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Shopify to launch new revenue share model, faster transactions as competition grows

A sign is seen outside the Shopify headquarters in Ottawa on Tuesday September 1, 2020. THE CANADIAN PRESS/Adrian Wyld
June 29, 2021 - 11:30 AM

Shopify Inc. will introduce a new revenue share model for developers and speed up transactions as the COVID-19 pandemic continues to pit the company against Amazon.com Inc.

Shopify announced Tuesday that as of Aug. 1 it won’t take any share of the first $1 million in revenue developers make every year on the array of booking features, subscription tools and other products they design for the e-commerce company’s software.

Shopify previously took a 20 per cent share of all revenues earned by each of the roughly 6,000 developers who create and sell tools that can be integrated and used with Shopify systems. It will now only take 15 per cent once the $1-million mark is reached.

“We believe that developers can build big businesses on Shopify and so we hope to signal that the revenue potential extends much upwards of $1 million,” said Ian Black, Shopify’s managing director of Canada.

Shopify, which is based in Ottawa but uses the "internet, everywhere" placeline on press releases, announced the new revenue share model at its annual Unite conference, which was held virtually because of the COVID-19 pandemic.

The health crisis created a window of opportunity for Shopify, which helps small businesses and brands as big as Netflix, Kylie Cosmetics and Budweiser run online stores.

But as scores of temporarily closed companies rushed online, the competition for their business intensified and Shopify was increasingly painted as a competitor to e-commerce giant Amazon.

Black brushed off the rivalry, saying “I don’t know if that’s the lens so much,” but he acknowledged the revenue share announcement was designed to attract more developers.

“We know that so much of the innovation that happens online is built by developers and built by technical entrepreneurs,” Black said.

“It’s a place where they have a lot of options, but fundamentally, Shopify wants to be the company where we enable the most innovation in commerce.”

Amazon announced in June that it will take a 20 per cent cut from developers who earn up to $1 million in the prior calendar year. Those earning less than $1 million in Amazon appstore revenue will also receive 10 per cent of their revenue as credits for the company’s web services offerings. It previously took a 30 per cent cut.

Apple and Google also dropped what they will take from a developer’s first $1 million in revenue to 15 per cent from 30 per cent.

On top of changes to its revenue share model, Shopify announced Tuesday that it will make checkout twice as fast and will be able to handle seven times the volume of simultaneous buyers.

That means individual stores will be able to process tens of thousands of checkouts per minute — equivalent to the sales volumes Shopify saw on Black Friday and Cyber Monday in 2020.

Checkout time is key for merchants because research generally shows that customers become more likely to abandon their purchases if it takes a long time to process a transaction.

Shopify will also launch the ability for developers to build apps directly into checkout to accommodate upselling and donations, more options to alter the look and feel of storefronts and integration for third-party payment providers.

As of Thursday, its application programming interface will be able to facilitate international pricing, estimate the cost of products with taxes and discounts, handle pre-orders and schedule local pickup.

“The announcements we're making this year are really the largest set of infrastructure innovations in Shopify history, as well as a complete revamp of most of our developer tools,” said Black.

“Collectively, these are really aimed at giving developers and merchants, the creative power and flexibility to control their brand experience on the internet.”

Over the last year, Shopify began allowing U.S. merchants to sell their products on Walmart's website and create a mini storefront for Facebook and Instagram, which is integrated with its Shop Pay payments system. ShopPay will soon be available to all merchants selling in the U.S. on Google.

When Shopify made the Walmart announcement last June, it tweeted a graphic based on an image used with a Guardian newspaper story about the Shopify-Amazon rivalry.

Shopify animated the graphic to zoom in on a frowning character made of Amazon boxes that was being towered over by a shopping bag bearing Shopify's logo.

This report by The Canadian Press was first published June 29, 2021.

Companies in this story: (TSX:SHOP)

News from © The Canadian Press, 2021
The Canadian Press

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