For now, Amazon and Shopify occupy different roles in the ecommerce ecosystem. Eventually, the two might become direct competitors.

Rafael Lourenco

Rafael Lourenco, executive vice president and partner at ClearSale

There’s a behind-the-scenes battle going on between the two biggest ecommerce platforms in the U.S. that could have significant implications for merchants.

After much media speculation at the end of 2020 about whether Amazon would launch a service to go head-to-head with Shopify—or perhaps acquire Shopify outright—Amazon has bought an Australian company, Selz.com Pty Ltd., that could help it compete directly with Shopify.

Here’s why the rivalry matters to online merchants and how understanding it can help retailers select the right ecommerce channels for their goals.

How could Amazon and Shopify compete?

Amazon’s strength for retailers, of course, is the vast reach of its marketplace. On the other hand, Shopify helps merchants quickly build independent ecommerce sites without making a big investment in IT and platform development. “By design,” Shopify isn’t a household name among consumers—the company’s focus is on helping its retailer customers cultivate their brands.

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Since 2006, the company has quietly built a customer base of more than a million merchants worldwide, from small startups to significant food and apparel brands, according to news site Quartz.

Because of these differences, it’s appealing to think of Amazon and Shopify as competitors in a zero-sum game. Merchants either sell on the Amazon marketplace or run their own stores on the Shopify platform. But the ecommerce ecosystem is more complex than that.

Amazon and Shopify meet different merchant needs, for now

Right now, Amazon and Shopify occupy different roles in the ecosystem. For example, merchants that want to build a base of repeat customers need to tell an engaging story about their value and quality, establish trust, and communicate clearly with their audience. This is especially true for direct-to-consumer brands that market heavily through social media.

Merchants also need control over their customer data and flexibility in creating and adjusting return and refund policies to reflect customer preferences, seasonal conditions or unexpected events like shutdowns or weather events.

Having a freestanding online store on a platform like Shopify helps meet merchants’ needs. With such stores, retailers can create and share in-depth content in the format their visitors prefer, make site adjustments based on website data, communicate directly with customers and leverage customer data for marketing and site improvements. Depending on the brand’s size and its website checkout, the potential downsides are a smaller market reach and fewer conversions if customers must set up or enter payment options. However, 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 turf.

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Brands need a steady stream of new shoppers to grow their customer base. They also require customers to be able to find them easily. Because of Amazon’s vast reach and the fact that it’s the first stop for so many product searches, it can help merchants get their products in front of customers who might not otherwise see them. Its saved payment and buy now options make it easier for customers to make purchases quickly. The trade-offs are Amazon’s fees, product page formats, and refund and return rules–and the fact that many Amazon shoppers are focused on finding the lowest possible price rather than building relationships with brands.

As it stands, many brands take a both/and approach with Amazon and Shopify, not an either/or. For example, accessory designer Rebecca Minkoff has a Shopify Plus web store that includes 3D and augmented reality product displays to offer customers an immersive experience that’s not possible on Amazon. However, the label also has a store on Amazon, with free Prime shipping available on many of its popular bags. It appears that many merchants feel there’s room for both models in the ecommerce universe.

What an Amazon move into this area could mean for online sellers

However, Amazon has tried to offer independent web store services to merchants before but shut it down in 2015. Now, it may be ready to try again. In January, Australian web store platform Selz announced that Amazon was acquiring the company.

So far, Amazon hasn’t said what it plans to do with Selz, but industry analysts think Amazon could use Selz to try again with web store services.

If that happens, it could set up a David versus Goliath battle for merchants’ business. Because of the pandemic, Shopify revenue grew by 82% during the first nine months of 2020, but even as the second-largest ecommerce platform, it’s still much, much smaller than Amazon. Amazon’s 2020 revenue topped $386 billion, while Shopify’s was $2.9 billion. It’s unclear whether Amazon reentering the ecommerce platform space would result in more choices for merchants or eliminate Shopify as a competitor.

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The potential stakes for merchants are high. On the one hand, a move by Amazon into the web store space could give merchants more freedom to present content and product information the way they want and also benefit from Amazon’s market reach and technology. On the other, it’s possible that if Amazon eliminates competition in the space, merchants might not be able to retain control of their content format options, customer data, store policies and fraud protection options.

The takeaway for ecommerce merchants: Watch this space

Because competition from Amazon could have such a large impact on Shopify and other web store services—and by extension, those services’ clients—ecommerce sellers should keep an eye on this story. In the meantime, it’s also worth considering whether your brand should have both a standalone website and a marketplace presence to make the most of the opportunities available in each ecommerce area.

ClearSale provides online retailers with fraud-prevention technology and services designed to protect against chargebacks.

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