2019.
We clap for that.
This is our largest Unite ever and this is the 4th time that everyone The purpose of Unite as it's always been is to align, is to share and is to inspire one another. Those of you in the crowd that know me know that I love to talk. So I can talk all day about everything that we've accomplished since the last Unite. But instead, why don't I just show you.
In 2006, we officially launched Shopify and Snow Devil was our first merchant. It took over a decade to hit 400,000 merchants and we've doubled over 800,000 in the last 2 years alone. Our merchants have 100 of millions of customers from almost every country in the world and almost all of those merchants used a product or service built by one of you. It took over 3 years for Shopify Shopify partners to earn their 1st 1,000,000 and in 2018 alone were paid out over $100,000,000 by Shopify, built more than 35,000 new stores and together are building a constant landscape.
That video makes me so proud to be part of this community, but we got to get started for the day. The real reason all of you are here today is to hear about the direction that Shopify is going and the amazing products that we are building. This year, we have so many reasons to be excited about the opportunity ahead, from taking online shopping to the next level, to building for large and complex merchants, from brick and mortar commerce to something that is just so exciting. I don't want to spoil it. You're just going to have to wait.
So let's kick off Shopify Unite 2019 by hearing about what updates are coming to the very first product we ever had, the online store. Thank you so much. Small businesses have such a great opportunity to scale really, really quickly. Shopify has helped accelerate those advantages. Brands are pushing
the envelope of what they're doing online because they need to engage with you where they are, which is on the Internet. What's really cool to
see is that no matter where people are based, no matter what country they're from, a brand can build community that gives its customers that sense of belonging. That's universal across every country.
Shopify's product story began over 14 years ago with 1 of the world's first web store builder. It was designed to make it easy for anyone to get an online store running without needing any technical expertise. Since then, Shopify has grown to include point of sales, mobile, sales channels, marketing tools and so much more. In fact, Shopify is now so powerful that we've taken to describing it as an end to end retail operating system for over 800,000 merchants. And just like any operating system, its real power comes from the vitality of its ecosystem.
With your help, that's why I'm excited to be here today to share with you so many new product announcements. And we're going to start where it all began with the online store. The online store is at the heart of the merchant experience. It's the center of their multi channel strategy. A major upgrade to the online store.
In 2016, we brought sections to the homepage At the same time, so if the merchants want to add a sizing chart to each of their 80 product pages, they can now do so by modifying a single section on a single master page. While merchants will love working with the new sections and master pages, there's a reason why we think that you might like that too, because we're bringing apps to sections in the online store. Soon, adding an app to a page will be as simple as adding text and images. So let's take a look at how these great improvements come together in the new editor. Nomads, one of our Shopify merchants, is launching a new bag and they're super excited.
They want to try something new by making its product page a little bit different from their previous ones. So they decide to craft more of a narrative around it by showcase sorry, by adding products photos of their product in action and showcasing more selling points. They do that simply by adding a section, the lifestyle image gallery. They also want to add more information about its dimension and material, so customers have no surprises when they receive their bags. Nomad is also optimistic that this launch will bring in more traffic to their store.
So they want to capitalize on that moment to collect more product reviews on other product pages as well. So they go to the product master page. Any changes they make here will be reflected on all product page. Now this is like the product review app and add it, just like they would add any section. They can now review immediately how this appears on all the different pages that are affected by that master.
It's that easy. With the new online store design experience, merchant will gain so much more control over their store pages without having to touch a single line store themes and we're calling this content portability. Now merchants can easily switch theme and all of their content will follow. They won't ever have to read, only to publish them later. The new editing experience has been rebuilt from the ground up with powerful new features that are more intuitive to use.
But we've also ensured backwards compatibility with all existing stores. It will be available to new and existing merchants later this year. But partners, you can start exploring these changes today through the preview of our sections API. With these changes, we're confident that Shopify is the best tool in the world to design an online store for the next generation of direct to consumer brands. All of these exciting new upgrades to the online store are designed to better meet the needs of our merchants, but we know that in commerce, merchants are only half of the equation.
Shopping behaviors are evolving too. Buyers, they now want to have a detailed picture of the products they're about to purchase. This is why we're adding support for new media types to give merchants immersive new ways to show up their products. Online Store will now support video and product page media galleries, but that's not all. We're also adding native 3 d support for all merchants.
Now some of you might wonder what's the real value of adding 3 d representations of products on store pages. Based on our current merchant experience, when a customer interacts with a 3 d model, they are more than twice as likely to complete a purchase versus when they didn't. That's a conversion lift. So why is the case? Why are customers more likely to feel confident about their purchasing decision?
Here's an example. If you're a parent or future parent or maybe even friends with parents, you might have shopped for a baby stroller. Yes. And you know what's the first question? Bumble ride, our merchants a Shopify merchant, they know this.
Currently on their website, they have all of these very detailed measurements to help customers make the best purchasing decision. With our new three d model, they could replace all of that to allow for overly anxious future parents to see for themselves how the stroller will fit. So let's see how they would do this. Customers can zoom in and out, view the product from any angle in incredible entry d model. We believe that immersive shopping experiences are the future of e commerce.
We will continue to invest into making this a reality for our merchants, their customers and our partners. Once again, Shopify is pushing the industry forward by being the 1st major platform to offer native three d support out of the box. Now there is one last key part of the shopping journey that I'd like to talk to you about, and it's checkout. At Shopify, we care very much about keeping checkout stable and reliable since we understand that this is one of the most crucial parts of the shopping journey. And we've already made checkout faster with the introduction of revolutionary products like Shopify Pay and Dynamic Checkout.
This year, we're investing on speed and performance, and it's paying off. In fact, if we compare checkout response time this week with the same week 3 months ago, we've reduced latency by 20%. But I have one more big announcement for you guys that I know will be exciting. So for the first time ever, partners will be able to build apps to extend so the first problem we're solving is allowing for subscription apps to integrate into checkout, which means buyers will no longer have to exit our merchants' checkout flow whenever they're buying subscription goods and services. This is definitely one of the most anticipated customizations by both our merchants and our partners, and we're really excited to be taking the first steps towards We're really excited to be taking the first steps towards providing merchants with checkout customizations that better meet their business needs without ever compromising a seamless customer experience.
All of our customers would feel comfortable using. Let's shift gears now and focus on those merchants and partners with more unique requirements. Many of our merchants, regardless of their size have very specialized needs when it comes to reaching their customers and making the most of those interactions. For these needs, we offer our custom storefront tools and the ability to create limitless shopping experiences. Mobile and whatever channel you can imagine.
Mobile and whatever channel you can imagine. Now for the past few years, the term headless commerce has started to make its way around our industry. But what does headless commerce actually mean? Well, it's all about having the flexibility to craft whatever experience you want on the front end using whatever tools suit the task best. It requires a platform that's been architected for extensibility, something we've been doing since day 1.
We work to provide as much or as little ability to customize the shopping experience as our merchants could hope for. And you and our merchants know this. In the last year alone we saw an over 300% increase in the number of merchants and partners adopting these tools. Take Koala Mattress for instance. The disruptive online mattress brand uses Shopify and a headless architecture alongside bespoke inventory management, marketing tools and a third party content management system to craft a highly engaging tailored experience that aligns with how they think about building and maintaining their operations.
And then there's Inkbox, which allows people to make their own unique custom temporary tattoos. They built an in house tattoo creation tool that allows their customers to create, edit, upload, Thinkbox turn to our JavaScript SDK and embedded their custom tool inside a custom storefront design that reflects their creative DNA. But what about shopping on a phone? Network is a mobile app that features a live worldwide commerce experience where celebrity guests sell exclusive collectible goods. And the products that they sell are only available for the duration of the live stream.
Network leverages our iOS SDK to build a custom shopping assist you can create on Shopify. The options available really are endless. Now over the past month we've made new versions of our storefront API available that enable support. Now I'd like to take a second to speak to an experience that we believe is crucial in helping our merchants succeed. With every year that passes technology makes the world feel a little smaller than it was the year before.
And online commerce is no exceptions to this and our merchants attract customers from around the globe the minute they launch their stores. In fact, cross border shoppers already account for 35% of the traffic to our merchant stores. Think about that. That's enormous. The opportunity that exists for our merchants is incredible.
But we also need to be honest. Everyone in this room has had a frustrating experience when trying to buy something online from a brand in a different country. Sometimes our spoken language wasn't represented in the experience. Cross border shopping shouldn't be this hard. We believe that the purchasing experience for global buyers should feel as local as buying from the store down the street.
That means speaking to a buyer in their language and allowing them to pay in a way and in a currency that's familiar. So today, I'm going to talk about a few things we're doing to make this possible. First, for those of you that attended Unite last year, you'll remember we announced our intention to support multi currency for Shopify Payments. And earlier this year that functionality rolled out to our Plus Merchant Group. Since then the largest merchants on our platform have been using this functionality to create a more well today I'm incredibly happy to announce experience.
And there's perhaps nothing more personal to our own experience than the language in which we speak. Without it valuable context, information and nuance is lost in the stories that we tell. And today on Shopify it's simply not as easy as it should be for our merchants to tell their stories to the diverse buyers that visit their sites. But starting today that's all going to change. I'm incredibly excited to announce support for our new multi language APIs.
With these new APIs you can finally store translated content for products, collections, blog articles and all of the other content that you want to translate within Shopify. We're also providing new liquid APIs so that you can serve up localized content to buyers from around the world with the same speed and reliability for which Shopify is renowned. Now not only will these new APIs allow our merchants to craft localized stories, but they'll allow you to create new and compelling services that power the next entrepreneur or the next big global brand. And the best news of all is that starting today, we're really excited to see how each of you, our partners, utilize these new capabilities to create intimate local experiences for our merchants and their cross border shoppers. In doing so, you're expanding their reach and helping them seize the opportunities that exist for them globally.
Crafting experiences that embrace the diversity of our cultures and make every experience feel local and familiar is critical to attracting and retaining loyal customers. And no experience is more
It's like no other.
I think that the growth on our e comm side stems from what we're doing offline a lot of the time.
We see
a lot of opportunity in removing the idea that there is an online and offline world.
It's really about the human connection and technology working together. The in store experience is going to
be a great start. And all of us are right in the middle of it. And nowhere is this change more noticeable than in retail stores. Brick and mortar retail is in total transformation, but that's actually music to our ears. Because where some fear change, we and our merchants see opportunity.
We see our direct to consumer brands driving this change. These are companies born online and now flipping entire categories of commerce. They obsess over the customer experience. And for them, there's no better way to connect with their customers than through conversations in their own stores. And as they've grown, Shopify's brick and mortar footprint overall keeps expanding.
In some of the most competitive retail markets in the world like downtown New York, our merchant stores are everywhere. In fact, in the past year Shopify POS has grown to power over 100 1,000 merchants. From side hustlers to fast emerging brands to retail icons, our POS has helped them all test, learn, experiment and now put down roots. To give you a sense of our scale, Shopify POS is now in more brick and mortar stores than the number of Walmart, Apple and Target stores combined. And it alone is driving 1,000,000,000 in sales.
So to better support our direct to consumer brands we've narrowed the focus of point of sale and we've made critical investments for them. Our most significant update came last September when we rolled out locations. This was a big deal and it took years of investment to pull off. It's what Toby has described as open heart surgery for Shopify. But it unlocked a new growth path for point of sale and our merchants.
That's because locations make it possible for merchants to track inventory everywhere it goes, from warehouses to fulfillment centers to stores. Every day we hear from single store brands who are planning that second store. While some of our more established brands like Chubby's now have 12 stores all running Shopify point of sale. So building on this momentum, we've made a bunch of updates that we're excited to share with you today. We're announcing a new accessory that will give merchants even more flexibility to move and make sales throughout their stores.
This is our all new tap and ship case. Our case wirelessly connects to the tap and ship reader snapping everything into place to form a complete mobile point of sale that can be carried with one hand or can fit into a back pocket. Allbirds has been using our cases in their stores for months. Here it is. And the response has been stellar.
No more checkout lines, happier customers and more sales. This is an Apple store like experience that now all of our merchants can bring to their customers. And for large orders, we're doing something extra special. We're pad printing a custom logo into the case because we know it isn't about us, it's about our merchants and their customers.
All right. It's pretty
cool. Now let's get into updates to the POS app, where in the past couple of months we've launched powerful multi channel features. We've made it possible within POS to look up inventory across all locations and next week our merchants will be able to make sales from their other locations. So when something isn't available in store, a staff member can still make that sale on POS and have those items shipped from one of their other locations directly to a customer's door. We've also brought our multi channel CRM to the point of sale.
So store staff can recommend items based on previous purchases or start a return just by asking a customer's name. And we've rebuilt our POS channel in Shopify. So it now gives merchants a bird's eye view of sales by location and by employee and lets them see who's working in their stores. This is powerful functionality and larger retailers are paying 1,000 for it. But for Shopify merchants, it's already included in their monthly plans.
And it's just one more way we're leveling the playing field for the up and comers. Now along with these new features, we've also improved our platform experience. With in person commerce being so big and so diverse, this is a really important direction for us. So today we're thrilled to roll out a new card app extension for POS. A few of our partners are using this extension to integrate loyalty and rewards apps, so buyers at the point of sale can redeem and apply points that they've earned through online and in store purchases.
Here's how Marcello lets me know that my customer Flora has 4,000 rewards points and is eligible for a $10 discount. There's no need to navigate back to Marcello. It's just a quick confirmation and away she goes. Some of the most hyped and press worthy pop ups. But now a new class of retailers who are lining main streets all over the world.
We asked ourselves if we were building POS today for the first time to scale with our direct to consumer brands what would it look like? In getting started, we talked to lots of merchants. They told us make POS lightning fast, Make it powerful but approachable. And make it seamlessly integrate with the rest of Shopify and our amazing app ecosystem. So that's what we did.
We completely reimagined point of sale optimizing it for merchants with multiple stores and multiple sales channels and who use apps for their complex custom workflows. And today it's my pleasure to share a sneak peek of our thinking. Everyone say hello to the all new Shopify point of sale. This is so much more than just dark mode. I promise you.
This is a ground up rebuild with faster interactions throughout and where apps get first class treatment. We've completely rethought the experience to help store staff complete common workflows in a flash. Now let's work our way around the app starting with the home screen where we've replaced the inventory grid with a new smart grid. The smart grid features customizable tiles that launch merchant specific workflows. Think of a top selling product collection or a custom sale.
And we've integrated apps as dynamic tiles. Frequently used apps can be surfaced individually like I've done here with Stocky to manage my inventory transfers and purchase orders and clocked in for time tracking. And all other apps are available by one tap. We're super excited to see how our partners enhance and customize POS using these dynamic tiles. Next, let's talk about search.
As inventories grow into the tens of thousands the fastest way to find products isn't by scrolling endlessly on a product grid. It's through barcode scanning and search. So we've built camera based scanning and we're now hooking into the same search that powers all of Shopify, which means POS instantly searches all products, all orders, all customers across all locations. With POS powering thousands of store managers can give employees a login that spans registers and stores and comes with a level of access that's tailored to their role. These fine grained permissions are crucial as large merchants like Steve Madden and APC roll Shopify POS out to more of their stores this year.
And these new retail staff users literally tens of thousands of people who use POS every day are now modeled into Shopify. So you can build apps for them. Everything from appointments to payroll to staff management, there's so much opportunity here. So stay tuned for a new endpoint coming later this year. Now we couldn't go another Unite without shipping our very own native version of buy online pickup in store.
Buyers will be able to check out online and select items to pick up from nearby stores and within POS we've made it easy to find and fulfill those items, automating all of the complicated logistics that come with these orders. Today, we're inviting merchants into a closed beta for this feature and it will come to all merchants in the new version of point of sale. So that's the all new Shopify point of sale. It will be available later this year on phones and tablets through a simple app upgrade and our partners will have access to it well before it rolls out publicly. We're thrilled to put all of this power into the hands of our merchants and our partners because we believe this alone is a Shopify sized opportunity and it's still mostly untapped.
And as our direct to consumer brands continue to grow, this opportunity is only getting bigger. And that need for our merchants to manage their back office operation whether online, offline or anywhere in between, that need is also only getting bigger. As more merchants come into the Shopify platform, they're going to need different solutions. After we get off the phone with a client, we're like, they don't even realize what they can be.
We are trying to make them more enabled. We are trying to make e commerce less and less technical, so they can focus on selling stuff.
But we're continuing to invest and innovate on our 2 most important sales channels, online store and in store retail. So now let's take some time to go behind the curtain and talk is because they're confused or surprised by unexpected costs. Part of those surprise costs come from shipping, and they're not helped by Shopify's lack of ability to set intelligent, optimized shipping profiles. Shipping is not a one size fits all activity, especially when it comes to different types of products being shipped from different types of locations. The cost of shipping something basic like a T shirt is not the same as shipping something fragile or bulky like a record.
So today, if a merchant sets a generalized $10 shipping rate across both, that might mean that they're either charging too much or too little, depending on what's being shipped, where it's being sent to and where it's being shipped from. The cost of shipping are a huge barrier to success for entrepreneurs of all sizes. And we are on a mission to remove this barrier. What you see as a buyer at checkout should be exactly what the merchant means to charge. And today, we're making that possible by launching shipping profiles.
Merchants and partners will be able to set up different shipping rules based on different products depending on their specific needs, fragile or bulky or high value. You can also create location aware shipping rules, ensuring that the price really reflects whether the product is coming from your local retail store and being shipped locally or whether it's being shipped from a warehouse across the country. So let's look again at our example of a t shirt and a record. With shipping profiles, you'll have so much more control over what the buyer sees at checkout, making it possible to charge less for shipping that basic t shirt and more to ensure that the rare Beatles record gets shipped in style with tracking and insurance to run their businesses most effectively. We think this is going to be the 6th phase.
After you make that all important sale, after you hear the cha ching, the fulfillment process begins. And for merchants, this can be incredibly time consuming, especially when it comes to dealing with 3rd party or off-site fulfillment teams. After an order is received, merchants spend a lot of time going back and forth on the phone or messaging with their off-site fulfillment teams, having to go and manually mark the different stages of fulfillment within Shopify or having to rely on inaccurate or wrong order statuses that don't fully reflect whether an order has been accepted, rejected, canceled or changed. It was a one way conversation from Shopify, and it didn't give enough information back to help merchants answer their most basic customer service query. Where's my order?
And so I'm thrilled to announce our new GraphQL fulfillment APIs. They'll be available to partners in developer preview today and will offer accurate instantaneous and automated control and visibility of exactly what is happening throughout the fulfillment process, including any activity happening in 3rd party apps or services. So everyone in the process from start to finish can be confident knowing when they need to be hands on and when they can be hands off. We're turning what was a one way conversation into a two way conversation, enabling our merchants and our partners to better improve collaboration with each other and most importantly, get the product to the buyer. It's so important that these APIs can react to changes throughout the fulfillment process because commerce is messy.
People change their minds. And when they do, we need to be able to support merchants in offering the best possible service. And so it's time to talk about something that many of you have been requesting for many years. So long, in fact, that it first became a forum topic back in 2,009. Eric, who runs a store called puplife.com, wrote this forum post on our lack of ability to edit an order 10 years ago.
So what took us so long to and as our CEO, Toby, explains in this response, orders touch almost every area of the Shopify platform. And changing something as core and fundamental as the order concept simply wasn't possible without an entire rebuild of the system. Now we've been investing in rebuilding those core order and inventory foundations for a number of years now, and that work has already unlocked features like We started rolling out order editing in a closed beta to merchants a few weeks ago, and Eric from Pop Life was one of the first people we contacted. Over the course of the next few months, every merchant in Shopify will have access to order editing. And I know what you're thinking, about fucking time.
Gone are the inconvenient workarounds, the lost sales, the damaged customer relationships, that's all in the past now. And a big thank you to merchants like Eric and partners like you who continue to bet on Shopify year after year. And as a further thank you, today we're releasing an important element of order editing to you, the GraphQL API. When it comes to something like order editing, it's really easy to focus on the most basic use case, a buyer changing their mind after the order is placed. But it's so much more than that.
It opens up huge capabilities for buyer control, personalization and customer relationship management. Let's take a look at some examples of how you might build upon this. Using the Shopify mobile app, which we've built with the very same APIs that we're releasing to you in developer preview today, our merchants will be able to alter orders, add custom items and even send the buyer a request for additional payment. All of the changes are now reflected accurately across the platform from the buyers' communications to the merchants' reports. And with our order editing APIs and upcoming support for discounts and multi currency, you'll soon have the ability to create all sorts of personalized and tailored experiences after the initial order is placed.
So say you want to set a new rule to say that if a VIP customer makes an order, makes 10 orders, they get a free gift. Merchants will be able to do that now through apps like Shopify Flow and partner developed apps. This not only saves the merchant the manual back office time of actually counting the orders and then finding a way to edit and control the free item, it also provides a great and accurately tracked buyer experience. For stores that offer things like post order customization or bespoke items, they'll now be able to take an initial order and work with the buyer over time to make the product exactly what they want. The opportunities are enormous and I can't wait to see what you're going to build to elevate the quality of buyer experiences our merchants can offer through your apps and integrations.
But let's wrap it up and zoom out for a moment because all the examples that I've walked you through today show a single merchant working in their back office in English. But Shopify is a global platform now, and we need to reflect that reality in the clip. And as you might have seen in their year end review video, there are now 100,000 people using Shopify in one of these six languages. And so we're going to take this even further, and we're going to launch Shopify in 11 more languages. These 11 new languages are spoken by more than 2,000,000,000 people around the world, making it possible for all of us to bring Shopify to more entrepreneurs than ever before.
And a huge part of enabling entrepreneurs all over the world to scale is helping them meet their buyers' local expectations. And watching some of our most complex and fast moving businesses do this has been fascinating. So how are we scaling Shopify to enable businesses that want to offer multiple local store experiences? And how are we scaling Shopify to help businesses that run multiple brands under one umbrella? We have an answer for them too with Plus.
At Shopify Plus, we power some of the fastest ever growing brands in the history of commerce. Brands that have scaled with Shopify, some from an idea to over $1,000,000,000 in sales. These merchants, they're pushing the edges of commerce. And it's our mission to power them now and in the future. As the world changes more and more rapidly, we will be there to make sure that brands can achieve their goals.
But a lot of things get difficult at this kind of scale. And that's and most merchants on Shopify, yes, they run a single online store. And that makes sense for them. But for our largest and most complex merchants on Shopify Plus, multiple stores are an important part of their business. They have a compelling reason to open 2 stores give them the power to segment and address different customer needs in different ways.
Serving up merchandise and experiences that make sense for diverse geographies.
But regardless of their
strategy, for our largest and most complex merchants, multiple stores have become a fundamental tactic for growth. But given the scale of merchants on Shopify Plus, using multiple stores isn't always an easy task. Multiple stores add more complexity to what is honestly already a hard job of growing and scaling a brand. And each new store means yet another set of staff to manage, more places to log in to do work, more integrations to configure, everything is duplicated. And adding stores is just one example of how things get more complicated at this kind of scale.
With expert and specialized employees, the kinds of work that merchants need to do on Shopify Plus continues to expand. And when we took a step back to look at these challenges, it became clear. Our current paradigm of 1 merchant, 1 admin, 1 store, it's been holding merchants back. So today we are fundamentally shifting the way that we think about and build products at Shopify Plus. We've reevaluated from the ground up how we think Shopify should work and feel for these, our largest merchants, whether they're using 1 or many stores.
Today, it is my pleasure to announce to you, the all new Shopify Plus. Until now, merchants operating multiple stores have had to maintain logins for each and every store. But now they'll use a single merged identity account to access everything Plus. And they will start their day with rolled up insights and analytics across all of their stores. For the first time, merchants running multiple sub brands and stores on Shopify Plus will see information about all of them in one single place.
That is just the start. The more we saw innovative and successful merchants using multiple stores as a tactic, the more we realized stores are an important building block. So in Shopify Plus, all stores in an organization will be easy to view and understand at a glance. And we know that creating stores today is a manual and time consuming process. So that's why when it's time to test out that new strategy.
And of course, growing a successful brand inevitably means hiring more staff. But creating and managing all staff across an organization is time consuming and error prone. That's why now in Shopify Plus, all user staff accounts will be managed from one central thing in this process, simpler and seamless. And it stays just as simple and seamless no matter how many stores in the organization. 2 stores, 20 seconds.
A 1000 stores, 20 seconds. That's it. But of course, we know that the work of scaling a successful business just starts with stores and users. So we're going deep on tools. Tools that are built to support multi store work out of the box.
And tools that are purpose built for the specialized and expert employees that these successful businesses have. So let's start with an example of customers. All of this is being purpose built so that brands can ultimately be more successful. And we know the bottom line of growing a new and successful brand is in attracting and keeping more customers. And up until now, there'd be no way to see a single unified view of all customers across an organization.
Now in Shopify Plus, understanding and engaging with customers gets even easier across all of your stores. When a customer calls in to support with a question, it doesn't matter which store they ordered from. Searching for the customer brings up a single central record for them across the entire business. And the work of learning about that key relationship between entrepreneur and their customer, it's no longer fragmented across properties. The total relationship is there to be understood, learned from and made even better.
And this paradigm, it makes sense across so many tools in Shopify. 1 of the first ones that we brought into the Shopify Plus organization was Shopify Flow. Merchants on Plus use Shopify Flow to automate manual tasks across their business using a point and click interface. And to date, these merchants have automated more than 1,850,000,000 tasks using Shopify Flow. To put that in perspective, if each of those tasks took 30 seconds, it would have taken 17 100 years to do manually.
It's a lot of co ops.
It used to be that configuring and managing all of these workflows across an organization meant logging into each and every store, building workflows in each of them. But now in place, merchants will be able to quickly build, understand and enable workflows across all of their stores. At a glance, you can see which workflow is on one store and which is on all of them. Or take a look at the performance of a workflow and edit its logic from a single central place. We've rolled up a centralized view of all workflows across the organization.
Just like we did with staff, stores, customers less nimble as it scales. But we've fundamentally reevaluated how Shopify Plus should work. Across products, orders, customers and more, merchants
will have
the freedom to experiment and change their strategy quickly, while keeping work on Shopify simple and consistent. In doing this, we change some of those effects of growth and make merchants more nimble as they scale with Shopify. And that's why I can be more excited for merchants to get their hands on this. The all new Shopify Plus. Now to make commerce better for everyone, we've been improving certain products in our platform for partners and our developers.
So let's see what that journey has in store.
We see ourselves as software engineers who are constantly trying to understand the need of e commerce merchants. Focusing on the actual needs as opposed to all the wants is
the most important thing. Identifying the pain points that they have, trying to create a new product that is solving a problem that it's possible merchants didn't even know they had.
They're usually really good at product development, really good in their industry, they don't necessarily have the engineering skills to really push their store forward.
As individual creators, we have a lot to provide and build things that you just wouldn't conceive as traditional
commerce. Please welcome to the stage
What a morning. Today, I want to talk about all the things that we're building for developers. But before I begin, I want to take a second and recognize all the APIs and extensions that have launched throughout these mornings talks. From point of sale card extension to order editing, more than ever, we've launched so much for developers. I think that's amazing.
1st form, more powerful for all developers, no matter what API or extension you use. This year we have 4 major goals for the App Platform to make apps easier to build, more embedded, faster than ever before and stable. So let's start it by talking about how we're going to make apps easier to build. We're developers ourselves at Shopify. So we know that you want to be the most Shopify app command line interface.
With the new Shopify app CLI, you
can now spend less time setting up
your app and more time actually building the things that make it valuable. So this is how it works. To create a new project, you launch the Shopify app CLI and then type in Shopify create project. Makes sense. Now let's switch to our code editor.
We can see that the Shopify app CLI has set up a skeleton of our app for us and that this skeleton contains all the things that we need to get started, like authentication, index pages, etcetera. And as we build, we can generate new components like pages, routes and webhooks simply by typing in Shopify generate. So that's a lot of code that we get for free. And that translates to a lot of development time that we all just saved. And not only that, all of this code is optimized to work best with Shopify, which means that it works with the latest stable APIs and extensions from the moment it's generated.
But the app is only half the equation, isn't it? We need a store to test it against, a sandbox. And so the app CLI doesn't just help us generate code, it also helps us manage all of our development stores as well. Let's see how that works. So we're in our app CLI and we can create a new development store by typing in shopify create dev store.
And then switching to our partner dashboard, we can see that the app CLI has set up a new development store for us called Quiet Pine. And that is going to help us install the app that we're building on this new development store. So this development store that the App CLI has created for us looks kind of empty. So let's populate it with some products. This gives us something that we can actually test it against.
If you're an app developer, you know how annoying that this can be. Okay. Now we're ready to launch our app for the first time. Usually at this point, we would have to host your app somewhere, copy and paste the address, log into your partner's dashboard, find where the app is and paste it in the app launch URL. And if you're hosting locally, you'd have to do that every single time you sit down to code.
If you're a developer out there, you know exactly what I'm talking about. But instead, with the app CLI, we can launch our app simply by typing in Shopify serve. That means that every time that you sit down to code, you can get started right away. The app CLI is just is a big step forward in terms of developer tooling and we're just getting started. Our teams at Shopify will continue to build support for new commands and new tech stacks going forward, but we're really proud to say this isn't a new concept actually.
For years, you've been able to embed your apps in Shopify's products. Being embedded means that you can create a more natural workflow for merchants and that merchants using your app don't have to click between different tabs. It also gives you access to native features, like the ability to edit cart and point of sale. In fact, at Shopify, we believe in an embedded experience so much that we've embedded all of our own Shopify built apps. So today, the 2 libraries you would use to embed your app are the e SDK and point of sale app SDK.
But over the last 12 months, we've completely overhauled these libraries and the structure underneath them so that they can be even more powerful going into the future. And now we're really proud to offer a new single tool called the Shopify AppBridge. With Appridge, you're able to easily learn one library and use it everywhere, from admin to mobile to point of sale. The code that you use to launch a modal and admin is now the same no matter where you want to use it. And that makes learning how to use that bridge way easier than before.
Not only that, but the AppBridge is up to 4 times faster when running on mobile. And the AppBridge works with popular developer tools like Redux so that you can easily debug your embedded apps. In terms of features, out of the box, it gives you everything that the point of sale app SDK does and the e SDK does, except with a few new exciting additions. The app bridge will also support a new context bar, product picker and new mobile functions like NFC and barcode scanning. So that if you're building an app that helps merchants manage exchanges, you can allow merchants to scan their packages instead of manually entering their tracking codes.
And this saves merchants time and energy when processing exchange orders, making your app more valuable. Shopify App Bridge is available today, and we can't wait to see what you build with it. Okay. So we've talked about how we're making apps easier to build with the Shopify CLI how we're making apps more embedded with the new app bridge. But to be really valuable, apps also need to be fast.
And so this year, we're doubling down on our commitment to GraphQL. GraphQL has a lot of advantages, but the most important one is that it allows you to request exactly what you need, cutting down on the number of requests that you need to make to Shopify. The fewer the requests, the faster your app. And we all know that the faster your app, the more valuable it can be for merchants. So let's say that your app is trying to process an order with 10 line items in it.
Today with REST, you'd have to make one API call to collect the order details, and then one API call for each line item in that order. Together, that means you would have to make 11 API calls just to get the details of one order. That's pretty crazy. But with GraphQL, this is just one these are just some of the reasons that we at Shopify believe so much in GraphQL and we want to go along this journey with you. And so to start, we've invested in new documentation to make learning GraphQL easier and we've updated popular libraries like the Shopify API gem so that you don't have to change your tech stack to get started.
Together, the app CLI, AppBridge and GraphQL make apps easier to build, more embedded and faster than ever before. But we realize that if we're going to build a platform that continues to scale at the rate that Shopify is growing, we are missing one last important goal, to make apps more stable. Over the last 18 months, we shipped some powerful new features in locations and multi currency. And they were great. They were features that merchants had been asking for, for years.
But to get them right, they required us to fundamentally change the core platform of Shopify.
And for both of these features, we
had to make a choice, either to break the API or to make the API more confusing in the long run. And because at Shopify, we believe in building for the future, we chose to break the API. And so we worked with all of you in the ecosystem to upgrade your apps. And for all of that work that you all put in, we want to extend a huge thank
you.
Looking ahead, when we were thinking about how we want to communicate platform changes in the future, we wanted to do better. We wanted to make sure that keeping up with the platform was as easy as possible so that you can feel in control of your apps and your business. Our goal is to make sure that you can easily tell what is guaranteed to work and what needs to get upgraded just by looking at your code. And so back in April, we versioned our admin API. And today, I'm excited to announce that we'll also be versioning our storefront and checkout API in July.
Now, we'll release a new version of these APIs every quarter, and each version will work uninterrupted for at least a year, guaranteed. The API, we let you know well in advance, and we give you the tools to upgrade smoothly. Versioning the platform is just one of the things that we're doing this year to make sure that we have a healthy ecosystem going into the next 10, 20, 100 years of Shopify. Because ultimately, we're all in this journey together. Tim, please join me in giving a very warm welcome to our Chief Product Officer, Craig Miller.
Thanks Vanessa. So let's quickly recap about some of the things we've been hearing about so far this morning. Well, we started out by talking about our brand new online store editor with master pages, draft themes, app sections, videos, 3 d models, augmented reality. We talked about how it helps you sell across borders with native multi currency and multiple languages. Then we talked about retail.
We talked about a brand new completely rewritten Shopify point of sale that beautifully complements the nice new hardware that we've created for it. Not to be outdone, we also talked about Shopify Plus which has now been completely rebuilt to support multiples online stores in one native interface. And of course, we talked about updates for merchant backend, order editing, I know it was a huge crowd pleaser, and shipping profiles. And finally, we talked about some great new developer additions, APIs and lots of sections as well. And so what's the common thread between all these announcements?
Well, It's a belief that technology can enable the smallest merchants out there to compete with the large giants. And it's a belief that Shopify will allow you to build an enduring valuable business on your own terms. But we're not done yet. Let's talk about one more thing. So today, when we click the complete checkout button, when we order from independent e commerce sites, we all are so excited to get that item, but we end up waiting or how long a shipment will take, we end up actually losing a conversion.
We've all done this. So the question is, why does shipping still take so long and cost so much? Well, let's return to Nomads who are based in Indiana. So they've recently moved from storing $13 $26 for shipping depending on the carrier. Now, NoMad's also has to pay for space in their warehouse to pick and pack their order as well.
So if they tried to offer something like 2 day shipping without passing on that massive cost to their buyer, they'd lose anywhere from a third to all of their profit on shipping alone. So the way to get faster shipping without breaking the bank is to get inventory closer to the end buyer. So Nomad starts looking at the world of outsourced third party logistic providers. And what they discover terrifies them. 1st, they run into issues with complex pricing.
See contracts normally run multiple pages long, sometimes dozens and dozens, and they require year long or multi year contracts. Worse yet, it actually becomes difficult to figure out what's the actual cost in fulfilling an item. Then they run into an issue with discovering that their inventory cost on hand, that's normally their single largest expense actually has to balloon by about 15% if they want to start having items in multiple warehouses. Then they discover the issues with technology. Integrating with multiple warehouses oftentimes takes months and even more depending on who you're trying to integrate with.
And then of course you have multiple competing sources of inventory of truth on inventory. And finally, you run into issues with poor performance. What I mean by that is oftentimes the wrong products get shipped to the wrong address, delays in processing time and so on. So why not just use a fulfillment system offered by one of those large marketplaces out there? Well they too have their issues.
1st and foremost, they're actually not accessible to small merchants. In fact, recently in the news, they've been actually talking about kicking out some of their smaller merchants to get rid of those that aren't selling fast enough. Then there's the issue of customer data. Some of these large marketplaces out there actually start taking the customer data and using them in other ways. Then there's the issue of your brand control.
Let's admit it, you want the package arriving in a box that has your logo on it, not theirs. And finally, and probably most scary, is unfair competition. Recently, we've started to see marketplaces using data like order volume to actually decide to create knock off products for less money and lower quality, potentially competing with the actual we have built a geographically dispersed network of fulfillment centers with powerful machine learning that supports intelligent demand forecasting, inventory allocation, order routing. If you don't speak geek, today I've decided to announce the Shopify fulfillment network. So what is the Shopify fulfillment network?
Well behind the scenes we've set up a network of fulfillment centers currently spread out all throughout the United States. This network ensures that orders can be delivered fast. Then we use machine learning to predict which node should contain each of merchants skews and how many so that merchants don't need to actually replicate their products all over. And finally, we've connected all these disparate warehouse predictive algorithms and Shopify together in a perfectly seamless way. But what gets me most excited is the merchant experience though.
We've taken something that used to be costly, complex and well convoluted and made it totally approachable. But instead of talking about how easy you've made it, why don't I show you. So here's how a merchant will experience the Shopify fulfillment network. Step number 1, install the app. We all know how to do this, right?
Okay, good. Done. Step number 2, select the products you want fulfilled by the Shopify fulfillment network.
That was easy.
Step 3, review a custom, easy to read quote with a monthly storage cost and a per shipment cost. And step number 4, send us the products. That's it. It's that easy. Once enabled, a merchant using the Shopify fulfillment network doesn't need to think about picking, packing, shipping or fulfillment ever again.
We'll periodically tell the merchant when to replenish their inventory, so they'll never have to stop selling and buyers always get their shipments fast. The Shopify fulfillment network is already up and running. The first store that was using it was naturally our own, the Shopify hardware store, where we sell hardware for the Shopify point of sale system. Now previously, the hardware store had been using a single fulfillment center based in the middle of the U. S.
Orders were processed thanks to the Shopify fulfillment network. The hardware store now ships 99% of their orders the same day and 99.9 of them without error. In fact, we've actually shipped out early days for the Shopify fulfillment network. It already supports a lot of great features. For example, it supports multiple channels.
So in addition to supporting your online store, it also supports wholesale channel, retail fulfillment, social channels like Instagram to help you want to sell in those marketplaces like eBay and Amazon, it supports that as well. It supports custom packaging and branding. So that means no more dull cardboard boxes obscuring your brand. It also supports returns and exchanges, kitting other value added services as well. But what gets me personally the most excited is the merchants it supports.
The Shopify fulfillment network supports merchants as large as those that are selling 10,000 packages per day down to those selling or sending out just 10 packages per day. We have designed the Shopify fulfillment network for everyone. And what I'm even more excited about is by the end of this year, our plan is to scale it up and down. So by the end of this year, we should be able to serve merchants that send out 30,000 packages per day, all the way down to those that are just selling or sending out 3 packages per day. And at that time, we should be able to deliver to 99% of the Continental USA within 2 days or less.
So where are we today? Well, today I'm happy to announce we've completed our beta and are now starting to provide early access. And that means qualifying merchants can start to apply to use the Shopify fulfillment network. Again, if you ship between 10,101,000 packages per day, we might be the perfect solution for you. So go to shopfly.com/fulfillment or contact your Plus MSM for more.
As well, we're now accepting new fulfillment partners into the network. You see the Shopify fulfillment network is designed to include both fulfillment centers that are run by partners as well as centers that we will operate on our own. So if you run a fulfillment center and are interested in partnering with Shopify, please let us know. So in case this isn't clear by now, and I hope it is.
I love that guy, Craig Miller. What a dude. What a morning. You guys having fun? So many new features, so many new announcements and so many new ways all of us are making commerce better for everyone.
As I mentioned earlier this morning when I was on the stage, this is our 4th Unite now. The 4th time we as a community have gotten together to share our stories, to inspire one another and to align. And as some of you may have noticed over the years, I usually like to start off my keynotes each year by taking a look backwards. Now while my clothing hasn't changed much over the last couple of years, basically everything else about Shopify in this community has evolved dramatically. So let's start by taking a look at how our merchants have done because ultimately they're the reason we are all here today.
We currently serve 820,000 merchants on our platform. That's 820,000 entrepreneurs of all sizes that rely on us and you to grow and to prosper. In 2017, our merchants sold about $26,000,000,000 worth of products on Shopify. In 2018, they sold more than $41,000,000,000 And over the course of a decade, merchants on Shopify have sold more than $100,000,000,000 worth of products, Incredibly impressive. And in the last 12 months alone, more than 218,000,000 buyers have purchased something off a Shopify store.
It's a lot. It's a lot of commerce. And I find the easiest way to visualize the impact of all those sales is to do the following. If you combine all of our U. S.
Merchants and their sales, what you realize is that Shopify is actually the 3rd largest retailer in the United States. I love that. Now let's take a look at how our partners have been doing and how this community has grown over the past couple of years by you. And those merchants have sold 73,000,000 products or $64,000,000,000 Finally, where my theme designers at? It will be loud in that theme designers.
Our merchants have purchased more than 350,000 of the themes that you have built. Like I said, mind blowing numbers. Here's something else that I was blown away by. It took us about 9 years to pay out the first $100,000,000 in app store rev share to partners and only 12 more months to pay out another $100,000,000
Amazing.
The opportunity ahead is truly massive. You've often heard me say that we at Shopify, we want to create more value for you, our partners, than we capture for ourselves. And I find the best way to demonstrate this is by looking at what I call the partner economy. The partner economy is the amount of money, the amount of revenue that flows to all of you, our partners. And last year at Unite, I told you that in 2017, Shopify, we made about $673,000,000 but that you were partners, you made more than $800,000,000 that year.
Well, in 2018, Shopify made about $1,000,000,000 We estimate that you, our partners, you made more than $1,200,000,000 that year. Let me pause on that and say congratulations. And as we've grown, so have our teams, Shopify now employs more than 4,000 people in 17 locations. But what's even more impactful is that by our best estimate, you all employ both directly and indirectly more than 700,000 people. You are the job creators and it's because of you the Shopify partner economy has never been bigger or stronger.
What started out as a small regional partner program has spread around the world at an incredible pace. On the slide behind me, you'll see just a few of the brands that have launched on Shopify in the last 12 months. In every single case for every single one of these merchants, their desire to come to Shopify was predicated on us having this amazing partner community so that all of them can find true product market fit in our platform. Think about this for a moment. The biggest brands, the coolest products, the greatest companies on the planet all use Shopify and this never would have happened if it wasn't for all of you.
I had the opportunity recently to meet Micah from New Zealand. Over the course of the last couple of years, her life was completely turned upside down. In the same year that she was robbed at gunpoint, she was in a plane crash and her business was put into liquidation leaving her bankrupt. Now adversity like that blow after blow would be enough to make anyone give up, but Micah did not. She was not done being an entrepreneur.
Micah has spent the last 2 years building an agency called Levels in New Zealand, helping local entrepreneurs build great businesses on Shopify. And today, she's one of the most popular partners in New Zealand. Micah, you are here today. Please stand up. And ladies and gentlemen, please help me welcome Micah to her first Shopify Unite.
Thank you. I'd like to share a story about a company that is so popular that everyone in this room probably has heard of them or knows their name. 10 years ago in a coffee shop in London, England, 2 aspiring entrepreneurs were sitting around talking about how much they hated their corporate jobs. They want to start their own entrepreneurial venture and find their life's work. So loaded up with credit card debt, they registered a company and began making websites.
They called their company, We Make Websites. They then decided to move entirely into e commerce and then entirely to Shopify. They became the inaugural Shopify Plus partners. They opened a second office in New York City and to date have brought on more than 150 Shopify Plus stores for brands like PepsiCo, HarperCollins, Bulletproof Coffee, Mavi Jeans, DeBeer Diamonds and Hasbro. With a team of more than 50 people, We Make Websites is currently one of the most successful e commerce agencies on the planet.
Alex and Pierce please stand up. You've been here for every Unite. We want to welcome you back. I would be here for days if I was able to share all the amazing stories in the room today, but we got to move on. So let's shift from the past to the future.
Let's talk about the opportunity ahead. That's why we're all here today. Each year at Unite, something happens. I get pulled aside by a number of people asking me the exact same question. It's a simple question.
They want to know whether or not they are too late to join the partner program, whether they miss the boat. And in an effort to never have this conversation ever again, want to be very clear about this. The answer is unequivocally no. And you heard from Craig about all the amazing things that we're doing with the Shopify fulfillment network. All three of these are massive opportunities and all three of these did not exist even 12 months ago.
I'm going take a moment to dive into some of these opportunities. This is a massive opportunity for all of you to build incredible in store experiences. On the international side, there are massive opportunities there as well. Shopify has been a global company for quite some time. We've had merchants in 175 countries.
But historically, our focus has been on helping English speaking merchants sell to domestic buyers. It's time for us to think local everywhere. Going forward, we want Shopify to connect every merchant in the world to every buyer in the world. We need your help building country specific features like local fulfillment solutions, local sales channels and local marketing tools. Merchants need to feel like Shopify was built for them no matter where in the world they exist.
And apps built by all of you are the necessary building blocks to do that. As Craig said on the fulfillment side, in order for Shopify's fulfillment to achieve its full potential and deliver as much value as possible, we need your help building apps for things like fulfillment and drop shipping. We need your help building warehouse management software. We need your help, those of you that have warehouses and 3PLs, we need you to join the Shopify fulfillment network. As you've heard on stage this morning, we are actually building here is the world's first global retail operating system.
And for that operating system to achieve its full potential and as it adds much value for our merchants, we need your support, your enhancements and your input. This in turn will result in more opportunities than ever before for our partners. With that in mind and with the sheer size and strength of this community, you begin to realize something quite profound. Shopify's partner ecosystem is actually the world's largest community of entrepreneurs supporting other entrepreneurs. And because of this, we have a responsibility, all of us.
Together, we are the guardians of the world's entrepreneurs. And more than ever before, the future of global entrepreneurship depends on all of us. This year marks my 10th year at Shopify. But I've spent almost a third of my life at this incredible company. And I can confidently say this is the most excited, the most inspired I've ever been about what lies ahead for Shopify and for all of you, our partners.
So to all of you, I say this, get ready, because the opportunity ahead has never been bigger. Thank you so much for your time.
But we're not quite done yet. We wanted to present something special this year in what is our annual Ask Me Anything with Toby. We are for the 1st year going to have Toby on stage and have a partner come up and ask him the questions. Kara Hogan from Shopify Plus Tech Partner, Zees, ecommerce content strategist, will be asking Toby his take on this morning's announcements as well as asking your unfiltered questions. Please help me welcome, Tobi Luque and Kara Hogan.
So excited we get to sit and relax
a little bit.
How's everyone doing? What's that like? Give a round of applause for all the amazing Shopee folks and all the people who have worked back behind the scenes like United is a serious commitment and there's a lot of teams running under that particular ball when it's in the midair and I could not be more proud of this place. It is absolutely fantastic to see this come together. Thank you so much over there.
Thank you.
Love it. Could not agree more. So when the Shopify team asked me to come up here and be kind of the partner representative today, do you know what was the fun fact that every single person told me about you, Toby?
What?
One guess. They all said, oh, Toby recently interviewed Barack Obama.
And I
was like, Oh, great, I get to follow Obama. Very relaxing.
That's perfectly appropriate.
Yes. So hopefully, I won't do too bad. But I think a lot of people in this room know your background. As an entrepreneur, you went from being a programmer to being a snowboard salesman to founding the company. And along the way, I assume your job has changed a lot.
So how have you evolved and shifted and adapted as you've had to change in your role?
I mean, yes, it's changed. I feel I have a new job every probably 6 months. I loved every single version of the particular job that I've encountered so far. And I think the common thread has been I basically I think the reason why I tried to build a Snowboard store is because I was just deeply curious about the idea of building a business. I think I mean companies are not popular as a concept right now in society.
They talk a lot about what they what all the things are that companies do wrong, specifically a lot of tech companies. But I think every once in a while, it's sort of stepping back and saying companies are themselves a technology. They are like it went through all these changes, but there's always this next thing to learn. And I think this has just been something that we have incorporated as a core value in the company. We definitely seek the curious people.
We seek the kind of people who see something messy like the way people currently have to finagle to get products to their customers and say, actually, all of that problem, why don't we make that our problem? And that takes a special crowd of people. And those kind of people have showed up along the journey, and I still have been incredibly fortunate to be part of it. And I'm the luckiest person in the world. I think I probably like I'm won the lottery 5 times in a row, and it's just incredible.
Love that. And so obviously, not only a role is changing, but this market is changing every day. And one of the biggest trends is direct to consumer. We see it everywhere. We all know that it's incredibly powerful.
But even direct to consumer is now changing. So they're doing unthinkable things like doing partners with traditional retailers like Target and Walmart or doing traditional advertising campaigns like a billboard or TV ads. Where do you see this market evolving and continuing to change? I think so
my read is a little bit different on the direct to consumer thing. It's a worthwhile label, but I think it actually talks about something much more interesting that's going on. And to see what I mean, you kind of have to look back in history where retail comes from. I mean, in this morning's land acknowledgment, we've heard that people have been trading for tens of 1000 of years right here on the spot. I think like sometimes I hear companies talk about, hey, we're one of the first direct to consumer companies.
And I always want to say, you know the blacksmith 2000 years ago was probably a step ahead of you. It used to be that you went to Townsquare and you went to the Town's Cobbler, and that was a direct to consumer relief of understanding and feedback and learning that was unbroken with a relationship directly with consumers. Now acknowledging I should acknowledge that this was an experience that probably only the more fluent had. And of course, what the Industrial Revolution afterward has done is it democratizes access to the kinds of products. And so I think what the direct to consumer thing is, is actually us all saying and raising our hands and saying, you know that ideal state of retail in a more inclusive way that is accessible to more people, we can unsever this link again and directly connect you to your customers so that you can actually make a product directly with the kinds of people who are then consuming them and are in this relationship, which leads to much better products.
And this often happens in a digital native way because this is just simply the best substrate for creating these kind of businesses. And so we see much, much better quality products appearing. And therefore, we see people consuming them at much faster adoption levels. And it's not it's more about the quality than about the Internet component. And that's my read.
The fact that now afterwards, you see the superior products make it on the shares of Target or start these companies starting retail stores or billboard apps, I mean, those, I think, are just simply functions of these being very well run businesses. And I think everyone in this room knows customer acquisition on things like Facebook and Google is getting rather expensive. And it turns out that starting a retail store is often a cost optimization in comparison. And billboards are actually pretty underappreciated and so on. So I think all the tactics are end up being used by these companies, which just have been built around a very direct connectivity with their users.
So what you're saying is we're all just blacksmiths?
Yes. I think we're all kind of idealizing the maybe not on, maybe it's just me. I think we are idealizing I am idealizing this town square and working with the artisans and craftspeople. We just have this deep love for the problem they are solving and this deep task understanding.
And so with that in mind, how are you building the future of Shopify and trying to serve the needs of this evolving market? What products do you feel like are really going to help that? Obviously, we just heard about all kinds of exciting new announcements like fulfillment and enterprise products. But what do you think is going to make the biggest impact?
I mean, I do think I mean, you just saw a rendering of our strategy. So I don't have anything to add at this moment. But I do think that the experience, like the fulfillment experience is a part of it. I mean, the kinds of people who signed up early for Shopify in early days were attracted to Shopify because it was one place where you could start an online store and also make it look like your own, like this is you, your brand, like just as you as a shopkeeper would experience and commitment that comes from a fast delivery are really important components of this. But zooming out further, there's still a lot of things difficult, a lot of things wrong in this thing.
I don't think Shopify is ever satisfied with the product it is.
No great entrepreneurs.
Exactly. And I think if we would take like we don't even have to go back that far, but just for illustration purposes. The Shopify as it was during the 1st Unite 4 years ago, if this would exist right now, it would have no hope of competing. It would be hopelessly outdated. And it would let all its customers down because I mean, just for the things we talked about today.
We highlighted it a little bit, but having 3 d models of your products might double your conversion rate. That is clearly industry specific, but I think it's this will develop very quickly to the point that if you are a furniture store of any significance and you don't have these features available to yourself for your customers to actually try the couch in their living room to see if it actually fits, I don't think you are going to sell because there's going to be a lot of other folks who will be able to offer that. And I think potential every time some significant change happens when it comes to technology is that the people who are going to be there to offer already big. It's like IKEA is fine. IKEA has had 3 d models for everything they've built for a long time because their catalog, which they publish, is actually 3 d rendered.
So they are ready, but it's like what excites us at Shopify is to make it so, and Craig acknowledged this, that the furniture, so we're just an online store presence together, actually has all their needs to compete and enter this global marketplace, get to the point where they have 10 or 3 orders a day initially, after which we can start having them deliver their products, which then feeds back into the experience of the customers to try to bring this to much more significant levels. And the more parts of this journey we can assist with, the better it gets.
Yes. I love that idea of assisting any customer no matter how small they are or how large they are. I think that's very admirable. And so you also have a unique give you a specific timeline. So next year, But I want to give you a specific timeline.
So next year at Unite, we're all here hopefully. And what do you think will be different? What do you think will be the same? What do you think will matter the most?
Well, this is like my entire team goes like, oh, my God, I hope he's not going to answer. Easy to understand company. I think all of you have a sense for there's an completely infinite amount of such pain. There is enormous amounts of uncertainty about the future. There are tidal waves from all these different technologies that are coming that are going to hit the industry.
There's going to be I would say that there's a lot of worthwhile conversation about the future of work, about the way the nature of work might change with AI and similar technologies and optimization in general and robotics coming sort of into their own. And I think what is I just heard jit jing here. That's good. That's nice work. And I think this is what we where we want to have a conversation about how far can we take this idea of making it more approachable and simpler for more people to reach for their own independence and build the kind of businesses that they might always have wanted to build.
This is I've talked at various previous Unites about this. But one of the most remarkable things that Shopify has figured out, and this is I could not be happier about this being true because of course my bias going in and then the data confirms it, which is obviously the best thing data can possibly be doing, is that the demand for wanting to have a business is obviously huge, right? Like who doesn't I mean, who doesn't want a profitable side business or main business? And the problem is why there is not by where supply and demand doesn't meet. It's mostly around the concept of friction.
And so what we found is that ever we are taking something that is a significant hurdle in the process of building one of those businesses. And we managed to make a significant change to this or even just file away at the jagged edges of it, just somehow smooth the learning curve that people have to go through. If we do this, it's not just more convenient to the people who would have succeeded anyways, the people who showed up with the grit or the unfair advantages to overcome these challenges. It's like just a handful of fewer people are giving up. And that makes all the difference because that means every time you make one of those changes and just say, hey, again, this sounds silly, but yes, like chitchings and for the first time.
And that day may well be one of those days backdrop of a world where potentially the nature of work changes, where there potentially is less employment in certain industries. The way to solve this is not creating a couple technology mega companies that are supposed to employ everyone. What we need is we need to millions of independent small businesses that provide great employment for 10 to 20 people. That is what the economies need from us. And so I don't see a lot of push into this direction.
And so what I would hope that we talk about at Unite are these topics and the kinds of things that might seem insignificant but mean that more families experience a story like this and that more people succeed. And then as the people who are then creating these businesses and stick with the business and scale these businesses increasingly become run them as global businesses and be able to do this with little fraction, then eventually seamlessly convert into a world where they run a store per market or develop these sub brands, turning this into not a Board of Director level decision and a 3 month hiring plan for new staff, but rather turning the creation of a new store and a new territory into a lightweight operation that might just be a single click. Smoothing this particular learning curve and going further and accomplishing this and productizing this and doing all this and creating as much surface area as we possibly can to enable everyone in this room to give everything you have back into this community and teach us and show us much better ways than we could ever have imagined and to support the people who are on their own journeys.
That are also going to be the topics and hopefully a couple of surprises along the way.
Yes. It's a very different version for the future. So that's enough questions from me. We want to actually move into the AMA portion where we've put together a list of questions that all of you have submitted on the app. So thank you for doing that.
What happened and how can we avoid it? You guys don't pull the punches on the questions, just saying.
Okay.
Well,
That shouldn't be too much of a disclaimer because I think everyone knows and understands this, but Shopify prioritizes the merchants. They are the stars. There's no Shopify without the merchants. There's no partners without the merchants. There's no ecosystem.
There's nothing. They are supreme. We tell their stories. We appreciate them. We talk to them on the phone every day.
We build for them the enabler. This management, we got into a really unfortunate and kind of silly issue around it was we needed the what's it called, the unsubscribed data from the mailing list. It's actually it doesn't seem like there's like a bang or so I thought. But when you use Mailchimp and someone unsubscribes from your mailing list, then obviously they know that. What we said is we need to know this.
And the reason is so that we can tell every other app that can send emails. Because if we can't tell every other app that sends emails about this, then they might inevitably send emails to people who have unsubscribed. And that is actually a violation of a lot of local laws around the planet. So therefore, we needed this data. We got into a situation that, that became untenable for them, we needed a time out.
Like just to be clear that this happened not out of a sudden, this involved the conversations. They knew exactly that this was the agreed course of action. I don't know why, but that's where we ended up. And so that's the situation.
I do like the idea of treating Mailchimp like a 5 year old that needs a time out. So next question, What are some of the ways Shopify's partners can give back to the community? Are there Shopify school programs or something similar that we could contribute to?
I love that. This is one of the more gratifying things with Shopify, and it's the company's sort of expansion. I actually participated in an apprenticeship program to learn computer programs together, working with local universities. It's called Dev Degree, which is, I think, a maybe not superior, but definitely and then very important additional potential of educating people. I think this comes from a position of early insight is that if you give eager, bright people an opportunity, then this is going to be in.
It always seems basic, and you think everyone knows what these things look like, but they really don't. Most people don't understand what a company looks like. Most people don't understand what it really feels like. And these are very, very, very modern companies that all the people in this room are building. And the kinds of lessons that we don't even acknowledge are lessons are often life changing events in the personal stories of those people we can take chances on.
I would just say, though, that one of the things that is really important to acknowledge is that there is a great cohesion in the very thing that we all are working on and the social good. I am exceptionally comfortable with where Shopify sits in society. The side effects of Shopify's success is that more entrepreneurship in the world happens, which I think we can all talk about. Like technology is a very good thing. The stories I love sharing, like last year at Unite, I talked about this wonderful furniture store on Fogo Island, which is an island off an island in the middle of Atlantic.
This store is completely integrated into the global world of commerce from this incredibly remote place. I recently got had the opportunity to visit the craftspeople there. So there are a lot of places in very remote areas that can really use all of our help. And there's any kind of incentives or just nudges that you can do, potentially discounting in like very remote places, in reserves, in Sub Saharan Africa, in all these places where maybe opportunity just doesn't hit people, the frequency that we might see in a city like Toronto. Is it actually a way for you, through the very thing that your business does, to make things better in a meaningful way?
Because I just don't think we need this separation, that is go into the world of capitalism, make your money and then invest into social good at another phase of your life or through some kind of programs. Both programs are great. Let's do them as well. But let's acknowledge that the very thing that we are helping our customers with actually has very meaningful social impact in these communities, especially in the more remote areas.
I also just wanted to say thanks to Matt Schlipp for that question. I forgot to give him credit. So next question, looking over this list, we had a lot that focused on international. There were questions about Japan, Israel, India and others. So I'm going to try to sum it up in one question.
We've heard about how Shopify is focused from a product standpoint as it relates to multi currency and multi language. But what are you most excited about going international? And where do you see the opportunity? That's an anonymous one.
It has been fascinating from the inside. Mean, I grew up in Germany. I am here with Shopify in Germany. And this we had to do this because it just building a company initially requires trade offs, and that's the one trade off we made. So it's been super gratifying to now get into this mode where we can help people, like where we become ourselves a much more global company.
And we take all the learnings that we are having about setting our own companies up for being global to our customers and markets. And in many cases, what we realize is there is no one solution for definitely not for a world. Increasingly, the way developing the APIs and the patent platform has always been a fantastic idea. But specifically, as we've taken Shopify Global, we realize just how good of an idea this was because in so many cases, the better position for us to take is to create APIs that enable local customization rather than trying to make something that because I think that is a losing battle. And so I think we learn a lot about ourselves in different countries.
People have like if you think that the quality of your work is good enough to ship, wait until you launch in Swiss. Like specifically, Germany is pretty up there too, but like there are some cultures where the minimum acceptable quality is so much higher than North America is really remarkable. So it's humbling and actually riveting. And I think it makes us better at building software. And it's such an opportunity for our customers.
Again, like going global is a big decision. It's very, very hard. It's fraught with complexity. And those are the areas that we have a weird company that gets really excited over things that everyone else hates. So we are excited to try to help as much as we can.
Of all the things to be, headless doesn't seem to be one of them.
Sure. But that question comes from Robin Smith.
I mean, I've seen this play out many times now. It's amazing how powerful words are. Words are handles for concepts really, right? Now that will perhaps give shed more light on the possibility of people doing this. I don't think it's if you try to replace all these things, the problem is now you're basically you left the train.
You're on a station. And at some point, likely, you will want to jump back on this train again. And that tends to be a fairly painful experience. Now if every rule like, I mean, if you know exactly what you're doing, do it. It's a good idea.
But as we are looking and seeing more people wanting to do this, one thing that's important to us is make it so that we give people better APIs so that they don't actually have to like if Shopify Pay picks up or Apple Pay or something emerges or AR becoming a very important ingredient, that you don't actually then have to start launch your own development program of a couple of months to just draw even with what the rest of the platform has. That's really important. And so this is what we're looking at.
So I want to squeak in one more question before we wrap up. So we had a few questions on AR and VR, including how you're working with partners to make AR models of store products. So how is AR playing a role in your future roadmap? What does it mean to commerce? And any thoughts on that overall
theme? Yes. I think it's really big. I think look, the Internet is a storytelling medium. And we told stories through static images for most of the history of the web.
We have seen over the last 5, 6 years a significant shift towards video as a storytelling mechanism, which is a much more human way to experience stories. It's a better fit for the kind of world that we're doing. So just being able to have video properly integrated, I think, was very, very important. And I do think that we can make the entire world a whole lot smaller if people can just really see the currently, the only really good way is to employ talented modelers. And I really, really, really hope that the partner community can help set this up, can help give some of the talented people who can do this employment so that you can work with potentially more of a plus side of the house.
There's 1,000,000,000 of dollars of research going into depth sensors and all these kind of tools on the phones to potentially, at some point, get away from the need to model, although that is still further away. It's going to be a little bit touch and go for a while. But having the models for the flagship products is going to be very valuable from all the data we've seen, and I think that's really exciting.
Great. So anything you want to say to this wonderful audience of partners before we wrap up for the day?
Again, I couldn't be more proud of this company, of this community, of all the things that you've accomplished and built. This is our opportunity to learn so much. So please find people from the team and just tell them, if there is something you like specifically, mention it, but tell us what sucks. That helps so much more because those are the things we can do the most about. And we are trying to build the perfect fit software for this space.
And this is a huge opportunity, and you have such a more direct connection to the people who are then using the software. And so please, please help us. This is a collaboration. And we know what we can build from our side to enable you guys. And then we can all supercharge each other.
And thank you so much for coming to Unite. This is such a wonderful event. And I know a lot of you made very long trips out here. And so we really deeply appreciate it. And thank you so much for coming.
Thank you.
This is such a
hello, hello. Good afternoon and welcome everyone to Shopify's Investor Day at Shopify Unite 2019. Whether you're listening over the webcast or whether you're here in the room with us today, My name is Katie Keita. I head Investor Relations here at Shopify and I'm so pleased that the Unite team was able to make room for us here at this conference. This conference just gets better and better every year and just a really big shout out and thank you to the Unite team who did a lot of the heavy lifting for us.
If you did not get a chance to see the demo area downstairs, I would encourage you to after our talk track. And I hope you all took really good notes during the keynotes because there was a long list of product announcements and hopefully you got to chat with our gracious partners who made time for this lunch here and some of the Shopify product leads and got to chat with them as well. Now we're going to round out the day now with the next few hours. They're devoted to a fantastic lineup of speakers, starting with our CFO, Amy Shapiro. Amy is going to be followed by Harley Finkelstein, our COO and then Lauren Padelford from Shopify Plus.
After that, we'll take a 10 minute break and then come quickly back into the room. And we'll hear from 2 more speakers, Jeff Weiser, our Chief Marketing Officer and, Toby Lutke, our Co Founder and CEO will close the day for us. Now, because we have people listening over the webcast, I'd ask you to wait until a microphone comes to you to ask your questions because after any prepared remarks from the speakers and of course we're going to turn it over to you for your questions. And finally, if you've been following Shopify for a while, you know that we only give business updates 4 times a year and that's when we report our quarterly earnings. So, any questions that have anything to do with updates on the business for April or May, please just hold them until we report earnings at the end of July or early August.
So, there is still so, so much going on at Shopify that there is a ton to talk about today. So I'm going to stop talking and I'm going to welcome our CFO, Amy Shapiro up to the stage.
Hey, good afternoon. And welcome to the investor track of Unite. Those of you who are here in Toronto with us, thank you so much for being here and participating in this exciting day for us. You heard from leaders across Shopify this morning all the ways that we're making commerce better for everyone. The success of our merchants drives everything that we do and that in turn drives our success and then generates value for investors.
I'm going to build on what you heard this morning, leaving you with 2 core takeaways. 1st, a clear understanding of our merchant centric business model, which is built to be able to scale. You heard a lot of that this morning of how we're scaling, and there's a whole lot more potential there. And second, how that puts us in a great position to pursue new opportunities for our merchants, specifically highlighting Shopify Fulfillment Network that was just announced this morning. Before we start, please take note of our disclosure on forward looking statements and non GAAP financial measures.
Okay. So let's start with the first takeaway, a clear understanding of our merchant centric business model, which is essentially the Shopify flywheel with 3 strategic objectives, which you see on the slide. It is absolutely central to how we achieve our mission to make commerce better for everyone. So let's talk about how the flywheel works. The flywheel starts with keeping a wide funnel.
Seeing commerce through as broad a lens as possible ensures multiple voices contribute to the future of commerce, and it informs our product roadmap on how we can make our platform more powerful for all merchants. Next, leveraging that information and keeping merchants' operations simple, we attract more merchants by providing them with the tools to easily manage their business, more channels, more partners, more capabilities. Lastly, all of that results in keeping merchant sales growing. By simplifying their operations and giving them great tools, we help them to be more efficient. By being more efficient, they're able to devote more resources to growing their business.
Every dollar that we spend as a company is to achieve these three strategic objectives and to energize the flywheel. The flywheel has also been helped by strong secular tailwinds, the rise of self employment aided by technology a growing desire to shop online rather than in a mall and large enterprises wanting to be more entrepreneurial as well and have a direct relationship with their consumers. And we continue to add energy to the flywheel by pursuing new opportunities, continuing to grow our platform in international countries, delivering more of what merchants are already spending money on via our own platform, but doing it better for them and leveraging the wealth of our data to benefit our merchants. So how do we know the flywheel is actually delivering? Just look at the strong annual revenue cohorts.
Each cohort has grown and remained strong, deepening their relationship with us. And cohorts have been increasing in size, attracting more merchants who want to take advantage of the broad array of solutions that we now offer. We attribute this to the strength and scalability of the flywheel. With a solid base of growing merchants, we increased our subscription revenue. And with more tools, we help our merchants grow their GMV.
As merchants and GMV grow, we have a greater opportunity to expand merchant solutions and the flywheel keeps turning. Merchants who are successful on the platform outweigh those who are not. With the successful merchants, we retain their subscription revenue and we also gain revenue associated with their GMV growth. And GMV growth has been strong. Retention of GMV on the platform is high, as shown by our annual GMV cohorts since 2014.
This is because when GMV is generated, merchants have little incentive to leave the platform. And those merchants who are less successful if they leave, they often take little or no GMV. At Shopify, GMV growth has been driven by both small and large merchants. GMV from our core SMB merchants in green has expanded significantly. We've added more merchants, but those merchants have also grown their businesses on our platform.
For merchants on the platform for greater than 12 months, the average monthly year over year growth was 24% last year. As our merchants become more successful, they also upgrade to higher level plans. The GMV coming from merchants who have upgraded to Shopify Plus is highlighted in orange and that's continued to grow. And the GMV from new merchants migrating directly onto Shopify Plus shown in pink has grown in the mix. Larger businesses not born on Shopify are increasingly attracted by our strong value proposition.
Our speed, agility, mobile, out of the box solutions and increasingly rich functionality, as you heard from the main stage today. It appeals to a broad range of larger merchants from individual brands to large CPGs building brand specific stores. As we have expanded what's available via our platform, we've clearly benefited revenue wise, as you can see from the chart, which depicts our various revenue streams over time. They've all grown. But more importantly, merchants are getting greater value from our platform.
That's what this chart says. We are making more features and functionality available to merchants via the central system in which they operate their business every single day. And we can deliver what they're already spending money on more effectively and less expensively. We started with payments, and we introduced other financial services like capital, Fraud Protect and Multi Currency. And we added shipping labels where adoption has grown every quarter since launch.
So we're often asked, what's next? And you heard it from the main stage this morning, Shopify Fulfillment Network. So why Shopify Fulfillment Network and why now? Merchants' need for fast, reliable, affordable fulfillment is clear and growing. You heard several merchant stories from Craig this morning.
This is a real issue for merchants. Long wait times for delivery to buyers, high shipping costs for buyers leading to cart abandonment, lost sales and low customer satisfaction. This is a big opportunity for Shopify to step in and fill this gap and provide more value for merchants, for buyers and Shopify. Shopify merchants achieved $41,000,000,000 in GMV last year, more than half of which was from the U. S.
Our addressable market for fulfillment includes the majority of our U. S. GMV. It's expected to reach 100 of millions of fulfillments annually over the next 5 years. So why Shopify?
Merchants trust us. We have a track record with them. And our central role in Emergent's operations uniquely positions us to streamline this part of the sales process that is so critical to their success, we can see where an order comes from and where an item ships from and to. This gives us a deep understanding of the physical footprint of logistics. We can leverage our massive data set to build out a fulfillment brand to service our merchants unlike their other partners can do for them today.
So we'll offer a streamlined fulfillment experience with deep machine learning tools, including demand forecasting, smart inventory allocation across warehouses and intelligent order routing. In so doing, we think we can improve supply chain economics and delivery for merchants, making delivery faster and cheaper than it is today. With the fulfillment offering, as we've done in the past, we'll deliver value to our merchants first through competitive rates. We'll pass along our aggregated savings to our merchants like we've always done. And through higher cart conversion, we expect competitive rates will translate immediately into higher cart conversion for merchants with their buyers and ultimately that's what this is all about.
Think of this as more energy into the flywheel. By doing that, we expect value to recruit to Shopify over time and at scale. So how are we going to do this? We're going to roll out Shopify fulfillment network in phases. 1st, we're currently working hard to achieve product market fit.
Our goal in this phase is to offer merchants a network that addresses their needs as effectively and as quickly as possible. This first phase is asset light for Shopify, building our nationwide network using fully vetted and monitored 3rd party warehouse and logistics partners. This will allow us to build the software brain of the network, connecting the network, predictive algorithms, pricing and billing, and the user experience admin. We expect work on this phase to extend through the end of 2020 and possibly into 2021, at which time we expect to achieve product market fit, which is fast, affordable and near perfect order rates. Once we've achieved this, we'll then enter the scale phase.
As demand grows to 10 times this and beyond, we plan to continue using rented capacity with our partners and augment it with our own according to demand and unit economics. So let's talk about the costs. The cash costs in the product market fit phase are lower given more limited volume, the fulfillment volume shown in green. The cost to build are mostly the fixed costs in yellow and include OpEx, the R and D team to build the software and some small CapEx, approximately $20,000,000 or less, if we decide to build a few small test warehouses in this phase. The cost to operate are mostly the variable costs based on volume and tank and include cost of goods sold, 3rd party provider costs per fulfillment for warehouse services and OpEx, product marketing and sales costs.
These costs include hiring the expertise and third party partners as we begin operations to build enough infrastructure to test and learn in a controlled way. This is consistent with how Shopify has invested in every major area, plus payments international, balancing discipline and cost effectiveness with what meets merchants' needs to build value for them and for us. And all of the costs for 2019 are already included in the forecast that we've given you for this year. Of course, the point of all of this is to offer merchants faster and cheaper fulfillment. If we offer a greater value proposition to them, we expect they will leverage it, triggering greater investments to support fulfillment at scale.
As volume in green grows, so will the cash costs to support the growth. The cost to build continue to be mostly the fixed cost in yellow, include OpEx, the continued R and D investment around software, but that should decrease as a percentage of the overall cost and CapEx could increase in this phase as we may build own capacity if partner quality or efficiency is not meeting demand. The cost to operate are mostly the variable costs based on volume in tank and include cost of goods sold, which would continue to reflect warehouse service costs, but could start to shift in this phase to some owned operations and OpEx continued marketing and sales costs mostly. As we scale, we believe that we will increase fulfillment margins given more volume over fixed costs and greater partner volume discounts. But again, the point of this is that we believe that we'll also increased conversion with buyers, our merchants will, with faster and cheaper shipping.
So let's wrap this up. While we don't expect fulfillment to be easy, we're committed to solving this for our merchants By being highly intentional, we're optimistic about our long term opportunity here, meaning we'll work with partners to innovate like we always have, and we'll apply what we've learned before we move forward. The $1,000,000,000 of spend that you heard from the main stage this morning includes all of the cash costs forecast over the next 5 years and includes both the fixed cost to build and the variable cost to operate based on volume, the cost to move the goods, as I just described on the previous two slides. And the bulk of the spend only comes when we meet when we reach the scale phase. We expect that we will scale this in a way that is cash neutral through 2023, with the revenue largely offsetting the costs, and the net return is expected beyond 2023.
We believe this could unlock great value for our merchants, for our partners, for buyers and for Shopify. So, I want to thank you. And, before taking your questions, I'd like to introduce Thomas Epting, the person leading Shopify fulfillment network for us. Thomas joined, Thomas, where are you? Thomas joined Shopify over a year ago from Uncommon Goods, where he was co founder and he helped to build the teams that fulfill thousands of unique shipments every day throughout North America.
And so I've invited Thomas up to join me to answer your questions about this new and exciting part of our business. So thanks and
we'll have a seat.
And I think the microphones are making their way around.
Hi, there. I have two questions. The first one is about the cost to the merchants. I was wondering if you could give us maybe a range of how you see this charge to merchants and how competitive it is with alternatives on the market? And then the second question I have is, as you expand to the fulfillment market, is there any chance that you'd be interested in potentially having a Shopify store that offers all these products that your merchants have just in a one stop shop similar to obviously Amsoil?
I'm sorry.
I'll take the pricing question. So when we talk to our merchants, they dislike the complex, the convoluted pricing of outsourced fulfillment today. So what we've done is we've simplified that in a couple of specific ways. It's very simple storage pricing that you can calculate and decreases as your inventory burns down. We also have a simple single charge for fulfillment and transportation, pick pack and packaging.
It's market competitive and it's better than any single Shopify merchant will be able to get on their own because obviously we can aggregate the volume of lots of Shopify merchants and bring that to bear.
Right. And on the I think it was mostly kind of like a marketplace question. Clearly, as I alluded to on the flywheel, as our scale gets larger and larger, there's more that then becomes possible for us to do for our merchants. So, while we're not announcing anything, it's something that we certainly could contemplate in the future.
So how should we think about things like last mile delivery and drones and things of that nature?
I'll wait you as a logistics expert.
So think about it a couple of ways. Right now, Shopify merchants at a particular disadvantage in their checkout conversion because the time in transit that's being offered for that last mile is measured in days and sometimes in weeks. We're not at the same race to same hour fulfillment that marketplaces are after, we're thinking about this as bringing it to parity where the buyer expectation is. Right now, the buyer expectation is they want a low cost delivery and they want it in a couple of days. And so that's what we'll build out.
Shopify, as you know, is very interested in technology. We believe the trend lines here are very clear, and we'll work with partners to build out the right tech solutions, the right automation to simplify the or to reduce the unit economics, while always keeping it simple for Shopify's merchants.
Specifically with Amazon, obviously, they've spent a long time building out this expertise, invest 1,000,000,000 of dollars into it, have a pretty big head start, particularly on the robotics side. And while we don't know for certain, it seems it's pretty clear that it's a loss leader for them in certain ways. So how do you expect to compete with that and be able to scale that up in just a few years while they're continuing to pour investments in there at the same time?
I think they are solving an analogous problem, but not the same problem. So if you think about Amazon and the couple of decades that they've spent on this, they're running a very large supply chain. Large supply chains have been optimized for a long time. SMB supply chains are analogous, but they're different, right? And nobody has spent the effort to put in that same kind of aggregation.
Nobody has the amount of data that Shopify has when you think about depending on how you measure it, 5% to 10% of ecom in North America is running through Shopify. So we have this massive data set to build out the similar kinds of machine learning that will drive those efficiencies, It will help us deliver top line forecasting that is more accurate, allocate inventory effectively and then route those orders to the closest delivery center. There's another way that it's different than what Amazon is doing. Think about who Shopify is. We're merchant obsessed.
So everything that we're building about this is directed at merchant first. We want to help them keep their customer. We want to put their branding and packaging front and center. And we want to help that we won't compete with them. We want to help them thrive long term.
And so that's another way where it's a very different problem we're trying to solve here.
And I'd just also add, we're leveraging partners for a lot of this. We likely always will. So that should lower some of the costs for us as well relative to the billions that Amazon might have spent on this. We think we can do this using partners effectively.
Could you maybe share a little bit of information in terms of the economics with the partners that you're trying to bring on here?
So when
you think about you're an outsourced fulfillment provider, top of funnel is pretty challenging for you. So are the tech integrations. Either got to spin up your own dev team and do one off integrations or you have to build an integration to Shopify or others. So we're taking away a bunch of the costs, talking to fulfillment providers, and we're talking to everybody you would expect, large global supply chain companies as well as the disruptors in this space. They're happy to make money on their own unit economics, what they do well, which is pick, pack, ship, how to move goods through networks, how to get that stuff done efficiently.
We're taking away cost centers for them and we're providing them this data layer on top that will allow them to be more efficient at what they do. Therefore, the unit economics for those partners will continue to get better over time. But it's also a network where we're creating competition, right? So we expect that as particular partners show better quality or better unit economics, more volume will flow to them. And so this should become more efficient over time as well.
Hi. Thanks for taking my question. Amy, follow-up on the economics. How should we think about this as the average take rate per dollar GMV? Or has the company thought about what that would what type of impact that would have on take rate?
And then maybe similar to that, I know you're not giving updated financial guidance, but are the expected investments for 2019, were they already embedded into company gave last quarter?
Yes, I can I addressed that one in the presentation? I'll reiterate it that all of the costs, P and L and CapEx wise are included in the guidance that we've already provided you for 2019. And then on the take rate, it's too early to say. We're just coming out of beta right now in this with a handful of merchants. We're moving to an early access program on this, where we'll invite more merchants in.
And as we're learning, like we always do, we'll provide updates on our quarterly calls to help you understand how we're progressing.
Hi, thanks for taking the question. Would this be more of a standalone offering or would you make it only available to like people who sign up for payments also?
Yes. I mean, right now, yes, we would view it as kind of a standalone offering. You don't have to
be on payments to take it.
So in terms of the target merchant for this, I mean with Plus, I mean obviously very large established merchants presumably they have their own fulfillment right? And I guess it's mainly U.
S. Focused. So when
you think about all the customers on Shopify's platform today, how would you sort of define the initial opportunity in terms of customer set as you think about rolling it out?
Yes. As Craig said from the main stage today, it's mostly going to appeal right out of the gate to merchants who have anywhere from sort of 10 1000 to 10000 orders per day. So, while that's probably a smaller percentage than like what would take shipping labels for us from us, it's a larger percentage of our GMV and fulfillment that's addressable.
Hi. With the average merchant have to increase their investment in working capital by virtue of the fact they'll be in multiple warehouses rather than one central one? Or would your machine learning algorithms hopefully prevent that from being the case?
It's a super smart question. It's actually one of the most powerful things about the Shopify fulfillment network. With the accuracy that we've already achieved with that top line demand forecasting, merchants should be able to more efficiently allocate capital. We'll be able to show them which of those SKUs in the Pareto turn fast enough that it's worth putting multiple fulfillment centers and which SKUs should just be in 2 and which SKUs should be close to their mode customer.
Could you just give us a sense of in the fulfillment industry, how much for a typical order you should expect to the merchant should expect to pay and how much profit a fulfillment provider might be expected to earn?
So the unit economics for the fulfillment providers are similar to what they're seeing today, if they were to aggregate lots and lots of volume together. In terms of the pricing, it's actually customized. So when you think about there are things that you care about in 3PL land. How fast are SKUs turning? How large are they?
What's the total dimensional footprint that we have to store? What do lines per orders look like? Do I have to make 4 picks on an average order? Or is these single easy to do? How much complexity?
Like in the example on MainStage, are we talking about fragile things like a record? Are we talking about simple things like a T shirt? And so it's we shouldn't tell you what the average price looks like because that's part of what's valuable here for Shopify We're able to look through all of the data and then come back with something that the partner can make money on and that will be great for Shopify's merchants as well.
Thanks. Do you have a sense of how much of cart abandonment is driven by this kind of suboptimal maybe shipping options? And I mean, if this is really successful years out, could it change the channel mix of some of your smaller merchants and how they distribute when you think about where that could go?
There's industry data about this. We're still working on our own case studies and validating this ourselves. You hear anything from low double digit checkout conversion lift all the way up to Amazon saying it's magic, right? And so the truth is going to be somewhere in between there.
I would like to understand a bit more detail of how much of the global shipping supply chain you're getting involved in. For example, to get something from Shenzhen to Long Beach to the ultimate customer, is very complex loan fragmented sort of process. So how much of this we would take on and who are your partners going to be?
We're thinking about this very specifically as a merchant problem with fulfillment today. But Chapova has a long history of skating to where the puck is going to be. So it's the right question to ask over time.
So are you only concentrated in the U. S. Right now? So it's really only the U. S.
Right now, correct.
Of the 7 fulfillment centers you announced, are they all assumed to be partner provided or and the incremental would be actually built by Shopify? Yes.
That's correct.
Hi. Sorry, guys. Of your merchants, how many are shipping 10,000 items per day right now? How many are shipping 30? And has that been a pain point for larger merchants that may have wanted to come onto the platform that logistics wasn't part of the operation and was a roadblock?
Again, as I said, it's the majority of our U. S. GMV. And yes, it's been a pain point, which is why we're doing this. It's not it's pricing, but it's also the complexity of the pricing.
It's all the things Craig talked about on the main stage, having multiple systems trying to keep track of your inventory. It's just simplifying it, which is what we do beautifully for our merchants. And we've talked to enough merchants to know they want this and they want us to solve it for them. Thanks.
Great.
Thank you. How much of the software has already been developed? And what's the time required, I guess, staffing required to get it to commercial availability for the U. S. Market?
Thanks.
As we are passionate about quality, we were really careful on that. We dog food with the Shopify hardware store. We've built an app that connects natively into Shopify. We've built that Shopify fulfillment brain. That brain makes recommendations on the quantity of each product or location.
The app allows you to create inbound transfers, schedule the transportation, all of that kind of work. It handles all of your outbound shipping needs for direct to consumer, your retail replenishment. So if you're a Shopify merchant running your own store, it does some wholesale functionality today. There are complex EDI future states. So you're a Shopify merchant selling into a big box retailer and they have very specific routing requirements, that's future road map being built out.
We can support most of wholesale, but not all of it. And a number of other things like that. So kitting, special projects, kind of value added services that you sometimes ask your 3PL to do for you. All of that is built and available today and has been hardened and tested. So that's one of the things we're most proud of about this is that we said the network needs to be able to be a partner.
You need to be able to ship same day at 99.5. And 99.5 of those orders need to be what the industry calls a perfect order, right? Quantity of rights used to right address, right customer. In our last measuring period, our year to date, perfect order is at $99,900,000 and we've gotten our same day shipping percentage to 99.8
All right, next step, a person who really needs no introduction, but I'll introduce him anyway because he's probably the only person at Shopify who just might DJ his very own Shopify Bar Mitzvah, our COO, Harley Finkelstein.
Thanks, Katie. Good afternoon, everyone.
Many of you and I've met with many of you in the past, I want to sort of jump into Q and A as fast as I can. Before I do that, a couple of things I want to just talk a bit about. Some of
the things I did mention
on the stage, but obviously, we're sitting here at Unite. We have 1800 people here from 50 countries. The theme of my keynote today was really about the opportunity ahead. One of the things that I think at least I wanted to get out today to these partners was that these new things that we talked to, whether it's physical retail and a further in-depth focus on physical retail or it's the Shopify fulfillment network or it's what we're doing with Shopify Plus or it's our international expansion, each one of these on their own is a massive opportunity. And as I said on stage, none of them existed even a year ago.
And so hopefully that's what from my objective, that's what the partners leave with as they sort of go back home wherever they live and they decide to increase their investment from a talent perspective, but also from a financial perspective in the Shopify platform. That is getting easier. This is our 4th time I've done this keynote. The first keynote that I did was in San Francisco back in 2016 at Unite number 1. It was a little more difficult then because they had more options.
At the time, companies like BigCommerce and Volusion were still around. You had some of the CMSs that were beginning to flirt with e commerce widgets. And so it wasn't just showing them opportunity, it was also convincing them that Shopify was the right horse to back. And I feel a little bit different this year that they sort of realize if they want to build great applications, great themes and great products, the biggest the total rest of the market for those products live on Shopify. And so I hope that's what they got out of it.
The second thing that I'll cover is just a question that I know I'll get anyway, so might as well preempt it, which is where am I spending most of my time right now beyond DJing Mount Bar Mitzvah, which is sort of threefold. Shopify Plus is a place that I'm spending a lot of time. I think Lauren Padelford is in the room somewhere or he was, he'll be back. Oh, there is. Lauren Padelford, who I sort of refer to as the founder of Shopify Plus inside of our company.
He will tell you that the first 5 years of Plus, we had a really, really strong, very sophisticated sales organization, very good marketing. And we had a really good product. Do we have the best product for very large merchants? I'm not sure. I think some of them gave us a bit of a leap of faith.
I think it's over now. I don't think they have to sort of take a leap of faith anymore on with our Plus product. It's the reason why we're not only seeing brands start with us and go really big and never have to leave in the case of the Bombus Allbirds category. It's also the reason why we're seeing way more CPGs and way more migrations from much more typical enterprise platforms come to Plus. With the release of the new Plus product now, I think their ability to run multiple stores across a number of geographies in a very simplified way where they can see the entirety of their business will make them feel like this is really a retail operating system for them in the same way that it does feel like that for the SMBs.
2nd area is international. We brought on Aaron Brown, who I think was in the room, much of Aaron is still in the room now, but we brought Aaron Brown over from Amazon about almost 2 years ago to the day to help us find true product market fit internationally. I said this earlier on stage, but we've had merchants in 150 countries for a long time. But they were effectively, in some cases painstakingly hack any other Shopify to make it work. When we brought Aaron over, we told them that we want merchants anywhere in the world to feel like Shopify is built for them.
And the 3 sort of tenets of that, at least there are 3 pillars of that to begin was having local payment methods, was having local partners. And then 3rd of all was making sure that Shopify's admin was translated to their language. You've heard earlier today that we're going beyond just our 7 initial languages, but our priority countries remain the same. We think those are the right priority countries. But by laying the groundwork for new languages, it means that when we decide there are new priority countries in the future, it's a lot easier to embark on that path.
And then finally, Merchant Solutions. I still think this is one of the neatest opportunities for our company. I think the fact that merchants, both big and small, the relationship that we have with them is different than most software vendors. They don't view us in the same way they may view their whoever they use for accounting or whoever they use for email marketing. In many cases, when they say they're going to work in the morning, what they mean is they're going to their office they're going to a cafe or they're going wherever they are and they're opening up the Shopify admin.
That relationship provides us with an opportunity that we've began to take advantage of. It means that if we say, hey, we know you're using shipping, we can do a better job where you pay less money, the product experience is better and we actually make more money, they're going to go for that. We did the same thing beyond shipping with payments, with capital. We've now given about $500,000,000 worth of capital to merchants that may not otherwise have done it on their own. We have great business there.
And then most recently with fraud protection services. There are new I know some of you could ask what is the next merchant solution. We're not ready to talk about that yet. But there are other areas where we feel strongly that we can actually add a ton more value for merchants, where again, they pay less money, product is better, but also it further increases the barrier of exit off the platform. Shopify is their inventory management system and we're their e commerce provider and we're helping them with physical retail and they're with a payment gateway, with their capital provider, with a shipping provider.
At a certain point, Shopify is their business. And I think we can get there. I think we're already getting there. I think there's a lot more we can do to further increase that Barret X or that moat that we have. Some of those things we will look for signals from things like our App Store.
In the case of shipping, we've been consulting with our shipping app our 3rd party shipping app providers for a number of months now, letting them know what to expect here. So they wouldn't be surprised this was coming and making sure there still is room on the table for them to make money. We've done that over the course of the last decade or so in a way that I think maintains trust with that ecosystem and it still allows us to expand our product offering. So those are sort of 3 of the areas that I'm spending a lot of time on. Probably the last thing I will say is you heard something on stage today that you probably haven't heard me say before, which is if you aggregate all of our U.
S. Merchant sales, you realize that we're the 3rd largest online retailer in the United States. The reason I haven't said that before is because I didn't we didn't really think that that was something that people care to understand. But the reason that's an important statistic is because it shows you the economies of scale we have now. We are bigger than walmart.com.
We are bigger than Apple's online retail. When you look at it in that way, what you begin to realize is that when merchants come to us, they don't just get great software, they also become part of this community, which means that any economies of scale that we have to ourselves, we can easily carry forward to them as well. So other than DJing, I think I'm done with my monologue. I'd love to open the floor up to some questions. I'm happy to answer anything any questions any of you have.
Again, many of you have met me 1 on 1 in a group sessions before. So let's jump right in.
Hi, thanks, Harley. Ken Wong from Guggenheim. I just wanted to touch on that unified management platform that you talked about. First, in terms of enterprise pain points, how significant was that? How would you rate that in terms of things that you're solving for them to potentially move more upstream?
And then second, how does that impact potentially the subscription fee they pay you? And then perhaps more importantly, does that aggregate into what they might have to pay you for platform fees to surpass that $800,000 threshold?
Yes.
So in terms of your question, I think the pain points that we heard loud and clear from Plus merchants were some of the obvious ones, multi location, multi store, multi language. If you were Lisa mattresses and you were running 12 stores 2 years ago on Shopify Plus, you actually had 12 different admins. So there's some low hanging fruit. The low hanging fruit was they need 1 centralized OS to run the entirety of their operations. That was sort of some of the easy ones.
Some of the other ones were obviously things like increased API calls. They want to know when they have a massive flash sale. We sort of famously host some of the biggest flash sales literally in the history of retail like Yeezy or Kylie. They want to make sure that from a performance perspective, we stack up there. I think the fact that we now have a product specific for them will do 2 things.
1, I think we'll hear less complaints, which Lauren Padelford and his team will greatly enjoy. But secondly, and more importantly, I think they will begin to view Shopify as a place to transition more and more of their business. This idea that if you're a small business on Shopify, almost all your business is being done on Shopify. If you're a very large retailer or very large brand, Shopify is one component of a number of other components as well. More and more, we want to become the component.
Are we ever going to build ERP? Probably not. I actually think that more and more what we're seeing is particularly from these native direct to consumer brands, you know, Tommy John Underwear, for example, or Bombas or Allbirds, they actually don't want ERP. They're figuring out ways they actually don't require a massive $12,000,000 8 month installation from SAP or Oracle or Demandware or Salesforce. So there are some things we are going to do, some things we're not going to do.
Your final point, which I forget. Sorry, I don't remember the Yes. So let's just talk about plus pricing because I'm sure all of you want to ask. The balance of value to cost on Shopify Plus is so far away in the side of value. Can we increase price?
Is there price elasticity of demand? Unequivocally. Is it the best deal in enterprise commerce? Probably. That is completely intentional.
We believe that when you talk to these CEOs of these companies, you talk to them like Uri Minkoff, CEO of Rebecca Minkoff. He's coming to us because he wants to be able to launch Instagram Commerce right away as soon as it's announced or Apple Pay as soon as it's announced. But he's also doesn't want to pay he doesn't want to pay a portion of his revenue to Demandware. He wants to feel there's a fair trade, a fair balance of revenue. And so there will be an opportunity again in the future where we'll increase pricing for Plus.
I don't think the time is right now. In the same way that Shopify in the early days was in land grab mode, Plus is in land grab mode. Shopify is 15 years old, Plus is barely 5 years old. So I do think there is a chance to increase eventually. I don't think the time is right for that right now.
Now that being said, I do want to give ourselves a little bit of credit that almost every year since inception, we've changed the pricing on Plus. We have from $9.95 to $2,000 from $2,000 to 25 basis points with a cap. We then removed the cap. So we are making incremental changes, but we're not doing so in a way that scares the entire merchant base. You can yell, it's a small room.
Yes. Mean, look, you heard say that multi currency is now available platform wide. That was a plus only feature, now it goes to everyone. Secured checkout initially, this is many, many years ago, was only Plus. We realized that is something that every merchant needs as well.
So it's a really good balance of what it most will need most of the time and what are specific features and functionality that should rest entirely with the Plus merchants. I think that I mean, I'm on the receiving end of a lot of these emails from Plus merchants saying, I really need you guys to fix this or I need you to do this other thing. We will get there. But I think a lot of things are asking for, again, the case of ERP, someone told them that they need ERP. When you actually dig into actually what they want to do with it, they can do most of that with Shopify.
And I think the danger there is it's the faster horse versus building them a car. They're coming to us in some cases and saying we want the faster horse. We're saying actually what would you want is a vehicle, is a car. So I think we're careful to balance those sort of things. I think the beauty and the what I like most about our business model is that we have a really, really wide top of funnel.
And anyone that has an idea in the shower in the morning or wherever in their car sitting in traffic, go to a job they hate, they want to start a business, does so with Shopify. And not all will succeed, but the ones that do over time will become the next Allbirds or Bombas or any of those type of companies. And as long as the ones that succeed offset the cost of ones that don't, we got a great business. So you've seen this you've seen what this sort of segmentation happened in our industry where either people have gone completely up market or they've gone completely down market in some cases. We actually think that we can stretch in both directions.
But that takes incredible amount of focus and frankly discipline. We reordered the company, I don't know, 2 years ago so that we can focus in different audiences. Prior to that, we really were a functional business. Every single engineer reported up to our CTO and so on and so forth. By having these sort of what we call product lines or more well known business units, it means that different parts of the business can focus in different audiences.
And I think the only way to actually serve Joe Entrepreneur who's sitting at a coffee shop and also serve Procter and Gamble is actually have different audiences within the company. On the Instagram side, it's a great question. Ultimately, if I were some of you know my sort of story, I started I was one of the first merchants on Shopify store 136, It was 2006. I was in law school, had to pay for my tuition. I set up a store in Shopify and I had an online store and I paid for law school and business school.
If I were starting today, immediately I have 4 or 5 channels already set up. I would try Pinterest, I would try Instagram, I try Facebook, I may even try Amazon or eBay, but I also of course would have my online store because I would own the customer relationship and the profit margin. I think over time what we will see is we will see a lot more different channels. I think that's a good thing. It's important though for us that every time a channel is announced that we are announced as a partner for that channel.
So that when people merchants hear about Instagram Commerce, they know they can get that right from Shopify. It's important also with economics built in because we don't necessarily want to give up the take rate on GMV. And so we do, we go to these channels, we say we have an unfair advantage on the coolest products on the Internet. If you want access to these products, here's the deal we have to make together. And we're happy with the deals we're making.
But I would suspect that you and I have talked about this exact example. MySpace would have been a big channel for us 10 years ago and no one knows who they are today. And 10 years, Instagram may still be a good channel or it may not. We have really becoming channel agnostic to the extent that in 10 years, there may be 50 channels that open. And what that means is more complexity for merchants, which means the value of Shopify to simplify that complexity to have one place to run the entirety of that business increases.
So I like our positioning, but every time a new channel is announced, Toby and I are excited by it. It means more GMV, more sales for merchants. Hi. She could bring in mics to other people here. Oh, great.
Okay. So looking at your opportunities ahead, how do you balance building from within partnering with your large ecosystem or potentially acquiring and what is the acquisition strategy at Shopify?
Yes. Thoughtful, very, very thoughtful. And not an excuse, it's just we've seen a lot of companies that go into this crazy acquisition mode and they get completely distracted on integrations. And you don't really know like what's when the whole thing is done, no one really knows who they are and what they're doing. From a product perspective, this has been the case since day 1.
Shopify's core offering, whether it's Plus or small merchants, we'll do with most merchants need most of the time. Anything that goes beyond that, we will always look to a 3rd party ecosystem to build on top of. At a certain point, some of those products will cross the threshold and they will become things that most of the time. And that's when we will decide we should probably do this ourselves. It was a case of payments, case of shipping, case of capital.
Capital is an interesting one. I mean, a lot of you in the room know about companies like Kabbage that have existed for a long time, I think out of Atlanta. Kabbage was offering cash advances to our merchants. At a certain point, it dawned on us that we have more information than they have than Kabbage has. We have way more money than they have on the balance sheet.
And we can tie it to Shopify Payments, so our ability to recollect is very high. Our default rate becomes very low. So what happens at that point is we go to these 3rd parties and we say, here's what we're going to do because it's necessary for the evolution of our platform, there's still going to be room for you to continue to build. In terms of the acquisition side, we are we've done, I don't know, under a dozen acquisitions, I think. I don't
know if Amy is in the
room or Joe is in the room, but a dozen something like that. Over the years, every single one of them has for the most part has been talent or some product. But for the most part, it's been talent acquisitions. Obviously, with Handshake, which is the most recent acquisition, it gives us a great product. I think Handshake is one of the greatest companies in B2B.
B2B was something that we were already working on inside of Shopify Plus. We felt it was a good market for us. It was
a good product for us.
But we have the greatest B2B like e commerce minds on the planet now who work inside of Shopify Plus thinking about how to create a brand new vertical of business for us. So I would say that we've been thoughtful. Will we go in and do a massive acquisition one day? Maybe. But right now, we're able to buy companies that are 10, 20, 30 people, some come with products, some don't.
And if you go back to one of our first acquisitions like Jet Cooper, Satish was the founder, Satish runs all of retail and channels for us. We're also acquiring some of the greatest entrepreneurs on the planet who feel like their job the day after the acquisition is better than the day before. And I think we'll continue doing that. And so you'll see more, I think. Sorry, sir.
Thanks, Harley. Mark Skutowicz with Rosenblatt. You recently talked about a big CPG coming on to the Shopify platform. And I'm just curious sort of what the long game is for them. I mean, near term, I assume there's obviously branding opportunities there.
But is this sort of an augmentation of potential sell through that they're now getting on Amazon? Can you ultimately see this as sort of a DTC model for them where they kind of pull their subscriptions off Amazon direct to consumer. But any tangible examples that
you have to would be helpful.
Look, what's happening with CPGs is not something I anticipated. What initially happened was some of the excuse me, what's happened to CPGs is not something I could have imagined. DTC is a different On the CPG side, what started happening was their CMOs were calling us a month and a half before Super Bowl or a month and a half before Christmas and saying, we want to set up a great store for Budweiser to sell T shirts or Oreo wants to do custom Oreos or Lay's potato chips wants to put your face on a bag of chips with the Lays Smile campaign. That's what initially happened. These were these marketing campaigns.
And I mean, they were staying on, they weren't shutting on their stores, but they were marketing campaigns. That has shifted. That has shifted to the extent that now what's happening is we're seeing appliance makers like Whirlpool appliances creating brand new pieces of hardware and actually instead of going to Best Buy or Sears, they're actually creating swash.com on Shopify Plus and they're selling direct to consumer. Why do they do that? 1, they own the margin.
2, they have a brand new relationship directly with the consumer. And 3, when they want to sell pods for those dry cleaning machines, those pods are sold directly from the CPGs. So I'm not actually sure this is a fad. I think this will be steady state where CPGs will begin to look at what's our distribution channel. We're obviously going to put it in Walmart still.
We're still maybe going to Amazon, but let's also have our own direct to consumer business. And what we've done with some of them, it's going to be the least surprising thing you've heard all day is, some of them are not that easy to work with. My General Counsel is in the room and he's the greatest General Counsel on the planet, But he's got to deal with like teams of 500 lawyers talking about all types of terms. And we remind them that Shopify is $2,000 a month, Shopify Plus at least. So we are now creating business relationships with them that's easy to front to onboard.
So Nestle, for example, we did one big store with Nestle and now any other brands of the Nestle umbrella can easily set up Shopify Plus stores without having to piss off my GC, which is really great for him and me. And we're doing that at scale now across a bunch of different CPGs. So there's a team inside of Shopify Plus, CPG team and their job has worked directly with them. Just like there's a regular industry team that's focused on regulated industries like cannabis or anything else in that category. But I is it surprising?
It sounds like it's a normal evolution. The reason the CPGs had to go through the major resellers, the retailers was they have distribution. Shopify and e commerce and Internet gives the CPGs distribution. So I think we'll see more of that too. It's still a pretty small part of our business of the 5,300 merchants on Shopify, most of them are not CPGs.
And frankly, I'm when you hear me speak, I speak a lot more about the Fashion Nova's of the world than I do about neutrogena.com. Yes, sir.
Philosophically, when you're adding all these services fulfillment or lending or software to their fair, whatever it is, how do you think about which ones are going to be loss leaders, which ones are going to be breakeven, which ones you're going to try to profit on? Just sort of a high level, how do you think about that?
Yes. I would say it's a sequencing of events. I think for payments, again, those of you that are familiar with the story, you know that when we launched Shopify Payments, the idea was not to make money. The idea was Shopify's onboarding process was incredibly elegant. My grandmother could build a store in Shopify in 15 minutes just knowing how to use email.
But there was one friction point in the onboarding process, which was go get a merchant account. We didn't like the fact that some third party was dictating how someone was onboarding. And so we initially built payments not to make money with, but actually just to make the onboarding much easier. It then turned out that payments is a pretty good business. So it often will depend.
Shipping and fulfillment network is way too early to tell. Capital, of course, we're able to make money from day 1. So it would really depend. There are some ones that work really well for us. I mean, fraud protect is not something that many of you asked me about, but it's a fascinating part of our business or it's a fascinating new product, a merchant solution we give to our merchants because we're able to see 218,000,000 buyers bought something off a Shopify store last year.
We're able to see more transactions than most platforms. Therefore, the algorithm to determine whether or not order is fraudulent or not is great. And we can give them that peace of mind. Can we charge for it? Of course, we can.
So I wouldn't say necessarily that some will be loss leaders, some will be profit generators. I would say that some of them will be in different there'll be a sequencing of events for different merchant solutions. And some we may start with something that is a breakeven and others we may decide from day 1, like capital, we're going to make money with this thing, especially because we're financing off our own balance sheet.
Hi, thanks for taking my question. I think POS took a lot of mind share during the keynote today. And I wanted to ask, as you think about the flywheel that Amy showed us earlier, expanding the funnel of bringing more merchants onto Shopify,
do you think you're going
to start to see more customers that are brick and mortar only today start with Shopify because they can buy the retail kit. And then if they have plans to move online in the future, maybe it expands the funnel that way as well. And with the company ever target those types of customers specifically as their customer acquisition strategy.
I think we eventually will get there, but that you're assuming that businesses in the future start offline and eventually move online. I'm not really sure I fully agree with that. I think that if you're starting business in 2019, you're probably going to start by setting up an online store and figuring out if you have a product market fit. And then you may decide to do a brick and mortar store as is the case with a lot of the DTC brands that are on Shopify. But I do think that it's a new demographic for us to go after.
In terms of your question, which is, is that who we're after right now? Frankly, there's a lot of low hanging fruit on our platform when it comes to physical retail. For a long time, we gave them a good product, good piece of software with a white labeled piece of hardware. That's over now. The software that we are now putting out to the market from a point of sale perspective is the best software out there.
The hardware, I mean, we are one of the very few companies on the planet that are building their own point of sale hardware. So I think that we have, at least for the foreseeable future, we have a strategy which is, let's figure out of the 820,000 merchants, how many of them are using point of sale system they don't like and let's give it to them. Because the migration from their existing cloud point of sale system to ours will be seamless. It's a click of a button, they get the hardware kit. We already have their inventory.
We already have all their customer data. We have their marketing analytics all built in on the online side. It's really easy for them to extend to the offline side as well. That's where we're going to start on point of sale. I think the reason that you heard a lot of discussion around point of sale today is, I think historically people looked at Shopify as e commerce first and point of sale is being an appendage.
And now we have a great team, ARPOND leading on product, Ian Black, we brought over from Uber Eats North America to run sort of the business of retail and point of sale. We never had that before. So I think that the reason that you're hearing a lot of attention point of sale is we're getting serious about this now. And I think it is a big opportunity, particularly to the question earlier around future retail being retail everywhere, channels everywhere. Physical retail is going to be an important part of that.
And you're seeing that now walk through SoHo. When you walk through SoHo, it's all these brands, most of them are on Shopify, who started online and then decided to build a brick and mortar store. And we've joked on stage a little bit about the fact that sometimes it's cheaper to build a brick and mortar store than to advertise in Google or Facebook. That's mind blowing. I mean that's a brand new phenomenon, a brand new insight.
So we think physical retail is important. Just grab the mic behind you. Thanks.
In your keynote you shared that something like 25% of merchants 200,000 of them have come from partners and then that $64,000,000,000 of GMV has come from partners. And then $100,000,000,000 of GMV has just been generated overall. Over 100,000,000,000 dollars So that would sort
of imply that a lot
of the GMV is coming from the partners. Is there a particular dynamic that we should be aware of? Yes, I would say a lot of it. I would say
partners bring on the merchants that are referred by partners typically are higher GMV merchants. That's not surprising. If you were going to go to an agency or a developer or a big marketing company and you're going to say, I need an online store, you've already agreed, you've already committed to the fact you're going to make an investment in it. If you're just trying things out, you're aspirational, you're probably going to do it by yourself sitting on your couch. So it's not too surprising.
What I think is more important is that a lot of the if you look at Shopify Plus for example, a lot of the Shopify Plus partners were people who upgraded or sort of migrated from Shopify Core to Shopify Plus. And what we've done in the last year and a half to 2 years or so, Lauren will speak more about this is we're now looking after specific enterprise e commerce agencies who I would say even 24 months ago would have said, yes, we can use Shopify Plus. We only do massive installations. What they're now realizing is that they can do those massive installations, massive builds on Shopify Plus where they can make the same amount of money they always did, plus they can actually deliver more value to their customers because their clients are saying, hey, I heard about Apple Pay or Shopify Pay, I want it right now and they can get it within a matter of seconds. So that's not a change since we started the partner program.
We saw that partner referred merchants tend to have higher GMV.
How do you determine what's your set of priorities between capital payments, international, retail fulfillment, future opportunities? So basically, how are you prioritizing your capital?
Yes. So some of them are on existing things that we need to just make sure our best in the world at. We have to world class things like checkup. We have to be the best in the world at things like inventory management. We have to be the best in the world at allowing merchants to view their entire business.
Other things are a little bit more aspirational. So obviously, SFN is something we've been thinking about internally and developing from a strategy perspective for quite some time. Obviously, Thomas joining us is a huge win for us. But what happens at the beginning of every year together with our executive team and certainly led by our incredible CFO, we decide where our investments are going to be And then it's a responsibility of us along with those particular product lines to come back and say, hey, I'm seeing more growth than I thought I would and then we can reallocate. So I think as opposed to a lot of companies who kind of set it and forget it for a 12 month or a fiscal year period, we're constantly evaluating new opportunities that we can reallocate resources as needed.
And we've done that a number of times over the years. So that's kind of how we do it. There's not any necessarily specific mathematical formula where it's 20% here, 40% there. It's a matter of here's how much we believe we want to invest this year. Here are the opportunities.
And any of the general managers of each of those product lines can come to us and say, we've seen more success than we thought we would. We actually want to spend more on that.
Thanks for taking the question. So you mentioned on the Q1 call, strong plus as in be attributed to a maturing sales team. What are some of the metrics you look at and where is the sweet spot and how far are we from that?
For what, for the sales team? Yes, for Plus. I mean, obviously every Plus sales hacker has goals. We're not necessarily a big variable compensation company, but there are certain metrics based on how many they can sell. Obviously, if someone's working on a deal like with the Ontario government, the British Columbia government, that's going to be a bigger deal.
It's going to take a lot more time than someone calling up and saying, I want to set up a Shopify Plus. But that's something that we constantly look at. So in terms of its number of merchants, its GMV, its revenue per merchant, a merchant that comes and takes every service from us is a bit different than a merchant who's just using us for a marketing campaign, although they still have to sign a 12 month contract. But that's the way we look at it. And what I meant by that in the earnings call was that I what Lauren and I are thinking a lot about right now is we want our product, the Plus product to catch up to the maturity of the Plus go to market commercial strategy, which it started as a commercial strategy.
And we want that we want the product side to catch up. And years ago, some of you may recall, we made an acquisition, a company called BoltMate out of Waterloo. Waterloo came on effectively became the Shopify Plus R and D team with great leadership, great engineers who had spent a lot of time building for enterprise. We were not forging the fires of enterprise, so we needed that sort of thing. Yes.
Katie, how are we doing on time? Okay.
Thanks, Harley. Igal Arunian from Wedbush. So you started off kind of highlighting that in the past whether merchants or partners used to see more options
in the
marketplace, you mentioned BigCommerce, Solution, CMSs, those are all things that are still in the marketplace. Adobe talked up Magento and Marketo a lot yesterday on their earnings call. Can you talk about what you're seeing in the marketplace that makes you feel like there is less, not more now? That's been a bit
of a delay, isn't
it? How does Headless fit into that as well?
Look, I know that those companies still exist. But I mean, a lot of those companies have particularly the ones that were shop like competitors like BigCommerce Revolution, they've moved up market. We don't see them at all. I mean, I'm not saying that to be cute. I'm saying that truly because we don't see them on deals.
When it comes to the enterprise platforms, whether it's Demandware, ATG, Hybris, Magento, IBM does have a product called WebSphere. No one talks about it, but it does exist. We don't necessarily we don't do RFPs. We don't participate in RFPs. I'm not going golfing with anybody.
I don't like to golf. Not going golfing with someone for some big corporate event. I wear a T shirt every day. They're not going to let me in anyway. So we just play in a different ballgame.
If a big brand comes and says we're going to evaluate Demandware versus Magento versus Shopify Plus, we don't play. What we find ends up happening is at some point, someone, usually not the CTO of the company, because CTO often of those brands want to protect their engineering teams, sometimes the CMO or the CEO comes to us and says, Hey, I know what the heck we're doing here. We'd like to at least consider Shopify Plus. And we often win a lot of those deals. So I think that what we're seeing from I don't know what's having a Magento.
Magento has been a mess for a couple of years. I don't see any innovation coming from the enterprise platforms. I'm not saying that to poo them. I just haven't seen much innovation there.
Now that's not to say that
we don't have competition. We absolutely have competition. If you don't want to use Shopify, you can cobble together 3 or 4 or 5 different solutions, including cloud point of sale, some e commerce, open source provider, plus something that allows you to sell on social media platforms. Can use Seller Central and Amazon and you can cobble it together. But our hypothesis is that then you become a human synchronization tool.
And we think what merchants want is a retail operating system. And that's what we offer.
All right. Next up, I'd like to introduce the man who's personally responsible for building Shopify Plus from the ground up, Lauren
They told me to advance a slide, but like I don't have any slides. All right, cool. We'll just leave it there. I love following Harley because he answers like all of the questions I have to answer. And so I just can sit here and wait now because like you asked him all the plus questions.
Look, before I get to Q and A, I guess I'll just we've been doing this plus thing now for about 5 years. When we first started, everyone just laughed at us and was like, there's no possibility you can take Shopify up market. And I mean, I guess we did. It's been really interesting actually. I think we've seen a lot of trends that are super encouraging and I look at every day and I spend time a lot with founders and with these brands and they tell such an interesting story.
I'll describe it like this. I think there's kind of 2 markets in the world right now if you're a large DTC or a fast growing brand, you're either in the new market or you're in the old market. The new market is characterized by a value set that the old market doesn't have. They care 1st and foremost about brand, customer experience. They're driven by marketing and customer acquisition.
The old market, right, is IT driven and profitability oriented. And so you see this bifurcation happening more and more. It's actually just speeding up faster and faster and faster. So if you look at the customers that we have on Shopify and on Plus, we have the group who grew up digital and they value a totally different set of things, speed, agility and experimentation. They don't they never contemplated starting a company so they could hire IT people, right?
They wanted to start one so they could go fast and they could have a brand that they were proud of and they could go to the market and it would be exciting. And they don't really understand the rules of retail because they keep violating them and doing things that everyone says you can't do in the retail markets. And they like that. That's what they that's why they are so fast growing. It's why Katie said it this morning, we have some of the fastest growing brands ever on Shopify.
And you don't go from 0 in sales to $1,000,000,000 in sales in 7 years because you did it the way everyone did it for 50 years. So we have this kind of unique reality. So in the old enterprise, you also have a bunch of group a group of customers now who are also realizing that the time box is ticking, right? They've got to reinvent themselves very, very quickly. They actually have to become much more like the new enterprise or the new enterprise will just eat their lunch.
And you're seeing that happen, whether it's in CPGs, right, with new startup brands just sucking down massive amounts of CPG GMV, where you're seeing it in new retail brands, the high growth digital DTC is now going brick and mortar and building these crazy experiential environments. And so you get this other group who's now in hyper restructure mode. And we kind of are the interesting beneficiary of a lot of this. It's because we have what I internally refer to as all the cool kids, right? We have all cool kids on Shopify.
If you're building a DTC brand of any scale, you started it on Shopify. I mean, it's kind of where we are today. But if you're also trying to retransform your big legacy brick and mortar retailer, the place you go is where all the things you're trying to look like are. So we have that in our pipeline now too, which is really fascinating. So I kind of jokingly like, if you're not in one of those 2 groups, you should totally buy one of those other systems,
right, because that could work anyway. So it's a difference.
So I think it's been a really fascinating couple of years. The system has grown a lot. The customers are just blindingly innovative. That's the rules. They don't like it's really they just don't understand the rules of retail.
And so they keep reinventing them and I think it's great and it drives us forward and it makes it forces us to create products that we never envisioned. It forces us to free our ability to create products that we then give to them. They're like, holy crap, I could use that and go to something really cool. And so there's this great symbiosis between us and our customers, which I think lead to a lot of some of the product announcements you heard today was just us with them for the last 3 to 5 years, watching their entrepreneurial journey, listening to where their pains are and being like, oh, we can solve that. Yes, we can solve that, right?
To free them to keep doing innovation at scale, keep how do you maintain nimbleness, speed, agility, innovation when you're $1,000,000,000 when you have hundreds of retail locations, when you're transforming a multi $1,000,000,000 traditional retailer. You have to build a different kind of platform. And I think that's what we're trying to do at Plus, what we've been trying to do and we're going to keep doing it. So I'm yes, I was really excited today. I mean, Plus, this is the first kind of true main stage opportunity Plus has had to announce something.
And think we announced something we're very, very proud of and gives our customers a huge amount of power that they've never had before that they've really wanted. And it keeps freeing the runway for them to keep innovating commerce and reinventing how this whole thing is supposed to work. So happy to take any questions Harley didn't answer or I could spend my time correcting Harley. That's probably a bad idea.
Hi, Lauren. Hi, Ken Wall from Guggenheim. Just a quick question. First, perhaps on your sales force, just wondering how large is that sales force? Where do you think you need to scale that to achieve the goals that guys are looking for?
And then second, in terms of getting the product up to snuff, I think Harley said that you're trying to get the product catch up to the sales force. Is that more a matter of getting customers to recognize they need to streamline some of their processes on the enterprise side? Or is it you guys building up the functionality to match what some of these enterprise platforms have?
Yes. So I'll okay, it's a good question. Salesforce, I mean, the entire sales team is north of 100 folks at this point. We have a very different sales model, which I think is one of the things we started right off early is we went to market and said we're not going to do this the way that the enterprise has always done this. We're going to go fast.
Customers don't really want to spend time in the sales cycle. They want to spend time on their companies and on their brands and doing what they want to do. And so instead of optimizing for the golf games and steak dinners and all that kind of stuff, we optimized to value and created a sales process that was primarily inside. So the vast majority of the sales that we do are done over the phone with the exact same customers that the other folks in the enterprise seem to have to spend months with in person. It just has never been a thing we've had to adjust to.
Also, the marketers are in charge now and the marketers are a lot less tolerant of time wasting, it seems. So they tend to go faster. They just want to innovate. They don't want to spend a lot of time talking about stuff. So I think our opportunity remains that as we go global and spread out, we have a fairly good sized commercial team in Australia and in Europe that's doing really well.
And I think we'll continue to put commercial teams close to customers so that we can have that face to face in the way that we want to versus just creating the giant enterprise sales org. To your second point, I'm not trying to build the enterprise. I think that's what they want us to do is if we look like them, then they can win. But if we look, sound and act differently, we become very problematic, right, because they can't compare themselves to us. So from a product perspective, I'm not trying to recreate an enterprise platform.
I'm trying to build a platform for the future of the enterprise to use. These are not your typical enterprise companies, right? They might be big, but if once you sit and talk to them, they act differently, they respond differently, their interests are different, the way they use software is different. This is the same group of founders and innovators who don't go to hotels because they go to Airbnb and they don't have cars because they buy Ubers or they rent Ubers. They look at software and they're like, why would I have this giant heavy thing?
Can't it just do what I want? I want to get the piece I want. So we could build them that platform. So I think the comment around catching up is, I mean, they scaled fast. When we started Plus, the biggest customer on the platform was $10,000,000 The biggest customer on the platform is over $1,000,000,000 That's only 4 years, right?
Like these companies scaled fast into the system. So that's more we're trying to catch up to is their complexity moved much faster than our ability to build the software to keep up there. And so we're getting there now. The new plus is a huge step forward in that, allowing them to manage a business on Shopify instead of managing a single store. Once you get to a certain size, stores are tactics, right?
They're just marketing activities and they turn them on and turn them off when they need them for various things. They no longer are the central thing that they are. It's a channel like offline is a channel, like mobile is a channel, like all these things. And so what they keep saying to us is, hey, we'd love to run the whole thing on you. Can you be the operating system for us, right?
As we spin this out, we want to experiment, we want to do all this stuff. And so that's what the new plus is doing is giving them that central place where they can log in every day and be like, okay, great, I can manage all the stores now instead of having to go in and out really slowly or manage them across that way. So I think we're getting there. There's a lot to go. As I said, they're innovative.
And so they want lots of fun stuff that has never been thought about before.
So we're working hard to keep up with
them.
Would you say that the number of merchants who have to leave Plus because Plus can't support them since they've gotten so big has declined every year?
There is no customer that has to leave because of size. Size is not a constraint. I mean as Harley alluded to, as you saw on MainStage, the size of the platform is larger than any single merchant in the world. So is no merchant that can outsize the platform. Now some customers have very specific functionality they want that we may not provide at the moment and so they choose someone else.
But size is not a constraint. And as you can see, dollars 1,000,000,000 merchants and multi $1,000,000,000 entities who are selecting us all the time. So, yes, I don't we don't see attrition because of size.
Right behind just the mic.
Could you help us get a sense of like the Plus merchant in the 90th percentile, so almost the smaller Plus merchants. Could you help us get a sense of their GMV? And then a separate question is just how many Plus merchants bid a given enterprise spin off for you? Like Procter and Gamble, they be the parent of 30 people paying $2,000 a month?
So I'll answer the first question and then I'll address second. So the interesting part about Plus is when we first started, we really thought GMV was the driving factor of how people would use Plus. We saw it as, oh, you're just you have a lot of throughput and so you must need Plus. What we learned is that's actually not the driving factor. The driving factor is complexity.
You can have relatively small GMV merchants who have just complicated needs. And those as we've developed, complexity is the driver. And so what you get now is actually a pretty vast spectrum of customers from a few 100,000 all the way up to 1,000,000,000, right, using Plus because it solves the complexity challenges that they have. You get these giant conglomerated businesses. And so as Harley was alluding to, my perspective on them is very similar to Harley's with a slight twist.
One of their biggest competitors is now the middle they've relied on for their whole lives, right? Walmart, Target are now their problem, not their advantage, right? Because Walmart and Target's problem is Amazon. And so Walmart, Target, all these brands, what they're trying to do is create their own house brands for everything because they can own that margin, they can own that. And so these CPGs now have a competitor who's also their path to a customer.
Well, that's untenable in the long term. You've got to disintermediate all these middles and take the customer back. So what we see is CPGs using Plus, right, to experiment in direct to consumer. How do you go and own a direct to consumer relationship? You can start new brands that no one's ever thought about and do that.
That was the swoosh example that Harley gave. You can take existing brands and do something innovative with them and try that. You You can take just existing brands and take them out of the middle and try and go direct to consumer. So you see a lot, I spent a lot of time with the CPGs. You talk to them and they start to sound like VCs.
It's really interesting because they look at their like, I got a portfolio of 2 50 brands. I don't think all of them are going to survive because either our middle is going to create a house brand, it's going to take it away from me, right, Or someone from the ground up who happens to use Shopify is just going to eat my lunch, right? And so I'm now trying to treat it like a portfolio and look at ways of optimizing their potential for success. And so they're giving a lot of power back to the brand managers. And they're saying to the brand managers, you act like these startup DTCs try and disrupt us.
And so then they look at us as because that's where their competitors are is on Shopify. They look at us and they're like, okay, great, I'm just going to use Shopify and I'm going to start innovating. And so the short answer is, is we have these kind of blanket agreements in some places, which just allows them to spend as many brands as they need to spin, right, in a cost structure. But some of them, I got hundreds of brands, but it's also not just the existing brands, it's they're trying new brands, they're trying they're experimenting as much as everybody else's experiment. So it creates this really interesting vantage point for us to watch what is basically a totally new industry spawn itself, which is CPGs who are no longer trying to sell through the grocery chains or the big box stores.
We're trying to go direct to consumer in subscription models or direct models or unique offerings and they see Plus is their advantage in that because it's nimble and fast and they can spin it.
Where am I going? Yeah, one over there and one over there.
Yes, I was wondering if
you could talk a little bit about where you draw the line on customization. So if you're talking to a large customer, I'm sure there's probably some customization practically for everybody. But how do you think about we'll go the extra mile for this customer to land them versus it's too much of an investment versus, hey, maybe this is a cool product? Just curious I mean maybe how many customers haven't shown important because they've asked for too much?
Yes. We don't custom build for anybody. It's actually the thing I think I alluded to this before, we look, sound and act so different than what they're used to that it's part of their attraction to us is custom building software over the long term is a death sentence, right? Eventually, you hit a point where it's unsustainable and you can't maintain this platform. And the sunk costs and the support debt is just so high that it's just no longer worth it no matter what you're getting paid.
And so our approach has always been we have a lot of APIs. We have a big ecosystem of apps. We've got a bunch of really amazing partners who can make Shopify do all kinds of things. We have not yet found a use case we can't solve for with that reality, but we have on a number of occasions said no to very large retailers who wanted us to custom build them their e com platform. And our perspective is this is not that's not the way the future of commerce is going to work, right?
Custom building an e com platform like is not a thing anymore, right? Like that used to be the way you would do it because you were so unique. You need nimbleness more than you need custom. You need speed more than you need the thing that is only valuable to you. And so our approach has been to say to customers, look, we think we can solve for your outcomes, the thing you're trying to do without having to custom build you a platform.
And we think that will be more extensible, more upgradeable and more valuable over the long term. But if that's not what you want to do, okay, but we are in a custom build shop. So we're not building you features that only apply to you. We want to build features and product that apply to a large number of customers because we think that opens up our value proposition and opportunity. And so, I'm actually really proud that we say no to customers on a regular basis because it's a bad strategy, but it is a strategy deployed by the traditional enterprise to lure in customers.
I'll just build you what you want. Yes, you're going to take 1,000 people for the next 5 years and charge them $50,000,000 to do it. I'd rather them keep the $50,000,000 spend it on their brand, generate a truckload of revenue and then make money that way. And so I think it's just a different philosophy and approach.
Thank you. Could you talk a little bit about the progress with merchant solutions within the Plus space? Because obviously a lot of these larger merchants will tend to have enough scale that they can negotiate payments through other providers. And it seems like could you talk a little bit about maybe Fraud Protect and if that's becoming a bigger driver to payments within the Plus and maybe the progress versus like 12 months ago?
Yes. So I think that our approach is that ultimately we want to build you a product that's so powerful and feature rich that it's not about price anymore. And so when you have those scenarios, you absolutely have price oriented payment gateways. The folks who are just out there cutting the floor out of the system. I think what's true is there's 2 things that customers very quickly realize that won't last.
So they're going to give you probably a terrible analogy, but it's the mortgage backed security, bait and switch model, right? It's like I'm going to give you a really low upfront cost and then quietly someday I'm going to turn the table and make this thing way more expensive because I can't run negative forever. So that's part of it. But our approach is to just make it really feature powerful. And so you take something like fraud.
As we said, we transact so much, we see buyers across so many stores that our ability to detect fraud isn't exactly just about the fraud. What we can allow customers to do is take more orders because we can detect fraud at a higher rate. That's no longer just insurance. That's actually upping the number of sales a customer takes. That's super valuable.
That's a product feature, not a price feature. And so what we look for is these opportunities to maximize feature robustness with cost effectiveness. We need to be cost conscious in gateways. Customers are trying to make money too. And I think we are.
And so I think that balance allows us to go to customers and say, straight up, I will probably never be the cheapest in the market. And if that's what you want to optimize for, okay, great. But most of these new enterprise customers, these fast growing brands, the reestablishment are trying to optimize for customer acquisition, not necessarily cost reduction. And so what we are trying to do is show them upticks in take, upticks in conversion, upticks in all this capability to acquire and keep customers versus just cutting their costs down. That was the old way, cut costs to the floor and sacrifice experience, right?
We want the experience to be great and still be cost effective. So I think what you've seen is increased adoption over time of merchant services because it's the best combination of best product in the world and rates that are effective.
For the CPG buyers that you've mentioned, are you seeing that Shopify being pulled higher into strategic and from a strategic sense, are you seeing more C level involvement in the purchasing decision? Who's typically the buyer within a large CPG? Is it a brand manager? Is it the head of e commerce operations? Is it going to the COO, CEO level?
How has that evolved over time? And how has that impacted the sales cycle into those larger customers?
Yes. So it's almost always the CMO. The CMOs and their counterparts, whether it's heads of e comm, things like that are almost always the driver of the conversation regardless of the brand. In some of the so if you're talking about the Fortune 50, you're absolutely talking to their executive level because this is a strategic problem at the moment, right? They're trying to figure out how to alter their business in a way that allows them to remain competitive.
Now one of their strategies is buy all the guys that are disrupting them. And so that's happening as well as they're consuming all of the start brands, but there are others that start acting like them. So we spend a lot of time with that. When you get slightly smaller than that, you have all the CEOs involved because it's their brand, right? This is a brand driven conversation at this point.
And so the brand is a C level discussion. What we've been very lucky on and also but lucky by design hasn't changed the sales cycle at all. The sales cycle is still fast, it's efficient because my own experience over my own career, what I've also what I found is as you go up the executive scale, their tolerance for wasting time goes down. And so the sales cycles actually speed up because they just won't waste time, right? It's the middle layer that wants to just like hang out all the time.
And so as we go up market, it actually just gets like more efficient.
Seeing your framework of your customer profile of the cool kids and the old guard, I guess, could you just talk a little about the resources that the 2 kinds of customers require, given that one is sort of with you and pushing, pushing, pushing because they're really focused on scaling and the other has both people and systems and architecture that needs to get displaced ultimately to really partner with you? And is the size of the prize of the latter really worth the effort?
I think what we see with the ones who are transforming their business is a complete willingness to change how they do things, right? One of the unique positions we could put in is this, you tell us how it's supposed to work, right? Because like we're at a loss now. We've tried and spent huge amounts of money and hired 7 VPs of e commerce and like we've never gotten it right. And so it's like maybe we just don't know what we're doing.
And so they enter the conversations are a lot more open than they are dictatorial, right, which is fascinating to be in because my own background is like old world enterprise software where it's just like you were told what to do, right? It's just like do this, get out of our offices. Now they come and they're like, hey, we need to change it all. So it's also an opportunity to restack everything. They actually come to the table and be like, you tell us the tech stack we need in the future.
We'll toss the ERP, we'll toss our finance system, we'll toss our marketing system. Whatever is integrated to you is the thing we need to figure out, right, which puts us in a really interesting position. Now, those projects are hard because they have so much legacy. But I think it's the combination of a willingness to change, which allows us to continue to go fast. And I think that's why I call it like, yes, the cool kids are on us, but the other group that's just as interesting and just as fun to be with is the reinventers, the ones who looked at their business and said, we won't survive this way, so we're going to reinvent ourselves.
And so let's go back to 0 and start again. And yes, it's going to be hard and painful, but death is also hard and painful. And so like hard and painful in live is probably a better option than hard and painful in non existent, right? And so I think, those other big more every day, right? The I don't believe it, but like the retail apocalypse, right, has scared enough people into action as they've watched their counterparts fall apart and they don't want to do that.
And this is part of the they've watched their counterparts fall apart on the traditional enterprise. And so they're now going, well, we can't stay here. Everyone stays here falls apart. We got to get off this ship. We raise the flag.
We're like, we're over here.
How do you see the role of CRM in the enterprise and kind of Shopify's responsibilities in that space over 3 years or 10 years.
Yes. If you're going to so given that the enterprise is now dominated, whether you're like the new enterprise is dominated by CMOs. CMOs are brand and customer acquisition. Customer acquisition requires that you understand a customer like your consumer at a really deep level. So that data point, that data record of how your buyers act and interact is super critical.
It allows you to build products that are personalized. It allows you to adapt. It allows you to interact with those customers. So there's lots of fun acronyms that enterprises throw around CRM, CDP, all this kind of great stuff. I think the key point is how well do you understand your consumer?
Because the better you understand them, the better you can create the experience that consumer wants, which then translates into higher conversion rates. So I think we have a responsibility to that. One of the greatest things about is our data record. Like we just have billions of transactional data points around customers and how they move around and what their interests are and how they buy and what they don't buy, like in timing, all kind of stuff that we can use to help inform the products that we build, but also help our merchants better understand their customers so they can create experiences that help them convert at a higher rate. And so I think it's actually a really unique, like highly defensible moat that we have.
It's just the sheer volume of data we have about shoppers and what they do and how they act. And we will continue to enhance that and make that more robust and help our customers interact with our customers in the way they want.
Yes. Has your experience with Plus been the same internationally as it's been in North America?
Okay. So there are obviously massive nuances to how people buy and sell things in different markets. So the cultures of markets are very different. The response has been the same in that large enterprises, fast growing enterprises have the same challenge set no matter where they are in the world. And so when we show up, we give them an option they've never had before, right?
We show them a path to grow and scale up and to deal with complexity that they've never contemplated before. And so the response, our efforts around the world have been going really well. And the response from the customers is, thank God someone's going to give us the platform that allows us to grow. We I think our message is the same everywhere is your platform should be an enabler not an anchor. And if it's an anchor, if you're like think about it all day,
if you think about your
e com platform all day, something's wrong, right? Because you should be thinking about your brand and marketing. And so this is what we're trying to get customers and that's true no matter where you are. What we are trying to do is adapt to the sales motion and the structure and the cultural nuances that exist in each one of these markets that we sell and interact and support and manage our customers in the way that feels natural and feels native to them. But the needs and the opportunity.
Okay,
great.
Thanks everybody.
All right. We'll take a 10 minute break. So if everyone could be back in here at 2:50, we're going to start right away with our Chief Marketing Officer. Thank you. Go ahead and get settled now.
I will introduce our penultimate speaker. Our second last speaker today is Jeff Weiser. Jeff is our Chief Marketing Officer. He joined a little bit over a year ago and he is the creative force. He and his team have started a lot of the kind of new things you've hopefully seen around town if you came up from New York.
So without further ado, let's welcome Jeff Weiser.
Hi, everyone. Thanks, Katie, and thanks to all of you for coming. I didn't get coffee or dessert, but I did get a microphone. So that's a start. As Katie said, I'm the new Chief Marketing Officer at Shopify.
I've been here just a little bit over a year. I haven't met a lot of you guys. So just for a little bit on my background before Shopify, I was the Chief Marketing Officer of Shutterstock, which is a publicly traded tech company. And before that, I ran strategy and analytics departments at companies like Beach Body, which is known for P90X and Shakeology and other fitness products, as well as MySpace and Yahoo before that. Before I get into some details on our performance marketing and brand marketing programs at Shopify, I'll just ask you to take note of our disclosure on non GAAP financial measures.
One of the questions I get asked a lot as a newish member of the executive team is why did you join Shopify? To me, it's a really great meeting of the minds. If you were here for Amy's presentation earlier, she talked about how the company operates on a set of flywheels or self reinforcing loops. And that's really the right way to think about performance marketing. So to give you a sense of how our performance marketing operation works, I'll start by defining the terms.
When I refer to performance marketing, I'm talking about advertising dollars we have in market that are designed to directly drive new merchants and whose results are quantified down to return on investment. That's distinct from other dollars we spend on brand marketing or on marketing G and A. And at the center of our performance marketing flywheel is the lifetime value model. So we start by having a really deep understanding of the lifetime economics of acquiring 1 merchant at a highly granular and segmented level at minimum by their geography, their segments and the channel of acquisition. At any given time, our flywheel is using marketing spend to drive new merchants into our ecosystem.
We execute tests against the merchants experience to grow their lifetime value. As their lifetime value increases, our marketing spend has become more profitable, which lets us invest more in performance marketing, driving still further merchants and more testing, which again increases spend. To give a deeper look into our lifetime value models, there are a set of merchant stages that they go through in their lifetime. And at each stage, we have a set of metrics we're trying to optimize to and a set of levers we have available for us to do it. So beginning with driving merchants to our site, we try to optimize to cost per session.
And then throughout their conversion to becoming a lead through their 14 day free trial to when they choose pricing and packaging, retain on our subscription products and adopt merchant solutions. Each of those stages is treated as a lever to be individually optimized. And when we achieve those optimizations, it's put prospectively in a forward looking way into our lifetime value models to drive the flywheel. Taking a look at what the results of our flywheel have been, I'd like to show you some representative cohorts. 1 are merchants that we acquired in Q1 of 2016 and the other is merchants we acquired in Q1 of 2018.
If you look at the red and orange bars, what they're showing is our day 0 investment in performance marketing to acquire the merchants. And then the green and yellow bars respectively are showing the gross profit dollars created by those cohorts from Q1 2016 and Q1 2018 excluding the performance marketing spend itself. And what you can see is that we've recouped our performance marketing investment within 6 months. And by 3 years out, we're at over 400% of the initial investment in performance marketing. Something that's really notable here is that as our marketing investment and our merchant acquisition has scaled, notably the yellow bars are much bigger than the green bars, the return on investment has held flat.
It's atypical to be able to scale your marketing spend and your acquisition without seeing a diminishment in return on investment, because marketing programs typically buy the most efficient, least expensive, most productive pieces of advertising first. So to be able to hold the return at that level of scale has been just a tremendous experience for us. In addition to our performance marketing operation, one of the areas of evolution that we've had over the last year is to start to move up the marketing funnel into brand marketing. Shopify, as you know, aspires to be in a 100 year company. And in order to do so, we must over time become a household name.
Now today, if you were to take the U. S. General population and ask them how many of them have heard of Shopify, only 2% of them would be able to name Shopify as a business that you would use to start your own business. Even when we 0 in on our target segment, small and medium businesses, that number only grows to 4%. Now the numbers are higher in an aided sense, meaning if we prompt people and say, have you heard of Shopify?
We have 31% aided awareness among general population and 41% among small and medium businesses. But it obviously shows that there's room for growth. And through our new investments in brand marketing and Shopify Studios, we believe we can create that awareness that then seeds and provides a halo for the performance marketing flywheel that I just described. Now internally, Shopify has always had a very good sense of what it stands for as a purpose driven org designed to make commerce better for everyone. One of the interesting challenges over the last year for the marketing program was how do we represent this as an external facing message that would resonate with the general population.
The insight that drives the company's new brand position is that 21st Century Commerce is caught in an economic trap. We're told we live in a time of unprecedented opportunity. Industries are being replaced and disrupted. New tools are at our disposal. We're more connected than ever.
It's supposed to be the age of opportunity and media has certainly created the impression that entrepreneurship is thriving. But when we dig into the data, we find that this opportunity may not be reality for most people. As Toby mentioned earlier, start up rates are lower than they've been in 40 years. Power is increasingly concentrated in the hands of a small number of large global corporations. People are less likely to move than they ever were before for a new job opportunity.
And education simply isn't keeping pace with economic change. And in developing markets where people lack power and equality, opportunities are that much more limited. Monopolies, social stasis, inequality, skills gaps, these are far walls that make up the economic trap I described. Shopify's goal is to establish itself as the true partner to those seeking independence and breaking out of that trap. And there's some good news.
To combat the 4 walls of the economic traps, we see 4 offsetting walls of independence forces of independence, I should say. Where we have monopolies, we see entrepreneurs pursuing new niches in new markets. Where people feel constrained by their corporate jobs and their corporate environments, being independent lets them take back control of their work life blends. Where there's economic inequality, owning your own business puts you in the driver's seat over your earnings. And where there's education and skills gaps, we know that running your own business gives you the kind of education you could never achieve in a classroom.
So the way we've distilled our brand purpose is that Shopify exists to unlock the power of commerce for those seeking independence. This is our heart center and it's the premise of everything we do in our brand marketing. And for the first time, we're now taking this narrative to market. Our first campaign is live in 12 North American markets. We're executing it as a test where we will read the lift in those markets as compared to control markets that don't receive the brand treatment.
And the premise of the campaign is pretty simple. It's that making stuff is easy. Every one of us has been doing it since we were children. There's lots of places to do it online. But making something into a business, that's hard.
And so the theme for our first campaign is Shopify, let's make you a business. Shopify has the tools and support you need to run a legit, fully thriving business. It's good for side hustles, but it's amazing for actual hustles. Let's take a look at some of the campaign creative. 2 things that we're doing a little bit differently than in the past is 1, expanding our channels.
So in this campaign, we're using out of home, television, digital video, radio and social media in addition to our traditional digital channels. And we're also trying to create both awareness and functional understanding of what our products and services do. This billboard is a pretty good example of that functional awareness imperative, where we say, turn what you're into, into a business. Shopify, let's make you a business. Your mom should be your 1st customer, not your only customer.
Shopify, let's make you a business. Here's an example of how some of these executions work together at a larger scale. Let's make what you do for fun, what you do for a living. Shopify, let's make you a business. Let's make your family proud or prove them wrong.
We don't know what kind of relationship you have. Shopify, let's make you a business. And of course, being Shopify, we weren't content to just use the existing media units that are out there. We felt that we wanted to hack the system. So our campaign includes one unique out of home execution that we think could outlive this particular moment in time.
Most people see empty storefronts as a nuisance. Where they saw a problem, we saw an opportunity for imagination. Our that business storefronts are live in 10 markets. And they say things like that business you think could be huge, could be here. That business you're not sure how to start, could be here.
The idea is of course to allow prospective merchants to envision their own ideas come to life in a brick and mortar setting. It's also a strangely efficient way to buy out of home advertising that the rest of the media landscape may not have discovered yet. I'll also let you guys take a look at our first TV and digital video ad.
The world's favorite new drink
doesn't exist yet.
Thanks so much for spending a little bit of time with us. I'll be happy to take any questions the group has.
Hi, thanks for taking my question. That chart you showed on the cohort profitability and time to return, I'm trying to reconcile that with Toby's comments earlier in the day that it's getting harder to get customers on Google and Facebook. Nature of DTC acquisition is changing. Can you help me understand why even at scale you're not seeing that diminishing marginal return or utility on that spend? Is it?
Yes. Well, I think Toby was probably referring to the good news is Toby is in the room. He can speak if he wants to. But I think that Toby is referring to a different context. I don't think he's referring to our own marketing and certainly secular trends are also at play, not just the return on your advertising dollars.
But if you look at our merchants advertising, we have lately seen a trend where what used to go to search and social media and frankly carried a little bit of a measurement premium in the sense that people were paying a little bit extra to be able to get direct measurement of how it was performing is starting to swing back towards more traditional forms of advertising and using new ways to measure it. Advertising. But because of our performance marketing flywheel, even in the existing channels we've been in, we've been able to hold that ROI. But you can't really look at any one of those things in a vacuum. It's also in the
It's Mark Skusovich with Rosenblatt. Curious on the 12 markets that you picked or what was your thinking around those markets and sort of how that may or may not sort of expand and when that sort of expands beyond those 12?
Yes. Great question. The model that we're using even in brand marketing is not dissimilar to what I shared in performance marketing where you put dollars in market and if it achieves a margin standard, then you do more of the same until such time as it can't achieve a reasonable ROI. And of course, in the background, you work like hell to improve the customer lifetime, or in our case, the merchant lifetime, so that even less performing media can still have that ROI. And so the model is basically you try something out and if it works you scale it further.
The 12 markets we're in represent major North American cities. They were chosen in part because they have similar control cities we're able to benchmark against. But to the extent it works, I think you'll see it roll out more broadly.
Over here.
Okay, great. Thanks for taking my question. Just curious in regards to your partner program for referring merchants and select that. Have there been any what's the update or what changes do
you have for that in terms of the qualifications of the partners as well as even the incentive program for partners when they refer new merchants?
It wasn't that long ago when you like top type in Shopify on YouTube, you get a lot of like shitty looking guys saying, we can get you on Shopify, be a merchant, you can make a lot of money and all that stuff. And a lot of those merchants flame out. So I'm just curious in terms of what's been done for that for this coming year? Thanks.
Yes. I'm not going to get too deep right now into our product roadmap for partners referring merchants. Suffice to say that like a lot of marketing programs, we use affiliate marketing and other types of marketing referrals through our value added partners as part of the program. But in terms of specifically what the compensation scheme will be for those folks or what the rule book will be into the future. I won't go into much more detail on that right now.
So we heard a lot today about international opportunities. I'm just curious how the marketing metrics look and how we're thinking about investments internationally and how that should impact maybe some of the cohorts that you just laid out?
Yes, great question. International, we take off. So even the metrics we're seeing today, which to the extent we spend behind them, you can be comfortable with, because we keep that lifetime value to customer acquisition costs ratio, as I described in the flywheel. We only spend to the extent that that's working. But whatever I were reading in terms of the profitability of a given merchant today, which is what in turn drives the amount we spend to acquire them, I would not take that as the long term indicator as what they could be worth anyway, because we're still developing out our products and finding that fit.
So just in terms of the lifetime value levers, can you maybe talk about some areas where you're seeing improvement, whether it's retention by a broader suite of products or you've got conversion, like any areas where you've seen that improvement such that you've been able to spend up even higher to what are higher LTVs?
Yes, great question. We are testing at any given time across every single one of those areas. So like in terms of driving cost per session to be lower, we're testing our ad targeting, we're testing our ad copy execution and creative, right? Once people hit our landing pages, we're testing our products messaging and positioning. We're testing UX, what people call conversion rate optimization to get as many of them who are qualified to become leads.
Once they're in the free trial, we do a lot of testing around the marketing we provide to them during that 14 day period. So they receive e mails that walk them stepwise through how they can set up and become a successful merchant, right? Of course, you've got pricing and packaging and plan selection, various communications they receive for cross sell and up sell to merchant solutions during the tenure of their subscription and efforts we make to lengthen the subscription. So at any given time, we're running this like massive multivariate test where you have wins and losses. We actually consider a loss better than a neutral because we've learned something.
But often the way that you move the lifetime value needle is through a series of small like 2%, 3%, 4% optimizations that add up. About once a quarter, you'll see like a double digit type win. But it's a game of inches in optimizing a merchant's lifetime value.
Could you give us a sense of how the share of performance marketing spent on international has changed from say 2016 to 2018?
Yes. I mean, I think we don't typically do like really detailed breakdowns, but I'll say that international is a huge area of investment for us. We think we're seeing early signs of life there. And to the extent that that works, we're able to spend more while staying within the constraints of our flywheel, which requires that we run run at an acceptable margin. So probably speaking going up, but that's true as long as we're in appropriate ratios that deliver the financial return we like from the performance marketing operation.
Thanks. I was just surprised that the returns were as consistent as they were if you were doing more work internationally. Are there any other dynamics that might be at play there?
I think it's just being disciplined about spending to what works. It's also worth keeping in mind that paid advertising is not the only way we acquire merchants. Some of the most productive things we've done and frankly, if you were to go back like 10 years, the bread and butter of the domestic or North American, let's say, marketing operation was having really robust content experiences and full funnel marketing that leverages organic search, direct traffic and other unpaid ways of acquiring merchants. In some cases, offering ancillary services to owning your own business.
Have a question on branding. So you talked earlier about Shopify, and I think you even showed on the in store hardware or point of sale showing the name of Steve Madden, for example. So how do you think about as the Chief Marketing Officer of Shopify, whether or not, for example, on digital receipts, there should be something that says powered by Shopify or things of that nature?
Yes. We're starting to step out. This is a company that's I think sort of historically been humble and sort of in the background and we're dipping our toes into marketing our brand to achieve that 100 year vision for the first time. But look, we're one of our distinguishing value propositions for merchants is that they control their brands. There's plenty of places you can go, plenty of marketplaces where the brand itself is in the background and the marketplace is dominant.
That's not Shopify's value proposition. It's not our MO. It's just not how we operate. We want the brands and our merchants to be able to be front and center.
Hi. How do you think about the physical stores as part of the brand campaign? How should we think about that going forward in terms of how you might utilize these physical locations?
Yes. I'll assume you're referring to the Los Angeles retail location. Yes. I mean, the LA retail location has been great. It's something of like so much of what we do.
It's been something of an experiment. I would just be careful to say that that is distinct from the brand marketing campaign, the first campaign we put into market that we're executing as a test. The Los Angeles retail location, which is a place for people to get guru support, which is sort of our vaunted customer service that leads to such great merchant satisfaction to meet other entrepreneurs and share learnings, to have meetups and events. That's really a distinct experiment from the brand campaign. Let's make you a business that we're running in 12 cities right now.
And going back to that way that you saw a flat payback period in those cohorts, can we double click a little bit more in that? And what because I would assume like going back to like Facebook and search get a little bit more expensive. Like what are the main qualitative drivers between that? Has the percentage of organic traffic come and stayed the same? Or is that increasing?
And then maybe a little bit of deleverage on the paid side? Or how should we think about those pieces?
Yes. I mean, I guess what I would just say at high levels that our lifetime value to CAC ratios have been fairly flat. That's a fully attributed number where you're looking at all orders and all performance marketing spend, but there's a number of variables that go into that. It's not just the effect of spend and traffic source mix. It's also the lifetimes themselves, right?
So there's you can't just look at the denominator in an LTV to CAC ratio, which I think is sort of the premise of the question.
So I'm curious about fulfillment and how that sort of fits in the 5 year picture of the image of Shopify and sort of our SMEs that are fulfilled via Amazon? Is it going to be pitched as here's we're better because of X, Y and Z? Or maybe just give us an idea of how to think about how are the small businesses going to be viewing that development as it is sort of rolled out?
Yes. I mean, look, Thomas and Amy spoke about this
a lot
earlier. We're very early days. I think in far from the moment when we're out in market with a merchant facing campaign around fulfillment. But the role of Shopify has always been to democratize access to a set of tools that for a smaller merchant is hard to come by. And I think that that's what that fulfillment network will do.
And it will do it at a rate that none of them would be able to secure as their own. So what I don't have today is the specific value propositions and messaging that we'll use in market for a campaign. But you've also got for any brand, a set of global value propositions. And certainly one of ours is democratizing commerce, making the complex simple, bringing scale to smaller merchants and individuals. And so I think that that broad framework holds up very nicely in the context of Shopify Fulfillment Network.
Thanks. So you touched on Shopify Studios a little bit. I was wondering if you could delve into that a little bit more. How does that fit with the brand conversation sort of separate thing? How do you think about how that leads to improved ROI and LTV for customers over time?
And ever think about letting the merchants leverage some of the expertise, whether it's just on the marketing side or on studios in general?
Yes. So there's a couple of questions in there. I'll take them 1 at a time. The way I think about marketing and the way I think most marketers would say they think about marketing is in a funnel kind of arrangement, right? And what's typical to do, as you're at the inception of a marketing program is to start at the bottom of it, right?
There are folks and they're taking actions typically in a digital environment that signal their interest in your product or service and you want to be there to efficiently convert them, right? That's search marketing, for example, like you search for start my own store, we want to be there, right? And then over time, as you've developed those efficient marketing programs in the bottom of the performance funnel, you start moving up funnel, right? So the way I think about brand marketing is that in a marketing funnel, it's north of performance marketing in creating awareness for the company. North of that is studios, which creates awareness for the category.
We want to create a movement towards entrepreneurship and redefine what it can mean. Every day, we have a front row seat to the most inspiring, insane, sometimes heartbreaking stories of what it's like to be an entrepreneur. And there's an opportunity to reclaim what that is and what it stands for. There's something that was foundational to our brand research that I didn't hit on earlier, which is that we talk about entrepreneurship. But the smaller side of our market, our merchants, they don't think of themselves as entrepreneurs.
To them an entrepreneur is like a rich white arrogant guy in San Francisco, right? And so what they would say is this comes out in the research. They'll say something like, well, I'm every bit as motivated as entrepreneurs. I'm every bit as creative as entrepreneurs. But like, like I'm not morally compromised the way some of those entrepreneurs are, right?
And so there's an opportunity to redefine what entrepreneurship means in a way that's distinct from the way it's been portrayed in mass media. And so that's the function that that plays in a total marketing funnel is like, let's redefine a category knowing that if there's lift in that category, it's accretive to the company that plays in that space or hopefully most plays in that space. Below that, let's have company and products consideration through brand marketing. Below that, let's have performance marketing that efficiently reads signals of digital intent and converts it in a lucrative way. That's the way we think about it.
I think this will be our last question, Jeff.
Can you talk about just
the timing of the brand marketing? And then if it's super successful, like presumably you can do more of it and then you're spending more, but the like people's awareness doesn't necessarily mean people are on the getting on the platform yet necessarily.
Yes. I think what I if I were to to play back your question, I think you might be saying, well, if you try to judge this on awareness and it succeeds on that basis, what confidence can you have and over what time horizon that that translates into more business for Shopify? And I guess what I would say is that that you have different metrics for different time horizons. Yes, the per se objective of the campaign is to raise awareness. And that's the first read we will have on the efficacy of the campaign.
But during the campaign cooldown period, so the campaign ends in mid July, it was a 12 week flight. And then we'll watch the geographies over time. During the cooldown period, what you'd expect to see is that the increased interest moves down funnel. So first, the awareness metrics move. The next thing that moves are session metrics.
The next thing is lead and the next thing is conversion. So the measurement of the campaign doesn't end assurance I would just give is that if this works and so the assurance I would just give is that if this works and by works I mean translates into business, then there will be more of it because it will conform to our methodology, which is you spend against what's working in an acceptable margin structure.
I think they're making good time. This is good. I heard some of you have to catch a flight back to New York in a bit. So super fun day around the office. There's a lot of preparation that has to go into something like Ignite.
So we're not actually the kind of company that has like a massive team for something like this. It's kind of a collaborative effort across all the groups which want to talk and announce. And I think you get a good sense for the kind of people that work in Shopify. I think it's an incredible team. I'm certainly blown away all the time and count my lucky stars to get to work with such incredible people day in, day out.
And I think there's really 2 parts to what we announced today that I've said many times before that what Shopify is today, at this point, it's a well developed version of what I myself hoped I would have found in 2004 when I started this snowboard business of mine. And that's true. That's absolutely that's still what we're executing against. I can tell you in 2004, if I would have gotten a customer who wanted significant changes to their orders, I would have probably solved that problem about 15 years ago before order editing. But great at least now we can do it.
And Lindsay was a bit hard on us on this. There has always been a couple of important things you could change about orders. But now we have unhooked from this poor decision I made in 2004 on the immutability of the data model underlying the orders. This is now a wonderful immutable system. And therefore, we can further evolve orders after they've placed because unbeknownst to me, orders that have been placed are living and breathing objects that need to evolve over time with the requirements of the business.
So lesson learned and code has been written. More interestingly, so I would have found Shopify that someone else built in 2004, would have started using my Snowboard store. But I shut down this Snowboard store. I mean, I shut it down partly because I got really busy building Shopify. But I'll tell you why.
Like and if I would have had that fulfillment network, I wouldn't have had to shut it down because I wouldn't have had to make that choice, right? Because it was a pain to go to the postal office and go and literally, like we were biking, try biking with snowboards. It's not the kind of heart. So you go into a post office, bring the snowboards, dropping them off. And that was the thing that became untenable and why I had to make a decision.
Am I like spending all my like when I make a decision that Shopify Software needed unshared attention, I had to stop the snowboard business and that's kind of too bad. So it's really gratifying to get to take some point in time and then kind of come at this from all these directions and trying to make it retrospectively better for the people who might encounter themselves nowadays in similar situations. So it's a cool way to see that company is sort of moving itself forward. Good. But I know you everyone has questions, so let's why don't we go to questions?
Thank you. I just have a question about
the fulfillment network. I was hoping you could talk a little bit about how you're going to hold yourself accountable to making this project a success. What's the time frame that you're giving yourself? What is the objective? Is it a volume objective, a margin perspective?
From a margin perspective, is there a target? I'd just love to hear your thoughts on something you discovered in 2004 that now is coming to fruition in 2019.
I mean, in sort of a famous Supreme Court, but I know it when I see it. I think this is it's going to be very hard to quantify this right now because I think we would say we would set probably the wrong goals. And I actually found this is maybe sort of a stylistic difference. And Shopify, Shopify is a very data informed company, but it's not a we're not one of those OKR companies. I know this is very popular and there's well known people are writing wonderful books about this.
I just have found that one of the most sure ways to get a single metric accomplished, but basically, the scorched earth all around the particular blast zone of a particular metric that you set is to set these metrics. I found that it's better to drive an entire area forward based on an appreciation for the value that this area causes and the value it's off to the merchants. And they will absolutely tell us. One of the most surefire thing way about the entire Shopify thing is, if we do something, our customers tell us. And so we will know.
Now obviously, I want this to be a major part of the company. And even zooming out from that, and I think this is a problem that needs to go away or at least that needs to be diminished in the terms of pain it causes and the complexity it incurs in businesses. And so I don't actually think so much about the competitive situation here because like we are not the only one, Famous Marketplace does a similar thing with a little bit of different tweaks. Hopefully, there are other players coming into the space. And I actually see us all as sort of co conspirators trying to make it so that SMBs can also provide a kind of experience that is people come to expect from much more established merchants.
So I think we will I don't think this will be subtle. I think the success of this particular project will be obvious one way or another. It's certainly going to be interesting, but I hope it's going to be a very positive story.
Thanks. I wanted to ask about international. Obviously, you've learned a lot in the prior years. Just wondering based on those learnings, what surprised you? And are you in some ways more emboldened about how global this platform could be if you look out 3, 5 years?
I had one unfair advantage that I just I moved from one country to another country. Everyone who sort of moves from continent to another has a little bit more appreciation for just cultural differences of places. So one of the most fun things was seeing a company full of Canadians figure out saying, wow, the rest of the world really is very different from us, isn't it? It's like when you just travel and visit places, you don't really appreciate this to the same degree. So I think that's behind us.
We have now really good playbook for how to show up in countries. We have a very good go local strategy. And there's not a lot of new things I can tell you there. It's one thing we have noticed that is a huge advantage that we have is higher people like we are here in Toronto, which is literally has people from every country we would ever want to expand to who probably immigrated within the last 15 days. So that's useful.
And so we will put our slight unfair advantages to use tightening up our go to market. There's a couple of parts of Shopify which aren't as market configurable as we want them. So those are technical challenges that are falling one after another every day. If I'm tracking the internal product announcement change log.
So it
was kind of all don't have much longer to live. And the company is just excited about it. It's really, really fun to expand. It's to see what other cultures do. It's just the approach to how surface use is so fascinatingly different.
And it's one of like it's an easy project now that we've finally engaged in it because it's almost self motivating within the company. So that's really cool.
Hi, Todd Copeland from CIBC. I want you to talk about how the company is scaling up very quickly now and there's execution risk with all the different investment areas that you're getting into international plus now fulfillment. Talk about how you are thinking about managing that execution risk? Thanks.
I mean, I'm fascinated about organizational design, motivation management. You basically at this like at Shopify Sykes, you have you need an honorary degree in behavioral psychology to even get anything done, which I hope fully have acquired at this point. I always talk about Danny Kahneman and Artis Trubisky as my spirit animals. So I think honestly, the hedge against the organizational risks is I wish I would have something really surprising, but it's hire really great people. And I think what we have accomplished is that for a fairly large geographical region, I would probably put all of Canada in it and maybe a little bit beyond, This is so clearly one of the companies that is doing exceptional things, where people go to have to spend many, hopefully, years of most some of the most exciting years of their careers together.
One of the best things I think about announcing the fulfillment network is that there's a lot of people with a lot of very deep institutional understanding about this world. We have many of them, but we will need more who are currently working in exceptionally good jobs, but who say, I'm solving the same problem over and over again for the same people. I would like to solve this for a larger market size. And people just generally find they get really motivated from happening the little guys, which is something that Shopify has figured out how to build a business model around and most people didn't. And so I think there's we have all sorts of systematic advantages that come from being in this being located in markets that have a property of long tenure for staff, so that people can really understand, get expertise level understanding of complex areas.
We draw from a large area and there's a good consensus that this is a fantastic career move to join this company. And I think then it is easier for the people to allow themselves to fall in love with what the company does just because of the effects that Shopify has. This is something that a lot of elements of the tech industry are struggling with at this point where people aren't quite so sure about the secondary and tertiary effects of success within the companies they book for. And I think that's a cleaner and more obvious, good news story within Shopify.
Two questions. 1, when you were thinking about 3rd parties to partner with for the fulfillment network, can you walk through the process of thinking about Amazon as one of those partners? And then the second question is, does the success of the stock, can you talk about how that has impacted the culture of the company, the financing of the company? Just in general, how has that impacted what you're doing?
Yes. So about partner selection. So Amazon is not part of our launch partners. I keep note in mind on it. If Jeff calls, I'll let him in.
But I wouldn't I'm not going to hold my breath. So on the second, the stock price, it's hard. It's like the stock price is not about the value of a company. It's about the confidence of investors, right, which is gratifying to see it go up. But obviously, it went up a lot.
And I can guarantee, like as much as I wish it to be true, this company has not gotten twice as far twice as smart this year. And so I think one thing we do well in the company is sort of distancing the appreciation of investors in the company from the thing we're working on, which is for real market value of the company. And this is important because at some point, there's going to be days where it goes up 10%, some days it's going to go down 20%. On both days, we certainly don't get 20% dumber. And so this is it's good to keep that idea at the arm's length.
We generally have a culture of we try to get people to not think about this a lot. If you're caught checking the stock price, you will have to buy donuts for the rest of your office. I actually I did recently had to put into Slack announcements just exactly what I just talked about, about the difference between real market value and this, which meant I had to get donuts for absolutely everyone in the company, which was really expensive. But so this is a way that sort of affects us internally.
So I had a question for you on artificial intelligence. I wanted to get you've talked about a lot of retail implications or opportunities for artificial intelligence, fraud detection, fulfillment. I was wondering what other ones you had thought of. And then also I wanted to get your input on basically the societal implications for artificial intelligence, meaning the potential for significant job loss? Thank you.
Yes. I mean, it's one of the most powerful things we've ever come across, right? It's the reason why I'm talking about job loss is not because I have sort of a hit list of things that I think AI is going to replace immediately. It's actually almost more consequential than that. It's because what AI is, it's actually it's fairly straightforward to explain.
It's like, you give it a lot of things on one side, you ignore everything in the middle and then you get results out. Here's an order, do something that judges if this is a good order or a bad order and tell me that on this side. You get a lot of examples of this. You run it through a system. Afterwards, you kind of show it new examples and it will tell you which of the 2 results or 100 results or whatever you're going for is true.
Once you realize this, it is staggering how many jobs in the world are actually just that. How like everyone who works in a hospital and looks at imaging is literally doing the same thing. They're getting picture print out. They say cancer or not cancer and or whatever it might be wrong. And then that result is something that's being processed with.
After you have built up a training set for this, you can put a machine, a very basic algorithm. It's literally 6 lines of code at this point by the degree by which we have tooled we as a tech industry have tooled these kind of things. And it will end up with a higher accuracy than the doctors if your training set is accurate. So I come from a very technical perspective. So many jobs in the world are based on like something happened, a form is being filled out, an email is being sent and then something is judged and then something is now output.
But it just can't help to think that this is something that, builders have enormous implications once we get to that part of the industry. We are still kind of in the infrastructure component, like have lots of industry disagreements on exactly how to program these things. We don't even know if you're building computers right. Right now, we're attacking this with crazy custom silicon. There's a couple of folks saying we actually have to unwind the computer industry all the way to the more analog approaches that we used in Bletchley Park for the allies to win World War II and build on top of that because it works better.
So this is the kind of conversation that are going on. And the fact of this will all be that suddenly, computers will be able to do a lot of things we couldn't do before. More immediately, so the way this works in retail, I think one of the most best illustrations of this is really this fulfillment network. The 58%, 85%, no, what was it, 85% correct prediction of which area will have a next sale is witchcraft, if to 10 years ago in the industry. Like this is crazy.
And that was basically our first cut based on just historic data that we already had. So I think this is there's a lot of opportunities for us to use AI and to sort of to make things smarter that hopefully doesn't exactly replace jobs. I hope we mostly keep it to the things that replace annoying aspects of jobs. And I mean, there's lots more. And we use it for more every day.
But capital is another obvious one, where it's a big deal.
So, 15 years from now, what's your sense of, how much of Shopify's GMV will come from outside the United States? The U. S. Is probably 25% of global GDP now. 50 years from now?
15. 15, wow, okay.
I was like, wow.
I love thinking about 50 years from now. As Shopify has become bigger, if we put just a map of activity overlaid on the globe, Initially, early years was very, very coastal and eventually became basically the same map you would look when you look at population density, right? It's things Shopify converges on the facts of the planet. So my hope is that it is going to be precisely what the global GMV is, maybe making some allowances for geopolitical circumstances of not being able to partake everywhere. But it's I certainly hope that we are going to be able to acquire the similar success and be actually, more importantly, be of as much value in every market as we are in the United States.
And therefore, people adopt us because it's just the right thing to do.
Maybe just sorry, Tobey, just trailing on that last question. Thinking about it from a concentration of just outside U. S. GMV, when do you think you'll see the same types of penetration rates that you have here today in the U. S, I'll call it that 5% to 10%, when do you think you can achieve that?
And let's exclude China and potentially some other geographies that you
just won't be in? Yes. I don't have a good answer to you because it's not the way I think about it. I do think that business success comes from is a side effect of the value that you are creating in a market. And so I've always been a little bit fatalistic about things like term size and market penetration.
I just that, that sort of happens based on all the other work that we are doing. So I just don't I know exactly the question and I realize for many CEOs of a company like Shopify, this would be a super easy question to answer. So sorry for me to dance around it. I'm not being cute. I just want to give an accurate view of that this is not the way I sort of go at problems.
So regarding the POS system, talked a lot about the competitive positioning of sort of the broader e commerce platform as one of the only one stop shops there versus having to aggregate a lot of other solutions. What's kind of your go to market for the POS system given the competitive landscape there? How are you positioning that against existing competitors like Square? And where do you see that opportunity moving over time?
Yes.
The strength of a point of sale product is going to has traditionally been not necessarily a strength of the software itself, but the strength of the ecosystem it was attached to. It's for the people who already had a web store or wanted to do engage in multichannel selling, it was a superior product because you removed synchronization and duplication of data. This is something we really want to change. Like we don't want this to be the best point of sale system if you happen to have adopted the entire rest of the Shopify platform. We wanted this simply to be the best point of sale system.
So this is why we took this to just basically start from scratch and rewrite point of sale, with some things like performance in mind and take a different approach to the way it's laid out and the way it's being used. It does look similar
in the end. But once
I think once the sort of shortcut style grid view is more fully realized through integrations, apps and so on, this will feel markedly different than I think products in the market. So we want to take a leadership position and start driving that particular industry train the way we are driving the online store train. And that's our ambition there. And again, market adoption, I have amazing people like Jeff, who are going to let everyone know once it's the best product. But I think first, I don't like lying.
So I think first, we need the best product.
Hi. Just curious, as you continue on this journey of becoming sort of de facto retail operating system for all of your merchants.
How do you and continue to
add more innovation and value to the product in terms of the services you provide? How do you think about the signposts of monetizing that value? What do you look to? What are the inputs to that conversation to think about pricing?
I think it's always Shopify has always been sort of slightly under monetized, which I think is actually where you want to be. I think that's much harder to compete with for everyone else. That is holds you to a higher standard for costs of running your software and so on. There are some very important situations that Shopify has made in the way its own architecture is developed that came from our desire to be able to make it so that someone signing up for a new store ends up being no more costly us than someone adding a product to the database and so on. So sometimes, these kind of restrictions actually lead to very creative solutions and it's a good thing.
We obviously have tremendous pricing power with our customers. I don't want to abuse this. I do see lots of opportunities to but amazing thing about something like fulfillment network again is actually there are not a lot of companies like us that are in this situation, although customers are already spending a lot of money on warehousing and shipping. So the amazing thing about Shopify is that due to the scale and the size of ecosystem, what we can do is we can now build this and we can charge our customers less than they have been charging before and yet at a good amount of margin to our company should we be successful. So those are the best opportunities and those are the ones we like the best.
Clearly, something we've done in payments and some other opportunities like cash advances. And those are the ones which I think are going to be the least controversial within the company. But there is and I think you can see this from outside. There's a very strong bias within Shopify to just give everyone everything. And sometimes that takes a little bit of extreme positions.
And then Lauren shows up and saying, hey, I run Plus. I need to give some really, really good reasons for people to adopt Plus. And then we are like, oh, okay, right, we should really do this. And so this is the nature of the conversation usually.
Great. Hello? There you go. All right. Great.
Thanks for taking my question on Jonathan Key Summit Insights. Just a couple of topics I want to ask real quick. One is, you talked about the rebuild, the rewriting from scratch of your POS, the order edit offering that feature. Just curious in terms of the amount of time it took for that, rebuilding the core product and the amount of resources. I mean, it's kind of inferred from this morning's presentation, your response letter to that merchant who asked about that.
Is it was it starting since then? And you're talking about this complete rewrite of your core products. Is it fully deployed? Is this what everyone has now? And then the second thing I want to ask you too is in international being so important, you've gotten a lot of questions about it.
And you've mentioned during your Q and A, you would go back to Deutschland and your family kept asking you, well, how about Shopify in Germany? And you have a really good answer for them. I understand the response that the subtleties are selling in each country is different. But other than getting it in Germany in Germany, excuse me, what were the challenges of offering it in Germany? Thanks.
So in terms of a rewrite, obviously, we haven't been working for 10 years on order editing. This is it was sort of a series of moves that we had to do to get there. Like in earnest, I think we've been working I think it's a I want to say about some 18 people team that's worked on this for the last maybe 3 quarters to get it to this point. It's not that crazy of an investment. It just it's always opportunity cost, right?
Like Shopify is not it's something has to be really, really important to get into like rank on the priority list and the kind of things we can actively work on. It will be super hard for us to wanting to work on everything that needs to be done. This is huge platform, right? There's plenty of companies, public companies, very big companies who do like one tiny component of what Shopify does. And then we are just announced we are going to annex and tie up anything into us.
So we are already in danger of indigestion with the scope of this company. Point of sale is also not it hasn't been in the works that long. It just again, it's software development is not linear. It depends on the infrastructure that exists. So the initial point of sale product was created 6 years ago, I want to say.
We started on it. And it was very hard because we didn't have multi location. We didn't have a concept of staff. There was a lot of concepts that basically point of sale needed to sort of attach to the hip of an e commerce software back in those days. And now we have all these concepts as first class concepts because the platform has evolved.
And so it actually becomes really easy to rewrite this because the new point of sale, even though it's going to be much better, actually has to do a lot less than the old point of sale because it's based on a much better platform. The second question was what specifically was holding Shopify back in a country like Germany. Is that right? Yes. Again, we had a couple about maybe 1,000, 2,000 people using it in Germany, but they were using it in English.
They asked all their customers to use credit cards to pay, which is not generally deployed. It was just not it was available, but not customer like localized to the market. And now people can use bank transfers, can use everything, including the help software in German. It just feels like to a user, it wasn't that we feel for obstacles because most people in Germany speak English reasonably well. It's just that it didn't feel right, right?
It didn't feel like, hey, you didn't build this for me. And these are again, they're hard to quantify things, which end up mattering a lot. And so those are the things we corrected for.
Hey, thanks for taking my question. You mentioned that you're focused on solving merchant pain points. How do you prioritize which pain points to solve first? And then how do you think about which ones do yourselves versus lead to partners?
So I mean, my favorite solution is to like one sort of subtle thing we talked about was today was the translation APIs. So I don't know if I should get into explaining exactly how that works. But basically, we want our customers to be able to run one store that can be in the local language of all these different markets. We didn't actually add that feature. We added an API that allows our customers to like basically interplay sorry, our partners.
It's an interplay that to do the translation. And then they will have different solutions, like some translation agencies might build an app which does it all automatically. Someone might just do an interface for you to do it yourself and any of those combinations. We don't actually want to have an opinion on how to do it because it's a business question. We just want to enable them.
And that's also, obviously, best ways to sort of sort of hand in hand with our partner ecosystem. Fulfillment Network is similar. It's a network because we own nodes, because our partners own nodes. And so making the like finding the sweet spot is the way we like solving problems the best. In terms of prioritization, I would say there's an ingredient in of going back to the sort of early idealized now Snow Devil days and imagining what would have been really cool that Shopify could have done it back then.
That gets you surprisingly far in terms of decision making. But then again, our customers are incredibly vocal about the parts that are painful for them. And so we tend to know from them. I'll do a program, internal program called bridging the gap once every quarter. And that's me taking phone calls from our customer support, which has recently actually led to some funny experiences.
I was like, hey, it's Toby from Shopify. It's like, really? So, wow. So I'll have to problems I can't really hide by accent. So it would be even weirder if I acquired some kind of pseudonym.
But in most occasions, people absolutely do tell us what they would love for us to solve for them. And we have some boundaries like we have to because, again, we can't annex the totality of software problems into our company. We want to be focused on the physical retail space. And there are sort of boundaries around like we also don't want to just become a financial like the bookkeeping tool and all these kind things. So there's some boundaries that everyone the company understands and between those things we prioritize.
Are there any in international, are there any markets you don't think Shopify will work? Or do you think somewhere or another you can figure out how you'll be useful to those that geography? Or are there any that you think for whatever reason, it won't work?
I mean, there's some markets which are just which have their own version of Internet, basically. And those are a little bit of head scratchers when we're looking at how to address those. We usually find that even more in most cases, we find this very valuable things that Shopify could be doing and could help with. So I don't really I wouldn't be involved in these conversations. I have an incredible team that looks at this and has the world's biggest spreadsheet to look at markets and figuring out like every time we learn something new, it becomes another cell in a spreadsheet and we figure out what is the obvious next place for us to go.
And that's, I think, actually the best way to make these decisions.
Thanks for taking the question. Can you talk about the B2B Commerce market? And does the Handshake acquisition kind of accelerate your market share penetration? Or is it more about getting your foothold in the door first?
Now the Hentrack acquisition, I mean, I think I can say this, it's an acqui hire, right? It's like and even that I don't really like the term. Sometimes it's really just about if you really want to solve problems, you have to fall in love with the problems. If you want to solve the problems quickly, find 1 of the few people who happen to have fallen in love with a problem 10 years ago. Those people are often running companies and really want to solve something.
And then we have the ability to bring these people in and giving them a second go at something if it didn't work the first time. And the B2B is a good size opportunity that, again, our customers tell us a lot about. We have some software in the market. This is one of those pieces of software that is works in a few cases, but probably didn't come in its original conception from such deep of number of such depths of insight as we should have had into the problem set. And so we have ambitions to do this better in the future and found a team that really understands this and now we're working with them.
All right.
Well, thank you very much, Toby. And Thank
you, everyone, for coming. Really appreciate it. Office was fun. I think it's more fun than it's fun, right?
It's a lot more fun when it's fun. So thanks so much, honestly, sincerely. We deeply appreciate the time you guys take to understand Shopify. It's big and it takes some time to understand. So thanks very much for coming.