Faster Than Fast: SMB Retailers Move to Shopify

Shopify’s third party app ecosystem enables retailers to move from offline to online, and many of these apps are growing faster than the platform itself.

Welcome to issue #1 of Base10: Automation for the Real Economy. Similar to our Forbes articles, each issue will explore our insights into a trend that is automating a Real Economy industry, as well as highlight companies that are building solutions to real world problems affecting the 99%.

Today, Chris Zeoli discusses our insights into commerce enablement tools for the retail industry. Additionally, a comprehensive, visual summary of the research Base10 has done on commerce enablement tools for the retail industry, including a spread of the current players, fundraising history, and active investors, is available in this infographic.


Amy has been a loyal merchant on Amazon for years, using Fulfillment by Amazon to sell her line of handmade children’s clothes on Amazon’s website. When Amy first started this process 10 years ago, her experience was great. She sent her inventory to an Amazon fulfillment center, customers found her products on Amazon.com, and they would receive their clothing in less than two days! All Amy had to do was send in her products and pay Amazon a platform fee, without any upfront logistics or technology investment of her own. 

Things are harder now for Amy, however, as there are hundreds more children’s brands she is competing with, some Amazon even owns. She always expected more competition, but she never expected to lose her brand’s personality amidst the wide expanse of Amazon’s website. Every product page on Amazon looks so similar, making Amy’s vibrant and unique brand get lost among all the rest. Amazon is also the one who manages the direct relationship with the customer, not Amy, so it is hard for her to share her brand outside of Amazon without knowing more about who is buying her products.

To help find more business, Amy recently decided to set up her own e-commerce site with Shopify. Amy got her online store up and running in less than a day using Shopify’s tools that equip merchants with a branded store in just a few steps. Importantly, she is able to use Shopify’s Payment Gateway and Shopify’s new Fulfillment Network to seamlessly sell and ship her products to customers all over the U.S. 

Amy then heads to Shopify’s app store and adds some bells and whistles to take her customer experience to the next level. She downloads Loox so customers can add photos to their reviews, Malomo for a better shipment tracking experience, Loop Returns to automate any customer returns or exchanges globally, and Klaviyo to communicate with her customers over email, SMS, and other web apps (Disclosure: Base10 is an investor in Malomo). Interestingly, these services, which Shopify calls apps, are not owned or built by Shopify. Instead, separate companies build their businesses on top of Shopify’s platform to improve the experience for both Shopify merchants and their customers. With these apps, Amy gets more control over her customers’ end-to-end experience, something she never had with Amazon. 

Apps and themes are Shopify's fastest growing revenue segment today, contributing 14% of Shopify’s total revenue, and many of these apps are growing faster than the Shopify platform itself. This segment works similar to Apple’s App Store or Salesforce’s AppExchange, where the platform (Shopify) has a 20% take rate on all software through the app store and the developer gets 80%. Today, Shopify has over 4,600 apps and 30K+ agencies and web designers serving merchants in its ecosystem.

Certain standout products like Attentive and Klaviyo were among the earliest and fastest moving third party apps. Both companies leveraged the Shopify ecosystem as a unique distribution channel to help grow their businesses quickly beyond the $100M revenue threshold. Today, there are many more fast-growing apps following this trajectory. For all its success as an open ecosystem, it seems these businesses that comprise the Shopify ecosystem are rarely discussed in the venture world—so let’s dig into why this is the case and why more VCs should be spending time looking at companies growing on Shopify. 

E-commerce and Shopify’s Continued Momentum

E-commerce has been growing the overall commerce market and taking share from traditional retail steadily over the last decade, but has seen a recent acceleration due mostly to the COVID-19 pandemic. Just in April of this year, online retail grew 209% compared to April 2019, and 27% of all retail sales in April 2020 were made via e-commerce. This trend is widely expected to continue, especially as Shopify continues to enable the long-tail of e-commerce, getting SMBs and more traditional Mom and Pop shops online. In fact, 39% of Shopify’s brick-and-mortar merchants in English-speaking geographies are using local in-store/curbside pickup and delivery, up from 2% at the end of February; retail merchants grew online store GMV by 73% in Q2’20 over Q1’20 as they adapted to the pandemic and shifted customer business online. After its Q2 2020 earnings, Shopify stands at a $125B+ company growing 97% YoY, with $120B+ of annualized GMV, $2.9B of annualized revenue, and over 1.5M merchants (up 71% YoY).

While Amazon was the main driver of the initial shift to e-commerce, Shopify is quickly stealing some of the spotlight due to its rapid growth and differentiated business model. In fact, the most interesting thing about Shopify is how its ecosystem encourages entrepreneurs to create products and services that Shopify merchants can use to better their user experience. These companies, some of which Amy chose above, have become wildly successful. You can find a comprehensive, visual summary of the research Base10 has done on commerce enablement tools for the retail industry, including many Shopify-specific tools, other current players, fundraising history, and active investors, in this infographic.

Several founders and investors in the ecosystem have cited over a dozen companies growing three to five times faster than Shopify the overall platform itself. TJ Mahony, Partner at Accomplice and one of the earliest investors in Shopify apps Klaviyo, Postscript, and others, noted how Shopify has enabled a new capital efficient way to grow for SaaS companies with e-commerce products. “Historically, e-commerce winners were enterprise-oriented and capital intensive undertakings. Suddenly, with Shopify, you could grow and add 10,000 customers in a year with a product-led organization, little-to-no upfront capital, and no sales team.”

The Opportunity for Startups in Shopify’s Third-Party Ecosystem 

The ultimate question for these apps is how Shopify will treat them as they scale. Platform risk is well known and feared when talking about the likes of Facebook, Google, and Salesforce—Facebook famously enforced a platform policy that eliminated the presence of competing apps on its site and helped contribute to Vine’s eventual closure. With Shopify, however, the platform risk is less clear. It is counterintuitive to assume Shopify would ban or significantly restrict third party apps given how much they have contributed to the success of Shopify’s platform to date. Nonetheless, as a fast-growing, $100B+ company with plentiful resources and distribution, Shopify could eventually decide it wants to own more product experiences, which is leaving independent developers uneasy about the future of the platform’s open ecosystem.

Shopify has launched competing products in its ecosystem before (e.g. Shopify Email), which becomes particularly dangerous considering Shopify can prioritize visibility for its own products, and has even gone so far as to delist companies with competing products like Mailchimp for violating terms of service. Despite this increasing competition from Shopify itself, there have been plenty of companies that have rapidly grown their business on Shopify before diversifying revenue streams to other e-commerce platforms and go-to-market models. 

Klaviyo is a prime example of a company that’s made a name for itself starting on Shopify before expanding to other e-commerce platforms. Klaviyo offers a suite of marketing tools that help merchants like Amy build automated marketing campaigns via email, SMS, and messaging—think of it like Mailchimp tailor-made for e-commerce merchants. The company grew initially through the app marketplace and with IT agencies that managed stores for merchants. It rapidly scaled to over $3B of GMV and 30,000 merchants, all while remaining capital efficient, raising only $8M to get to 10K+ customers. After basically bootstrapping to nearly $100M ARR, Klaviyo raised a $150M growth round led by Summit Partners.

Wise hopes to have a similar story. It is starting out as a digital bank for e-commerce stores on Shopify and plans to branch out onto other digitally-native platforms. The company is capital efficient and grew quickly, from 0 to 1,000 B2B banking customers in less than five months, largely through its presence on the Shopify marketplace. Since then, Wise has expanded its banking services beyond Shopify onto other online platforms that service small businesses, including Etsy, Teladoc, Twitch, and Honeybook. (Disclosure: Base10 is an investor in Wise) 

Will Third Party Developers Continue to Thrive in Shopify’s Ecosystem? 

Feedback we collected from more than a dozen founders described their relationship with Shopify as being "frenemies." Shopify has been mostly friendly to its ecosystem, but more founders within the ecosystem feel on-edge about Shopify launching competing products and increasing take rates in the app store. As Canada's largest tech company and top rated employer, it always was the friendlier version of intense Amazon—but increasingly, the lines are blurring and Shopify has become more aggressive. Shopify’s openness and ecosystem have made it great, so it will be important for the company to tread this balance of creating its own new products for merchants, while not crushing its valuable ecosystem along the way. 

Shopify’s annualized GMV today is $120B, up 119% YoY, and ~45% of which goes through Shopify Payments, so it would seem that the business has much larger revenue opportunities to go after (e.g. getting payments to 100%) rather than taking more revenue from its apps. However, the company continues to bring certain functions in-house including: omnichannel and retail POS, logistics (e.g. Shopify’s acquisition of 6 River Systems for $400M last year), and payments

This is all to say that despite the success of companies like Klaviyo, NS8, Attentive, and others, the biggest risk building a business within the Shopify app store is Shopify itself. However, the growth opportunities from doing so certainly seem to be worth the risk, at least for now, especially when you consider valuations within the space. Shopify trades for over 40X ARR while deals in the ecosystem are getting done at 10x ARR—deals for companies that are often growing 2-3 times faster than Shopify itself. On the surface, this valuation discount and faster growth seems like a reasonable tradeoff to get investors interested in the space, even when considering some amount of platform risk. Some of the most compelling early stage companies include:

Luckily for Amy and merchants just like her, she will continue to enjoy greater and greater tools available to build a fully custom shopping experience. Regardless of how Shopify eventually decides to treat its apps in the long-run, it certainly appears that they will continue investing in the merchant and customer experience and capturing more of the e-commerce market.


Base10 is a San Francisco-based early-stage venture firm investing in Automation for the Real Economy. Founded by Adeyemi Ajao and TJ Nahigian, the firm invests in technology companies that are bringing automation to sectors of the Real Economy, including industrial logistics, consumer logistics, restaurants, financial services, and sales & customer service. Portfolio companies include ThePillClub, Virtual Kitchen Company, Acquire, PopMenu, and others.

Subscribe to Base10: Automation for the Real Economy and get full access to our research into various trends that are automating Real Economy industries, as well as companies that are building solutions to real world problems affecting the 99%.