dropshipping can be a scam but not all dropshippers are scammers. The scammers will drop out.
I think it is a stretch to suggest that the drop shippers are scamming. I think a lot of them just thought it might be an easy model to get wealthy and own their own company but they will find it is a lot more difficult than they thought. Many will fail but it is not to suggest they are scamming.
Not sure if you can find an exact revenue breakdown from every type of business that runs on Shopify.
But they do give us some snippets that if you piece things together speak to where the highest growth and biggest volume of business is coming from. Take this exchange from the call.
“Sam Kemp
Great. Thanks for taking my questions. Can you perhaps call out what percent of GMV is now coming from Plus merchants or perhaps Plus and Advanced merchants? Thanks.
Tobi Lütke
Yes. That number continues to grow. So if you combine the two together which is the right way to look at it because we do get Advanced Merchants moving up to Plus as part of their upgrade path. It continues to be over 50%. And that number continues to grow. And so, they do have a very meaningful impact on the GMV which is why providing other merchant solutions to get even their share wallet an area focus for.“
So we can see that Shopify Plus and Shopify Advanced combine for over 50% of money flowing on the platform. Those two segments provide the most revenue per customer. They are growing revenue to Shopify faster than Shopify is growing overall. So Plus and Advanced are becoming a bigger piece of the Shopify Pie diluting the impact of every other segment, whatever you think of the other segments and whether they are “risky” or not.
Also remember that Shop Plus “started as an experiment” about 4 years ago.
Shopify Plus and Shopify Advanced combined account for over 50% of money flowing into the platform.
Those two segments provide the most revenue per customer.
They are growing revenue to Shopify faster than Shopify is growing overall.
So Plus and Advanced are becoming a bigger piece of the Shopify pie
And they are diluting the impact of every other segment, whatever you think of the other segments and whether they are “risky” or not.
Darthtaco, You couldn’t have expressed it better. Thanks.
Saul
That makes my point. SHOP’s traditional business is not its real business going forward. If all goes well, Shopify Plus (and the plan just below it), will be THE business of SHOP. So that is the area to watch for the future fortunes of SHOP.
That is a different company in character than most perceive that it is (or at least was). Thus my issue with counting merchant additions without assessing the quality of the merchants.
Shopify Plus (and the tier just below it) actually have the realistic potential to make SHOP larger than it ever was going to be with what we all perceived the company was when we started investing in it a year or two ago. That was the platform for small business.
There is much more money and margins in becoming the platform for small, medium, and large serious businesses. Not to say the small proprietor is not serious, they all are. I am talking about those with real businesses, from the small lemonade stand (that is doing everything it takes to become a multi-stand company) through to Tesla.
Now what is that worth? Much more I believe, albeit, like with Nutanix, it requires ignoring certain aspects of the company, as it was with hardware (that was a 0 margin software wrapper, that on NPI we brought out before brokerages and analysts did), and focusing on the real value drivers, and that is real businesses (not those undifferentiated businesses that might have been on eBay in the past and that I believe (although we do not have the numbers) are the majority of the rapid merchant growth numbers. Easy to grow that rapidly when there entry costs are practically $0 and an industry has popped up to put them on the SHOP platform).
Have to say, Nutanix has become more dominant in its field. What I see is a lot of established vendors putting out information to analysts to try to diminish NTNX is the eyes of the conventional wisdom in the industry. Happens all the time. And one can see how reality is far outachieving expectations that were pushed downward.
Tinker
OT from the Shipify dicussion…
There is nothing wrong with drop shipping it is not malpractice get the association as a dirty word out of your minds
There are some downsides to it. For instance, a number of “drop shippers” on Amazon merely sell you a product that you should be buying directly from manufacturer’s web site, but they add a nice profit on for themselves. This can work because a lot of people are lazy and assume Amazon is the cheapest. I am now in the habit of checking before buying. For instance, I bought a Lightspeed tent. The price on Amazon was significantly higher than on the lightspeed website. People that were buying on Amazon paid a lot of money for someone to then go to the lightspeed website and “drop ship” it from there. Primarily this is the fault of the person buying, either being lazy or naive. Here is the problem, if you want to return your item, you have to send it back the the place it was shipped from. The money you get back from them is what they were paid, not what you paid the drop shipper on Amazon. You can’t get that money back.
So I think that is where drop-shipping gets some of its bad reputation from.
So I think that is where drop-shipping gets some of its bad reputation from.
That and 10 “stores” can all drop ship from the same manufacturer, but are not going to achieve 10X the sales.
Truly how much of shop is oberlo|drop shipper?
And y won’t they tell us?
Seriously y not?
And they keep diluting/raising money because they can. Shop has no use for the $.
Is it because shop knows the oberlo impact and we don’t?
Y?
And y won’t they tell us what the $ is for?
Scam?
Ponzi?
Where is the fcf?
Shop+ 20% of total means the other 80% is what?
Again y won’t they tell us ?
Others on this board have observed the same.
Y doesn’t shop disclose more ?
It is a simple question from many shareholders present and particularly past?
An inquiring mind!
Again y won’t they tell us ?
Others on this board have observed the same.
Y doesn’t shop disclose more ?
It is a simple question from many shareholders present and particularly past?
An inquiring mind!
You have to realize the more they let the investors know, the more they also let the competitors know. Going down to a very high level of detail helps those you compete with know where they may want to shift resources and put their investments.
Jdc,
Yes, that is always an issue. The more information you give, the more competitors go for it.
But really? PSTG, after putting out goals and bragging about FlashBlade, now will not tell us what the sales are for FlashBlade. Do you seriously think NTAP (that FlashBlade competes with more than probably anyone else) is not fully aware if FlashBlade is successful or not?
With SHOP, do you really think the same. That those in the industry do not know if one company is eating up customer share in particular segments? SHOP bragged loud and long enough about new merchants numbers. A big part of their marketcap is the value placed on merchant growth. That is until you find out 5% or fewer of the merchants actually produce 50% of the GMV, and perhaps as much subscription revenue. It is a complete change from the investment narrative that SHOP sold since they went public.
It is a legitimate question. Cisco is now hiding their switch revenues by putting them in with a larger undifferentiated category of products. Yet, to my understanding, Ethernet switches were their single largest product category. But this will no longer be broken out. Why? Protect from competitors learnings things? No, marketshare is rather accurately accrued and calculated by third party firms. The only purpose is to keep information away from investors and analysts. “No, no, we no longer break out our specific switch numbers as it is more suitable to put them into a general category of products, which we believe gives a better indication of the direction of our business.” Really? Not hard to see why Cisco does this, and it will work. Analysts will stop focusing on lost marketshare in switches. Lets see how they do in 400 gb that they are currently stating they will do much better in.
Will they break out 400 gb numbers? If they do well in it, yeah. Otherwise, no.
Since a very small portion of SHop’s merchants are producing a huge chunk of their revenues and potential profits, it would be very helpful for disclosures to be made as to how this category of merchant growth is doing. In fact, it may be the most material thing of all.
I mean, who are their largest competitor for these merchants? What is SHOP’s differentiation from their largest competitors, etc. Are they growing faster than the competition?
Salesforce owns Demandware. Why would one choose SHOP over Demandware?
We have no idea of any of this.
Not a big deal for the more diversified. Is a big deal if one wants to own a larger chunk in your portfolio.
Tinker
Jdc,
Yes, that is always an issue. The more information you give, the more competitors go for it.
But really? PSTG, after putting out goals and bragging about FlashBlade, now will not tell us what the sales are for FlashBlade. Do you seriously think NTAP (that FlashBlade competes with more than probably anyone else) is not fully aware if FlashBlade is successful or not?
They will know but then it depends to which detail you want to break it out. For example, if they break out FlashBlade and also break out regions (NA, APAC, EMEA, etc), do you then want them to break out FlashBlade by region?
This was always the type of information we were trying to estimate for our competitors. We could usually find out broad product categories and overall region growth and size, but we could not easily find out how our product categories compare by region to our competitors. Within the region, then we are trying to find out by country to understand are we taking market share in Thailand but losing in Japan and what is different and why.
We do usually have an idea what is happening but it is a lot of work and not being able to get very many details from the competitors financial statements.
No, I just wanted to know if they were exceeding or not exceeding the $80 million goal for this year (and that was the low end of the goal they put out).
From the immediately prior earnings conference, they also refused to give a number, and it was a bit grammatically in correct, but the transcript read as if FlashBlade was still growing very well, fastest growing product in their history (which does not say a lot as now they have two products) but that its growth had slowed below 50% or something to that effect.
Exactly what was meant I don’t know, but it very much sounded as if the product still had great growth, but was less than anticipated.
When the analyst followed up if the $80 million goal would still be met, the response back appeared to indicate great growth, the product is achieving all our expectations…but the general tone was NO, for anyone reading between the lines. And it was not a difficult between the line to read.
FlashBlade is a serious product, nothing else like it for the most part, and its success is of utter paramount importance for PSTG. So yes, they should give us more information. They don’t have to give us granularity, but let us know, did they exceed nor not exceed the goals they had laid out earlier for the product.
Much better ot do this than talk around the subject with platitudes that make it sound very much like, no, but they were still very pleased with its sales progression.
Tinker
“The money you get back from them is what they were paid, not what you paid the drop shipper on Amazon. You can’t get that money back.”
If you’re buying from another vendor through Amazon, Amazon will give you back what you paid. I doubt very much that Amazon has changed this policy.
Rizz, If you do not like it, sell it.
I listened to that podcast and here are my thoughts on it. First some background on my own business.
I started selling video game systems and games online as early as 1993 on what was called Usenet Marketplace before web sites or even World Wide Web existed. This was before Amazon and eBay existed. A Unix based all text platform where you could advertise stuff and sell them to the small online community back then. Had our first web site in 1995 (swapusa.com, hence my Fool user ID), started selling on eBay in 1998 and then moved everything to Amazon as of 2003. So, I make my living by selling stuff online. We have a large warehouse, 13 employees and we import 100% of everything we sell from China and Italy and do wholesale and retail under several different web sites and Amazon. We sell some items directly to Amazon and some items via FBA fulfillment.
In our wholesale company, we used to offer drop shipping services to small merchants who wanted to sell our products. Charged them a drop-ship fee and signed up quite a few customers. But we had too many issues with drop shippers as they did not want to accept any responsibility at any stage of the product sales and service after sales, including returns or damages, so we stopped our drop shipping program after just 2 years. It was just not worth it.
Drop shipping is a real business for many products and web sites. When you buy things from national retail sites like Homedepot, Target, Walmart, Wayfair, Costco, Sams Club, and countless number of other sites, they are mostly drop shipped by the manufacturers for these companies. But these are mostly branded products and not no-name Chinese made items. In most cases the manufacturers are setting the MAP pricing and have some controls in place to make sure their brand is not tarnished. They have tight controls over who can get their product at wholesale prices for drop shipping and typically small mom and pop shops can not get access to brand name products that easily.
It is probably true that a large number of hopeful entrepreneurs set up web sites on Shopify or other platforms, thinking that there is easy money to be made by listing products from domestic or overseas vendors. They are in for a rude awakening. Selling stuff online is not easy. Setting up shop is only the beginning. You have to bring customers in. Having a web site on Shopify is like having a store front in the middle of the Nevada desert. You are lucky if every once in a while someone passes by. Advertising on Facebook, Instagram, Google, and others is expensive. Even if their social media ads are successful in bringing in customers, they then have to rely on a vendor to deliver. By the time they receive an order, the vendor may be out of stock, discontinued the merchandise, or raised prices. And if they rely on Chinese sites like Aliexpress to source the drop-shipped items, the delivery time of 4-6 weeks is going to result in lots of charge backs and cancelled orders. As the podcast mentioned, probably the only people who make money in mom and pop drop shipping business are the one teaching them how to do it.
It is impossible for anyone to know how many of the web sites hosted by Shopify are set up by drop shippers. Even Shopify has no way of knowing this so they can’t disclose such info even if they wanted to. But, even if there are thousands or tens of thousands of them, I suspect that they do not last long as their monthly web site hosting and maintenance cost alone is going to be more than their sales. The forces of the market and competition and the simple fact that they can not make money will force many of these drop shippers who rely on Chinese suppliers to drop out and close shop and I suspect this happens quickly. They will not have repeat customers and their life will be short. I wouldn’t worry that one day there is going to be a mass hit to Shopify due to this. The ones that don’t make money probably have been regularly closing down and that should already been reflected in Shopify revenues.
Of course, not all drop shippers are created equal and some who rely on domestic vendors and suppliers and form good relationship with their vendors do make money and survive and grow. As they grow, most drop shippers eventually expand into carrying inventory of items they sell most and get out of their garages and homes and move into small to large warehouses to run their business out of. Some find a great niche and expand into Amazon and other platforms.
A very good indication that the mom and pop online retail businesses are thriving and growing is the demand for small and medium size warehouses all over the country. I live in Atlanta and the demand for small 1,200 to 3,000 square foot warehouses is off the charts. A friend of mine who owns a couple of shopping centers has received so many inquiries from people looking for small warehouses that he is using a piece of commercial land he owned to build 20 pre-fabricated 1,200 SF warehouses and has already pre-leased all of them at $10/SF. That is quite a high lease rate for a warehouse and almost competes with office space lease rates. If you want to make money from the explosion of ecommerce, build and rent small warehouses. Or better yet, build warehouses and then offer shipping and packaging services to these mom and pop operators.
We are moving our own web sites to Shopify. They have so far been hosted on the Monster Commerce platform that is a Network Solution company, but Network Solution has basically ignored their ecommerce part of the business so much that their platform has become irrelevant and SEO unfriendly. We started migrating one site a few weeks ago and will see how that goes before moving others. About 2 years ago we moved one site to Big Commerce, but Shopify offers so much more in their App store that makes it a lot easier to build a web site. I posted about this move on the SHOP forum on the SA board a few weeks ago:
http://discussion.fool.com/1081/moving-our-web-sites-to-shopify-…
cheers,
Mehran
If you want to make money from the explosion of ecommerce, build and rent small warehouses. Or better yet, build warehouses and then offer shipping and packaging services to these mom and pop operators.
I wonder. Buy decrepit malls and repurpose them into warehouse malls?
Cheers
Qazulight
First some background on my own business…
Thanks Mehran, that was a very valuable and informative post.
Saul
I wonder. Buy decrepit malls and repurpose them into warehouse malls?
Amazon is already doing this all over:
https://gizmodo.com/amazon-is-building-a-colossal-warehouse-…
And then there are all these new Warehouse-On-Demand businesses that are popping up all over the country. They are like the Airbnb of warehousing:
https://www.google.com/search?q=warehouse+on+demand&oq=w…
https://www.bloomberg.com/news/articles/2017-05-11/this-star…
Thanks, for sharing, Swapper.
For me, much of the value of these boards is learning from exactly this kind of personal experience.
Encore!
Dan