Shopify is a Whale Shark - Part 1
Quiz time. Do you know what these three brands have in common?
In case the title of the article wasn’t already a dead giveaway… all three of these brands use Shopify.
Intro to Shopify
Many of you already know Shopify, but for those that don’t – it’s basically a company that handles all of the painful parts of setting up an online store. That way, companies can focus on the core of their business – whether that’s unbelievably tight and expensive clothes, delicious tomato nectar (yes, I love ketchup more than you could imagine), or binge-worthy shows to fill your nights and weekends.
And those three companies are nice, but that’s just the tippy top of the gargantuan iceberg that is Shopify’s merchant ecosystem. How big is the iceberg? 1.75 million online stores. If you’re like me, you’re asking yourself how we don’t hear a ton more about this company. Here’s a quote to help answer that from founder and CEO Tobi Lutke (from an incredible 2015 letter to shareholders linked here):
“More than 165,000 stores use Shopify today. Yet, as a brand, we are virtually invisible to consumers. This is by design, as our job is to make our merchants look their very best in every interaction they have with consumers.”
Rocketing from 165k to 1.75 merchants since 2015, it’s clear he’s doing a lot of things right.
Over time, Shopify has added many other mouths to feed – and I’m not just talking about merchants. Introducing, the 3rd party partners.
3rd Party Drama
We talked about this a bit last week in the context of Reddit, but third parties can be a blessing and a curse. In Reddit’s case, they were siphoning revenue away from the core business, standing up their own ad networks, and generally wreaking havoc. In response, Reddit basically said “we’re done here”.
Despite the fact that Reddit has been around since 2005, has raised $1.3B+ privately, and has a valuation of ~$10B – they haven’t turned a profit. Co-Founder and CEO Steve Huffman was even quoted as saying:
“Unlike some of the apps [3rd parties using Reddit APIs], we’re not profitable.”
But like a bad breakup, it doesn’t have to end this way! In fact, there are tons of examples of companies that have created mutually beneficial relationships with their third parties. Here are a few:
Notion – this is a productivity software company that helps manage tasks, track projects, etc. It is such a flexible, powerful tool that a cottage industry has popped up around building and selling Notion templates. One guy even blogged about making $100K per month selling them.
Stripe – This payments company also has a thriving set of third parties. Because deploying a modern payment stack can be a technical challenge, service-oriented partners are especially popular. Yeeld, a consulting startup, is one example. It was founded by two former Stripe employees, Mira Boora and Emily Tsitrian.
WordPress – It’s a website content management system that powers 43% of all websites globally, and it (like Notion) has a huge set of features. To help users manage their sites, tons of tools have popped up. I heard an interview on My First Million (link here) with Syed Balkhi last week, and he’s made hundreds of millions buying and operating WordPress tools as a near solo-preneur.
So basically, the point is that this is not unique to Shopify – it’s a popular model.
But what do we call it?
Traditionally, we would call this a platform model – the platform is the main business, and the 3rd parties that build on top of it have no fancy name in particular. Unfortunately, I’ve heard “platform” used so many times in so many different contexts that I find it more confusing than helpful. Also, it’s a bit boring.
So instead, like an early astronomer, I’m going to pick my own name for the thing that I’m seeing.
Introducing…
The Remora Model
The marine biologists out there might already know where I’m going with this metaphor, but for the few non-marine biologists and the MANY non-biologists reading along…
Remora are a type of fish, and they have a nice life. They get free transportation, food for cheap, and protection. How? By having the right partner – the whale shark.
Remora suction themselves onto the whale shark for free travel, get to eat leftovers the shark doesn’t want, and are protected by the shark. In exchange, the remora clean the shark, removing parasites. It’s a symbiotic relationship, and the perfect metaphor.
Tech Companies and The Remora Model
Let’s talk about WordPress and its 3rd party partners for a second to get acquainted with the model. What does WordPress bring to the relationship:
It gets bigger. If more sites are based on WordPress, then more developers need WordPress tools, which means more potential customers for 3rd party tools.
It travels. Specifically, WordPress travels in the direction the market is moving (insert cliché Wayne Gretsky quote here about skating where the puck is going blah blah blah!). This ensures that WordPress stays relevant, and therefore the tools stay relevant. They can evolve together.
It uses its size to do hard, expensive things. Said differently, it uses economies of scale to its advantage. Small WordPress tools don’t have the resources or the know-how to invest millions in making sites perform 1% better, but WordPress does. When WordPress makes those kinds of investments, the experience gets better for customers, helping WordPress and the 3rd parties.
So what do the 3rd party tools bring to WordPress in exchange?
They reach spots WordPress can’t. When you’re building products and features, you typically prioritize based on a) effort and b) impact. Companies like WordPress end up deprioritizing hundreds of products that some customers would love, because there are other ideas that positively impact more customers (and/or require less effort). Smaller tools – on the other hand – can go all-in on those niche problem areas and create huge value for specific sets of customers.
They do customer hand-holding that the big co’s can’t. Services businesses (like the Yeeld example) are really popular for this reason. When a customer needs handholding to implement a solution, or has a really unique set of requirements for how to configure something, that’s a great situation for these smaller third parties. They can afford to spend time doing “things that don’t scale”.
So like I said, the Remora Model is a symbiotic relationship. WordPress does nice things for the 3rd parties, and vice-versa. Like any good relationship, it’s important to have balance. And sometimes that balance can get out of whack…
In part 2, we will look at three cases where Shopify fell out of balance with its remora. Until then, thanks for reading.
Bonus Bullets
Quote of the Week:
“India is on the moon.”
— S. Somanath, Chairman of the Indian Space Research Organization
Quick News Reactions:
On-the-Go PlayStations are back: I desperately wanted the first version, a PlayStation Portable (PSP), when I was in high school. This is huge. A great strategic response to the Nintendo Switch.
Nvidia sales will jump 170%: I’m picturing CEO Jensen Huang giving the Michael Jordan shoulder shrug as if to say “I can’t believe it either”. Might be time to write about chips again soon.
Spotify and Apple announced new podcaster tools: More investments should mean more content. Podcast lovers rejoice!
Tech Jobs Update:
Things are starting to look better for tech industry job hunters. Here are a few things I’m paying attention to this week:
Big Tech Job Posts: On LinkedIn, there are 6,997 US-based jobs for a group of 20 large firms (the ones I typically write about — Google, Apple, Netflix, etc.). I’ll start tracking this total week over week. Also, this week I’ll add a few interesting jobs below for my job searchers out there.
Key Stats: Tech companies added 5K employees last month, a second month of increases. Tech unemployment dropped from 2.3% to 1.8%. (Source: CIO Dive)
Graph: Layoffs seem to be trailing off, at least for now. (Source: Layoffs.FYI)
