Shopify: The Fintech of E-commerce
Some may ask, "There’s already Amazon, so why would merchants need Shopify?" The answer is that these two companies serve different needs for online merchants, and they can certainly co-exist.
Let’s put ourselves in the shoes of an online merchant. Amazon is invaluable as a marketplace because it provides access to a massive pool of buyers. As sellers, we would want to tap into this vast traffic to drive sales. Without leveraging Amazon’s marketplace, it would be challenging to generate awareness and attract buyers through other platforms like search engines and social media - possible but might cost more time and money.
However, Amazon does not offer brand control or a direct relationship with customers. Long-term, we would prefer repeat customers to come directly to us rather than through Amazon, where we lack ownership of the customer experience. This is where building our own online store becomes crucial. Instead of hiring developers or paying high fees to build an ecommerce site, we could simply subscribe to Shopify, which offers a best-in-class ecommerce solution at a lower cost, with less effort, and much faster setup.
In fact, many merchants use both Amazon and Shopify together. Shopify makes this easy with tools like the Shopify Marketplace Connect App, which allows sellers to use Shopify to sell on multiple marketplaces, such as Amazon and eBay, while managing orders and fulfillment through Shopify. There’s also a “Buy with Prime” option on Shopify checkouts, allowing merchants to leverage Amazon’s fulfillment network for deliveries. Thus, Amazon and Shopify are not competitors but operate in a coopetition relationship—working together to benefit merchants.
How Shopify Makes Money
Shopify’s business model is built on two main revenue streams: subscription fees and merchant solutions.
Subscription Fees: Shopify charges for using its platform, offering a range of plans from basic services for small sellers to enterprise-level features with Shopify Plus. Merchants choose Shopify because it’s a cloud-based, ecommerce-focused software that bundles everything they need in one place—mobile-responsive design, drag-and-drop store builder, social media integrations, inventory management, payment processing, discount codes, customer communication tools, and robust analytics. The subscription segment contributes 26% of Shopify’s total revenue.
Merchant Solutions: The more lucrative side of Shopify’s business, contributing 74% of revenue, comes from merchant solutions. This includes payment processing fees (via Shopify Payments), financing through Shopify Capital, transaction fees, and referral fees. This segment is tied to gross merchandise volume (GMV), making it highly scalable. Interestingly, from a revenue perspective, Shopify functions more like a fintech company than just an ecommerce platform. Shopify might even subsidize its ecommerce subscription plans to onboard more users, increasing transaction volumes and boosting merchant solutions revenue. In this sense, payment providers like PayPal and Stripe are Shopify’s bigger competitors rather than Amazon. Shopify’s edge lies in its all-in-one solution, making it more convenient for online merchants compared to standalone payment processors.
While merchants have other options like BigCommerce, Wix, or WordPress to build their branded stores, these platforms do not offer the integrated, all-in-one solution that Shopify does.