Business Model Canvas – Shopify

At this point, most people probably know about the Canadian eCommerce giant Shopify. Merchants – big and small – open a store on Shopify and use the software to manage inventory, optimize marketing, and process transactions. On the latter point, Shopify has been like a tiger in the tall grass, waiting for its opportunity to pounce and open-up the financial services (fintech) stream. Now they have, and the Shopify business model is set to expand.

How does Shopify make money?

Shopify’s original revenue stream was to charge a monthly subscription fee to small and medium-sized merchants (SMEs) who use the platform for their eCommerce store creation, growth, and management. For larger enterprises, there is Shopify Plus, which has a much higher monthly subscription fee that eventually switches to a transaction revenue stream if revenues go beyond a certain threshold.

Shopify – Subscription Pricing

Beyond subscription services, they offer merchant services such as payments, shipping, and financial services products. These bundled merchant services are generally monetized on a volume basis.

Shopify – Merchant Services Pricing

In their latest quarter (Q1 2020), Shopify had revenues of $470 Mn. Subscription services accounted for 40% ($187.6 Mn) in revenue, while merchant services accounted for 60% of revenue; however, subscription services has higher margins (less cost to service) and contributes more to profitability. As they continue to invest heavily in growth, they are only marginally profitable, earning $22.3 in Net Income in the quarter.

New initiatives centre around financial services (fintech), such as:

  • Launching Shopify Capital with $200 Mn (factoring for merchants)
  • Shop Pay Installments for consumers to pay for their purchases in installments on purchases (on Shopify stores)
  • Shopify Balance which acts as a small business banking account for merchants
  • All of this in combination with the new Shop App that is Shopify’s own version of an eCommerce store
Shopify – Shop App

Community-Centric or Commercial Partner Strategy?

One thing that has made Shopify such an interesting story is its focus on the SME merchant market. Rather than starting at the top of the pyramid and focusing on large enterprises and moving downwards, they focused on building eCommerce software that the average business owner could use, and the scaled it up into the enterprise segment (Shopify Plus) later on.

Marketplace Pulse

In Q4 2019, they crossed the 1 million merchant mark, showing how strong the global community of merchants is for Shopify. The merchant community was up 22% from a year earlier, demonstrating how the company continues to accelerate its merchant growth even with a large base. This has undoubtedly accelerated even more amid COVID19, as many retailers were forced to quickly get a Shopify store up and running in order to continue making sales in the pandemic.

Once a business is up and running on Shopify, the switching costs to move to another platform are very high. The feature set between Shopify and other platforms is very different, with Shopify generally being notorious for two things:

  • Ranks tops in ease of use, simplicity to setup
  • Has a large 3rd-party App Store; these eCommerce plugins can be easily installed into Shopify stores by merchants

While on one hand, these plugins can create more complexity and platform admin., they have helped Shopify to build an ecosystem of partners whose success is linked to the success of Shopify itself. In that way, they built a partnership strategy that was not dissimilar to Apple’s App Store, where 3rd party development groups became valuable businesses and development studios by simply building apps on the platform. This helped Shopify build a partnership strategy that was more community-oriented rather than commercial. Network effects increased and more users came onto the platform because they were able to offer better 3rd party apps than other eCommerce platforms. Apps with functions related to shipping, invoicing, etc. help merchants’ stores function more smoothly, and Shopify themselves only have to curate available apps, not do all the work themselves.

Shopify now has big commercial partnerships with the likes of corporate giants like Facebook and Apple. But their roots are in the SME community, and we see with this with events like Shopify Unite (Reunite online event this year) for developers and their monthly Partner Town Halls for partners. The more community-oriented strategy helps explains why they are able to continue growing so rapidly despite already being the #1 player in the space.

Fundraising and Valuation

Shopify is a publicly-traded company. Their current market cap is nearing $100 Bn USD (~$140 Bn CAD) after a large runup in the stock in the last few months. They are currently Canada’s largest company by market cap surpassing the banks.

Shopify shares have performed strongly since its 2015 initial public offering, and kicked into hyperdrive during the Covid-19 lockdown as struggling retailers rushed to use its ecommerce platform to sell their goods online.


The company recently raised $1.3 Billion in equity financing in a deal that was 2x oversubscribed.


It is important to note that Shopify is still not profitable. They have invested heavily in growth and as such is considered a ‘growth stock’ similar to other big Tech names. But they are well-capitalized and are now moving into different Fintech revenue streams, meaning they may start to generate higher ARPU (Average Revenue per Users) and continue to grow rapidly at the same time.

Shopify Business Model Canvas

A business model is defined as:

“the rationale of how an organization creates, delivers and captures value.”

Alex Osterwalder et al invented the Business Model Canvas to help individuals and organizations conceptualize how to analyze, create, and develop business models.

Value Proposition

Subscription-based eCommerce platform for SMEs (small and medium enterprises)