It is impressive how fast Shopify is growing its relevance and moat. The decoupling of jobs from location and democratization of participation in the internet-enabled economy is changing lives and business architectures. The modern enterprise is a core with a big partner network of applications around it. Today, any person can lever this network to run a commerce strategy. In his excellent message to Shopify employees, Tobi Lütke, wrote that Shopify is not a family but a team of which the members must perform and will be judged on performance. Now this team can hire any skilled person with internet access regardless of location.

In the payments business (Merchant Solutions) Shopify takes a margin on Gross Merchandise Value (GMV) transacted via the platform. As GMV is growing faster than Subscription Solutions (pricing plans for merchants to access the commerce tools), merchant tools are increasingly becoming a way to grow GMV and therefore the payments business.

On June 15, Shopify announced the strategic move to open up Shop Pay, the excellent checkout system, to all retailers selling through Google and Facebook. As a result, stores that exclusively exist on Instagram (not Shopify) can use Shop Pay for payment processing. The reason for Google and Facebook to agree to this integration is that it drives better conversion of their stores (Shopify claims that checkout on Shop Pay is 70% faster than a typical checkout resulting in 1.72x higher conversion rate) and therefore it enhances Google’s and Facebook’s core business which is advertising.

Shopify is enabling Google and Facebook to better compete with Amazon. The multi-channel future of commerce is now going to make Shopify’s merchant tools even more important; Shopify president Harley Finkelstein said: “You now need to reconcile inventory across eight or nine channels. You now have to handle shipping and fulfillment across eight or nine channels. And so as the complexity increases, the value of using Shopify as the central retail operating system also increases.”

About 10% of all e-commerce in the U.S. is going through Shopify (versus 39% through Amazon). On June 29, Shopify announced that they are removing all revenue share on developer’s (together earning USD 233 million in 2020) first annual USD 1 million as well as cutting the commission rates from 20% to 15%, which is about half of what other app stores charge. It has become a no-brainer for software developers to create products for the Shopify App Store. This will further grow the quality of the ecosystem.

Environmental issues are on our mind when we do the investment analysis. The space in which we are investing is a net positive force in enabling our species to tackle problems such as emissions. It’s worth noting here that Shop Pay is one of the first carbon-neutral ways to pay as Shop Pay offsets 100% of the delivery emissions for every order.

On July 7, Harley Finkelstein said: “The future of commerce is still in front of us. Here’s what I mean: if the world of ecommerce was a baseball game – we are still at the hotel. We haven’t even left to go to the stadium yet. That’s how early we are in the story of ecommerce.”

We believe that the valuation of Shopify is fair because it is not just a software-as-a-service business; the platform is becoming a payment business that takes a royalty on global internet-enabled commerce. And as the leading central retail operating software platform the runway of non-linear growth is enormous. We have invested a significant percentage of the portfolios in Shopify because our vision is that this is becoming a USD 1 trillion market value before 2030.