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Why doesn’t Amazon compete with Shopify? It doesn't have to... yet

Shopify may be the current internet darling of Wall Street, but the bulls are fickle and while Shopify is now larger than eBay in terms of market cap, that doesn’t mean they should stop looking over their shoulder towards the Pacific Northwest. Thus far, Amazon has taken a very hands-off view of Shopify and the services it offers merchants both on its Amazon Marketplace, as well as on the merchants own direct sites. Amazon could easily build and market to duplicate what Shopify is doing; in fact, many software companies could but so far they have not.

The reason may be as simple as they don’t have to. Amazon is notorious for its long-term thinking and while its apparent strategy is to eventually be “the store” for everything, right now that strategy doesn’t preclude, allowing Shopify and the merchants it serves to go their own way. Since more than half of shoppers start their product searches in Amazon’s search bar, for the moment at least, there is certainly no need for the eCommerce giant to make any offensive move in the space. Waiting is something else Amazon does very well.

There is no doubt that Shopify has leveled the playing field of eCommerce for many, but its ability to take on Amazon, or even compete with it is hampered by some of the very things that make it so attractive; its low cost and control it offers its merchant platform: Cost, control, and location.

Since Shopify takes a cut of sales on its platforms which allows it to keep prices low for its merchant customers, it makes it difficult for merchants to scale their offerings as their online success increases. While without question it’s one of the best solutions for companies to sell online fast and inexpensively without having to use the Amazon marketplace, a large consumer product goods company or retailer would be hard pressed to make the numbers work in a revenue share model. The majority of Shopify’s 800, 000 customers are small and medium sized businesses, many of which will fail and be replaced by newcomers trying their luck at the eCommerce poker table. For Shopify, ease of use + inexpensive startup cost = lots of customers willing to try their luck. That’s a great business model; for Shopify. However, as with many things the devil is in the details, and for all merchants there are two more things to consider.

One of the celebrated features of the platform is the control it gives companies to tell their stories on social platforms such as Instagram and Facebook. Both social platforms are growing rapidly as commerce platforms in their own right and Facebook has even designed its own commerce experience for Instagram which will be widely available later this year. This is in addition to Facebook’s Libra project to create a whole new digital currency, whose use would presumably be ubiquitous on its properties. So much like the challenges merchants face with doing business on Amazon, it is not out of the realm of possibility that they will soon have similar challenges on most major social networks.

With this in mind, many companies are hedging their bets and assuming the customer pools they have free access to today may be more expensive to play in going forward and are now using Shopify to create robust direct-to-consumer eCommerce experiences on their own properties and sites. This of course is Shopify’s bread and butter use case, but even it is not free of peril as the one ingredient to success that’s required isn’t a given; customers. As many brands who have decided to “go off the grid” of the traditional path of Amazon and social networking for eCommerce, getting customers to your front door is more often than not one of the greater challenges. Designing a site and implementing a commerce platform on it is not difficult, but the marketing and customer acquisition, and frequent customer behavior reprogramming, is the biggest rock. One cannot simply stand up a site, dust hands off on an apron while flipping on the “open sign” and be successful. Marketing is a major factor, one that no matter how good Shopify is can’t help with, and a pass or fail for every company selling online.

While Shopify is without question the great equalizer in eCommerce and has opened doors for hundreds of thousands of businesses to sell online, in its current form it is not a large-scale threat to Amazon as it simply cannot scale that large. And while there may be a “death from a thousand paper cuts” on the horizon for Amazon from platforms like Shopify, you can take to the bank the fact they will enter the space hard and fast with their own solution before it is a real threat.

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