Shopify reinvented itself in a new platform-centric image at its recent Shopify Unite event in June.  A few things were made clear at the event:

1 - The platform will be customizable at its core. 

2 - Shopify views developers and partners as extremely important parts of its ecosystem.

In the race between simple and customizable, Shopify chose both, and this introduced an entirely new mindset to think about its innovation.  And in the process the company killed Shopify Plus as we know it.

The Birth of Plus

In 2014, Shopify was faced with a choice: What should we do with these two types of customers?

• Group 1: Growing entrepreneurs need more customizability than Shopify was able to provide, and the company did not want to drive its customers to other platforms.

• Group 2: Enterprises were used to much larger software platforms, but saw some benefit to Shopify’s “quick to market” approach to eCommerce stores.

In response to this challenge, Shopify created the Plus product in 2014. Essentially, it was a new version of Shopify for those who wanted a more customized product offering:

The key features were:

1. Dedicated account management and support

2. Negotiated Shopify Payments rates

3. Increased API calls

4. Access to exclusive APIs and partners

Even from its inception, this formulation had flaws. (Note: Higher support levels and negotiated rates were not the issues and I won’t discuss those here.)

Shopify Plus’ Fatal Flaws

The first flaw of Plus was that Shopify announced that its Basic store level could be killed by traffic, unless that merchant upgraded to Plus even if they didn’t need the same customizability that Plus offered.

Although it’s questionable if Shopify really wanted any of its stores to die just because they happened to be very successful, this is exactly what it did.  What happens if there is an upper limit to the traffic you can bring to a store?  At the end of the day, it means you are back to hosted software managing your own servers, and worse, you never know when it could fail. It was better for Shopify to just guarantee this without reservations.

The second major flaw in the Shopify Plus formulation came out of the fourth key feature of Shopify Plus - access to exclusive APIs and partners. In retrospect I think this item in particular was one of the most ill-conceived moves the company made.  To make good on this key feature, in June 2016 Shopify created the Shopify Plus partner program.  

The reason for this mistake is two-fold. One, Shopify split its codebase by allowing different customizability for the same features by some customers but not others. This is not a significant issue as many software platforms split themselves in this way.

Unfortunately, the second split is deadly.  Let’s look at a normal Shopify flywheel:

It’s pretty simple.  The more merchants and GMV that are on the platform, the more partners are attracted to the platform.  The more partners attracted to the platform, the more merchants find the features and apps they are looking for on Shopify first, as compared to other platforms.

The problem is that in one fell swoop, Shopify split its partner ecosystem. APIs are the jumping off point of all customization and if some customers cannot access certain APIs, then certain partner applications cannot be used by all customers either — even if the benefits of that partner application could be useful to the entrepreneur. This creates a split in their famous flywheel:

This means that if you want to customize just one part of the system that Shopify Plus has deemed part of its platform, you must upgrade to an entirely new version of the software with a higher price.  This doesn’t make sense. Two codebases, two sets of APIs, and two partner programs are too much for one scaled company to manage. 

Within the last year, Shopify asked itself an important question: “What if customizability shouldn’t be an enterprise feature, but instead should be baked into everything we do?”

These principles set the stage for the rebirth of the brand.

But Plus is So Successful!

Those who view the success of Plus as proof of this strategy are missing the point.  It is not about Plus’ success; the real point is that you can’t split a platform business in two and expect it to thrive long-term. It creates negative flywheel effects and makes the entire business operationally more difficult.

This is not a knock against Plus. Shopify had to do something, and rewriting its entire platform to become more customizable likely wasn’t an option early on.  Since then, Shopify changed its course for the better. 

Shopify’s Two Updated Core Principles

Shopify’s action at its recent event shows that the company has realized a few huge things. Both should make other platform providers worry.  

The first realization is that Shopify should scale infinitely.At the conference, it was revealed that the previous scalability of the entire Shopify platform would now be available to any single store. Let’s see if they deliver, but even to say it and not split the platform by scalability concerns (i.e. Plus can scale but Basic cannot) is a huge step.  You can’t solve a problem if you don’t admit to it.

Secondly, the enhanced realization that unique apps (those that are only on Shopify or are on Shopify first) are one of its platform’s key differentiators. The focus on developers, customization, and app discovery for its partners was encouraging to see.

What’s Next for Shopify

Shopify’s language of “three levels” is all you need to know about how the company views new platform features:

1. No code – It works out of the box, no worries

2. Low code – Only app and theme-based customization are available

3. Fully customizable – Upgrade or customize as much as you want without limits,  even in checkout.

Other platforms might note from this announcement that it took a long time for Shopify to get religion, and that the execution might get delayed or even never appear.I didn’t get that sense from the event. To me it seems that Shopify had conviction in this new message and is convinced it is a better path forward for the company. I, for one, agree.

But Shopify Is F’in Up

Well there is a problem here, and that even a level deeper than this, Shopify is splitting its ecosystem into the haves and have-nots. What do you mean?

It goes like this. Shopify can only develop so much code. It needs to rely on partners. You see that #1 above - no code? That means it needs to work out of the box. How do you do that without partners?

Here’s how it works today at Shopify:

1 - Shopify conducts RFPs on specific parts of its ecosystem (payments: Stripe, taxes: Avalara, installment payments; Affirm, etc) and then anoints a winner in the space.

2 - Shopify then demands a piece of the company. (see: Affirm, Global-E) This is the f’ed up part. Yes it protects them on the downside but it also does something more….

3 - This effectively locks out competing providers of solutions in a particular lane because their competitor is now the default choice.

So while yes the platform will be more open, if there is a chosen default already, it will be the 10% and not the 90%. (Just ask Facebook what happens when your platform provider makes it a default behavior to kill your business model: 96% anyone?)

How will this new “air of openness” compare to their “pick a winner” strategy? I think the pick a winner strategy will continue for the foreseeable future. Which could leave this whole openness approach, particularly in checkout, somewhat of a game of smoke and mirrors.

More to come I’m sure!

Next time,

- Rick