One Step Up #27
This week, we look at Shopify vs. Amazon, BNPL (buy now, pay later) schemes, an interview with Alex Zhu (Musical.ly) and more
Can Shopify Compete With Amazon Without Becoming Amazon?
Amazon is trying to build an empire, and Shopify is trying to arm the rebels.
The pampering of Amazon’s customers has been a boon both to them and to Amazon, securing its dominance, but the merchants — the other panel of the triptych — have not fared as well. Since Amazon first opened up its marketplace in 1999 to third-party sellers, 1.7 million of them have signed up, drawn in by Amazon’s huge customer base, sales volumes and its ability to fulfill orders. That last service, Fulfillment by Amazon (F.B.A.), means that a company doesn’t even have to store, pick and pack its own inventory.
Third-party sellers now account for about 60 percent of the commercial activity on Amazon; a big part of the reason Amazon can claim to be “the everything store” is because of these vendors. Yet their proliferation has, paradoxically, undercut what power they can exert. Individually, they have little brand recognition and little negotiating power against the marketplace. Today, if a business lists an article of clothing on Amazon for $50, Amazon gets $8.50 in commission; if the seller opts to advertise on the site, Amazon likely gets at least another $6.50. And if Fulfillment by Amazon is used, Amazon’s total cut gets closer to 40 percent. Amazon ships F.B.A. products in its own envelopes or brown boxes, highlights competing vendors on the site and charges extra for things like early reviews and dedicated account managers. Amazon monitors and collects pricing data and, until last year, prohibited sellers from offering their goods more cheaply elsewhere. (The company’s current policy says it monitors prices to prevent “practices that harm customer trust.”)
The story of Shopify’s rise, then, is in many ways a reaction to Amazon’s. It’s about a new generation of e-commerce merchants who want a shot at securing control by going out on their own. If the key to Amazon’s success has been to put the customer first, for Shopify the key has been to put the merchant first.
“You think about the three classic axes of business: convenience, quality and price,” says Nikhil Basu Trivedi, a venture capitalist who has invested extensively in the e-commerce space (he is a shareholder in both Amazon and Shopify). “Amazon is very difficult to beat, I think, on both convenience and price. So really the way to go off on them is by offering differentiated, high-quality products.”
Till next time.
Have no regrets in life because of the choices you make. Good or bad, they are a learning experience, to help you grow. The only regret in life, is to never make a choice at all.