Today, Shopify announced that it is laying off 20% of its workforce, or more than 2,000 employees, and selling its logistics business to Flexport for approximately 13% of its stock.
The news comes approximately 10 months after Shopify’s announcement that it would lay off 10% of its workforce, or approximately 1,000 employees, and follows a trend in which many large technology companies have engaged in multiple cycles of layoffs in response to economic headwinds.
In a blog post published today, Tobias Lütke distinguishes between “main quests” and “side quests,” the former being the company’s raison d’être — e-commerce software for online retailers. However, shipping and logistics are inextricably linked to e-commerce, which is why Shopify has also been expanding this aspect of its business.
For context, Flexport is a goods and logistics platform with a 10-year history that has raised over $2 billion from prominent investors, including Andreessen Horowitz and SoftBank. Last February, Shopify participated in Flexport’s Series E round, and a few months later, Shopify acquired logistics startup Deliverr for more than $2 billion. On the surface, it appears that Shopify’s decision to sell its logistics business for a 13% stake in Flexport represents a substantial write-down.
In fact, Flexport was recently valued at approximately $8 billion, so Shopify’s new stake would be worth slightly more than $1 billion, excluding the stake Shopify acquired in Flexport’s Series E round 15 months ago.
In any case, this logistics business is one of the company’s “side quests,” which Lütke claims ultimately interfered with its primary operations.
“Side quests are always distracting because the company must divide its attention,” said Lütke. “This is sometimes worthwhile, particularly when the secondary quest establishes the conditions for the primary mission to be more successful. Initially, as a modest venture, businesses are highly focused. It is commonly believed that larger companies are more lethargic, but this is not due to their size but rather to the numerous side projects and diversions they acquire along the way. This is due to the fact that larger businesses can afford to be somewhat inefficient, particularly during stable economic expansions. However, once they must adapt to a new paradigm, they cannot. They will be superseded by competitors with greater focus, or they will fail completely.”
But while being “more focused” on its core product was one of the reasons Lütke cited for restructuring, he also cited the burgeoning AI revolution as an additional reason why Shopify may be better off returning to its roots.
“We are on the cusp of a decade of accelerated change,” Lütke stated. “We will require swiftness, adaptability, and a great deal of creativity. Technological advancement always tends towards simplification, and entrepreneurs are more successful when we simplify. However, we are now at the onset of the era of artificial intelligence, and the new capabilities that this unlocks are unprecedented. Shopify is privileged to be among the companies with the greatest potential to use AI to assist our customers. A copilot for entrepreneurial endeavors is now feasible. Our primary objective requires us to create the greatest product that is currently conceivable, and that has just changed dramatically.”
This is becoming a common narrative, one that we will likely encounter frequently in the future. Dropbox just announced a massive round of cutbacks due in part to “the AI era of computing,” which, according to CEO Drew Houston, will “completely transform knowledge work.”
It is difficult to determine the precise number of people affected by Shopify’s latest round of redundancies, but the company’s website indicates that it has more than 11,600 employees, a number it only amended a few months ago from 10,000 employees. This headcount increase makes little sense if it laid off 1,000 employees last year, but the most probable explanation is that Shopify hadn’t updated the figure following its three acquisitions in 2018, including Deliverr.
According to Shopify’s most recent self-reported figures, today’s news is likely to affect around 2,300 employees. According to the company, affected employees will receive a minimum of 16 weeks of severance pay and an additional week for each year of service at Shopify. In addition, they will receive medical benefits for the same length of time.
Amazon excludes India from earnings for the first time in years.