Shopify (STORE 8.99%) was one of the few successful e-commerce companies Amazon (AMZN 2.66%)but now it seems the tables are turning against the disrupter.
Amazon is launching “Buy with Prime”, a program that allows Prime customers to enjoy fast, free Prime delivery outside of Amazon for the first time.
Shopify CEO Tobi Lütke first welcomed Buy with Prime, saying on his company’s earnings call in May: “So we’re thrilled that Amazon has made the decision to take on the incredible infrastructure that ‘they built’ and share it with small traders on the Internet.
However, a few months later, the company is taking a different approach to buying with Prime. Shopify is now warning its sellers that adding the Buy with Prime button violates its terms of service, according to a CNBC report.
What’s at stake here
Shopify has been one of the top stocks for much of its history, at one point last year gaining more than 10,000% since its IPO in 2017. But the stock has since plunged, falling up more than 80% from its peak as worries about slowing sales, a pivot to logistics, a maturing e-commerce market and now the threat from Amazon rocked the company.
At least part of Shopify’s historic success is due to how well it has become known to its merchants, the third-party sellers who make up its direct customer base. Lütke has long said his company is “arming the rebels,” using the phrase as a rallying cry for Shopify’s massive seller base. Who Shopify sellers are rebelling against is unspoken but implicit: it’s Amazon, the e-commerce monolith that has dominated the industry since its dawn.
For many independent e-commerce sellers, the choice between partners comes down to Amazon or Shopify. Amazon sellers can’t brand their online stores like Shopify sellers can, but they do benefit from services like Fulfillment by Amazon (FBA), where the tech giant handles third-party order fulfillment, and the base mass of Amazon Prime customers, which today is more than 200 million people. Shopify sellers, on the other hand, have the ability to customize their online storefronts. Buyers know who they are buying from and sellers own customer relationships.
An estimated 70% of Shopify’s revenue comes from payments, and Buy with Prime threatens this pillar of the business. Losing it to Amazon, as Buy with Prime threatens to happen, would be catastrophic for the company and likely force it to rethink its business model, relying more on subscriptions or another revenue channel. . Shopify has also invested heavily in its own distribution network, although Buy with Prime is also threatening to migrate merchant delivery to FBA if sellers adopt Buy with Prime.
Can Shopify win?
So far, Buy with Prime doesn’t seem to have had a significant effect on Shopify, but it’s currently invite-only and open exclusively to sellers who have an FBA account, although the company expects to make it more widely. available over time.
On online discussion forums, there has been little reaction to Buy with Prime among Shopify sellers, perhaps an indication that there isn’t much interest in taking advantage of the new offer. In a Reddit thread, for example, some Shopify sellers trashed Amazon, saying the company treated its merchants poorly, while others complained about Amazon customers, saying they were subject to excessive returns. Some also said that Amazon itself uses seller data to compete with its own merchants, even occasionally launching copycat products.
Based on this small sample, the “arm the rebels” culture at Shopify still seems to work.
Whether Shopify merchants use Buy with Prime will depend on the cost and the effect it actually has on their business, and it’s too early to tell. However, Shopify’s anti-Amazon brand has positioned it well for such a battle, and while Buy with Prime is sure to appeal to some Shopify sellers, many of its merchants are likely to remain skeptical of Amazon.
For investors, Buy with Prime deserves special consideration as it is perhaps the biggest hurdle Shopify is currently facing. The stock is down as growth has slowed, but that’s largely due to tough comparisons to 2021, consumer spending shifting to services like travel and restaurants, and a weaker macro environment — and those issues. are temporary.
If Shopify can overcome the Buy with Prime challenge and re-accelerate its growth rate, the e-commerce stock seems to have a lot of upside ahead of it.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jeremy Bowman has positions at Amazon and Shopify. The Motley Fool holds positions and recommends Amazon and Shopify. The Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.