time of this writing). Pretty sweet, right? The hindsight addict inside all of us salivates at the thought of how much money some people out there made off of this meteoric rise in stock price. Why would it not? We are supposedly moving everything online because of COVID, everyone will have a Shopify store, we are Jetsons-ing our way into the future.
So, what is the problem? The problem is that this is how most people see it, but this is far from the truth. Shopify has a handful of online stores around the world that make tons of money, e.g. Kardashians. Kardashians leverage their reality TV personas and early entry and cheap growth on Instagram to generate unbelievable sales figures, all things considered, through their Shopify store(s). Shopify collects monthly plan fees and transaction fees and this is all well and good. However, for every majorly successful online store, Shopify hosts tens of thousands of online stores that are dormant or failing completely, as they are run by people who are about to fail or have already failed at e-commerce the way they are doing it, but they just do not know it yet. These Shopify clients are zombie clients. Sooner rather than later they will cancel their subscriptions in large numbers because they will refuse to keep paying Shopify if they cannot make money from their online stores.
Here is what Shopify does with the ads I saw online; it creates a bubble. It advertises you can open up a store and sell online with them. What they fail to explain is that the selling part is only technically true. Technically, yes you can sell. In reality, unless you have the social media weight of millions of followers, you will have to learn Facebook, Google, Pinterest and other ad platforms, maybe get a few certificates, have enough money to advertise online and be able to offer your products and services at acceptable profit after you deduct from the price you charge such things as Shopify fees, advertising cost per sale, tax, shipping if it applies, and perhaps other things as well. What Shopify therefore does is it conflates being able to sell through their platform with actually making sales- TWO COMPLETELY DIFFERENT THINGS! In fact, it really does not matter which ecommerce platform you choose if you know how to market and make sales, and you have a well-targeted properly priced product or service. For the most part, most of the popular e-commerce platforms are quite interchangeable. In fact, what matters the most is how well they handle payment disputes and how much they protect their clients in these particular cases.
How does this create a bubble? It creates a bubble that grows and shrinks, sort of, through a revolving door policy. There are waves of would be online store entrepreneurs with no digital marketing funds or skills coming onto the platform, giving things a try, realizing they need to pay digital platforms for marketing in order to succeed, trying it with little experience, getting disappointed and cancelling their Shopify subscription after losing lots of time and money. Then, after a while another wave of the same type of Shopify clients comes in and the bubble grows again. Only thing is, after every shrinkage, the next growth is bigger than the previous one. Shopify could resolve it by being way more transparent than right now about its implied connection with Facebook and Google Ads, but I have yet to see a clear, concerted effort of Shopify to do so at the ground level.
What scares me the most, however, is the impact this could have on the economy. If this is how Shopify functions, it is still a valuable company but how valuable really? I think most people who never looked into e-commerce and still invested in Shopify have little to no clue what they have done. In fact, I think many of you may agree with me that this is done with many other currently "hot" companies. It is all well and good if you personally control a position in Shopify through shares you bought and you are planning for short-term gain. However, if your RRSP contains Shopify, can you be entirely sure that some of the ideas I laid out here went through you money managers' minds? It remains to be seen.
I would love to get some feedback on this in the comments section if possible, especially if you have experience with Shopify and similar platforms as a client or an investor. If we are moving in the direction of our economy having many more e-commerce businesses, do you think we need more transparency and education about it in our society? Let me know what you think if you'd like. Until next time, dearest readers, work hard play hard but always stay sharp. :)