Shopify’s Harley Finkelstein on Growth, AI & the Future of Commerce | Baron Investment Conference

It was great. Great. I got to do some business development backstage because Martin on running is on Shopify and I asked him if he was getting ready for Black Friday and if he had any customer support needs and he gave me one. So I'm going to work on that right after this.

Yes. Actually, there's a good joke about that. You know, the first Jewish president at the inauguration, the Jewish president's mother is sitting next to the vice president. The vice president says, you know, Mrs. Goldberg, aren't you proud your son is the first Jewish president? The Jewish mother says, you know, his brother's a doctor, which by the way is how my mother also would say. Yeah. Yeah. It was up in only at the IPO which was about 10 years ago that I think my parents finally realized that not pursuing my legal career and joining Toby and building Shopify turned out to be a good thing. But yeah, wow this talk is already starting unhinged.

It's a good question. I mean, look, I think there's two different types of entrepreneurs. There's entrepreneurs that are entrepreneurs by necessity, and there's entrepreneurs that are entrepreneurs by passion. And you know, the DJ thing was simple. I wanted to be a DJ. Nobody would hire me. And my dad said, 'Why don't you start your own DJ company and hire yourself?' So, obviously, that was very much passion-based. When I started college in 2001, I was at McGill University in Canada. My dad wasn't around anymore. I had to support my mom and much younger sisters and I ended up starting a t-shirt company that led me eventually to Shopify. That was entrepreneurship by necessity. I had to help my mom pay for bills and my sisters are much younger. So I think ultimately people come to entrepreneurship for different reasons. In fact, if you think about a place like New York City, which has so much entrepreneurial energy. I think one of the reasons that you have that is because this is a city of immigrants. And for a lot of us, my parents, my father was an immigrant as well. Entrepreneurship is something you do when you have no other choice. Now we talk about entrepreneurship as being, you know, there's a glory in it. It is exciting. People live stream their journeys and talk about their failures. But for a lot of our parents and grandparents in the crowd, they became small business owners because no one would hire them. No one would give them a chance. So, I think having that tool in your tool belt called entrepreneurship solve problems has always been something that I've always had. And part of the reason that I ended up joining Toby almost two decades ago and committing my entire life to helping him build Shopify is I'd never found anything quite like Shopify from the perspective of someone or a tool that was creating more entrepreneurs on a more regular basis. Everyone likes to talk about, you know, the democratization of entrepreneurship or, you know, leveling the playing field. When you think about Shopify today, we're about 12% of US e-commerce. And I often on earnings calls will talk about, you know, On Running or Estee Lauder or, you know, companies that have joined us, Mattel. But actually the stories that we love talking about the most are the ones that these are these homegrown success stories. These stories that people started their mom's kitchen table because they had to or because they wanted to. And over the course of 10 years have now become billion-dollar companies. They are vertical leaders. That velocity of entrepreneurial success I think is very very modern. We didn't, you know, it used to take decades to build multi-billion dollar companies. Ben Francis built Gymshark in 10 years. Gymshark now competes with Nike. I mean, I'm not in the Nike board meetings, but I suspect there are board meetings where someone in that meeting says, 'Wait a second, what about Gymshark that was just built by some kid in London, you know, in 2014.' And so there is this interesting thing happening in entrepreneurship now where when you give people that deeply care or need to care the tools to build something incredible, they do so. And I think in many ways this is sort of the glory age of entrepreneurship.

Well, you have to understand like how Shopify started. I mean, we didn't set out to build a, you know, a publicly traded multi-billion dollar, you know, software company. In 2004, Toby moves from Germany to Canada because the only reason he moved to Canada, he met a girl. So he moves to Ottawa because he met a girl and he wants to get a job. No one will hire him because he doesn't, he's a new immigrant, doesn't have his working papers. So he decides he's going to start selling snowboards, snowboards on the internet. A lot of very cold. He loves to snowboard. And at the time in 2004, there were sort of two ways to sell something online. You either sold on a marketplace like eBay or you had to pay a company like I kid you not like IBM to build you an online store and that was very very expensive. And so Toby being this brilliant programmer said I'm just going to write my own, write the software to sell these snowboards. And he called the snowboard company Snow Devil. And he started selling snowboards. And very quickly he realized that while the snowboard company may be a good idea the software behind it may be a great idea. And that's when I met him. I moved to Ottawa to go to law school and not to become a lawyer actually just to become a better entrepreneur. A mentor of mine was teaching law at the University of Ottawa at the time and I met him and heard his story about how he was trying to make it easy for anyone with an idea to build something online. So ultimately I think the reason that Shopify was started and the reason Shopify has been successful is this idea that you don't have to have a lot of money and you don't have to have a lot of experience to build a business. If you think about the history of commerce or the history of business generally the main ingredient to starting a business was always capital. You had to have money or you had to have connections. And this piece of software that frankly is kind of magical that Toby had built ultimately made it so that you didn't have to have a lot of money or had a lot of connections and he made it very simple. So the idea that you can get started in a matter of an hour or two build an online store but then as you grow there is no graduation there is no ceiling in terms of the capacity of what you can do on Shopify I think made it really really unique and so in the early days it was really just small businesses building e-commerce stores on Shopify and over time businesses got really big I mean some of them got to be a billion-dollar business and they weren't leaving Shopify they were staying with us indefinitely. And that allowed us to begin to think about this idea of can we also, you know, help existing businesses incredible brands like On Running or like Aloe or Vori or Birkenstocks or Mattel or Hunter Douglas also use Shopify and obviously more recently, you know, you've heard us talk a little bit about if you're following our story that we actually think the future of retail is retail everywhere on every surface area online offline on agentic at a popup store on Roblox and YouTube and Instagram. And so more recently, we're really becoming the company that allows you to sell something to anyone, anywhere.

So 42 quarters ago we went public on the New York Stock Exchange. We're now on NASDAQ, but initially we were on the stock exchange and we did the road show. We did it was 93 meetings. I love the road show. I love the IPO process. Toby, of course, didn't like it as much. He's much more reserved, introverted, cerebral than me, but I love telling incredible stories of Shopify. So, I love the process. But you're absolutely right. The number one question we got on the road show was what is your TAM? What is your total addressable market? And initially we had a good answer which is like if you look at retail SMBs in the English speaking world I think there's like 60 million of them. We have 100,000 of them we have a lot of room to grow. But actually I think that question missed what our ambition was which was not only can we grow our piece of the pie, we can grow the pie itself. So here's something that we often don't talk about but it's my favorite stat and data point of Shopify. Every 26 seconds a brand new entrepreneur gets their first sale on Shopify. Every 26 seconds. So, there's been I don't know, it's been we've been up for six minutes. Like, there's been 12 or 15 new entrepreneurs that created a business while I've been on stage today. Not all of them will succeed, but the ones that do will one offset the cost of those that don't for us, and second, they may be the biggest merchants on Shopify in 10 years from now. So we think the pie is a fairly large pie. I mean it is if any of you have bought something online from a traditional retailer, you know that the experience is still not very good. So we can help get a lot larger retailers on. I spent last night with Stefan the CEO of Estee Lauder. We just announced that Estee Lauder is bringing all their brands to Shopify. So we can help there. We can also help small businesses, you know, to grow. But this idea that new businesses are being created on Shopify means in some ways we're sort of black swan farming and the Aloes and the Voris of 10 years from now are getting started on Shopify now. So we've sort of been able to scale vertically from the smallest of businesses to the largest of companies. But we've also realized that if you were to pretend for just one moment that Shopify was a single retailer. So if you were to combine the million stores on Shopify, we would be the second largest online retailer in America. Why is that important? Well, the second largest online retailer in America is entitled to incredible economies of scale. Payments, shipping, capital, advertising, all these economies of scale that the largest retailer in America is Amazon. Amazon gets massive economies of scale of course. So what we're able to do is we're able to capture those economies of scale and give them to those millions of stores on Shopify. And so we look horizontally around what else can we do? We can do payments. We can give them capital. We can help them with advertising. We help them with shipping. So over time, what started as Shopify is my e-commerce provider has turned into Shopify is my retail operating system. They're the most important piece of software that we use. And for the most part, when people become successful on Shopify, they never leave. And that's a big part of, I think, why we've done quite well since the IPO.

In different segments it's different. I mean at the smallest level, you know, we want anyone that has an idea in the shower in the morning to get out of the shower and set up an online store so for that particular demographic simplicity is the most important thing it needs to be as easy as checking their email and so the product is very simple to get started but as they scale the complexity almost reveals itself over time so if you are Estee Lauder for example you have ERPs, you have third party logistics companies integrated, you have, you know, these massive financial systems you have to integrate as well. So the interesting part is that as you kind of grow in Shopify, the feature and the functionality set reveals itself at the right time. So that's obviously very important. But on the platform side, one of the things we realize is that especially as retail is changing and it's kind of remarkable. I mean, even if we were on stage 5 years ago, we would be talking about retail in two buckets. We would say there's online retail and offline retail. And currently in the US e-commerce as a percentage of total retail is approximately 18%. It's about 25% in the UK, about 16% in Canada. So generally, even though we all know e-commerce being very large, it's still very small relative to the entire retail market. We also believe that as part of that, merchants in the future will want to sell wherever their consumers might be. And so one of the reasons that you hear a lot on the earnings call or an investor day that I talk about, you know, Roblox decides they want to integrate commerce and we become the integration, we become the commerce partner for Roblox or Instagram decides they want to have commerce built in there and we're the launch partner there. Or more recently with OpenAI, we announced that we're going to be their partner for agentic. We believe that there is a chance that in the future websites may not be the predominant digital retail surface. It may be ChatGPT or Perplexity. It may be Roblox or it may be YouTube. And so more and more the way to think about Shopify is that we are almost channel agnostic. What's most important is that for the millions of stores that use Shopify, whether you're the smallest of merchants or you're marching from On Running, wherever your consumers are spending their time, you can sell using Shopify in that particular place. And I think by doing that, one of the reasons that these companies, these big companies come to us is total cost of ownership is much lower than doing it themselves or hiring a big legacy software company. But second, it futureproofs their business. So that when they are thinking about agentic and they're wondering is agentic going to displace search commerce meaning go to a search engine type in sneakers and they're worried about that they can rely on the fact that their retail operating system being Shopify will futureproof them for that existence. Now look is agentic going to be like the primary digital commerce destination we don't know. Our job though is whatever permutation does exist that Shopify and our merchants are best positioned. I mean social commerce two years ago on stage we would have been talking about Instagram commerce being this massive new opportunity. It turns out that most of us that are using Instagram we use it for discovery of new brands but very few people are checking out on Instagram. They're going to the online store to check out. So, you know, we placed a bet there to say if Instagram becomes the default place people shop, we're going to be there. I think agentic actually has a lot more opportunity because I think it has more context. But I think that's the reason why so many brands are coming to us. It's incredible cost, incredible simplicity, great scalability, and it allows you to say wherever commerce is going, Shop will be there.

Let's take it from two different vantage points. First I think is what it does for companies like Shopify. Here's a quick example we built a product called Scout. It's an internal product. Scout effectively, it's an MCP, but it allows every interaction Shopify has with any merchant to be fully cataloged and organized. So now, anyone at the company, we're about 8,000 people, anyone at Shopify can literally say, I want to know how our capital business in how merchants that use our capital business in Western Europe are using it and how they feel about it. And what used to take weeks of data and meetings, we can get in seconds.

Exactly. And the feedback loop is so tight that we can know exactly what is happening in any geography at any band for any product immediately. So we have a bunch of those products inside Shopify that it's making us operate at a much higher velocity than ever before. For our merchants, we have built something called Sidekick. And Sidekick is effectively the reason we call it Sidekick is, you know, every superhero needs a sidekick. This idea that every single merchant on Shopify, whether they're large like On Running or they're two people in a garage, they have this tool available to them that knows everything about their business and everything about Shopify and they can do product descriptions or they can take help with product photography or they can do analytics and reporting or they can figure out where to actually place bets from an advertising perspective. Then there's of course the other side of it which is the consumer. More and more consumers are spending time using these chat bots, these agentic applications, whether it's Perplexity or ChatGPT or Microsoft Copilot or, you know, Gemini. And one of the things we see happening is that more and more consumers will begin to talk to their chatbot about what they require from a shopping perspective. For example, I have two daughters. My nine-year-old is right now obsessed with something called K-pop Demon Hunters. She's having, if you guys have kids, you know, big deal right now. So I can go onto any of these agentic tools and I can type in, you know, Bailey's birthday's coming up. I want to have a K-pop demon hunter birthday party. What should I buy? And it'll peruse all of Shopify's catalog and send to me, you should buy these napkins and these balloons and you should buy these decorations and you should buy like these games. And I can check out right there in the chat itself. And the way that we've done it is we've built these tools that allow any application, any agentic application to plug it in. We have catalog which takes all of the products on Shopify. We have a checkout kit which allows them to customize the checkout. And then we have universal cart which means you can have one single checkout across multiple stores. And again, it all happens when you're in your own personal assistance. That is something that historically, as you know I didn't grow up with a lot of money but I know that rich people have personal shoppers. Well now like the whole world gets personal shoppers and the personal shopper is not on commission which means they can show you objectively the best products relative to your entire search history. So there is a real chance that agentic commerce will become a new major surface area for consumers to spend their time. And our job is to make sure that if you're on Shopify, you are better prepared than if you're not. And again, whatever permutation happens, we think we're really well positioned for that.