Amazon made $469B in 2021! At present, the company is worth $1.42 trillion dollars!
But, of all its businesses, Amazon makes the most revenue from its e-commerce business.
Amazon & its gang of third-party merchants make up 43.5% of the US e-commerce market. So, the giant is basically operating in its own league.
As for the merchants on Amazon, the competition remains fierce. For years, merchants looked for comparable marketplaces to Amazon to sell their products. And, now finally, their prayers have been heard!
Guess who Amazon's biggest rival is?
It's actually Shopify!
Now, you're probably wondering why, of all sites, Shopify could be Amazon's rival. Amazon literally makes 100x the revenue of Shopify! Well, keep reading to find out!
Wait, but aren't Shopify & Amazon totally different businesses?
Now, you might say that Shopify & Amazon are completely different businesses. And, you are right.
But, even though Shopify is not directly competing with Amazon, Shopify's merchants are. So, if you consider Shopify as a pseudo-e-commerce marketplace, then Shopify & Amazon are definitely competing.
But, even though these two companies operate in the e-commerce space, they both are different from each other in key aspects.
Amazon started out as an online store that bought wholesale products & sold them online. After a few years, it created fulfillment centers to aid its operation.
Jeff Bezos's BIG dream was to make Amazon a company that sells everything!
Now, Bezos knows Amazon can't do all of this alone. So, they started allowing third-party sellers to use its fulfillment centers & online platform to sell their products across the globe.
Even now, at least half of the products on Amazon are directly sold by Amazon. This is called Amazon Retail. But, the other half is sold by third-party merchants.
So, merchants are just participating in Amazon's marketplace. But, the leash still remains in Amazon's hands where it gets to control the whole end-to-end experience for users.
Now, if you flip this dynamic on its head, you'll get Shopify!
Shopify is basically a platform that helps merchants create an online store & effectively operate all their systems. In return, merchants pay a certain amount to Shopify to use its services.
Now, Shopify has a vibrant community of developers, who buildd apps for Shopify. All the solutions these devs create, go into improving the entire ecosystem of the e-commerce platform.
So, Shopify is basically facilitating the contact between sellers & consumers. Ultimately, sellers & consumers will establish a direct relationship with each other.
Got it, so how is Amazon's biggest rival Shopify?
You're right. Shopify made just $4.6B in revenue, in 2021. That's literally a hundred times less than Amazon's revenue. So, why exactly are we saying that Shopify is a worthy competitor for Amazon?
Well, let's break this down!
The Gross Merchandise Value (GMV) Split
For retail companies, we look at a metric called GMV, i.e. Gross Merchandise Value. It basically tells you the sum value of all the products & services sold from a particular platform.
- Amazon's GMV in 2021 was $610B.
- Of this $390B (64%) was generated through third-party merchants & $220B (36%) from first-party sales, i.e. Amazon's Retail.
- Walmarts GMV is also huge, but most of it is generated through its physical stores. So, for the sake of the discussion of online e-commerce, let's exclude it.
- Now, Shopify's GMV was $175B in 2021.
If we just consider third-party sales, then Amazon's GMV is twice as large as Shopify. So, clearly, Amazon is in the lead.
But, the insight is not in the numbers, it's in the trends.
Shopify's GMV was 45% of Amazon in 2021. Only 3 years back it was 25%. So, Shopify is growing & that too, quickly!
The trend shows that traditional marketplaces are not the only option for merchants anymore. The D2C businesses are also a viable option in 2022.
But, that's not it. Shopify is surely getting closer to Amazon's GMV, but that's not the only problem Amazon faces at the moment.
The relationship between Amazon & third-party sellers is not as great as you'd hope!
Why merchants are unhappy with Amazon?
Amazon might be a sweetheart of consumers but merchants love Shopify.
You see, when competing in a marketplace the easiest way to get traction is to lower your product's prices. That's what merchants have to do to get noticed on Amazon (except for of course buying ads!).
But, that's not it. There are so many instances when Amazon has actively tried to squash top-selling merchants by cloning their products & selling them under Amazon retail.
So, even though being on Amazon gets you eyeballs, merchants still don't like the company. On the contrary, a platform like Shopify works as a direct solution. Shopify doesn't interfere with merchants & their customers.
And, now with Shopify providing entire custom packaging, shipping & delivery solutions, merchants don't have to worry about shipping either. This puts Shopify very close to the kind of solution Amazon provides to third-party sellers.
Ultimately, Amazon is a master at everything it does. Competing head-on with Amazon is a death wish. But, by being different from Amazon in key ways, Shopify is able to even have a chance to rival it!
Amazon's new business is a Shopify-like platform!
Now, you'd be surprised to know that Amazon recognizes the potential Shopify holds.
It's not like Bezos hasn't dabbled with the idea of creating a Shopify-like platform before.
During the very early 2000s Amazon had created a product called Merchant.com — an e-commerce service to help merchants like Target and Marks & Spencer to create their online stores on top of Amazon's e-commerce.
At such an early stage, it was tough for Amazon to buildd an entire new platform, so they had to eventually shut it down. But, this setback gave birth to Amazon web services (AWS) (A story for a different day!). So, Merhcant.com was not a complete failure!
The second time Amazon tried this was in 2010. Amazon created Amazon Webstores, but again it had to shut it down.
Now, Amazon is going at it again! "Why", you ask?
Well, you see. Recently, Nike left Amazon as a first-party wholesaler. This is mainly because Amazon couldn't stop sales of counterfeit Nike products on its website.
There were many similar companies like Ikea, Louis Vuitton, Rolex that left Amazon for the same reason.
Now, Amazon wants to solve this problem by acquiring an e-commerce platform called Selz that helps merchants create their own online stores.
Seems like before Shopify comes for Amazon's piece of merchants, Amazon will have created a Shopify competitor ready to chase it away.
If Amazon is successful with Selz, it'll have another profitable business. That's considering the fact that Shopify's net profit margin was 62.2% in 2021, while Amazon's profit margin was a meager 7.1%!
But, no matter what, any fight with Amazon will always be interesting to watch. So we'll be here with our digital binoculars looking at how this unfolds!