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- Lucas: So you walk into a coffee shop in Portland in 2025 — it's called Proud Mary — and you order a pour-over. The barista swipes your card on a little white terminal that just says 'Shopify' on the side. You don't think twice. Luna: Right, that terminal is everywhere now. Independent retail's default hardware. Lucas: Exactly. And that moment — a tiny coffee shop running on the same platform that powers a brand like Herschel or Kylie Cosmetics — is the whole Shopify story in a single frame. Today I want to trace how a company that started as a snowboard shop's online store became the operating system for two million merchants, and what happens when that operating system starts building its own logistics network. Luna: Two million is a staggering number. And it's not just small shops — Gymshark, Staples, even parts of Mattel run on Shopify. Lucas: Yeah, the scale is remarkable. When Shopify went public in 2015, it had about 162,000 merchants. By 2020, that number had crossed a million. As of early 2026, it's over two million, and the platform processed something like $235 billion in gross merchandise volume last year alone. Luna: And that's not just a pandemic spike. The growth has been remarkably steady. Q4 2025 revenue was up 26% year-over-year. Lucas: Which is actually a deceleration from the 40%-plus quarters they had during COVID, but it's still impressive for a company doing over $5 billion in annual revenue. The question is — can they hold that growth as Amazon and Square crowd the space? Luna: Let's back up. Shopify wasn't founded by a serial entrepreneur or a Stanford grad. It was built by Tobias Lütke, a German-born programmer who moved to Canada. Lucas: Right. Lütke and his co-founders, Scott Lake and Daniel Weinand, were trying to start an online snowboard store called Snowdevil in 2004. They couldn't find an e-commerce platform that felt modern — everything was clunky, built in Perl, terrible UI. So Lütke, who was primarily a Rails developer, built his own. Luna: That's the classic founder's journey — scratch your own itch. But what made them realize the platform itself was the real business? Lucas: They launched Snowdevil in 2006, and it was modestly successful. But other shop owners saw the backend and started asking, 'Hey, can we use that software?' Lütke and his team realized the platform had more potential than the store. By 2008, they'd pivoted entirely to Shopify, and they raised their first institutional round — $250,000 from a group of angel investors including John Phillips, who later became chairman. Luna: That early bet on simplicity — drag and drop storefronts, clean templates — it was really ahead of its time. Magento was powerful but required a developer. Shopify was for the non-technical founder. Lucas: Absolutely. And the key early decision was building their own payment gateway, Shopify Payments, in 2013. Before that, merchants had to set up a separate merchant account with a provider like Stripe or PayPal. Shopify Payments made it one click, and it dramatically reduced friction. By 2015, it was processing over half of all transactions on the platform. Luna: That move also gave Shopify something incredibly valuable: data. They could see which merchants were growing, which categories were trending, and where they should invest. Lucas: And they used that data to build a whole ecosystem — Shopify Capital, which advances cash to merchants based on their sales history; Shopify Shipping, which negotiates bulk rates with carriers; and Shopify Fulfillment Network, which is the big bet they made in 2019 by acquiring the logistics startup 6 River Systems for $450 million. Luna: That fulfillment network was a direct shot at Amazon. Amazon had been eating independent merchants' lunch with Prime two-day shipping. Shopify's pitch was: you don't need to be on Amazon to offer fast delivery. Use our network and keep your brand. Lucas: Right. And it worked, up to a point. By 2023, Shopify had built six fulfillment centers across North America. But then came the post-pandemic correction. E-commerce growth slowed from 30% year-over-year to single digits. Shopify was overbuilt. They had too many warehouses, too many people. In May 2023, they laid off 20% of their workforce — about 2,300 people — and sold their logistics business to Flexport. Luna: That was a huge reversal. They spent four years and nearly $1 billion building that network, and then just walked away. Lucas: But here's the thing — the market rewarded them. The stock jumped 25% on the news. Investors saw it as a return to focus: stop trying to be Amazon, go back to being the best software platform for merchants. And since then, Shopify has leaned hard into AI and platform tools. Luna: They launched Shopify Magic — an AI assistant that helps merchants write product descriptions, generate images, even build storefronts from a single prompt. It's like ChatGPT for e-commerce. Lucas: Exactly. And it's not just a gimmick. Lütke has said that AI will allow merchants to run their entire store with natural language. 'Create an abandoned cart email for my holiday sale' — and it's done. That kind of automation could lower the barrier to entry even further, which is Shopify's whole thesis. Luna: So the strategy seems to be: own the front end — the store, the checkout, the domain — and partner for everything else. Let Flexport handle logistics, let Stripe handle payments if merchants want an alternative, but keep the data and the merchant relationship. Lucas: That's exactly right. And it's a smart hedge against Amazon's 'Buy with Prime' feature, which lets merchants offer Prime delivery on their own sites but routes the transaction through Amazon's logistics. Shopify initially resisted it, but in 2024 they actually integrated it — with a caveat. Merchants can use it, but Shopify still owns the checkout flow and collects its subscription fee. Luna: That pragmatic approach — not fighting Amazon head-on, but co-opting their infrastructure — is very Lütke. He's said many times that Shopify competes on software, not on warehouses. Lucas: And the numbers back him up. Shopify's operating margin has improved from around 5% in 2022 to over 12% in 2025, driven by higher-margin subscription revenue and AI efficiencies. Free cash flow was nearly $1 billion last year. Luna: But there's a looming threat: Square, now part of Block, is aggressively building its own e-commerce platform. They have the hardware advantage — millions of terminals — and they're bundling online storefronts for free. Lucas: Yeah, Square's 'Online Store' is included in their payment processing fee — no monthly subscription. That's a direct attack on Shopify's $29-to-$299 monthly plans. For a micro-business doing $10,000 a month, Square could be significantly cheaper. Luna: So how does Shopify defend against that? They can't just lower prices — they have a billion-dollar revenue base to protect. Lucas: Their answer is bundling. The more services a merchant uses — payments, capital, shipping, domains, point of sale — the stickier the platform becomes. The average merchant uses 3.4 Shopify products. If you're using Shopify Payments, you're 60% less likely to churn. And they've been aggressively pushing into offline retail: their POS Pro system now powers over 600,000 locations globally. Luna: Which brings us back to that coffee shop terminal. It's not just a payment device — it's a subscription anchor. Lucas: Exactly. Lütke's vision has always been 'arm the rebels' — give independent merchants the same tools that Amazon and Walmart have. And they've done it. But now the rebels have choices. The next five years will be about whether Shopify can continue to innovate faster than the commoditization of e-commerce. Luna: It's a fascinating business. And you know, it's episodes like this that remind me why listener support matters so much for this show. We don't run ads — never have — and that means we rely on contributions from people who find these conversations useful. Lucas: Yeah, it's a small thing that makes a huge difference. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: It really does. And it keeps us independent — we cover what we think is interesting, not what an advertiser wants. So thank you to everyone who already supports the show. Lucas: Alright, back to Shopify. One more thing I want to touch on: their international expansion. In 2025, they launched Shopify Markets Pro, which handles cross-border duties, taxes, and localization automatically. International GMV grew 35% last year. Luna: That's a huge opportunity. Most of their merchants are still North America and Europe. If they can crack Asia and Latin America, that's another wave of growth. Lucas: Right. And with ai powered translation and local payment methods, they're lowering the barrier for a shop in Berlin to sell to a customer in Tokyo. That's the long game — not just being a store builder, but a global commerce infrastructure. Luna: So the question is: can a company that started as a snowboard store's side project become the default layer for global independent retail? Lucas: That's exactly the bet. And if their track record is any indication, I wouldn't bet against them.