Few companies were as well-positioned for a global pandemic as Shopify . Founded in 2006 to help physical retailers establish a web presence, Shopify offers easy-to-deploy cloud software so small businesses don't have to do the heavy lifting of going digital. When Covid-19 forced stores to shudder, Shopify's technology suddenly became essential. Shopify shares have more than doubled this year, boosting the company's market cap to $118 billion. That puts it about even with Zoom and behind only Salesforce among pure cloud-software companies and Microsoft and Adobe , if you include legacy vendors that have transitioned to the cloud. It's also the most valuable company in Canada, just ahead of the Royal Bank of Canada . Now, Shopify is gearing up for its busiest season of the year, or what Harley Finkelstein, the company's president, calls "our Super Bowl" — Thanksgiving weekend. From Black Friday to Cyber Monday three days later, Americans traditionally do a huge amount of their holiday shopping. Shopify even has an acronym for the long weekend — BFCM. Because so many brick-and-mortar stores remain closed, with coronavirus cases spiking across wide swaths of the U.S., Shopify is expecting the 2020 shopping rush to be like none before it. According to eMarketer , retail sales on Black Friday are expected to surge 39% from last year to over $10 billion, while Cyber Monday is projected to see a 38% increase to almost $13 billion. Finkelstein sat down with CNBC via video chat last week to talk about the wild year for the company and what Shopify expects over the holidays. Here's the full Q & A: (This interview has been lightly edited for length and clarity.) Ari Levy: What's the big Covid story for Shopify? Harley Finkelstein, Shopify president: Now that we're eight months into the pandemic, what we've seen is this accelerated change. We anticipated this was happening for a long time, which is the center of gravity in terms of commerce and retail shifted form in-store primarily to online primarily. What we're seeing now is not an anomaly. It is the blueprint for the future of retail. The growth of e-commerce will continue long after we have a vaccine. The merchants on Shopify are these resilient retailers who embrace omnichannel. They embrace using every resource and every piece of technology at their fingertips to experiment and to reach new customers wherever they are. When we announce things like a partnership with TikTok or Instagram or Pinterest or Walmart , where you can push products to all these different places, they adopt it right away and I think that's the reason you're seeing a disproportionate amount of success with these resilient retailers on Shopify relative to some of the resistant players that have just not made it through. On the other side of the vaccine you're still going to see e-commerce as a percentage of total retail hold. It's not going to continue to grow at the same pace that it has over the past eight months or so because, at least from my perspective, it's been actually 10 years worth of acceleration in shifting from physical retail to online retail. But I think you're going to see a massive paradigm shift. My grandparents are now going to buy groceries online for the rest of their lives, which is something that never would've happened. What are some other trends in how people are shopping? Consumers have effectively en masse changed their preference in two ways. The first is they want to buy from independent brands and independent retailers whenever possible. Part of that is we all live in these cities and communities where on the other side of Covid we want to see small businesses still be around. The way we do that as consumers is we vote with our wallets to support them. The second piece is we've moved away from bargain basement deals and big discounting to more of this conscious consumerism, where we want to buy from retailers and brands whose values reflect our own. The other thing that's happening is because so many stores are closed because in places like Canada, for example, things are still pretty much shut down, consumers are looking to buy things that allow them to participate in the rebirth or whatever happens on the other side. That's another reason why they're buying direct. That's not to say consumers aren't going to buy from marketplaces like Amazon or big box department stores but they're going to have to provide a disproportionate amount of value to justify them going there as opposed to going direct to Allbirds or Bombas or Tommy John underwear or Kylie or Gymshark or even Blueland or Brooklinen. Given how many retailers have been forced to shut their physical stores, what kind of new activity are you seeing from merchants? In Q3 , we saw GMV grow 109% year over year to about $30 billion. We saw revenue grow by about 96% to about $767 million in the quarter. But we also saw a record number of merchant ads. I think you're seeing brick-and-mortar stores that are for the first time ever looking to digitalize. Most of them are doing that on Shopify. We make it really easy. We gave an extended free trial when Covid started. We gave them new tools like gift cards if they were a service-based business to find a way to sell online. We also created things like in-store pickup and curbside pickup, so that any restaurant could quickly turn into a meal kit provider. Every restaurant can be a wine retailer. That's something new to Shopify. We typically did not see verticals like grocery or restaurants use Shopify. They had to do that because of the pandemic. Thomas Keller turned French Laundry when it closed down — he wrote the most amazing cookbook and using Shopify to sell those cookbooks. There are restaurants all over Manhattan that have become meal kit providers, using Shopify to sell meal kits. Some are selling gift cards. Chipotle set up a store, a farmers' market on Shopify. A lot of Chipotle suppliers are actually farmers around the United States. They created a marketplace where all the farmers are, and any consumers can now go onto the farmers' market on Chipotle and buy directly from the farmers. We never had a vertical inside Shopify called grocery. It wasn't our thing, wasn't our core market. We've seen the Farm Boys of the world and Loblaws of the world set up stores on Shopify, where they can either sell their 12 most popular grocery items or they can sell pre-made meals. That is something we had not seen prior to the pandemic. How material are those new businesses? We don't break it out but it's a very small percentage. Even prior to the pandemic, Shopify was the second- largest online retailer in America, if you were to think of us as a retailer, behind Amazon. we're not a retailer but Shopify checkout is the second-largest in America. It would be a small percentage because we have a million other stores that are not in those categories. Are there any scaling challenges? No. That's probably the best part of Shopify. Shopify is a platform that is incredibly scalable, which is why we had folks like Joey Allbirds start at his kitchen table and then grow Allbirds to be an incumbent and never have to leave the platform. We've seen these homegrown success stories that have grown to be category leaders. But through the pandemic we also saw companies like Heinz Ketchup set up a store to go direct to consumer for condiments. We've seen Schwinn bicycles, Lindt chocolates, Snickers candy bars, Johnson & Johnson , Unilever , a lot of these very large established brands for the first time ever are choosing to go direct to consumer and doing it with us. I think that's because we have a reputation for being so scalable, they feel they can do that with us very easily. Is it different for you when dealing with a large business joining the platform? Shopify Plus is our enterprise offering. The way it started is we saw these very small merchants get very large on the platform and never graduate. That's an insightful experience, because if you look across every software industry there's this natural graduation as one gets bigger. We were seeing businesses go from a dollar a day to hundreds of millions of dollars a year and never leave Shopify. We created Shopify Plus really as a place for them to graduate to. Then post-IPO, because more people knew about Shopify, we started seeing more established brands come over — Rebecca Minkoff, Steve Madden — these big iconic brands who frankly never would've come to Shopify. What we realized was it's not that we were becoming an enterprise company. It's that the enterprise e-commerce market was not evolving towards modern retail. A lot of them come over to us because they want to make sure that they're future-proofing their business. We're the launch partner for Instagram, for Facebook commerce. We have all the right integrations and the right partnerships that they're demanding. Also, we don't participate in a long six-month RFP. We're not going golfing with them to try to convince them to come over. Rather than us adopting the complexity that traditionally comes with enterprise software purchasing, we've tried to teach them a new way to buy software and it's working really well. Now we have thousands of some of the largest brands on the planet using Shopify Plus to sell. They get flexibility, scalability and future proof, but if they want us to go into their office and build it for them, it's just not how we operate. We have a network of partners that can do it for them but it's a very different way to integrate with enterprise software. They still can make sure they integrate with their ERP and their warehouse management system. We can connect with all the right pieces but we go about selling to them in a much more lean way. What metrics can you share about the significance of large brands to the overall business? We have over a million stores and a couple thousand are Shopify Plus. As we're speaking dozens of people have signed up for Shopify. In Q3, enterprise merchants were our fastest-growing GMV segment. We saw Beyond Meat come over, Pressed Juicery come over, Sassy Jones, Raycon, Schwinn, Stetson, some of the biggest brands have come over. Some of them never sold direct to consumer before and are using us to do so in the first place. Or in the case of Toms shoes, Toms was very direct to consumer 1.0 and had a homegrown system that they'd built themselves and realized that having 300 engineers working for them just didn't make sense and they moved over to Plus as well. What are you doing for the holidays to attract more merchants or cater to existing customers? We are coming up into our Super Bowl. We think preparing merchants for this upcoming holiday season is really important. Since September, we've been putting together these consumer insight packages, these strategy packages, educational information and product news in a weekly newsletter to make sure they have everything they need. We also have offered free Black Friday - Cyber Monday coaching, which is a one-to-one support experience that helps merchants with strategy marketing advice and best practices. We have more than 1,000 support people at Shopify. Unlike most software companies, they're not really technical support although they can do that too. They also play the role of business coaches and advisers. For example, they may take a look at your admin and say a lot of your traffic is coming from Pinterest, have you thought about activating the Pinterest with Shopify channel? Or hey we notice that you're doing a lot with TikTok, are you using the new integration with TikTok in order to place embedded shopping ads directly inside of TikTok as well. That coaching is done one-on-one with an actual human. New this year for the first time, no matter how a merchant's customers choose to checkout, Shopify is going to be offsetting the delivery emissions from every single package globally. We think this is a really big win for merchants who will be eco-conscious but might not be able to do this. And I think it will also help them attract more eco-conscious shoppers. That will be starting Black Friday - Cyber Monday. We look at exactly what the origin is and the destination is for any particular package. We calculate what the carbon emissions might be for that and we simply pay to offset it. What are some of the other advantages for merchants using Shopify? We have a very wide top of funnel where anyone who wants to start a business can do so and does so with Shopify pretty much by default. But then once they become successful we sort of turn into this retail operating system for them. We're not a retailer, but because we have so much of commerce globally flowing through Shopify we have huge economies of scale. That means we can go and get them capital. We've given out more than $1 billion to businesses that couldn't get capital, or cash advances on their own. We're doing the same thing for payments and more recently shipping and logistics. At a high level what we're trying to do is just level the playing field so small businesses have a better chance to not only start but also to grow and become the next Allbirds or Bombas in the future. Part of what we're trying to do is to encourage more people who may not self-identify as entrepreneurs to try their hand at this thing. if you have a hobby, think about commercializing your hobby. There isn't one particular vertical that we're going after. if you want to sell physical products to consumers, anywhere in the world using any channel, that's what you can do through Shopify. You may find great success selling through the Walmart channel or the Pinterest channel or the Houzz channel or the eBay channel or the Instagram channel. We sell wherever your consumers are. More and more I'm talking about Shopify as being the world's first retail operating system and less about us being an e-commerce provider. Are more Amazon merchants using Shopify? We've been seeing that for a long time. A lot of merchants decide they want to go to Amazon to find customers and realize that if you're selling on a marketplace you're renting customers from that marketplace. More and more these merchants and brands want to have a direct relationship with the end consumer where they own the profit margin. Their customers on Shopify are theirs so if they decide to leave Shopify for some reason they take their customers with them. This idea of direct to consumer being a fad is over. Direct to consumer is the way commerce should've always been. One hundred years ago you bought your bread from the baker and you bought shoes from the cobbler. Intermediation happened because it was more convenient and they had distribution and e-commerce has democratized distribution. Someone who's selling on a marketplace may start there but eventually they don't want to sell on a marketplace any longer. Allbirds doesn't want to sell on Amazon. Now, if you go look up Allbirds on Amazon you see a bunch of knockoffs of Allbirds shoes. More and more this idea of owning your customer is becoming very important no matter what size business you own. Do you see fraud and security concerns scale along with business? We've been really conscious of that since day one. We've had a large fraud security safety team for at least six or seven years. We want to make sure we arm merchants with all the information they need so they can make really good decisions. If an order looks to us like it's fraudulent we'll tell the merchant this looks like a fraudulent order. It's up to them if they actually want to fulfill it or not but we give them enough information to make really good decisions. On the flipside, on the merchant side we have a team that's constantly looking at all these new stores being created on Shopify both by humans but also with our algorithms using machine learning to figure out this store does not seem legit or this store is selling something that is contrary to our acceptable use policy. Maybe it's a weapon, which we don't allow to be sold. Or maybe it's cannabis in a particular market where it's not legal to sell cannabis. We will not allow that store to launch or to run on Shopify. WATCH: We recognize the importance of major shopping holidays globally, Shopify president says
