Business

Canadian e-commerce firm Shopify looks set to challenge Amazon

Could it be that a Canadian company — founded by three snowboarders in Ottawa — might emerge as a serious rival to the behemoth of the business world, Amazon?

It's not well known among consumers, but if you shop online you’ve likely used it

Ottawa-based Shopify has attracted a million merchants to use its ecommerce platform, having added 180,000 in less than a year. (Shopify)

Could it be possible that a Canadian company — founded by three snowboarders in Ottawa — is poised to rival the behemoth of the business world, Amazon?

Shopify, an e-commerce platform that helps entrepreneurs do business online, has just hit a new milestone: one million merchants are now subscribed to the service. That includes graffiti artist Banksy, office supply chain Staples, and thousands of home-based businesses all over the world.

Amazon has twice the number of sellers, but the speed at which Shopify is growing has financial analysts buzzing. 

"There's obviously a very large divide between the No. 1 and No. 2 competitors in e-commerce," says Ken Wong of Wall Street firm Guggenheim Partners. "But eBay was previously in second place."

He's talking about Shopify's value on the stock market, which surpassed that of eBay earlier this year. It currently stands at about $35.5 billion US, compared with $29.5 billion for eBay. Amazon's market value is $873.9 billion.

Investors were excited about Shopify even before it listed its stock for $17 on the New York Stock Exchange in 2015. On the first day, it closed at $28.31. As of this writing, shares were trading at $309, even after a third-quarter earnings decline. (The stock is also listed on the Toronto Stock Exchange.)

Amazon as a 'virus' 

To consumers, though, the company is practically invisible. It's not a marketplace with huge brand-name recognition like Amazon. But that's part of the appeal for merchants who use Shopify. Their own brand can be front and centre. 

New York University professor and business commentator Scott Galloway put it this way in a video on his popular YouTube channel:  "Amazon partners with companies the way a virus partners with a host …. Amazon sits on top of a data set and leverages these data and learnings to buttress its own private label brands and always — always — its own brand is put forward. It owns the consumer relationship."

He says Shopify's business model is the opposite. "It's the perfect partner for brands looking to build their own business."

Amazon begs to differ. In a response to an inquiry from CBC News, a spokesperson wrote: "Canadian small and medium-sized businesses collectively exceeded over CAD $900 million in sales on Amazon Canada's online stores in 2018," adding that the same group sold over $2 billion worth of goods to Amazon customers abroad.

An enthusiastic fan

Entrepreneurs like Jenn Harper of St. Catharines, Ont., who has a brand of cosmetics called Cheekbone Beauty, uses both Shopify and Amazon to sell her products. She says it was easy to set up an online store using the Shopify tools.

"I'm a 42-year-old who didn't grow up with tech in hand," says Harper. "Without Shopify, I don't think this would have been possible for someone like me to have this kind of successful online shop. It wouldn't have worked."

Harper was able to add text and photos to a user-friendly template to create her company website. The Shopify programs also help her with payments, marketing, shipping and customer-engagement tools.

Her one complaint is that the Canadian company charges its customers in U.S. dollars.

"I pay $79 a month, and that's USD," says Harper. "When you look at some of their online reviews and community reviews, some people feel duped a little bit by that." 

CBC News inquired to Shopify about the rationale to bill in American currency, but a spokesperson only reiterated that it's the company's policy. 

Don't compare

Shopify executives insist they don't aspire to conquer Amazon.

"I mean listen, I've seen all of the comments around that," says Hana Abaza, director of marketing for Shopify Plus. She says the company is focused on its own business. "I think what Shopify does and the problems we try and solve is really guided by what's in the best interest of our merchants."

Abaza says that's why the company is investing a billion dollars into setting up it own fulfilment network, to help merchants with the delivery of goods. "Anything we build, any direction we go, is what's best for our merchants."

Jenn Harper's brand, Cheekbone Beauty, donates 10 per cent of its profit to an educational fund for indigenous youth. (Cheekbone Beauty)

However, analysts took Shopify's announcement in June that it will build a fulfilment network — to deliver orders within two days — as a sign that the company does intend to go head-to-head with Amazon, which has close to 200 fulfilment centres around the globe.  

"Shopify's plan is to cobble together a bunch of third-party logistics centres to create a broader network that could be more competitive, and mirror what Amazon is doing internally," says analyst Ken Wong.

"At this stage, they haven't announced which ones have signed on as partners. From our knowledge there are at least two. To enable an Amazon Prime-like experience you would need five to eight fairly well distributed warehouses."

Competitors but also partners

Shopify and Amazon actually work together in a number of ways. Four years ago, Amazon closed its own Webstore service for merchants, recommending its sellers use Shopify instead. Shopify stock jumped 20 per cent on the news.

Its stock got another 10 per cent boost in January 2017, when Shopify announced it would allow its merchants to sell on Amazon from their Shopify online stores.  

Hana Abaza is director of marketing for Shopify Plus, a division of the company that serves larger enterprises. (Ben Welland)

But Shopify's share price peaked this summer at over $500, and has dropped significantly since then.  Financial results for the quarter ending September 30 showed a $72 million loss, due to spending on the new fulfilment network. Some investors opted to sell, sending the stock price down yet again, even though revenue was up 45 per cent year-over-year.

For Canadians who have watched proudly as other homegrown tech companies have taken their products global, there could be a nervous sense of déjà vu at Shopify's remarkable growth. Although the company now operates in more than 40 countries, offers its services in 18 languages, and notched a billion in revenue for the first time this year — as the trajectories of Nortel and BlackBerry show, what goes up doesn't always stay up. The tech sector is dynamic and fortunes can change quickly.

But Hana Abaza of Shopify points out that Shopify founder Tobi Lütke has declared on many occasions that the company intends to be around for at least 100 years. 

"By making sure we're continually investing in our future and in R&D, we are planning to be a 100-year company," she says. "And in order to do that, we have to invest in the right areas, and that also means investing in Canada."

Nationalists may try to remain optimistic that she's on the money with that.

About the Author

Dianne Buckner has reported on entrepreneurs for two decades. She hosts Dragons' Den on CBC Television and is part of the business news team at CBC News Network.