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Advantage Shopify Plus

As an all-in-one eCommerce enterprise suite that offers a scale-up on every feature that base plans provide, Shopify Plus ought to have more brands than Shopify in the higher GMV ranges.

Summary of report

  1. Net new-user sign-ups in the Shopify ecosystem are slowing down, impacting growth in subscription revenues. However, subscription revenues form only 29% of Shopify’s revenues.
  2. The average Gross Merchandise Value (GMV) per merchant within the Shopify ecosystem has been increasing. Currently, 45% of the merchants generate between USD 5M to USD 100M in annual GMV.
  3. Despite being an enterprise SaaS solution, Shopify Plus' core base is the lower mid-market range of merchants with GMV between USD 1M and USD 10M. This overlaps with the user base of the base plans of Shopify. While the enterprise version brings in higher subscription fees, a lower GMV base narrows the scope for incremental revenues from merchant solutions. Higher GMV drives higher revenues from payment fees, fulfillment, and other solutions that Shopify offers to its merchants.
  4. Shopify Plus has an impressive list of clientele but almost half of all B2C Physical goods merchants using Shopify Plus fall under the Fashion and Apparel category which bears the challenges that non-durable goods DTC companies have been facing: Fickle post-pandemic demand, heavy reliance on consumer discretionary

Shopify's Unique Selling Proposition (USP) is to help merchants by reducing the barriers to setting up an online store and providing easy-to-add features that can scale with the business. It offers several basic plans, pricing models and several value-added services, including payment processing, marketing, money management, working capital, and even an
AI-powered fulfillment network to help its merchant clients conduct their business cost-effectively.

This has helped Shopify become the largest eCommerce platform technology in terms of the number of users, and the second-largest eCommerce ecosystem in the US after Amazon. It is also not surprising that Shopify powers 66% of all small and mid-market, Direct-to-Consumer (DTC) online stores in the US (Chart 1).

Shopify has a big share of the small and emerging eCommerce merchant segment. However, it is a different story with the mid and large enterprise segment. These businesses have sophisticated needs, such as the ability to handle high transaction volumes or create a customized, consumer-responsive storefront, that Shopify's basic plans do not cater to.

Enter Shopify Plus, Shopify's platform for mid-to-large merchants. Shopify Plus offers a step-up for merchants that attain scale with more support, scalability, and functionalities compared to Shopify's lower-tiered plans.

The growth of Shopify Plus has become crucial to Shopify

  1. Data shows that Shopify's net new growth has been slowing. Shopify's pipeline of new users has typically hovered at about 19% of the total merchant base. Recent trend data shows that this will dip below 19% in the next few quarters. New signups are the primary drivers for subscription revenues which form 29% of Shopify's revenues.
  2. Over the years, Shopify's base of mature users – who have been with Shopify for a year or more – has been steadily increasing. The average annual GMV for these mature users has increased from USD 57,000 in 2018 to USD 89,000 in 2020. It is set to go over USD 100,000 in 2022, based on the trends of 20211.
  3. The steady rise in average GMV per merchant indicates that the mature users of Shopify are growing bigger, and will need more features and services to support their businesses.

Shopify bears the risk of losing incremental revenues from businesses that re-platform to other technologies or build their custom stacks due to the inadequacy of Shopify's small market plans. At the same time, there's the risk of having to brace for decreased platform revenues as growth in the merchant base hits a plateau.

While Shopify Plus' share of Monthly Recurring Revenue (MRR) has been growing steadily over the years – Shopify Plus accounted for 29% of overall Shopify MRR in Q4 2021 (Chart 2) – it always had better unit economics2.

Chart 2

Shopify Plus' share of Monthly Recurring Revenue has been growing

Shopify Plus is increasing its contribution to overall Shopify recurring revenues over the years despite a slower growth in merchant base

Why Shopify Plus is crucial to Shopify

According to Shopify, around 14,000 merchants were on Shopify Plus at the end of 2021. This makes for a very small share of Shopify's overall installed base of 3 million merchants (June 2022). A more conservative estimate by PipeCandy however places the active number of Plus users at around 10,200 which accounted for the 29% share of Shopify's overall MRR.

Despite a much smaller merchant market share and a lower average customer size, Shopify Plus nevertheless has an impressive list of brands including Nike, New York Times, Xbox, Lulu, Vogue, Allbirds, Decathlon, and many others. While Magento-1’s 'end-of-life' helped Shopify Plus to acquire a lot of mid-market B2C brands that were looking to re-platform, growth in new merchant onboarding has been at a slow but steady pace until the third quarter of 2021.

Shopify’s Plus: Market Landscape and Mid-market Concentration

More than 73% of the active merchant base consists of domains with a website traffic rank greater than one million indicating little economic activity (Chart 3).

Among the 'Top 500' by website traffic rank, at least 30 domains belong to musicians and artists. These include Lady Gaga, Katy Perry, Ariana Grande, Eminem, etc selling merchandise, records3, and other accessories.

The Top 500 ranks are also dominated by news and media publishers, artists, video game publishers, entertainment businesses as well as nonprofits.

These include news and publishing houses like New York Times, New Yorker, The Economist, and even BuzzFeed.

A closer look at the domains of news and publishing outlets as well as nonprofits reveals that most of them are merchandise- or subscription-offering portals. For example, The Economist hosts its eCommerce store on Shopify Plus, offering back issues, diaries, and personalized printing on books, t-shirts, mugs, and bags. It has also provided a virtual learning center Learning.ly over Shopify Plus. The New York Times sells branded goods, archival photography, books, and personalized front page reprints from its commercial portal.

Enter Physical Goods merchants – Surprise! Surprise!

The distribution of physical goods merchants by annual GMV depicts a different picture from the overall traffic ranks distribution. Among the active installed base of Shopify Plus merchants, at least 4,000 of them sell physical goods.

PipeCandy was able to identify web sales for at least 3700 of them (92% of the total active base). More mid-market-sized merchants are using Shopify Plus than small brands (Chart 4), which is contrary to how the overall eCommerce market is distributed (long-tail). 45% of the merchants generate between USD 5M to USD 100M in annual GMV.

Likewise, 39% of the merchants generate at least a million dollars in annual GMV (Chart 5). While Shopify Plus' merchant distribution justifies its purpose, Shopify itself still retains a significantly higher number of mid-market merchants on its platform that could have been Shopify Plus customers.

Chart 4

88% of the Shopify Plus B2C Physical Goods merchant base generates more than USD 1M in annual GMV

87% of Shopify merchant base generates less than USD 1M GMV

Chart 5

Shopify Plus: B2C Physical Goods Merchants

Distribution of merchants by Annual GMV ranges (USD)

Fashion and Apparel are the dominant categories

Almost half of all merchants using Shopify Plus fall under the Fashion and Apparel category which is similar to how Shopify merchants are distributed. DTC brands like Allbirds, ThirdLove, Gymshark, and Fenty Beauty are some of the biggest fashion brands apart from Steve Madden, Bombas, Vera Bradley, Patagonia, and Teen Vogue. While a quarter of all Shopify Plus brands are small Fashion and Apparel brands, 22% fall in the mid-market range of the category.

Unlike how the B2C physical goods eCommerce industry is distributed in general, Shopify Plus hosts a greater density of fashion brands making at least USD 1M and up to USD 100M (41% of all brands). Beauty and Personal care, the second largest segment with 8% of all brands, has a significant number of brands in the mid-market compared to the global average.

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Chart 6

Almost half of all B2C Physical Goods merchants on Shopify Plus are
Fashion and Apparel brands

Distribution of merchants by Annual GMV ranges (USD)

Shopify is bigger than Shopify Plus in the higher mid-market and enterprise ranges

At a minimum monthly fee of USD 2,000 per month for a monthly GMV of USD 800K, Shopify Plus is still one of the most economical options for enterprise stack. The monthly fee increases with the GMV and hits the maximum when a merchant generates more than USD 100M in sales4. There are perhaps less than 100 brands that do this kind of sales.

Shopify Plus has a good representation in the lower mid-market segment which is what brands on basic Shopify plans scale up to. As an all-in-one eCommerce enterprise suite that offers a scale-up on every feature that base plans provide, Shopify Plus ought to have more brands than Shopify in the higher GMV ranges.

It provides almost unlimited bandwidth, enabling over 10,000 transactions per minute besides automation for order processing, inventory management, customer segmentation, and product publishing.

However, it has a less than optimal representation in the higher mid-market and enterprise ranges (over USD 25M in annual GMV). Globally there are at least 20,000 B2B and B2C brands with Shopify in this range and these have not moved to Shopify Plus. In the US alone, Shopify's B2C base in this range is three times more than Shopify Plus (Chart 7).

Chart 7

Shopify has more brands than Shopify Plus in higher mid-market and enterprise ranges

Split of US B2C Physical Goods Merchant base between Shopify and Shopify Plus
Ranges represent Gross Merchandise Values in US Dollars

Shopify is bigger than Shopify Plus in the higher mid-market and enterprise ranges

Customized functionalities

Shopify was created for small business owners to create online stores with ease and to avoid having to build from the ground up using open-source. Shopify works well as a low-code solution. As businesses scale up, they need more functionalities to meet the rising traffic to websites and to automate repetitive tasks. This is where Shopify Plus is meant to help as an upgrade option for a high-powered platform and it works for businesses with more than USD 1M in GMV. However Shopify Plus is a monolithic enterprise solution. Will companies use all its features enough to justify the $2,000-per-month price tag and at least one year in contract? PipeCandy examined a sample of almost 40,000 Shopify businesses for eCommerce technologies used.

Chart 8

Usage of store technology within Shopify merchant base

Split of US B2C Physical Goods Merchant base between Shopify and Shopify Plus
Ranges represent Gross Merchandise Values in US Dollars

  • 93% of them used just the base Shopify plan offerings
  • Within the USD 1M-5M range, at least 8% of the businesses used an additional technology, besides Shopify
  • Among businesses with more than USD 5M in GMV, 13% used multiple cart functionalities along with the base Shopify plan (Chart 8)
  1. These represented 1.66% of the overall sample. When extrapolated to the entire B2C Physical Goods merchant base of Shopify, there could potentially be 3,000 to 4,000 businesses that are likely bypassing a Shopify Plus upgrade and sticking to the base plan with open-source customizations.
  2. This number is equal to almost 40% of Shopify Plus' active merchant base and forms the the top-of-the-funnel serviceable addressable market for Shopify Plus.

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Headless eCommerce demands

Headless eCommerce involves building the front end and the back end of a store separately for improved speed and greater functionalities, to render a customized storefront. The traditional ‘full stack’ approach to web stores will be inadequate to tailor customer experiences across all digital channels or satisfy the demands of an enhanced buying experience. As eCommerce grows, the demand for headless architecture will be greater.

Shopify Plus enables headless implementations via its Storefront API but going headless means using more tools and CMS, thereby increasing costs. It also means losing some of the features and API of Shopify Plus. Merchants seeking the headless eCommerce setup rely on third-party hosting providers. Until Shopify Plus has enough flexibility for users to seek all features within its service manifold, merchants will continue to implement headless with the base plans of Shopify, by using third-party tools dedicated for headless implementations.

In 2022, Shopify announced Hydrogen which uses the React framework. Hydrogen allows developers to build entirely-custom, front-end storefronts that access, via Storefront API, the backend of Shopify Plus for data. Shopify also introduced Oxygen, a hosting provider that can host custom content of Hydrogen storefronts directly within the platform. With Hydrogen and Oxygen being extended to Shopify’s native solutions, it remains to be seen how it impacts the adoption of Shopify Plus within the existing native Shopify merchant base

Impact on Shopify if Shopify Plus does not grow

The MRR of Shopify Plus has moved up to 29% of the MRR of Shopify which also included subscriptions, payment transaction fees, fulfillment revenues, and app store revenues.

The unit economics alone make for a compelling case for Shopify to focus more on Shopify Plus to offset the potential loss of revenue due to the slow down in the growth of new merchant sign-ups.

While the scale-up of merchants in Shopify Plus itself will not be high (enterprise businesses tend to customize their stores in-house as they grow larger), the average revenue per customer has scope for increase, provided Shopify is not only able to keep its flock together but also upgrade multi-technology base plan users to Shopify Plus.

Shopify Plus has improved drastically over the last 18 months, with new features in content management and improvements to APIs. The Hydrogen framework introduced for web developers in 2021 promises to make headless eCommerce easier on Shopify which may aid Shopify Plus. This is perhaps why Shopify Plus saw a big uptick in Q3 and Q4 of 2021 with new merchant sign-ups.

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  1. Estimates from PipeCandy – Go back
  2. Quarterly statements from Shopify – Go back
  3. Data from PipeCandy – Go back
  4. Shopify Plus Pricing & Cost of Ownership, Paul Rogers, May 17, 2020Go back