Shopify Changes Pricing - Community Not Happy

Pricing for Software as a Service is hard.

I used Shopify to build Poetry in Flowers. The thing that sold me on Shopify initially was the "If you don't make money neither do we" philosophy. Their model was a 3% commission on sales of less than $10,000 (2% above). That suddenly (i.e with no prior communication) changed this week with the announcement that they are going to a pay per month + commission model going forward (fortunately I am grandfathered).

There has been a huge backlash from the Shopify community, who basically feel they have been deceived by Jaded Pixel, the company behind Shopify. This also comes on the back of several outages while they moved their hosting facilities to Toronto. Personally, I will stay on because I am grandfathered, but I will be having a good look at alternatives for the next project. This is the rub for Jaded Pixel, a big differentiator was their no-cost-up-front price of entry.

Shopify was a long tail distribution play. The revenue from lots of little shops should be significantly greater than a few big ones. What they did right was lower the barrier to adoption - making it dead simple to create a shop and requiring no monetary commitment. But the problem is that each of these shops use resources - bandwidth, disk and compute cycles. My guess is a lot of those shops don't actually sell anything (could Pareto be right on this one too?),  so at that point the commission model is broken.

I wonder if there is a pricing model that would work with the no payment up front model? My suggestion is to price the service based on commission AND pay as you go based on usage of resources.

The thing I like about this is it scales. You can still allow a trial version with limited SKUs, or resource allowance. For the little guys, if you aren't selling anything you would still need to pay for actual cost of hosting your shop online. Successful merchants pay less commission, but would still pay fairly for the amount of resource they use.

Technically, I can't imagine this would be too difficult. Shopify already tracks disk usage and page hits. You can extrapolate compute usage based on those two metrics. I would price type of resource independently as disk is cheap, compute cycles relatively cheap and bandwidth expensive.

Logistically, this could be a challenge. You need to offer merchants a flexible payment system. Conveniently, one was announced today. The  Amazon Flexible Payment Service:

Using a capability called “Payment Instructions” developers can easily create the charging model that works best for them. For example, they can charge customers in small increments until their accumulated balance reaches a limit, pay a percentage of a digital transaction as a royalty, earn a commission on a marketplace transaction, or allow one customer to pay for another customer and limit their usage to a specific amount.

There is a lot to like about Shopify. I hope they can get this straightened out.

Comments

[Ethan]

We were grandfathered as well, and on some level believe the old adage "you get what you pay for," but the change in payment mechanisms sure came as a surprise. I feel like they didn't give us little guys the time to get off the ground. Sure - I have no sales yet - but we're just getting started. I figured we could grow with Shopify and someday they'd be happy because we'd be happy, loyal customers who had the 3% built into our business model. I wonder if anyone else will step in behind them and offer the free-hosting, commission model?