What’s behind the Shopify Effect⁠↗

Shopify merchants now represent 3.6 million jobs around the world, and every 28 seconds, a new entrepreneur makes their first sale on Shopify.

There are all sorts of purchases we make that fall into this category, where we’re consciously opting into a challenge. A sneaker drop; a cosmetics line; local healthy food; collectables; art; a snowboard; for all these purchases, the challenge isn’t incidental. It is the point. Without it, the purchase has less meaning; and the meaning is really what we’re after – being beautiful, being smart, being an athlete, being someone with great art. We have a name for this kind of commerce, where people eagerly hunt for challenges to find joy in overcoming them: it’s called shopping.

This is anything we buy at a convenience store, or any kind of purchase that honestly doesn’t say anything about us at all. There’s no greater meaning here; no challenge to overcome that speaks about us as a person; we’re just buying toilet paper, or picking up stuff at the corner store. The point here is convenience. We want to opt out of any difficulty whenever possible – it does nothing for us.

If we get rid of all the friction, all the challenge, every obstacle and inconvenience, what do we get? We get Amazon. It’s clear what kind of commerce happens here. A lot of it, for sure – convenience attracts a lot of customers, and a lot of buying does in fact take place. But without a challenge to overcome, nothing meaningful gets created. No buyer loyalty or retention gets established; gross margins continually face pressure. So it’s harder to pay good salaries to employees; it’s hard to reinvest into good design, or good craft. You’re stuck in this low-challenge, low-margin, low-breathing-room kind of commerce, where everyone’s going through the commercial motions but no one is deriving much joy or self-expression from it. This kind of commerce is called consumerism.

The gaming industry understands that friction isn’t something to blindly get rid of. Friction is challenge, and for them, challenge is the product. That is the point of gaming: crafting and hosting challenges that intrinsically motivate people to go after. The gaming industry understands the distinction between bad friction versus good challenge, so much better than anyone else.

First, there needs to be a meta-narrative for why you’re participating, that makes you feel a certain way.

Second, you need a variable reward mechanism. This is really important: if it’s pre-ordained that you are going to succeed, there isn’t a real challenge.

Sense of control doesn’t mean “pre-ordained outcomes”, it means, “Do I feel like I’m in the driver’s seat of something.”

But if you’re doing Opt-In commerce, which is what D2C really means, something else happens. The amplifier of the internet works for you: if buyers identify with the challenge you’ve created with them, and if they’re intrinsically motivated to go conquer it with you, then that accomplishment will propagate virally. If you’re good, something astonishing happens: the more CAC you spend, the lower your incremental CAC becomes. That’s magic for a consumer business.

To me, this is the real “Shopify Effect”. Our merchants can have such massive global impact (3.6 million jobs! $307 billion in 2020 economic contribution!) not only because they’re able to start and scale businesses, but also because those businesses are good businesses.