In the technology space, companies everywhere are constantly digging moats to protect themselves from new entrants and competition which would otherwise threaten profit margins and long-term growth. In the case of Canadian tech giant Shopify Inc. (TSX:SHOP)(NYSE:SHOP), partnering with clients to help them grow their small businesses has allowed Shopify to remain the platform of choice for bricks and mortar retailers who are looking to provide an online option for folks to buy their wares.
Creating these strong relationships with mainly small to medium sized business owners has provided Shopify a very limited moat, one which relies on continuously positive service and agility in dealing with the needs of its customers. Shopify has come under some significant scrutiny in recent quarters after high profile firms announced short positions on the basis of unpublished churn numbers (the number of small and medium sized businesses that fail and jump off of the Shopify platform every year). While it appears Shopify is continuing to grow at speeds which have, and will continue to, exceed analyst expectations, concerns around competition are certainly warranted, from a growth perspective alone.
Companies like Amazon.com, Inc. (NASDAQ:AMZN) have stepped into the small and medium sized business space for years, offering a platform where businesses can sell their third party goods. The ability for Shopify to continue to innovate and provide a better user experience will be key in fending off companies with deep pockets and the potential to disrupt a nascent industry with razor-thin margins.
Invest wisely, my friends.
