A merchant who wanted an online store under its own brand in the mid-2000s had to choose and configure store software, arrange payments and keep a working site running. Installable software such as Magento, the leading open-source product, typically needed an engineering team to implement and run, and installed software was generally too complex for small businesses to set up SH12. Hosted services such as Yahoo Stores removed the upkeep but barely let a merchant change the design; one shop owner could not make a custom layout work and could change little more than a background color SH1. A small merchant had to trade ease of setup against control of the store's look.
Shopify
Shopify hosted a store merchants could run themselves, let designers and app builders earn more from its merchants than it did, then earned on those merchants' growing sales through payments.
How Shopify won
- 1 · 2006–08An easy hosted storeShopify ran the software (2006), repriced for growing sellers (2007) and gave designers a safe template language (2008).Managed Service
- 2 · 2009–11Platform: API, App Store, Theme StoreOutside developers built what most merchants did not need, recruited by hand; the Theme Store followed in 2010.Platform Strategy
- 3 · 2010–21Partners earn more than ShopifyDesign firms earned a share of each referred account for life; partners out-earned Shopify by 2017-18.Channel Partners
- 4 · 2010–18Platform network effectMore merchants drew more apps, themes and agencies, which drew more merchants; Plus kept the largest ones inside.Platform network effects
- 5 · 2013–25Scope economies in paymentsPayments inside the store (2013), a fee on outside gateways (2015), 65.6% of merchant sales by 2025.Scope economies
Versus BigCommerce: BigCommerce followed Shopify into hosting three years later, stayed neutral on apps and payments, and moved upmarket in 2015 BC11 BC13. Shopify let its partners earn more than it did from the same merchants, then earned on those merchants' sales through payments SH42 SH8.
Arena: Market Conditions Before Shopify
How each step happened
Step 1 of 5 · 2006–08
An easy hosted store
Shopify's founding choice was to run the store software for the merchant. Tobi Lütke wrote his own after Miva, OsCommerce and Yahoo Stores failed his snowboard shop, and Shopify launched from it in June 2006 SH1 SH11. He kept it hosted rather than open source because the software was half the job: hosting, scaling and uptime came with it, and a fix on Shopify's servers reached every merchant at once SH25. Liquid, his template language, let designers change a store's look without running code on those servers SH46 SH47.
Price was the other half of ease. The first plan took a flat percentage of sales, which Lütke said was "turning away people that we really, really wanted as customers": the sellers who planned to sell a lot. In 2007 a monthly subscription with a much lower transaction fee replaced it, "the true launch of the product" SH25. By 2010 a merchant with no technical help could take orders within hours, and word of mouth brought 65 to 70 percent of signups SH12 SH25. That base of merchants was what outside builders would later build for.
Rivals BigCommerce sold a downloadable cart until it launched a hosted store in September 2009 BC11. Its 2020 plans were tiered by yearly sales, Standard under $50,000 and Plus up to $150,000, and its higher plans were repriced on a merchant's trailing twelve-month sales GFB-10. In 2010 Volusion needed programming to customize and Magento an engineering team SH12.
Managed ServiceEase of UseSubscription PricingCustomer Referrals
Step 2 of 5 · 2009–11
Platform: API, App Store, Theme Store
Lütke's test for a feature was whether most customers needed it most of the time; the rest went to what he called the Shopify Platform SH1. Building everything would have produced "the Microsoft Word toolbar problem," he told Reid Hoffman SH35. In June 2009 Shopify opened an API and App Store to its roughly 5,000 merchants, handling app billing itself SH9.
Few developers wanted so small a base, so Shopify recruited them by hand: design and app contests, and phone calls from Harley Finkelstein, who ran business development, to developers who built for other websites SH25 SH12 SH34. The Theme Store opened in April 2010 with themes from $80, against about $1,500 for a custom design SH37, and in 2011 Shopify set aside $1 million of its Series B for app developers SH39. By October 2010 two thirds of customers used at least one of 54 apps SH12.
Rivals BigCommerce had an API by 2010, but Bessemer's diligence found it, like Volusion's and Magento's, little used and hard to develop against SH12. BigCommerce opened its theme marketplace to all agency partners as vendors only in 2019 BC33.
Step 3 of 5 · 2010–21
Partners earn more than Shopify
The partner terms ran alongside the platform from 2010 and decided who would sell Shopify. Short of money, Shopify turned to design firms, which were paid once per project and wanted recurring revenue, so any firm that brought a merchant earned 20 percent of that account's revenue for as long as it stayed, while Shopify did the support; Lütke called it "the most successful initiative that we have done" SH1 SH25. By October 2010 web design firms brought about 20 percent of signups SH12. Build a Business, a $100,000 prize for the new store with the highest sales over six months, drew about 1,300 contestants SH36 SH40.
Finkelstein pitched developers a bargain: Shopify would be their route to customers, and "the proportion of value should continue to grow on the side of the partner" SH34. Lütke adopted Bill Gates's test that a platform's builders must earn more than the platform, and says Shopify passed it in 2018 SH35. Partners earned about $800 million in 2017 against Shopify's $673 million in revenue SH42. In 2021 Shopify cut its 20 percent app commission to nothing on a developer's first $1 million a year SH43 SH44. Each change made Shopify merchants the most rewarding customers for a builder's next project.
Rivals BigCommerce rewarded agencies with leads and revenue share on larger accounts BC10 GFB-10, and app developers could hand their billing to it only from March 2025 BC30. Its partner revenue ran the other way: $29.4 million in 2019, mostly revenue share paid to BigCommerce by technology partners GFB-10.
Step 4 of 5 · 2010–18
Platform network effect
Steps 2 and 3 together started a loop that was running by 2010. More merchants gave developers, designers and agencies more customers; their apps, themes and referrals made Shopify more useful and easier to find for the next merchant SH12 SH3 SH42. At the end of 2015 Shopify had 243,468 merchants, more than 1,200 apps and more than 8,500 referring partners SH3; by 2018, 2,200 apps and 16,500 referring partners SH42.
By 2014 the largest merchants were concluding they had to leave for enterprise software, "a false stratification of the market," Lütke said SH48. Shopify Plus launched in February 2014, priced well above Shopify's plans and well below enterprise software, and its first salespeople called existing merchants at risk of leaving SH14 SH48 SH49. Gymshark moved to Plus after its Magento store went down for eight hours on Black Friday 2015 SH5; about 7,000 brands used Plus by 2020 SH49. For such complex stores, themes, apps and integrations made leaving a project SH21, though Shopify's filing says switching can be cheap for many merchants SH8.
Rivals BigCommerce's CEO Brent Bellm concluded in 2015 that "we can't overcome their five-year headstart" and turned to complex businesses BC13. Shopify had launched Plus the year before, and in 2018 BigCommerce listed 620 apps to Shopify's 2,200 SH42.
Step 5 of 5 · 2013–25
Scope economies in payments
Payments began in 2013, while the network was still growing. Until then a merchant connected an outside gateway and still needed a separate merchant account SH45 SH30. Shopify Payments, launched in August 2013 on Stripe's technology, was set up automatically for new stores: payments matched their orders and payouts showed in the store's admin SH30. By 2015 merchants who used another processor paid Shopify a transaction fee on top SH33 SH29. By 2023 Shop Pay filled in a returning shopper's details at any participating store, so each saved shopper made the next store's checkout faster; it had more than 100 million users SH20 SH24.
Payments reused the store relationship, the order data and the admin merchants already worked in. In 2025 Shopify Payments processed 65.6 percent of $378.4 billion in merchant sales, and merchant solutions made up 76 percent of revenue SH8. This closes the loop with step 1: in 2007 Shopify dropped its cut of sales because it punished merchants who grew SH25; payments brought back revenue that rose with their sales, charged for a service they chose to use SH16.
Where scope stopped
Fulfillment, which did not reuse the store, failed the same test. After buying 6 River Systems in 2019 and agreeing to buy Deliverr in 2022, Shopify sat between merchants and outside warehouses; Lütke said logistics takes "pen, paper, and phone calls" SH50 SH51 SH52. In May 2023 he called it a side quest and sold it to Flexport SH6 SH52.
Rivals BigCommerce declined its own processor to stay every processor's partner, and 74 percent of its 2019 revenue came from subscriptions BC13 GFB-10, against 59 percent from merchant solutions at Shopify GFB-11. BigCommerce's ARR grew 8 percent in 2023, and its own PayPal-powered payments arrived only in October 2025 BC6 BC31.
Key dates
- 2006-06A hosted store instead of open-source code
- 2007A monthly subscription replaces a cut of sales
- 2008-03Liquid lets designers edit themes safely
- 2009-06API and App Store open to 5,000 merchants
- 2009-09BigCommerce launches as a hosted store BC11
- 2010Design firms earn 20% of referred accounts for life
- 2010-01Build a Business: a $100,000 prize for new stores
- 2010-04Theme Store opens
- 2011-10$1 million fund for app developers
- 2013-08Shopify Payments inside the store
- 2014-02Shopify Plus for growing merchants
- 2015-05IPO at $17 a share Initial public offering SH3
- 2015-06BigCommerce's new CEO concedes small business BC13 BC34
- 2015-12$205.2M revenue Full year 2015, +95.4% year over year; 243,468 merchants SH3
- 2017-12$673M revenue Full year 2017; partners earned about $800M SH42
- 2019-12$1.578B revenue Full year 2019, +47% year over year GFB-11
- 2021-06No app commission on a developer's first $1 million
- 2023-05Logistics sold to Flexport
- 2023-06Shop Pay passes 100 million users
- 2025-12$11.6B revenue Full year 2025, +30% year over year; Shopify Payments 65.6% of GMV SH8
Sources
Oldest first.
- SH11 Shopify is live!. Primary source
- SH9 Shopify launches API platform and App Store. Primary source
- SH25 How Shopify Became Profitable By Helping Anyone Open An Online Boutique. Founder interview
- SH36 Shopify launches Build a Business competition. Primary source
- SH37 Shopify Theme Store launches. Primary source
- SH1 Q&A with Tobias Lütke of Shopify. Founder interview
- SH12 Shopify investment memorandum. Investor memo
- SH38 Shopify Announces $7 Million Series A Funding. Primary source
- SH39 Shopify Announces $15 Million Series B Funding. Primary source
- SH30 Shopify Launches Shopify Payments. Primary source
- SH14 Shopify launches Shopify Plus. Primary source
- BC11 Building a global software company from Australia: Bigcommerce co-founder Mitch Harper (parts 1 to 7). Founder interview
- BC34 Former PayPal executive joins Bigcommerce as CEO. Contemporaneous report
- SH33 Shopify Q2 2015 Management Discussion and Analysis. Filing
- BC10 How Mitchell Harper built a $100,000,000 company, failed, and got back up. Founder interview transcript
- SH3 2015 Form 20-F. Filing
- SH41 The Story of the New Shopify App Store. Operator interview
- SH42 Shopify’s partner ecosystem. Trade report
- BC33 Before you build: what you need to know to launch a BigCommerce marketplace theme. Company employee post
- SH10 Shopify and the Power of Platforms. Analysis
- R1 Acquired — The Shopify IPO. Podcast transcript
- SH16 The Shopify IPO. Analysis
- SH50 Shopify to acquire 6 River Systems. Primary source
- SH47 An overview of Liquid: Shopify’s templating language. Company documentation
- GFB-11 Shopify Announces Fourth-Quarter and Full-Year 2019 Financial Results. Press release
- SH35 Be a platform, with Tobi Lütke. Founder interview
- GFB-10 Form S-1 Registration Statement. Filing
- SH49 Checking in on Shopify Plus: 11,000 checkouts per minute. Operator interview
- SH40 Harley Finkelstein transcript (The Tim Ferriss Show #486). Operator interview
- SH26 Shopify. Analysis
- SH43 Shopify drops its App Store commissions to 0% on developers’ first million in revenue. Trade report
- SH44 Shopify cuts app store fees for developers on first $1 million in revenue. Trade report
- SH17 Shopify’s Evolution. Analysis
- BC13 The launch of multi-storefront on BigCommerce with Brent Bellm. CEO interview transcript
- SH51 Shopify first-quarter 2022 results and plan to acquire Deliverr. Primary source
- SH34 Shopify: Catalyzing Entrepreneurship. Operator interview
- SH6 Important team and business changes. Founder memo
- SH52 What went wrong with Shopify’s quest to build a logistics business. Trade report
- SH19 Leading Online Shoppers to the Finish Line. Analysis
- SH20 Shop Pay will be available to enterprise retailers not on Shopify. Primary source
- SH22 Wovenbyrd customer case study. Customer account
- BC6 2023 annual report. Annual report
- SH48 Book excerpt: The Shopify Story, how Shopify Plus was born. Company history
- BC30 BigCommerce improves app development capabilities and functionality for third-party developers. Company announcement
- BC31 Commerce introduces BigCommerce Payments powered by PayPal. Company announcement
- SH8 Shopify 2025 Form 10-K. Filing
- R4 How Daily Harvest migrated to Shopify with Domaine, Shopify, and Klaviyo. Implementation-partner customer webinar summary
- R5 How 4ocean switched back to Shopify from BigCommerce to focus on their core business. Challenger-hosted named customer return account
- SH21 Deactivating your store. Documentation
- SH24 Shop Pay. Documentation
- SH29 Shopify Payments fees. Documentation
- SH45 Active Merchant. Primary source
- SH46 Liquid History.md. Primary source
- SH5 Gymshark: from a Black Friday outage to Shopify Plus. Customer account