Why are our estimates of Shopify's merchant base often less than what could be gathered from other sources – including Shopify’s occasional claims – is a question clients often ask. The answer lies in how we view the eCommerce space and what can be considered a serviceable market.
While it is universally understood that not all eCommerce websites are steady, revenue-generating portals, the difference between the total addressable market estimate and the estimate of valid online stores with substantial business can be significant. In the US, for instance, Shopify hosts more than 1.95 million eCommerce domains but only 1.05 million of them are valid and substantial according to PipeCandy. This difference almost always raises questions when viewed as a “no context” statistic. How many eCommerce sites are there across the globe? The statistics range anything from 10 million to 24 million and it can be a daunting task to narrow it down to a relevant serviceable market estimate. Will that estimate include every website that has a checkout and a payment option? Will it include mobile-first landing pages for social commerce? Sizing the market efficiently needs more effort than counting top-level domain registrations. It requires context and definition to build a funnel that can sift invalid and non-substantial sites.
At PipeCandy, we estimate that there are around 11 million eCommerce websites that are valid (not a parked domain, no redirects). While every website with a product SKU on display, cart functionality, and payment acceptance can be deemed an eCommerce site, many attract less than 50 visits a month and have a site traffic rank above 10 million. These include hobby sites, seasonal eCommerce sites that spring up during the holiday season and lie dormant for the rest of the year, sites that have one (or few) SKUs and are extremely immature in terms of content and marketing, and therefore have practically generated no significant traffic. Then, there are marketplace sellers (primarily on Amazon) whose websites receive minuscule traffic. Excluding all such sites right sizes the total global addressable market to around 6 million valid and substantial eCommerce sites. The number of B2C physical goods eCommerce merchants with at least USD 1M in annual GMV is around 200,000. In comparison, there are 1.5 million active sellers on Amazon globally.
Six million is still a large number. With eCommerce sales skewed heavily towards a handful of marketplaces and retailers, arriving at TAM may seem redundant but TAM analysis has its uses.
There was a 60% increase in the total number of companies that have added eCommerce capabilities in the last year, while companies within 500K traffic rank (at which point they start becoming economically viable businesses) have doubled. Companies with $10M+ GMV have tripled. This comparison is possible only when segregating non-substantial eCommerce sites and attributing traffic rank to the valid and substantial pool. The 'top of the funnel' that produces mid-market and large eCommerce companies keeps changing in shape and size each year and the analysis of the total addressable market of eCommerce can help analyze both the direction and mass of the change.
In 2021, Shopify more than doubled its installed base but the bulk of this expansion occurred in the bottom-most segment with sites ranked beyond 3 million in traffic, where the annual GMV per merchant is lower than USD 1M and median of a few thousand dollars. The main driver of Shopify’s GMV and revenues is the Shopify Plus base. The midmarket layer of the Shopify system is the top of the funnel for conversions to Plus. Without the long tail and the non-substantial bottom, Shopify’s top-of-the-funnel for its merchant solutions looks a lot smaller than it seems. The opportunity at the top of the funnel is significant. Shopify hosts around 7,800 B2C physical goods eCommerce sites in the US with more than USD 1M in annual GMV. Of them, SMBs (businesses with annual GMV between USD 1M and USD 100M) are around 7,700. That is 99% of all substantial businesses powered by Shopify.
To learn more, read our insights into the TAM for Shopify Plus and other enterprise eCommerce platforms.
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