The behind-the-scenes battle going on between the two biggest e-commerce platforms in the U.S., Amazon.com and Shopify, could have significant implications for merchants.
Amazon’s real customer is the end consumer, rather than the merchants that make up its Marketplace business. The e-commerce king keeps its eye on its most successful merchants and often introduces its own similar products — sometimes at lower prices — in direct competition
It’s a strategy that’s starting to see Amazon lose ground to Shopify, with New York Times Magazine recently revealing that some merchants are starting to leave Amazon in favor of the e-commerce platform which focuses on merchants as its only customers. This trend raises the stakes, and while, for now, Amazon and Shopify occupy different roles in the e-commerce ecosystem, the two might soon become direct competitors.
Here are three reasons why this budding rivalry matters to online merchants:
It’s simplistic to think that merchants either sell on the Amazon marketplace or run their own stores on the Shopify platform. However, with increasing overlap between these platforms, things are starting to get interesting.
There remains speculation about whether Amazon might launch a service to go head-to-head with Shopify. In January, Australian web store platform Selz announced that Amazon was acquiring the company. Industry analysts think Amazon could use Selz to try again with web store services.
On the other hand, Shopify’s focus is on helping its retailer customers cultivate their brands. Right now, about a million small and midsize businesses (SMBs) pay Shopify $29 a month for the basic software, and 7,100 Shopify merchants subscribe to Shopify Plus — a more customizable, upgraded version.
Could Shopify be thinking of creating its own marketplace? Well, Shopify has recently added a Shop app and Shop Pay to help customers search its merchants and check out easily across its stores and on social media. That moves Shopify into Amazon’s patch.
Amazon remains the first stop for so many product searches, but if Shopify could make inroads into this area, it could potentially be very beneficial for merchants using its services.
Amazon sells more than half of its products through independent merchants. Merchants can handle packing and shipping items on their own, but many use Amazon’s expansive delivery service — Fulfillment by Amazon (FBA) — which stores, picks and packs the merchant’s inventory and ensures customers receive their items in a timely manner via rapid order fulfillment.
Shopify has been expanding its so-called e-commerce back-office services, including logistics, shipping and fulfillment. In 2019, it introduced Shopify Fulfillment Network, a direct competitor to FBA. The Ottawa, Ontario-based business continues to seek improvements in this area via key partnerships. Interestingly, Shopify has recently launched a new global ERP program, allowing some select major ERP partners, like Brightpearl, to build integrations into the Shopify App Store, allowing Shopify to connect large merchants’ back-office and commerce capabilities.
This development could be beneficial for Shopify’s largest merchants, which typically have different needs than smaller entrepreneurs. They usually require more advanced retail operating systems "under the hood" to centralize key business data, streamline and optimize their operations and key e-commerce workflows, and automate the greater levels of operational complexity involved in running large multichannel enterprises. This move could transform how larger Shopify merchants provide commerce experiences with greater end-to-end capabilities, more in line with the services Amazon offers. It means merchants have two ways to excel at reaching e-commerce customers.
As it encroaches on its territory, at some point Shopify will need to decide on its strategy for competing with Amazon — and vice versa.
Shopify could look to compete head-on, but this would imply that Shopify would play Amazon's game and seek to acquire consumers on behalf of its merchants. It’s a risky strategy and would set up a David vs. Goliath battle for merchants’ business. Shopify revenue grew by 82 percent in 2020, but even as the second-largest e-commerce platform, it’s still smaller than Amazon. Amazon’s 2020 revenue topped $386 billion, while Shopify’s was $2.9 billion.
Competing head on could force Amazon to re-enter the e-commerce platform space, and would see Shopify competing with Amazon at its own game — one Amazon is well positioned to dominate with its extensive resources.
It’s much more likely Shopify will seek to invest in tools and services that help its merchants acquire consumers more effectively.
Investing in Shopify Fulfillment serves as an example of Shopify’s commitment to helping merchants improve customer experience and stand out from the crowd, in a way that no single merchant could do on their own.
Competing indirectly with Amazon in this way has proved successful for Shopify so far — and could well prove to be a winning strategy in the long run.
Derek O’Carroll is the CEO of Brightpearl, a retail operations platform for retailers and wholesalers with a clear mission to automate the back office so merchants can spend their time and money growing the business.