Shopify’s Shop Pay gives retailers and customers more options for payment but Amazon hits back hard with their new Buy with Prime service.
This is a tale of two titans: Shopify, the largest eCommerce platform in the United States, and Amazon, the US’ largest eCommerce retailer.
Last year, 41% of all US eCommerce came through Amazon while Shopify took in a little over 10%. However, 2021 was also Amazon’s worst-ever year since 2014. Supply chain disruptions and inadequate stock replenishment on Amazon’s end helped open the door for their direct competitors (such as Shopify) to try and muscle in on their share of the market. Google, in particular, hit back hard by partnering with eCommerce platform providers such as Shopify and BigCommerce to help small and medium businesses compete against Amazon. The partnership paid off for Google, Shopify, and the SMBs; former Amazon customers found themselves turning to Google for goods that were either temporarily or no longer available at Amazon. In turn, Google searches lead consumers to SMBs and independent retailers who were able to meet the demands that Amazon couldn’t. At least, for the time being. Obviously, small businesses and independent shops don’t have the monetary and logistical resources of Amazon but it was enough to stagger Amazon’s market consumption and enough momentum for Google and Shopify to continue investing in SMBs.
Shopify themselves also have their own battle plan against Amazon. In July 2020, during the thick of the COVID pandemic, Shopify and Affirm announced a deal that saw Affirm become the exclusive credit provider of Shopify’s Shop Pay Installments program. At the time, Amazon did not have the option for multiple buy-now-pay-later (BNPL) outside of their own Prime service (on select items and item categories) and was at a considerable disadvantage over non-Amazon retailers who had such programs in place.
But Amazon countered that move with one of their own. Despite the already-existing partnership between Affirm and Shopify, Affirm had also partnered with Amazon and on April 21st, 2022, Amazon launched Buy with Prime. Buy with Prime promises to deliver the perks of Amazon Prime (expedited free delivery, easy returns, seamless checkout experience, etc.) to third-party online merchants regardless of whether or not they sell in Amazon’s marketplace, including the Amazon’s Whole Foods grocery subsidiary and retailers who use Amazon’s Fulfillment by Amazon (FBA) program.
“We always aim to exceed Prime members’ expectations by offering more selection, exclusive deals, quality content, and convenient features. With the introduction of Buy with Prime, we’re expanding where members can enjoy trusted and convenient Prime shopping benefits beyond Amazon, adding even more value to their membership.”
VP of Amazon Prime
Contrary to the consumer public’s continuously waning opinion of Amazon, the Amazon brand name carries a lot of clout. So much so that Amazon was able to rebound from their disappointing 2021 fiscal year with a major boom in their advertising business. Amazon was able to generate a whopping $31.2 billion in ad revenue in 2021 with Q4 sales spiking to 32%. Amazon was able to win out over other major advertising rivals such as Microsoft, Snap, and Pinterest.
The Shopify brand is another major power player in the eCommerce industry. Shopify’s public brand recognition can be heavily credited to their association with the hit reality TV show, Shark Tank. The brand is so ingrained into pop culture, even people who have no idea what Shopify is or how eCommerce works knows the Shopify name and can recognize the green logo. Unlike Amazon’s abysmal 2021, Shopify made a killing during year 2 of the pandemic. Shopify took in more than $4.5B in total revenue–a 57% increase year-over-year–and Shopify merchants sold $175.4B using the platform, up 47% from 2020. The company attributes their success to the rise in independent shops and retailers moving their businesses online and Shopify welcomed them with open arms.
Ultimately, as stated at the beginning of this piece, Amazon was responsible for 41% of US eCommerce sales while Shopify accounted for only a little over 10.3%. 10.3% sounds rather paltry in comparison to Amazon’s dominant 41%, but the thing to remember is that both Amazon and Shopify are at the very top of their respective fields. Unfortunately for Shopify, Amazon’s stranglehold over eCommerce is just that large.
The eCommerce arms race between Shopify and Amazon has been tit-for-tat and Amazon’s counter move with Buy with Prime could potentially cancel out any kind of advantage that Shopify was hoping to achieve with Shop Pay. As such, speculators and forecasters now predict that the key to success could very well be in last mile logistics; which company could provide customers with the best direct-to-consumer service.
Last February, Amazon announced new pricing changes to the Prime service. The price of the monthly Prime membership will increase to $14.99/month, and the price of the annual Prime membership will increase to $139/year. This 17% increase in fees is–according to Amazon–necessary to make up for–again, according to Amazon–inflation and rising labor, distribution costs due to the COVID pandemic. Unsurprisingly, the rate increases did not sit well with customers but statistics show that the membership numbers are still growing. Prime membership is expected to grow to nearly 170 million in the US by 2025.
The COVID pandemic did bring about supply and stock shortages and reductions in employment which affected delivery turnaround. These were enough for smaller retailers to capitalize upon and steal away business from Amazon, but only for the short-term unless eCommerce platforms such as Shopify continue to cater to SMBs which, in turn, will help strengthen their fight against Amazon.
Shopify’s next strategy appears to be focused on fortifying their logistics. Earlier in March, they announced a deal with Shippo to provide merchants with both an end-to-end shipping solution as well as best-in-class carrier rates from within the Shopify platform itself. In April, it was reported that Shopify was in talks to purchase tech startup Deliverr. According to the company’s website, Deliverr helps merchants get their products to consumers in two days or less using Amazon, eBay, and other online marketplaces. The COVID pandemic only helped to turn the convenience of eCommerce and expedited shipping into a necessity. This mentality is expected to continue, even after the pandemic subsides and pre-pandemic life around the country resumes.
Should Shopify successfully close the deal with Deliverr, the acquisition could value Shopify at over $2B, said sources to Bloomberg. It would be Shopify’s biggest acquisition and serve as a complement to its subscription-based software for setting up online stores.
Amazon isn’t about to let Shopify eat their lunch again. Amazon said that it would invest $1B into their ‘Industrial Innovation’ fund, which includes supply chain and logistics. Amazon’s financial resources are, of course, much greater than Shopify’s and in 2021, Amazon spent 16% of sales on fulfillment which amounted to nearly $77B. That’s over 17-times what Shopify had earned in their ‘Biggest Year Ever’ in 2021.
On paper, the financial divide between both companies would make it appear that Shopify is facing insurmountable odds in their fight against Amazon. But if the acquisition does indeed happen, it would symbolize a mass movement for SMBs as they collectively combat Amazon’s dominance and forge a path of their own. Shopify and Deliverr would help independent retailers offset their overhead while growing in their own right. Whatever the outcome may be, neither Shopify nor Amazon will be going away anytime soon.