March 27, 2018
Events and Marketing Coordinator at Hoopy
Turning a developer community into a source of revenue and growth has seen Shopify follow five simple steps. In this talk from DevRelCon Tokyo 2017, Nicholas Chen looks at the areas to consider when building a billing platform.
Hi, everyone. My name is Nicholas Chen. I can’t believe I’m following up on a presentation about slide design because I think I broke every single of those rules, especially the first rule. So I’m Nick or Nicholas. I’m a developer advocate at Shopify. My talk today is gonna be focusing around a framework that we implemented at Shopify that has helped us to start to monetize our developer community and to really turn it into a source of revenue and growth for Shopify.
So a little bit about me, I have been at Shopify for about a year and a half on the Shopify apps team. Back then, I think I was, like, around the 800th employee, and now, we have well over 3,000. Previously, part of Shopify, I worked at Microsoft for a short little while. I was a developer before that, and then I also worked as a product agent for her a while in between and I also now help to run my own Shopify store which is called Instant Pot.
So since joining Shopify, I focus largely on our billing experiences and implementing a new set of billing APIs which basically allow app developers that integrate with Shopify to start charging our merchants for the use of apps using the Shopify platform. I also help a lot of our app developers to monetize their apps into what sort of strategy they should pursue on our platform so that we can provide our merchants with the best billing experiences when they’re using Shopify apps.
So before I begin, I do wanna talk a little bit about Shopify because I don’t think we have a lot of a big presence in Asia and also kinda highlight some things in our developer program. So hopefully, you can draw some parallels between what we’ve done and something that you may be looking at doing in the near future.
So Shopify is a about-10-year-old commerce company. We have about 400,000 merchants all over the world. We mainly help them to sell online but we also do some in-store retail experiences and also, we help our merchants sell on other, we call, sales channels, so they can sell on marketplaces like on Facebook or on Amazon. The company is headquartered in Ottawa in Canada. We have offices in mostly the eastern side of Canada. We have one in San Francisco, we have one in Germany and Latvia, and most recently, we are starting a new office in Japan so we can grow our Asian presence.
So our developer program and developer advocacy at Shopify is, I think, a little bit different in the traditional developer advocacy that exists in the industry. So, we have developer advocates for app developers. These app developers make integrations with Shopify and it allows them to sell their integration using one-time fees or recurring monthly fees. We also have theme developer advocates which…and themes are a way for merchants to quickly get set up with their store using a template. So these theme developers, we had about 100 theme developers and these advocates work with our theme developers to get set up and also start selling their themes in our marketplace. And then lastly, we have about 11,000 partners in our ecosystem, and these partners help Shopify merchants get set up with their online store to help them get set up with using apps and get integrated and also helping them to become successful entrepreneurs on Shopify.
So the framework that I wanna talk about, it consists of five steps and it’s sort of the framework that we use for a lot of different areas but I wanted to focus it on monetization here. I think it’s worth noting that this framework is not really set in stone. It’s very flexible and you can adapt it to many different areas.
The first step in this framework is you really have to identify what you do, and then only after that should you really start considering working with your developer community. Secondly, you need to be able to find the right balance between what you value as a company, what you want your ecosystem to bring and what sort of value you want them to have and what sort of values you want them to embody. The traditional developer community advocacy work happens in step three where you’re working to perpetuate these value outwards to your community and to your customers as well. And then you want to formalise all these processes, automate it, and measure it using some metrics that you may want to identify and validate against. And then lastly, you can repeat this process for different cycles that you work through and different priorities you may have with different projects.
So the most important step to do and…I think I broke the first rule of the slides on this one. So, most importantly, you need to know what you do. So here, you wanna figure out your core competencies, what is it that you can do really well, what is it they can do quickly, and also, how to identify what you want your developer community to be doing for you. You don’t need to be doing everything. You really shouldn’t be doing everything. But you wanna have a somewhat narrow focus so that you can prevent yourself from overspending and working in other areas that aren’t your main area of focus.
So at Shopify, we apply a principle or variation of the Pareto principle where basically, we produce the product that our merchants want 80% of the time, and then the remaining 20% of the time, we actually let our developer community handle that for us. So by us being somewhat transparent about this, I think it’s easy for our developer community to monetize this space to be very creative and come up with some very innovative solutions that we don’t really wanna handle. And that doesn’t mean that they also can’t compete with us on the remaining 80%. It just means that that’s an area of strategic focus. So this variation of the Pareto principle also helps us to figure out our own roadmap, what is it that we want to do, what our merchants have identified as important for us to do, and also, how we can deliver the best solutions with our partners in the ecosystem.
So as I adapted this for our billing mechanism, one of the things that we started to do a couple years ago was to introduce the concept of having these billing APIs so that basically, an app developer can start tying in their monthly subscription fees with a regular Shopify invoice so that merchants don’t have to worry about taking out the credit card and paying Shopify and paying company A and paying company B for whatever integrations they wanna have. This was what we deemed to be the most efficient way, most effective way to build trust not only among our community but also with our merchants.
So at first, when we were thinking about this, we thought, “Why don’t we handle all these different use cases? We can do things like discounts and any sort of variations on billing that a lot of our partners that asked for.” But we decided to really slow it down and just handle simple usages of one-time fees and then a 30-day billing cycle. And this really helped us because we didn’t overextend ourselves into different areas and it also ensured that our merchants have the best experience, and we were able to collect millions of dollars to do this simple billing solution initially.
So now that we’ve established that it’s a good thing for your developer community to be making money into profit, I think you also need to be giving them a lot of direction that they can head in. So this means that you must be able to strive and find equilibrium between your platform and your community. So at Shopify, we want our partners to create more value in our ecosystem than we actually capture. So last year was the first time that we actually lived up to this goal where our ecosystem generated one and a half times the revenue that Shopify generated itself. This core tenet for us meant that the more money the ecosystem makes, the more money that we, Shopify, were gonna make as well. And I think this really contributed towards having a fair ecosystem with more friendly revenue share and this has also helped us to attract more and more developers onto our platform.
So finding the balance is not just about revenue but it’s also about what sort of culture you want to build between your customers and your developers. So as you maybe start to think about what sort of culture you want to have, I think it’s important to be very opinionated about this so you can really determine what sort of feature you want to see in your community.
So another heuristic that we use at Shopify and that we like to operate by is that we always put our customers first and then our developers and then our platform. So if you don’t earn and maintain the trust of your customers, then it doesn’t really matter how your developers feel. Without any customers, then the developers have no one to build for, and without any developers, then your platform doesn’t really exist either.
So we always try to solve the customer problem first before we move on to any other area. And as developer advocates at Shopify, we actually really work to solve a customer problem first, like I said, and the best way to keep our developers happy is actually to make our merchants happy with the experiences of using apps, so you always consider them to be our main customers. But it’s still a very continuous work in progress for us, but I think that we have established this culture in our ecosystem which helps our merchants better understand what role Shopify plays in the business and also what role our developers play in their business.
So, equally important is that you need to be able to communicate your value outwards and that you need to align these values between your customers, your developers, and also to ensure that your customers and developers themselves are also aligned. So this basically, you know, ensures that the work you do and the first two steps of this framework are validated. When we first started with this monetization strategy, we actually worked directly with partners on a one-to-one basis, and it wasn’t actually until the spring of 2016 that we had a very first developer conference called Shopify Unite where we engage with our community and perpetuated these values outwards. At this conference, we explained to app developers why it was so important for them to adopt our billing practices and how it’s mutually beneficial to them and how they’re gonna really improve their bottom line by doing so. And I think this was a really effective way for us to align these values between ourselves and our developers.
So at step four, as you’re starting to develop a developer community and also starting to monetize a little bit, I think it’s important to almost take a step back and really assess and see how things are working. So instead of just getting shit done, like, earlier, now that you have a working model and a process that keeps our developers engaged, you also need to start investing the platform to ensure that you have solid technological and operational foundations. It’s always exciting to keep on building the next thing, but without the base and trying to automate as many processes as possible, you’re gonna be unable to scale.
So you also need to be able to measure what you’ve done. So for us, it was, “Is revenue growing in our ecosystem? Are we seeing more and more merchants installing apps, and are they installing more apps themselves? How many developers have been signing up for our mailing list and attending a lot of the events that we host?” These are all sort of the things that we wanted to track and ensure that we were hitting specific goals. And for something that we weren’t, so we actually went back to one of the earlier steps in this framework.
As we started to measure this for our billing platform, we became more and more data hungry and what that means is that we started to have some really good numbers on conversion for our merchants using apps, what was a return rate on using apps, and also what was the average revenue per user that our ecosystem was generating. We did see a noticeable increase in those numbers which really benefited our developer ecosystem and it validated that a lot of the changes that we are making were important and that they were working.
So we did do a post-analysis as well and we were very happy to see a very important noticeable change in our ecosystem. So, one of the things that we really cared about was the distribution of revenue in our ecosystem. This tells us whether we’re doing a good job of community development and if there were opportunities that new developers can take on. So with a more evenly distributed revenue or income stream, this tells us that the smaller or new entrants to our ecosystem, they’re able to break into the market. And by following some of the guidelines and principles that we have provided, they’re able to gain exposure and really profit from that.
So for us, in 2015, it was dominated by a few select players that were making the bulk of our revenue, but as we started to really roll out our billing platform, we saw that these larger players weren’t dominating as much anymore, and you can see that in the 19.1% change to 11.7%. So when we saw that earnings are being more evenly distributed, we took this as a very positive indicator of the work that we’ve been doing.
So once you have this in place, you can continue to cycle over this for different priorities. In general, for us, we use this as for our apps platform for the past three years. We also used this framework as we were developing our APIs on a monthly basis, a monthly cycle. And so the best part about this framework is that you can use it over and over again for different purposes, and this is actually something that we’re repeating right now as we’re starting to grow into the Japanese market. When I was thinking about this and we were doing this in Japan right now, we started to identify what was our core competencies.
So as a platform, we knew that we would be pretty good at doing inventory and helping people set up with an online store, but at the same time, we weren’t very good at doing shipping, especially in Asia. We weren’t gonna be good at doing a lot of the credit card transactions and a lot of the cultural changes that exist between Japanese merchants versus the traditional North American merchants. So we started to identify the role that we want our developer ecosystem to play here. What was their quickest path to monetization? What did they need to be successful on top of our platform? So this was what I identified, it’s the shipping and localization for language and also for credit card processing.
So now, I think we are in a good state where we identified some core partners to work with. And as we are starting to scale this, we’re gonna start to measure some of the key metrics what we wanted to track. Are we really gaining more for the merchants that we do have? Are they generating more revenue? What sort of revenue is a developer ecosystem making, and is this gonna help us to attract more and more developers to our platform? So as we work on this framework, continue to iterate over it, we will essentially be replicating a lot of it as we are considering expansion into Southeast Asia, notably India, and also as we have a pretty aggressive plan to expand into the European market as well.
So for us, the changes we made to our billing platform has really helped us in many ways. Over the past 18 months, we’ve seen a three and a half times increase in the amount of payouts that we give to our developer community, and despite that, we only have one and a half times increase in the number of merchants and one and a half times increase in the number of apps that are available in our app store. So we actually fully expect that this number is gonna increase by seven times by the end of this year compared to an equivalent two-year period, and then this is sort of used for us to validate that a lot of the work that we’ve done has been working and that our developers are really able to monetize on top of our platform. That’s all. Thank you.