With Shopify, small businesses counterattack Amazon

For many small and medium-sized sellers, a third option has emerged, incorporated by the rising star of e-commerce, Shopify.

This approach gives merchants access to third-party cloud-based services, such as payments and fulfillment, but allows them to maintain more control over their brand and customer relationship than the largest markets offer. Buyers may not even know they are buying something from a retailer with Shopify technology, and that is the point.

In addition to making products available on the sellers ‘own websites, these software companies – which also include BigCommerce and Magento – can perform the laborious task of listing goods in the giants’ markets. By becoming sales management centers through multiple channels, including social media platforms, they represent a real competition for Amazon and its peers, potentially giving merchants more leverage in dealing with these entrenched giants.

This growing competition is forcing Amazon to purchase or build its own services to create stores outside of its market.

While marketers have more options, there is also more complexity in navigating the platforms of this growing list of technology companies. Despite growing competition for sellers’ businesses, they often remain at the mercy of decisions made by giants.

Growing pie, more slices

In 2020, e-commerce spending grew 44% compared to 2019, or about three times faster than its average annual growth rate in the past decade, according to Digital Commerce 360. Last year was particularly good for the Amazon, which stopped capturing approximately 36% of all e-commerce spending in the U.S. in 2019, to 38% in 2020.

While much of the growth in e-commerce outside of Amazon is due to other large retailers increasing their online game, it is also due to the fact that smaller retailers find their own means of reaching consumers directly.

At Shopify, 14, by far the largest provider of software and services for merchants who open their own online stores, revenue grew 86% in 2020 to $ 2.9 billion. It currently has more than 1.7 million vendors using its platform and offers services ranging from financing to payment services. In the 2020 total, Shopify merchants sold $ 119.6 billion worth of goods, representing 40% of the total value of goods sold on Amazon’s third-party market.

Shopify’s core offering is a cloud-based service that makes it easy to build and operate a web store. BigCommerce and Webflow do the same thing. Magento is open source software that allows merchants to create stores, but they need to find their own host.

Shopify has expanded its offerings to include storage, customer service and small business loans. During the last Black Friday shopping weekend, the total sales of Shopify merchants exceeded the total sales of all third-party sellers in the Amazon market.

One salesperson who uses Shopify software is Eunice Byun, co-founder and chief executive of Material, a New York-based salesperson of her own sophisticated yet affordable kitchen appliances. The material never sold its products on Amazon and has no plans, says Byun, whose full-time team consists of just three people besides her.

For sellers, being on Amazon means giving up vital customer data, such as email addresses, and giving up control over returns and complaints to Amazon, both of which are impossible for the material. “The entire customer experience is very important to us as a company,” says Ms. Byun.

“In 2020 alone, Amazon invested more than $ 18 billion to help sales partners expand their businesses and reach more customers,” said an Amazon spokeswoman. “Amazon offers a wide range of tools to help sales partners build customer loyalty.”

Shopify charges each of its customers a fixed monthly fee of between $ 30 and $ 2,000, depending on features, and an additional 0.5% to 2% of each transaction if they use a payment processor other than Shopify itself. (It generates additional revenue through other products, including fulfillment and loans.)

Neil Bruce is the online head of Toolstop, the online showcase of a hardware store and 56-year-old family wholesaler based in Glasgow, Scotland. For every sale his company makes on Amazon, he pays fees averaging 14% of an item’s price, he says.

Mr. Bruce’s website is powered by BigCommerce, a publicly listed Austin-based competitor for Shopify. BigCommerce has a pricing structure similar to that of Shopify, but differs in that it does not charge additional transaction fees beyond what merchants pay credit card transaction processors. When Toolstop adds items to its own BigCommerce website, it can choose to automatically list them on Amazon. Amazon orders are processed as if they were placed on the Toolstop website. When a box containing Toolstop products arrives from Amazon, it includes a brochure stating that it came from Toolstop.

“The vast majority of companies need to look at markets, like Amazon, as an opportunity and not as a competitor,” said BigCommerce CEO Brent Bellm.

This hybrid approach to listing products anywhere consumers can look for them is increasingly the norm, says Tyler Kovacs, founder of Store Leads, a service that collects data from 5 million online stores worldwide. Many small sellers start at Amazon, due to the full-service approach and the instant audience. But even retailers starting with Shopify can eventually list their items on Amazon and other markets, because of additional exposure and incremental revenue, adds Kovacs.

Shopify portray yourself as a fierce competitor to Amazon, and its leaders often say that the big markets have opposite interests to those of the merchants with whom they partner. Still, Shopify offers the same type of direct integration with the largest online markets that BigCommerce offers.

“We see our role as leveling the playing fields so that retailers can, instead of renting customers from these platforms, have customer relationships,” said Shopify President Harley Finkelstein.

There are dozens of e-commerce platforms that help merchants build online stores; the retailers monitored by the store’s Leads use 37 different ones, says Mr. Kovacs. Shopify differentiated itself from its competitors by going beyond just software and finding Amazon and other giants in areas where most others cannot compete.

Shopify Capital, for example, has lent small businesses $ 1.7 billion since its inception. Shopify is building its own national supply depot network, with the goal of competing directly with Amazon’s own gigantic logistics operation. Shopify has its own way of accepting payments, similar to PayPal or Apple Pay, with the aim of making it possible to complete the purchase with a click on any merchant that uses it. Shopify’s payments service is responsible for most of your revenue.

Here’s the irony of painting Amazon as the Goliath for David from independent online retailers, as Shopify often does: Collectively, the world of e-commerce outside of Amazon is still bigger than Amazon. And Shopify, which is fast becoming the glue that unites 1.7 million of these retailers and would like to be seen as its champion, is a growing giant. Shopify is valued at around $ 130 billion and beats its next biggest competitor, BigCommerce, which is currently valued at around $ 4 billion.

While striving to become a one-stop shop for merchants looking to sell online, it is clear that Shopify’s million-headed hydra is already causing heartburn at Amazon. The Seattle-based technology giant even established a secret team, called “Project Santos,” to create its own version of some parts of Shopify, The Wall Street Journal reported in December. In February, Amazon announced that it had acquired Selz, an Australian company that, like Shopify and BigCommerce, helps merchants open their own online stores.

If Amazon increases Selz, or otherwise offers a serious competitor to Shopify and companies like it, the company may have to work to rebuild trust after years of challenging relationships with its own merchants, including copying its products and selling your own version for less. An Amazon spokeswoman said Amazon acquired Selz to continue Amazon’s mission to support small businesses.

I asked Mr. Finkelstein of Shopify if the company’s warm and ever-embracing embrace could ever become a web that imprisons merchants in a toxic co-dependency, just as the Amazon market has led many merchants to distraction with fees and increasingly strict rules. “Our business model is, we will only be successful if our merchants have it,” he says. This is a different emphasis from Amazon’s philosophy, which notoriously puts the customer first.

“It is very difficult to deal with Amazon,” laments Bruce, from Toolstop, whose company used to be a wholesale supplier to Amazon’s own retail operation, but now chooses only to list its products as third parties on the company’s market.

“Amazon made its own rules and would fine you in the blink of an eye if you were noticed for doing something wrong,” he said. “We decided that we will never win this game when Amazon is in charge.”

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Write to Christopher Mims at [email protected]