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Friday, November 22, 2019
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SHOP stock has gained almost 90% in the year to date. As of Friday 17th May, the stock was just off its peak at $273.48 with a market cap of around $28 billion.

The Shopify formula is working, even though the stock has its fair share of doubters with around 7% of the stock held by shorters. Those short positions are beginning to look a bit precarious, and losses could potentially be horrendous.

Retail Operating System

“What Shopify is, is we’re this retail operating system,” COO Harley Finkelstein said in a post-earnings interview with Jim Cramer on April 30. He went on to explain “You can come with us and build an online store, but you can also use our products on a brick-and-mortar store. You can cross-sell on Instagram, or Facebook, or Amazon, or eBay or anywhere, but it all feeds back into one simple and centralised back office.”

Shopify’s platform allows entrepreneurs of any size to establish an online shop and turn a new business idea into a reality in just a few short hours. The Shopify platform is incredibly simple to use but also extremely powerful. 

Shopify’s director of product Michael Perry explained “We remove the complexity to help get products out there as quickly and easily as possible. We have an ecosystem with thousands of apps that help our merchants with marketing. Part of the strength of Shopify is that ecosystem.”

Perry’s comment underscores an idea Finkelstein articulated in a CNBC post-earnings interview. “If you think about it if you aggregate all those [820,000] merchants … we’re the third-largest online retailer in the United States,” he said. The fundamental reason is, we’re able to take those incredible economies of scale …, and we can trickle them down to entrepreneurs.”

“The most important thing for entrepreneurs is to establish that direct relationship with their customers,” Perry said, adding “I don’t know why anyone would want someone else to own their customer relationship. Unfortunately, that’s the exchange that takes place with a digital marketplace.”

Finkelstein adds colour to the idea, explaining “When you go to a big marketplace (such as Amazon) you rent customers from that marketplace. When you build your online store, your physical store, you own the entire customer relationship. That customer is your customer. You can remarket to them.”

Shopify Progress

Last month the company unveiled three new POS devices — The Shopify Tap & Chip Reader, Dock, and Retail Stand as it moves into helping people with real brick and mortar stores use online technology to help build their business.

Is Shopify the silver bullet for online entrepreneurs? Shopify is a great system, but it shares an Achilles heel with Wix.com (NASDAQ: WIX) in that their blogging solutions are minimal and until they come up to the level of features that Wordpress offers there will be a large portion of the market that they can't break into. Bigcommerce has addressed that issue with its plugin for Wordpress.

However, there is no doubt in my mind that this WILL happen and both Shopify and Wix are at the cutting edge of what can be achieved with cloud-based software. Once they both get the blogging features correct, there will be no stopping them, and Wordpress users will have a viable alternative along with the ability to set up shop quickly and easily if they want to. 

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