Dec 17, 20222 min
When Bessemer Venture Partners invested in Shopify in 2010, they considered 3% probability of it reaching $0.4B valuation (BVP exited at $15B (2018), it's $48B today), but they were impressed by its š AppStore and #channelparnters that Shopify initially underestimated.
A few days ago I looked at the current Shopify partners #ecosystem - 8000+ Apps, 40K+ referral partners and $411M in partner commissions payed.
Itās insightful to glimpse at how it all started and why BVP invested in Shopify when āvery few VCs believed that software businesses targeting SMBs were good investments.ā
š BVP bought ~26% of Shopify (would be $12B today), as they recognized the advantages of App Store with simple API (so partners can integrate easily), and #growth via channel partners.
Both look almost too obvious today.
āWe feel that Shopify and its App Store strategy gives it a path to ultimately disrupt enterprise vendors with a ācome from belowā offering and move up marketā¦"
BVP memo, 2010:
šÆ The Shopify philosophy is to build only those features that most customers need most of the timeā¦.
The product is simple enough so that anyone can set up a fully functioning online store in a matter of hours.Yet sophisticated features are also available without complicating the overall user experience.
š¢ Shopify accomplishes this by making available an āApp Storeā.
A customer can click and install an āAppā that extends the functionality of their online store beyond what Shopify provides. To make the āApp Storeā possible, Shopify exposes an open API that allows third party software developers to integrate into its platform.
This approach is a big competitive differentiator for Shopify.
The APIās breadth and ease of use has resonated with the development community. For Shopify this is greatāit can offer capabilities necessary to support larger customers without having to invest in building out these features itself.
š The App Store was launched a year ago and now has over 54 applications. Roughly two-thirds of Shopifyās customers utilize at least one app from their āApp Storeā.
Competing vendors like Volusion, BigCommerce and Magento have also made available an API that enables third party software to integrate into its platform. These have seen limited uptake.
Our diligence of customers has validated that the APIs made available by these vendors are extremely difficult to develop againstā¦.
š Roughly 20% of customers sign-up via referrals from web design firms.
Until Shopify had set up a data warehouse, they didnāt know how crucial their web design firm channel could be for growth (as it has been for Wix.com and HubSpot). And just recently, the company hired a full-time person to cultivate this channel."
Note: they hired a channel person at ~$2.5M ARR.
š” Check Shopify ecosystem breakdown:
Image: IR