Paul Harris discusses Shopify and Constellation Software
Before their developer friends turned them on to Shopify Inc., Tarang Agarwal and Mukul Chaware had hit a wall.
Like so many software engineers, they had comfortable, well-paying jobs but craved independence. So the Bangalore, India, duo spent a couple of months dedicating their free time to building apps for platforms like GitHub and Slack. They attracted little attention -- “barely one or two downloads a day,” Chaware said -- and almost no revenue.
Within 10 days of shifting to Shopify, they created a basic appointment-scheduling app for the company’s e-commerce merchants, and within a month they made their first sale. Before long, they quit their day jobs, and now their app sales are exceeding their previous salaries.
Their experience highlights a common refrain among technologists: Development platforms like GitHub are great places for code-sharing and version control, but they’re so vast and industry-agnostic that it’s often difficult to get noticed.
“We know how to make products,” said Chaware, who met Agarwal in college, “but we don’t have any customer connections or a way to access an online audience.” Shopify actively promotes the third-party products in its app store, he said, relieving developers of the burden of marketing.
For Shopify, outside developers like Chaware and Agarwal are vital to keeping its more than 1.7 million independent merchants happy. The Ottawa company’s platform continues to grow at a breakneck pace -- its merchants had sales of more than US$42 billion in the second quarter, up 40 per cent from a year earlier -- and it just can’t add skilled developers quickly enough to keep up.
“Engineering hiring is probably the biggest limiter to Shopify’s growth,” Harley Finkelstein, the company’s president, said last month. He said the company had struggled during the COVID pandemic to meet its target for hiring 2,000 developers.
The company is increasingly relying on ancillary services that handle tasks such as payments, customer relations and shipping to retain merchants, much as Apple Inc., Amazon.com Inc. and Alphabet Inc.’s Google use their app stores to appeal to consumers.
Such services are also a money-maker: App sales generated more than US$230 million in sales for Shopify developers last year, and the company now generates about 69 per cent of its revenue from a range of so-called merchant solutions that include third-party apps, up from 54 per cent in 2017.
To attract new indie developers, Shopify said in June that it would no longer take a cut of the first million dollars of yearly revenue generated by third-party apps, eliminating what had been a 20 per cent commission. Above the million-dollar mark, the e-commerce giant reduced commissions to 15 per cent.
Adding developers too quickly carries risks, said Kinshuk Jerath, a professor of marketing at Columbia Business School. Shopify says a typical merchant uses only six apps, and that underscores the importance of quality over quantity, Jerath said.
“If I’m a merchant selling on Shopify, I need to do seven or eight things right, and I want the best tools for that,” he said.
Shopify’s relations with app developers aren’t always harmonious. In March 2019, Mailchimp removed its email marketing app from Shopify’s store because, it said, Shopify wanted to collect Mailchimp customer data acquired outside of Shopify, which would have violated Mailchimp’s privacy policies.
Shopify declined to comment beyond its initial statement on the matter, in which it defended its policy of sharing relevant customer data across apps to ensure accuracy and timeliness.
Agarwal and Chaware, for their part, have few complaints. In contrast to other app-store operators, Shopify surveys new merchants, Chaware said, and asks about details of their business plans.
Then it begins promoting specific apps that cater to those plans. In this way, Shopify trains its merchants to be on the lookout for apps that can help them, Chaware said.
GitHub says it does offer developers exposure to potential customers on its Marketplace, where it takes just a 5 per cent cut. But it also acknowledges that its development ecosystem is huge, encompassing software engineers, data scientists, educators and others.
“When we think ‘traction for developers,’ we think about volume and quality of software being created,” said Ryan J. Salva, GitHub’s vice president for product management. “It’s a different measure of success,” he added.
For now, Chaware says he prefers Shopify’s narrower focus on meeting the needs of e-commerce merchants.
“They have created an awareness that if something is missing, ‘There must be an app for it,’” he said. “It helps us developers in a very very big way.”