Latest / Startup Stories with Fexingo: Conversations About Founders, Funding, and Building Companies from Zero / How Shopify Became the Backbone of E-Commerce
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- Lucas: If you run an online store today, there is a roughly one in five chance you are using Shopify. That number is even higher if you are looking at smaller independent brands. And it is a number that, honestly, still surprises me when I step back and think about where the company started. Luna: Yeah, the origin story is almost a cliché at this point. Tobias Lütke wanted to sell snowboards online, hated the existing software, so he built his own. That became Shopify. Lucas: Right. But that was 2004. What I want to focus on today is the moment around 2015 when Shopify shifted from being a website builder into a true platform. Because that decision is what made them a hundred billion dollar company, not just a nice tool for hobbyists. Luna: So you're talking about the launch of the app store and Shopify Payments. Lucas: Exactly. Before 2015, Shopify was basically a subscription for a storefront. You paid a monthly fee, you got a template, you could list products. But payments were handled by PayPal or Stripe or whoever you plugged in. And the only way to add features was through custom code or whatever the core product offered. Luna: Which meant a lot of merchants hit a ceiling. If you needed a specific shipping calculator or a loyalty program, you were stuck. Lucas: Right. And Shopify saw that. So in 2015, they did two things. They opened up an API and launched the Shopify App Store, so third-party developers could build and sell apps that integrate seamlessly. And they launched Shopify Payments, their own payment processing. Luna: Which immediately ate into Stripe's business, since Stripe was the default processor before that. Lucas: It did. But the strategic brilliance is that both moves increased Shopify's revenue per merchant without raising the subscription price. Payments gave them a cut of every transaction. Apps gave developers a reason to build on Shopify, which made the platform stickier. Luna: And it also let Shopify collect data on transaction volumes, which is incredibly valuable. They could see exactly which merchants were growing fast. Lucas: Yes. By 2017, Shopify Payments was processing over 40 percent of the gross merchandise volume on the platform. Today, that number is north of 60 percent. And the app ecosystem has over eight thousand apps. That is a moat. Luna: But there is a tension here. The app store model means Shopify takes a cut of every app transaction too. So there is an incentive to keep the core product somewhat basic, to push merchants into buying third-party apps. Lucas: That is the classic platform trade-off. And Shopify has been criticised for it. But the counterargument is that a small merchant might only need a basic store, while a brand doing ten million dollars a year needs custom fulfilment rules. The platform lets both exist. Luna: And that brings us to the next big move: Shopify Plus. The enterprise tier launched in 2017, targeting bigger brands. Lucas: Right. Shopify Plus starts at around two thousand dollars a month, compared to the basic plan at 29 dollars. And it includes dedicated support, higher transaction limits, and more customisation. By 2022, Plus accounted for about 30 percent of Shopify's subscription revenue. Luna: So they successfully moved upmarket. But then came the logistics gamble. Lucas: Ah, the Deliverr acquisition. In 2022, Shopify spent 2.1 billion dollars to buy a logistics startup that would let merchants store inventory and fulfil orders through Shopify's network. The idea was to compete with Amazon's fulfilment by Amazon service. Luna: That was a huge bet. And it did not go smoothly. Lucas: No. Within a year, Shopify laid off 20 percent of its workforce and sold the logistics business to Flexport. They essentially admitted it was too capital-intensive and too far from their core strength in software. Tobias Lütke called it a 'distraction'. Luna: But the lesson there is interesting. They tried to become a logistics company, realised it wasn't working, and pulled back. That takes discipline. Lucas: It does. And the market rewarded them. The stock jumped after the logistics sale. Today, Shopify is back to focusing on what it does best: making it easy to run an online store. But now with AI tools and cross-border commerce features. Luna: I want to go back to something you mentioned earlier. The idea that Shopify's platform moat is its ecosystem. How defensible is that really? Lucas: It is pretty defensible because of the network effects. Merchants choose Shopify because there are apps. Developers build apps because there are merchants. And both sides hate switching. If you have a store with twenty integrated apps, migrating to another platform is a nightmare. Luna: But platforms can get disrupted. Look at what happened to Salesforce with all the new CRM startups. Lucas: True. But Shopify has a lead that is hard to beat. As of 2026, they have over two million merchants and processed over 200 billion dollars in gross merchandise volume last year. That scale gives them data advantages and pricing power. Luna: Let's talk about the numbers for a second. Their revenue model is essentially two streams: subscriptions and merchant solutions. Which one is growing faster? Lucas: Merchant solutions, which includes payments, shipping, and point of sale hardware, now makes up about 70 percent of total revenue. That is because every time a merchant processes a payment through Shopify, Shopify takes a cut. So as merchants grow, Shopify's revenue grows with them. Luna: That is a beautiful business model if you can get it to work. You are aligned with your customers' success. Lucas: Exactly. And that is the core insight that I think a lot of startup founders miss. Shopify didn't just build a better store builder. They built a system where their own financial success depends on their merchants' financial success. Luna: It's like the opposite of predatory pricing. They want you to succeed so they make more money. Lucas: Right. And that is why they invest so heavily in education, in Shopify Compass, in free courses. An educated merchant is a successful merchant, and a successful merchant pays more in transaction fees. Luna: I think there is a lesson there for any company that sells to small businesses. The more you invest in your customers' outcomes, the more they invest in you. Lucas: Yeah, that is a really good point. And it is one of the reasons this show exists — to have conversations that might move your own work forward in some small way. If today's episode was useful to you, the way we keep these conversations ad-free and open to everyone is through listener support. You can help by visiting buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that really makes a difference. And we appreciate everyone who chips in. Lucas: So back to Shopify. The other big trend they are riding is internationalisation. Cross-border commerce is growing fast, and Shopify has tools to handle multiple currencies and localised checkout. Luna: And that opens up a huge market. A small brand in Sweden can now sell to customers in Japan with basically no friction. Lucas: Exactly. Shopify estimates that cross-border sales will account for 30 percent of all e-commerce by 2028. And they are positioned to capture that growth because they already have the infrastructure. Luna: So what is the biggest risk for Shopify today? Lucas: I think the biggest risk is that they try to do too much again. The logistics distraction was a warning. There is always pressure to expand into new verticals like banking or advertising. But if they lose focus on the core merchant experience, they could open the door for a competitor. Luna: Is there a credible competitor on the horizon? Lucas: Not really. WooCommerce is open source but requires technical skill. BigCommerce is more enterprise-focused. And Salesforce Commerce Cloud is expensive. Shopify has the best balance of ease of use and power for most merchants. Luna: So the moat holds. At least for now. Lucas: For now. But in tech, five years is a long time. What I find most interesting is that Shopify's story is really about platform economics. They started with a simple product, then built a marketplace around it, then used that marketplace to capture more value. It is a playbook that other founders can learn from. Luna: And it all started with Tobias Lütke wanting to sell a snowboard. That is still the best part of the story. Lucas: It really is. Thanks for listening to Startup Stories. We will be back next week with another conversation.