When AI agents do your shopping, everything changes, with Shopify’s Jess Hertz

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1:33We power over 14 % of the U.S. e-commerce market. And what's incredible about that is you can sit at this kind of wide aperture of commerce and you can see how competition kind of shakes out in real time. The barrier to entry because of AI has reduced, right? So the ability to start your own business and have your first sale, that time has just compressed significantly. About 10 % of new shops made their first sale within a single day of signing up, which is just incredible. What's at stake is to grow entrepreneurs everywhere. And I think that is the bet and we are going to win or die trying.

2:21That's Jess Hertz, COO of online shopping platform Shopify. As trade war erupts between the U.S. and Canada, I wanted to talk to Jess because Shopify is a Canada-based company with most of its customers in the U.S., creating a potentially tense dynamic. Jess also digs in on the impact of agentic AI on e-commerce, outlining what's already real right now. She's forthright about how chaotic the environment is, discussing when it makes sense to bring order to the chaos and when to let it ride. Even addressing Shopify CEO Toby Lukey's controversial memo last year, dictating the team's prove AI can't do a job before hiring any new staff.

3:07It's a fascinating guide to navigating change at the top of an internet giant. So let's get to it. I'm Bob Safian, and this is Rapid Response. I'm Bob Safian. I'm here with Jess Hertz, CEO of Shopify. Jess, great to see you. So great to be here. Thank you for having me, Bob. So I have to start with the elephant in the room. So Shopify is a Canadian company. We are. Headquartered in Ottawa. Most of its customers are in the U.S. You're based in D.C. There's this trade war going on between the U.S. and Canada. Like, what's the feeling about it within the company? Are you having to navigate? Okay, well, let me say, as of next week, I'm actually going to be a Torontonian.

3:56I finally decided to make the pilgrimage to Toronto. And so I'm really excited about that. And you asked about the feeling inside of the company. I actually think it's really more outside of the company, to be honest. And we definitely think of ourselves as a company rather than a country. But the tariffs are the big elephant in the room. And, you know, I think we've operated through lots of moments of uncertainty, even when the first kind of tariffs came into place where we had a team spending the weekend building a duties and taxes calculator. And so it is a moment to shine, even though there are lots of macro considerations happening in the world that, you know, really affect our merchants in particular, our smaller merchants who may not be able to kind of absorb that without the right kinds of tools to be able to adapt as needed.

4:50You don't necessarily talk about Shopify as being a Canadian brand because it's a global business. But do you have conversations about that? If it were a tariffs between any countries, you would be reacting the same way. Tariffs between any countries, we would be reacting the same way. You served in the Biden White House for a year. You know, your background is as a lawyer. You were on the Biden-Harris transition team. Like, all this political imagination doesn't make you think, like, I should get back in there, you know, try to help fix things. It doesn't. But I will give you my pet theory, which is I do think people underestimate how similar politics and tech are, actually.

5:31And I think having worked in all these different places, I've started my career working for a behavioral economist in the Obama administration, and I've had all these interesting experiences in politics. and it really teaches you how to drive hard, how to develop pace, how to compress enormous amounts of information in such a short period of time. And I do think that skill set has really been incredibly valuable in tech, right? And especially in this moment in AI, right, where everyone's talking about compression of information and AI being able to kind of reduce context and the need for human context.

6:11I do find that being able to kind of take what I've learned from politics and take what I've learned from tech and really kind of make it my own in this new operating model has been both incredibly rewarding and fun and an underdeveloped connection, I think. Sometimes people don't get it in a negative way, but I actually think it's quite a positive. The prevailing story is like government is slow and tech is always like, we got to get them to move at our pace. Exactly. Your experience is a little bit different. My experience is different. You know, my last job in the White House was as White House staff secretary, which sometimes people don't know, but it's basically kind of the central nervous part of the West Wing and the White House.

6:56And it's an incredible position because you see so much breadth. And interestingly, most staff secretaries are lawyers, which I always thought was kind of an interesting trait to the role. But it moves incredibly quickly. And you have to be able to, as we were talking about before, have enough breadth to be able to spot issues or put people together. But that pace is real. So when you became COO at Shopify last October, your first internal message to the staff said the company had drifted from its core. What had drifted? So that drift was in the context of our incentive compensation system for our sales team.

7:38My background is a little bit in kind of the behavioral economics area where I worked for a professor of mine in law school. And I've always been really interested in this idea of incentive systems and how you design compensation plans and how you really set up systems really does impact outcomes. And one of the first things I did when I came in as COO was look at our compensation plan for our sales team to say, actually, this is not aligned with what we want to do, right? It's not actually aligned with the merchant outcome and our business model of Shopify, which is we only succeed when our merchants succeed.

8:12And so that drift was really a reflection of we actually need to be more merchant obsessed and we need to make sure it's not just in, you know, kind of certain products or actions or things that we say. It's actually how we compensate people and put our money where our mouth is and really make sure that all of those directions point in the same way, which is to make sure that our merchants are set up for success. We said just a bit before we started recording about Shopify CEO Toby Lutke, who's called himself a chaos engine. How much of your job is sort of reining him in in this kind of, I don't know, quest for disorder or whatever from the top?

8:55Oh, no, there is no there is no reining in. And I think, you know, it's funny. I think there are sometimes, you know, chaos people and order people. And I think I'm a chaos person, perhaps masked as an order person. Certainly on the AI side, I think he has been incredible in terms of being able to steer the company. And one really nice example that I really like is, you know, everybody talks about his March 2025 memo on AI. And, you know, you really think about that memo made being reflexive in AI, a baseline expectation for our employee base. what does that actually mean, right? And how do you actually encode that in a company, both from a systems perspective and a cultural perspective and how people work?

9:45And so it was this great example of how do you actually try and design a company like that? And one of the ways that we do that is through our tools. And we have this amazing tool called River. And River is basically an agent that lives within our Slack. And you describe a task in a public channel. It all has to be out in the open in public. So that's a feature, not a bug. And it can read code. It can run tests. And it lives in about 10 ,000 channels in the company. About 90 % of employees have used it. It's run 275 ,000 sessions, and it's taken 15 million actions in five months. And it has this profound effect on, you know, how we work as a company.

10:30I do really think the velocity that a company moves at can be judged based on how quickly information is moving within the company. And so this concept of River, you know, River can read everything in public channels at all times. And it can accelerate that pace because it can bring that transaction cost down. So you're relying less on human context. and you know the other piece of that is really also the network effects right because river gets better with every interaction and so i think there's these uh kind of interesting ways that we can see all of these intentional decisions and tools being built and culture being built around the north star that toby is also setting for the company and it is definitely one of the most fun parts of my job.

11:16Shopify just posted its, I think, fifth consecutive quarter of growth above 30%. That growth, how much of that is sort of, I don't know, like stealing share to make that happen, like from Amazon or someone else? Or how much is about AI? I mean, there is a lot of discussion around, you know, AI and agentic shopping, but how much business is it really? The way that I think about it is really in two pieces. One, which is our core business, which is incredibly durable. And then the second is really, as you allude to, really the AI is expanding our upside. And so on the core business piece, the best sort of statistic that I can give you to think about this is really almost 90 % of our quarterly revenue is from merchants who've been on the platform for over a year.

12:05That growth compounds and it really shows how strong the business actually is. But on the agentic side, we are seeing while that agentic GMV is small, it's definitely growing. And we do have early signs that Sidekick is helping merchants sell more and merchants who are a part of catalog are really, you know, starting to make more money. And for our listeners who may not be as Shopify versed, Sidekick is our AI powered commerce agent that lives within Shopify. And what we're really seeing is that merchants are bringing Sidekick more and more into their business. And really on the catalog piece, that's our product layer for agentic commerce, right?

12:46So that's what makes products understandable, discoverable, purchasable by AI. And there, what we're seeing is that it is increasing conversion. And so when someone comes from an agentic channel, the conversion rate that when an agent is using our catalog data is 2x compared to if it's just using scraped data. So it's really the combination of this, you know, persistent tailwinds in our base case. And as we enter the agentic era, we are seeing even more upside. You're building this sort of infrastructure layer for AI commerce. You have this agentic storefront integrations with JetGPT and Gemini and Copilot and whatever, how much do you worry that sort of the big AI platforms are going to build their own layer?

13:35What I would say is I think we're past that, you know, SaaSpocalypse moment where I think Shopify has certainly kind of come out the other end of that. And the way that I really think about that is complexity is both the challenge and the moat for Shopify. As you mentioned, we're building all of these products. But really, when you think about it, a complex world helps Shopify. We've always been a unified operating system for commerce. We've always acted as this aggregator of different kinds of ways to sell, whether that's an online store, whether that's in-person retail, whether that's agentic commerce.

14:12And with buyers across different channels, it helps Shopify actually do better because that complexity is hard. It's hard for merchants to be able to manage that on their own. And so, you know, I think what's even more scarce in this AI world is that infrastructure that you're talking about, right? And building that complete stack for the merchant. Some of the talk about AI is, oh, it will allow sort of smaller, more independent businesses and merchants to be able to compete better. But what you're saying is it also makes it more complicated. And so the way they're going to compete isn't going to be like them doing it on their own.

14:49Yeah, I think the complexity of the commerce transaction is always going to exist. And the infrastructure in that world is just going to continue to compound. And because Shopify is that reliable infrastructure, that's why we're such a valuable player. And that's why we can absorb all of that complexity for our merchants. And for these merchants who are like looking at agentic shopping and this future of having an AI agent between them and a customer, they'll be relying on Shopify to help them manage that, which is good for you, but might also make them feel a little bit more beholden, a little bit more trapped.

15:30I don't think they'll feel trapped. I think the nice part about Shopify, even if you look at things like the universal commerce protocol, which is the open commerce standard that we developed with Google, which is really the kind of transaction layer of commerce, the merchant continues to be the merchant of record. And so the idea is not that we were trying to do anything in terms of disintermediating the merchant. It's really kind of facilitating for the merchants the ability to have that one business and have it, you know, work everywhere where commerce happens. And so that is really kind of at the core of what our products and partnerships are really trying to accomplish for the merchant.

16:08I was talking to Uber's CEO, Andrew McDonald, a few months back. I don't know if you know, Mac, but and he ignited this meme about the hidden costs of AI, you know, and that, oh, I'm spending money on these tokens that maybe I'm not getting a return on. And I've heard that your team can still access tokens mostly without restriction. Yes, I think we see a very healthy ROI. Now, look, the idea of adoption is never going to be the same thing as impact. So that is definitely true. And we are sort of thinking through ways to measure impact. Headcount for Shopify has been flat for more than eight quarters.

16:46And well, revenue is growing 34%. So I think from an ROI sort of pure financial company perspective, we are doing quite well. I think the other pieces to it is that we are, you know, we work carefully in terms of moderating that type of cost. We have a pretty open and flexible view and we want engineers to be able to use the best models for the best circumstance. Obviously, we have thoughtful speed bumps built in along the way. We're constantly monitoring it. We're constantly making sure we're providing the best tools that we can. But it is not something we are a fairly pragmatic company at bottom.

17:25To generate that higher productivity, which is basically what you're talking about AI doing, doing more revenue with the same number of people. I heard you say that the ideal employee has evolved from being a T-shaped person to an X-shaped person. Can you unpack that for us? It's another one of my pet theories. So I've given you some of my pet theories today. When I joined Shopify, we had this idea of the T-shaped person, right? So you have lots of breadth, but you still have this one vertical that you go deep in, which is, you know, your craft, right? For me, that would be a legal craft or a regulatory craft.

18:02But what I think we're starting to see is AI is really pushing towards what I'm calling X-shaped people, right? So you have multiple spikes of expertise, much faster being able to kind of absorb complexity, being able to learn new spaces, being able to, you know, be a 7 out of 10 designer if you want to be, right? Or so I try and do my own data work now. And so you're able to kind of move across domains faster. And so I've created this analogy in my head where now you sort of see different slices, right? You have kind of different vectors of expertise, and you're really moving away from just the expectation that you have to have depth in this one area.

18:46The other part is really how do those different shaped people actually intersect with each other? And, you know, I think the idea of team composition and the different constellation of people will only become more and more important as we enter this AI world. it's actually that team combination that becomes the accelerant to incredible amounts of work that you couldn't even you know imagine and some of that magic is trying to say okay where are people's edges how do they fit together and how is this sort of shape of employee changing over time you know when you first started describing um the x shape yeah i was thinking like oh this is what we used to call a generalist, maybe a higher level generalist.

19:35But then when you talk about the teams, they're generalist specialists because you're fitting them together in different ways. Exactly. I think a little bit about Tetris, maybe. It's not that you're a pure generalist and a pure athlete. It's that you have the ability to kind of go deep in different areas. You still might have specialized areas of expertise, right? So I still might have a legal background, some craft expertise in certain areas. It's just I can learn different areas much faster because I have different tools available to me. So now I not only have, you know, a legal or a talent sort of pie or quadrant to me, I'm now deep in commercial.

20:15So I'm able to kind of generate these areas of expertise in a much different way than I was, you know, five years ago. I'm not sure if I've transitioned from a T-shape to an X-shape, but what Jess is saying here is that we all need to consider how we're adapting to the skill set profile that best meets the moment. After the break, Jess delves deeper into how agentic AI is transforming the e-commerce landscape, unpacks the pros and cons of being what she calls a deeply unsentimental person, and more. Stay with us.

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22:48Before the break, Shopify COO Jess Hertz shared how the company is reacting to chaotic change from trade tensions to AI pressures. Now she shares signals she's gleaning from within the Shopify ecosystem, how the company avoids having its fastest growing merchants outgrow the platform, and why the culture at Shopify is overtly unsentimental. Let's dive back in.

23:17Shopify powers like one seventh of all U.S. commerce, and your merchants are mostly smaller businesses. As you mentioned, those are the kinds of businesses that can be vulnerable to things like tariffs and trade wars and oil price spikes and things like that. Are there things you're hearing and seeing among the merchants about how they're faring? Are there things you at Shopify try to do to help small businesses that are under pressure? You're correct. We power over 14 % of the U.S. e-commerce market. And what's incredible about that is you can sit at this kind of wide aperture of commerce and you can see how competition kind of shakes out in real time.

23:59And, you know, I think a couple things that we're seeing. One is really the barrier to entry because of AI has reduced, right? So the ability to start your own business and have your first sale, that time has just compressed significantly. Last year, it was about 10 % of new shops made their first sale within a single day of signing up, which is just incredible. And then on the SMB side, what I think is kind of perhaps the most interesting is that we are seeing AI really help niche products and help the long tail, where you had search that tended to reward things like popularity or spend. But what we're seeing is actually agents are rewarding precision and personalization, right?

24:46So 75 % of AI-attributed orders last quarter came from categories outside of the top 100, which I find particularly interesting. And really, that's kind of the shift, right, that we're seeing, which is AI can understand the actual need and not just a keyword. And, you know, I had this experience over the summer where my eldest daughter was going to sleepaway camp for the first time. And she was going to this camp in Wyoming. She was going to a ranch camp, which I knew nothing about. They sent a long list of things to purchase. And one of them was a trunk that would fit under her bunk. As every good mom is doing out there, I'm like, well, how am I going to find that?

25:28And so I used my AI to find this specialized merchant who is in Wisconsin that's been doing this for 40 years and who, you know, I didn't know the specifications of her bunk, but I found this amazing trunk. And, you know, I think that's exactly the kind of merchant that AI can really help people discover. And it's incredible to see that coming to life. On the other end of it, service businesses often face pressure as they grow to move upstream, you know, from working with smaller businesses to working with bigger ones that provide more revenue. And if they don't, they run the risk of their sort of their best customers growing past them, right?

26:13Moving to platforms that are more designed for them. Catering to the big guys, which could undercut things with the base. Like, how do you navigate and think about those elements? Yes. Well, we want to be able to serve from, you know, the merchants starting around their kitchen table all the way up to, you know, Kim Kardashian and Skims. Or, you know, we want to really be able to serve the entire range of merchants. That is what our infrastructure is designed to do. And, you know, we see incredible success from that perspective and the simplicity of the platform and what it's able to do just in kind of pure retention numbers.

26:53You know, we see over the last five years, merchants that reached a million in GMV had a 92 % retention rate. And then merchants that reached 10 million had a 97 % retention rate. But if I'm a brand like, I'm thinking I, you know, I met recently with a CEO of On, a running store, right? They're up to whatever,$300 billion in revenue. They're going to grow beyond what Shopify can do for them. They're a Shopify merchant, actually. And so we've had great success with On as well. We actually don't think that they're going to outgrow Shopify. And when I think about enterprise, the choice of what a great strategy perhaps looks like today is really a choice of, you know, architectural choices made several years ago.

27:39And I think part of the ability of Shopify to say, you know, we build one unified data model, We make it extensible. It's how a large brand can run, you know, a thousand different campus stores, 1 ,200 storefronts, you know, six million SKUs on one stack. And that ability to really service that breadth of merchant is, you know, why I think we've had such great success over the last two decades. And so you don't worry about letting them grow away from you? I think it's a little bit reversed. We want to be able to help them grow. I saw that you called yourself a deeply unsentimental person. And it sounds like you said it is thinking it's something that's an asset, although, you know, maybe sometimes it's a hindrance.