The Decibel - Shopify's problems

Episode Date: January 9, 2023

Shopify began this year announcing to its workers that meetings of more than two employees were banned. Slack channels that were not work-related – the online equivalent of a water cooler and its associated chit-chat – had been deleted.Those changes, along with last year’s sweeping layoffs and the company’s new product offerings, are part of an attempt to bring Shopify back to its glory days, just a few years ago. In 2020, Shopify became the most valuable company in Canada, but that’s no longer the case. In 2022, it lost two-thirds of its stock value.Technology reporter Temur Durrani tells us what went wrong, what Shopify is trying to do about it, and how the tech sector is suffering from uncertain times.Questions? Comments? Ideas? Email us at [e-mail]

So in Canada, we don't have a lot of companies that are best in the world, you know, that are very easily recognizable all around the world. Certainly not in tech. That's not something that's very common. But Shopify is one of those very few companies that competes as an e-commerce company with the likes of Amazon. Timur Durrani is The Globe's tech reporter, and he's been following the Shopify saga. If you don't know what Shopify is, don't worry. It wants its customers to be the name brands. So people and businesses like Kim Kardashian, Trixie Mattel, the drag queen, Kylie Jenner, Fitbit, Staples, Whole Foods,

all of these are brands that are actually using Shopify services online as an online store. In 2020, Shopify became the most valuable company in Canada. But that's no longer the case. It's since lost three quarters of its stock value. Today, Timur walks us through Shopify's problems and how the company is trying to fix them. I'm Mainika Raman-Wilms, and this is The Decibel from The Globe and Mail. Tamor, it's great to talk to you today. It's great to talk to you again. Thanks for having me.

Tamor, let's start with the news about Shopify and unpack what's going on here now. At the beginning of the year, Shopify announced some changes that surprised a lot of people around what their employees could and couldn't do anymore. What were those changes? You know, so people walked into work and suddenly saw these massive changes. You are no longer supposed to be using Slack channels as a group anymore. Workers told us at The Globe that, you know, they found their entire archives, entire chats deleted on Slack when they came back to work. Now, Slack, of course, is this internal sort of messaging tool where people use to talk to one another in a platform online. A lot of remote places do this.

I mean, at the Globe, we use Slack a lot. Really, everyone does. And what Shopify is doing is planning to move its communications to Workplace by Meta Platforms, Inc., which is the same company that runs Facebook and Instagram. So suddenly there were these big changes. I mean, you literally can't have meetings anymore, according to these changes, on Wednesdays anymore. They're completely forbidden. The only day you can have meetings is on Thursdays, and no more than two people can have a meeting at the same time. Wow. I mean, this is, I'm trying to get my head around this because Shopify is a remote

company. People are not kind of in the same place working together. So they're all remote. And like, isn't the idea of chatting with colleagues, you know, having meetings, talking to people, isn't that important for a workplace? Like when you're talking about culture and morale? You know, that's interesting, because it's one of those things where actually very recently towards the tail end of last year in December, Shopify scrapped its plans for a big Toronto move at this really big skyscraper in Toronto called the Well Tower. And Shopify was the major tenant, the anchor tenant. Now, when we asked Shopify about what happened there at that point, they said, we have a bold vision for the

future of work at Shopify that doesn't revolve around a physical workplace for day-to-day work. But, you know, they are now a global company with over, you know, around 9,000 workers. And at this point, Slack is a really, really important way for them to communicate with one another. Or meetings are a very important way for them to be able to communicate with each other as opposed to being in the same office. And what did, I'm just curious, like, what did Shopify leadership say about why it's putting in place these new rules? So Kaz Najatian, who was recently promoted to become Shopify's chief operating officer after serving as its vice president of product, and before that he was at Facebook, he described Slack as a bloated, noisy, and distracting outlet. He said they have endless channel updates there, mixed with what he called

broad announcements and pineapple on pizza debates. Now, you know, the most interesting thing about that was that he said that if these changes feel chaotic to Shopify employees, that is kind of the point. Shopify founder and chief executive Tobias Luck, what he told the Globe almost a decade ago is exactly what he emailed everyone when he became CEO of the year. He said, what I'm trying to create is an environment where almost everyone around me feels uncomfortable all the time because I'm dragging them into the next box. That's what Shopify is doing. It's seemingly going back to its roots or trying to go back on this upward trajectory when it was the most valuable company in Canada. And so what have Shopify employees told you tomorrow about how this makes them feel about working there?

Inherently, the people that talk to us are people that is dissatisfied when they come to the media. So I don't want to, you know, say that everyone is dissatisfied. But I'll ask this this way, I'll present it this way. How would you feel if you and I went back to the office and were suddenly told that even though we're in this crunch period where everyone needs to work harder than they are and do longer hours than they were because just the company isn't doing so well. Now you can't even talk to your friends at work. Now you can't even talk about, you know, these debates that you're having or just general friendly work banter on Slack or elsewhere. Does that do something to your morale? I think that's where the dissatisfaction

maybe comes from or the lack thereof. Maybe some people like these changes. They think that, you know, the company needs to go back to that trajectory. Interesting. Tamar, you've been reporting for a while now about how Shopify hasn't been doing great. But I want you to take us back to how it became so big in the first place? Like what made this company so successful? See, now we're talking about how Shopify became Canada's northern darling. So, you know, Shopify is a made in Canada success story. It's like this evidence that the Canucks can get into e-commerce and the California dominated startup world. Before Kim Kardashian ever came on board or all these other great things, we go back to

the founder, Toby, Tobias Lutke. So Toby, who was now in his 40s, when he was in his 20s, you know, and was originally from Germany, he moved to Canada. And at that point, he opened an online snowboard shop called Snow Devil and quickly started hearing from people that they really liked the way his online store looked. People were wondering if Toby could help them with making their online stores, or even if they could buy the software from him to do so themselves. That sparked this sort of big light bulb moment where he realized the real business opportunity was to actually provide those tools. And that's how Shopify became this big story. Okay, so it became this e-commerce giant then built up like that. And of course, during the pandemic, when we couldn't go out, this was huge, right? People were buying a lot

of stuff online. Yeah, places that would never ever imagine going online had to suddenly move online. And Shopify, what it provided, it was almost built for that moment in early in the pandemic, where it was so easy to make up, you know, a store to set everything up, kind of like signing up for a Facebook profile or an Instagram account, you know, and that's when investors started getting on board. And that's where the stock market soared and it became the most valuable company. But now we're watching a very interesting turn of a story towards this point in the pandemic.

There's uncertainty all over the place. And that uncertainty comes from two different things. One, we're seeing people shop in person, in physical spaces. That's one thing. But then the other thing is, too, we're all holding back on our discretionary spending. I mean, we're in a recessionary environment. Everyone is a little worried right now about their finances. And the kind of stores that are on Shopify are not exactly the kind of stores you want to be spending a lot of money on if you don't have a lot of money to be spending. What do you mean by that? Like what kind of what kind of stores? You know, think things like, you know, what you would see on Pinterest, cool, hipster, indie stores. That is what dominates

the bulk of people that sign up on Shopify. And there's a reason for that, because it is so easy to set up an online store. The kind of big businesses that would have online presences are not exactly the kind of businesses that it attracts as a company because it has made it easier for the other people who don't need to develop their own in-house infrastructures and, you know, to build themselves online. Okay. Okay. So it sounds like, you know, it did really well at one point. It's suffered some challenges in the last little while. Is this, I guess, where Shopify has gone wrong? Is this why it's lost so much of its value then?

Yeah. I mean, that's kind of what it is. All sorts of different reasons tied to the macroeconomic issues that affect a company like Shopify, a tech company of all types are affected, but certainly a company, especially like Shopify, where tech company of all types are affected, but certainly a company especially like Shopify where discretionary spending and customer-related things are so important to its business. Now, these sweeping initiatives that we're talking about, that is a sort of big, wider problem of tech as a whole. Tech as a whole right now is going through a moment, so to speak, where, you know, they were in this big era of risk taking and, you know, where they saw skyrocketing profitabilities and they

dominated stock markets. And, you know, like the Facebooks of the world were the biggest companies out there before they became meta, of course. And, you know, now we're seeing suddenly all these companies in a bind to tighten their operations on all fronts and Shopify is not immune to that you know Amazon a company that people never thought would have to do layoffs just a bit ago has also started having layoffs and and Amazon is one of Shopify's biggest rivals last year Shopify had a very big layoff it announced one-tenth of its entire global workforce would completely be cut.

And then at The Globe, we reported that well before that and after that, they had continued to do more layoffs. So instead of 10%, it's actually more like 12% of people have been let go. In fact, fewer people are going to do the jobs of many, and they're expected to do a lot more. They're expected, as we're hearing, to sort of prove themselves important

to this company's mission. We'll be back after this message. So it sounds like Shopify is in a place right now where it's trying to focus on saving money, increasing productivity. That's where these workplace changes that we talked about earlier, that's where they come in. But Shopify is also trying out new products to actually get more revenue too. I want to ask you, Tamar, about something called Audiences, which was launched last year. So if I'm a store on Shopify, what is Audiences supposed to do for me? It's a little technical, so bear with me. In 2021, Apple, which is the iPhone and iPad creator, began to require mobile developers to obtain consent from us before

collecting so-called third-party data. So that's like, that's when I get that little notification, like ask app not to track or allow app to track. Is that what this is about then? Exactly. And for a while, you would never get that notification. The status quo was that, you know, without you even knowing about it, you were being tracked from place to place. Think about it this way. Suddenly, you got these random ads of things and almost thoughts you were having in your mind, right, appearing in front of you, right? And that's something we got so used to so much that, you know, it just we ignored it for a while. But there was a clear sort of a problem with consent happening there. And Apple started taking it very seriously. It started introducing new features. I mean, even last year, it introduced even more privacy features.

And that really, really made online advertising and marketing so much more difficult. Now, online advertising and marketing is a big, big business. At The Globe, we did this investigation, myself and education reporter Caroline Alfonso last year, where we found that, you know, kids' data was being tracked during the pandemic. You know, young children, when they moved to online learning in this way. And when their data was being tracked, it was being used for, you guessed it, online marketing and ads. And so it's things like that that have caused Apple to start making these big changes. Okay, so Apple made these big changes, which kind of disrupted this way of online advertising. So what was the response to that then from other companies? You know, Amazon didn't really care,

because Amazon has so many customers in its own platform that it doesn't need to be tracking you outside of its platform to be able to understand your behavior and then target you with ads. And that's a big business for Amazon again. And so Shopify's audiences, if you're a store on Shopify, you are now going to be able to have all this customer data that's been pooled for you through all the different ways in which customers have come to you on Instagram or Google or anywhere, whether you're Kim Kardashian trying to sell a lip balm or, you know, you are Staples trying to find someone who bought a notebook ever, you'll be able to use all these

other stores that are on Shopify's platform that have pooled together and bypass that Apple sort of guideline that we've talked about. But in this way, it also, you know, is using its own previous arrangements and it's using its own customers to create new customers for itself and others. It's a pooling of data that we're watching happening here. Yeah. So this is Shopify already had this data and now they're repackaging it and selling it back to its customers, its companies that use the platform to be able to target ads then. Exactly.

Exactly. I think one analyst probably put it best when he told me that Shopify is not necessarily doing this for shareholders and it is obviously doing this for profitability reasons. But one thing that it's doing is it's being nimble by creating new products around products that already exist. It's looking at the market and it's trying to move ahead in a way where it's seeing where are lulls and where are gaps. Okay, so Shopify's getting creative here to kind of innovate in these ways. What do all these changes at Shopify signal to investors? And do we know if investors are buying it? Right now, investors might not be buying, at least if we look at the prices this week.

Even though these have been big announcements that have happened, these flashy sort of things, the markets haven't really moved that much. I don't know what that says already. It's been such a little time that we'll see how it reacts in the future. I mean, certainly right now, Shopify is actually technically, even though it's really not being quiet, it's in something what we call a quiet period where it's customary before releasing financial statements for a company to sort of go in a dark mode and not talk to the media, not give interviews and that kind of a thing.

It's for that reason we weren't given an interview with one of the executives. And the company is expected to post its fourth quarter, the last, you know, annuals, almost earnings of 2022 next month. And we'll see then how exactly this past quarter has looked and what's the moves ahead. OK, so that's something

I imagine then you'll be watching for there tomorrow. I wonder how Shopify's problems may or may not be reflective of tech as a whole these days, right? Like I'm thinking about the problems at Twitter, the kind of changes Elon Musk has been making. Shopify's problems may or may not be reflective of tech as a whole these days, right? Like, I'm thinking about the problems at Twitter, the kind of changes Elon Musk has been making. You talked about Amazon there. So what's going on in the tech sector?

What we're watching is the tech sector sober up after a big sort of party that it had, a big sort of hoopla that it had. It's almost like, you know, the day after New Year's Eve, where you've suddenly decided, hey, I think I need to go to the gym now. I think I need to start my life in a better way this time around. And I think that's something, you know, one analyst put it best when we're comparing it to Twitter. He said that, you know, it's an extreme case in Elon Musk's Twitter changes. But Shopify is a much milder version of this with better PR, perhaps, and more thoughtfully done.

Elon had to be in a hurry because of everything going on at Twitter. Toby has more time, that analyst told me. And, you know, he's skeptical and so is everyone else. We'll see where this goes. Jamur, thank you so much for taking the time to walk through this today. Thank you. Thanks for having me. That's it for today.

I'm Mainika Raman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Kasia Mihailovic is our senior producer, and Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.