Background: Shopify provides a plug-and-play software service where one could quickly get their own online retail sales store up and running within days. The entire payment processing, checkout, and website is managed by Shopify. This was a way of arming rebels that didn’t want to be selling only on Amazon (translated to being hostage to Amazon). Shopify has been very successful at it given its revenue growth over the last few years.
The Challenger: In Q1CY22 earnings release, AMZN quietly (without much fanfare) introduced a new service available to non-amazon sellers. Non-Amazon retail websites could add a “Buy with Amazon Prime” button on their website with a few simple steps and all the checkout, payment processing as well as delivery of the goods will be taken over by FBA (Fulfilled by Amazon). It provides benefits to prime members since they can now expect the same level of delivery, returns, and seamless payment processing/checkout that they are used to with Amazon Prime even on non-Amazon retail websites. Merchants get multiple benefits, A) Increases shopper conversion rates on their website due to the familiarity, ease of checkout, and trust of shoppers with the Amazon Prime system. B) Merchants don’t have to worry about shipping, storage, and returns which is a logistics nightmare for most SMBs. C) the benefit of having one integrated inventory & sales data (between amazon and their own website).
Retail Merchant’s response: Our channel checks with retail merchants indicate (Amazon Checkout) it’s a no-brainer for them since it eliminates a lot of delivery and returns logistics issues and increases the conversion of website traffic due to the Prime checkout feature. Shopify recently started notifying its retail website owners (customers) that they will be violating their agreement with Shopify if they add this “Buy with Amazon Prime” service button on their website. We don’t believe such tactics can stall Amazon; if Shopify wants to keep its customers checking out using their own checkout instead of Amazon’s then it has to match the ease of use as well as delivery and returns experience of Prime instead of warning them about a contract violation.
Stock market response: So far Shopify stock doesn’t seem to be seeing any impact. Since Amazon’s Q1 earnings announcement of this new competing service Shopify’s stock has moved in line with high beta tech stocks and was at the same price levels as before Amazon’s announcements just a few weeks back before the recent drawdown in the Nasdaq.
Conclusion: The verdict is still not out but given the logistics and customer service strength of Amazon Prime, it will be a difficult battle for Shopify to win. Shopify’s stock could see a knee-jerk reaction when the market finally starts seeing the impact of Amazon’s Checkout on Shopify Checkout.
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