Drinking from the Firehose | Alex Taussig, Lightspeed | Substack

If it executes on demand gen, Shopify would have built the ultimate "business in a box" for online merchants and give them very little incentive to work with Amazon. That's as close to a lights out scenario for the e-commerce giant as we can expect to see.

To grow its take rate significantly from here, Shopify would need to deliver a value it currently lacks: demand gen(-eration). I've written about the powerful combo of free software, marketplace services, and demand gen in my "business in a box" post a few weeks ago. Because 50% of e-commerce searches already start on Amazon, the incumbent has a hu... See more

While it began with a simple tool for sellers to set up their own e-commerce stores, Shopify has expanded into a platform with a thriving ecosystem of plug-ins. In addition, it allows merchants to manage and process payments, and recently launched fulfillment services and e-mail marketing software. Shopify is quickly building all the same functiona... See more

One idea would be to start networking the 1 million merchants who already sell on Shopify.

Amazon guards its GMV closely, but we can estimate it using a "sum of parts" approach. We need to make two key assumptions. First, assume that Amazon's return rate for e-commerce sales is 15%, which is high for some categories (books, electronics) and low for others (apparel). That implies an e-commerce GMV of $12 billion [=$14b*0.75/(1-0.15)]. Sec... See more

The last time Amazon was worth $34 billion was in September 2007! Amazon's net revenues that year were $14 billion, with $3.4 billion of gross profit. While most of Amazon's volume at the time was first-party e-commerce, its marketplace business constituted nearly 30% of unit (not dollar) sales. Based on recent filings with more business unit granu... See more

Shopify today has an enterprise value of $34 billion. Its gross merchandise value (GMV) through Q3-2019 was $40 billion, up 50% over the same period in 2018. From this GMV, it collected just over $1 billion in revenues from recurring subscriptions and payments products at 56% blended gross margins. If we assume Q4-19 will be 50% higher than Q4-18 (... See more

Imagine a Shopify app installed on a store page after checkout. It could offer ads for related or similar products. If the shopper clicks through and transacts in another store, Shopify could earn an additional "demand gen" rake for that transaction, net of payment to the sending merchant for hosting the ad inventory. Shopify may even find merchant... See more

In total, Amazon should have transacted $35 billion in GMV in 2007 -- roughly 1x its valuation. At the same valuation, Shopify today is transacting 74% more GMV than Amazon did in 2007. To be fair, Shopify converts far less of that GMV into gross profit dollars (1.4% vs. 9.7%), but it has shown the ability to grow its rake of GMV by offering additi... See more