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How Ottawa’s Shopify is redefining e-commerce for the world

Shopify CEO Tobias Lütke.
Shopify CEO Tobias Lütke.
Shopify CEO Tobias Lütke.

Online retail giant Shopify has announced the introduction of point-of-sale payment services for clients to manage physical purchases. The new service, in the form of an iPad app combined with receipt printing hardware, a cash drawer and credit card reader, came about as the fulfillment of the need for some clients to bridge the gap between their online retail and physical businesses.

Adam McNamara, Shopify’s vice-president of product, says, “There is no one in the space handling this the way we are. The future of retail is all about consumer choice. Consumers want to buy what they want, where and how they want it. They might want to buy in-store and have it shipped to them. They might want to buy online and pick it up in store.” The move to point-of-sale furthers Shopify’s incursion into the brick-and-mortar retail world, after experiments with pop-up shops in the Ottawa area and the recent introduction of credit card processing for its 65,000-strong user base.

Shopify has dominated Ottawa’s start-up scene for long enough now that it can no longer safely be considered a start-up, although a key to its success lies in its capacity to retain start-up-like behaviour, regularly staging Hack Days and eschewing the standard recruitment process in favour of cocktail-themed hiring parties.

It’s been a long journey from Tobias Lütke and Harley Finkelstein’s efforts to sell snowboards online in 2006, only to discover that the retail software they developed to sell merchandise on their own website was a better product than the snowboards themselves.

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We want to be at the front of the pack and help lead that charge for this kind of retail revolution. We feel that the future belongs to small businesses and not the Walmarts of the world. It’s pretty exciting.

In 2012, 7.8 million customers racked up $742 million in purchases through Shopify enabled websites. With 275 employees in Ottawa and the recent acquisition of Toronto design firm Jet Cooper providing a de facto headquarters for its 14 Toronto-based employees, Shopify seems ideally placed to ride the online retail wave to its crest.

eCommerce accounted for $231-billion in sales during 2012 in the United States alone, accounting for 8% of the total retail pie. Research firm Forrester predicts that number will increase to $262-billion in 2013 with further growth forecast to $370-billion in eCommerce sales by 2017.

Shopify’s own numbers show an increase from $275-million in transactions in 2011 to $742-million in 2012, with their own projection shooting for a total of $1.5 billion during 2013. A lot of this growth is predicated on the expanded role of mobile technology in retail, which the introduction of credit card processing and the new POS service is well-suited to address.

Shopify introduced the second version of its platform in February, which it touted as a complete rebuild, adding over 60 features. In private beta since October of 2012, the redesign was the product of the input of its then 50,000 users (it now has 65,000), and follows on from some other big moves during 2012, including the raising of $22 million in Series A and B venture capital and the acquisition of mobile app developer Select Start studios.

One of the more interesting and significant of Shopify 2’s features was the Abandoned Checkout function, providing retailers with analytics detailing the agonizing moment when a customer is about to click purchase only to jump ship at the last second. Approximately 67% of checkouts are abandoned this way and the behavioural puzzle behind that phenomenon has vexed retailers and marketers alike, struggling with how to better word calls-to-action and even pondering the psychological effect of the shape and colour of site buttons to help facilitate the sealing of the deal.

Shopify 2 also highlighted another big reason for the company’s success as a plug-and-play retail solution for businesses: its price. The new platform introduced a $14/month Starter package, after years of Shopify’s lowest price plan being $29/month. There is also an Enterprise package, priced at $1,000/month and aimed at Shopify’s larger clients, such as Tesla, Pixar Animation Studios and General Electric.

This was the basis of Shopify’s initial decision to throw over snowboard retailing in favour of a focus on creating retail software for other online retailers. The options at that time consisted of each business with an online presence building an retail component for their own websites, whether by farming the work out to programmers at great expense, or opting for an equally intensive in-house solution, or just turning to eBay.

How many times would it be necessary to reinvent a wheel-like thing before someone finally just presented an actual wheel? Enter Shopify.

Shopify’s chief platform officer Harley Finkelstein, in an interview with the Search Engine People website, outlined the imminent challenges facing retail.

“We think that retail is changing very quickly. The advent of the shopping mall came out of the 1860s, and basically from the 1860s until the 90s, 1990s, things were pretty boring in the retail space. We had strip malls and shopping malls and markets. … So we want to be at the front of the pack and help lead that charge for this kind of retail revolution. We feel that the future belongs to small businesses and not the Walmarts of the world. It’s pretty exciting.”

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