Even among those who might have heard of it, Shopify remains a sort of shadowy force in retailing. Millions of consumers have relied on it to facilitate their purchases from the growing contingent of direct-to-consumer retailers, but few of them were aware of this usage. For Shopify, which seeks to reinvent what retailing means—and to resist the overwhelming influence of Amazon—that anonymity is just fine. But as the platform continues to grow and expand its reach, anonymity might not be optimal for long.
Let’s start with what it does. Shopify is a digital retailing platform, founded in 2006 to help small companies host retail websites that would make it easy to sell their goods. Rather than trying to code and create websites on their own, these small businesses could plug in some business information, pictures of their products, and appealing marketing communications to the Shopify site and have a functioning website within minutes. It handles payment processing, gives retailers an easy means to confirm orders with customers, facilitates shipping, and even provides a dashboard that summarizes consumers’ interactions with the site. In return for these expansive services, Shopify charges just $29 per month, along with a credit card processing fee for each transaction.
These affordable rates are remarkably and notably different from the fees imposed by Amazon on the third-party sellers that appear on its site. If small retailers post their products on Amazon and also request its help with fulfillment and marketing, they can wind up handing over about 40 percent of the proceeds from each sale. For many small businesses, such rates simply are not sustainable or profitable.
Shopify also differs from Amazon in its underlying philosophy. Its founders explicitly sought to build a site that would provide a counterpoint to the retail giant and to be the “rebels” combatting the Amazon “empire.” In particular, Amazon requires small businesses to standardize their practices to match its operations. When consumers order from a small, local retailer through Amazon, the delivery arrives at their doorstep in an Amazon-labeled package. The transaction seems, from consumers’ perspectives, to involve only them and Amazon, which limits the small retailers’ ability to develop a brand reputation or customer loyalty.
As it has grown and developed—in the third quarter of 2020, it facilitated $30.9 billion in sales—Shopify has added new services that retailers on the platform can purchase. But it also allows external developers to sell their apps. That is, it does not limit the services available to its retail clients to only those features that it sells for its own profit. Thus for example, a retail client might obtain software from a different provider to add review capabilities to its Shopify-enabled site. Shopify earned about $1 billion in revenue last year, at the same time that the surrounding community of app developers together earned more than $7 billion.
Still, there are limits to what Shopify can provide. In particular, the direct-to-consumer business model requires retailers to find and appeal to shoppers largely on their own. Many of them pay to appear in advertising on Facebook and Instagram, and that method has worked well for companies such as Allbirds. Noting its satisfaction with Shopify, the founder of Allbirds explained that he appreciated being able to target specific consumers who would want high-quality, environmentally sustainable shoes. The company actively avoids joining Amazon, where it fears it would be presented alongside cheaper, poorer quality alternatives that might confuse consumers.
But Amazon also is where many consumers start their shopping journeys, so not appearing there can be risky. Another client, Brooklinen, prefers the transactions on Shopify, but it also added a page on Amazon when it realized that shoppers were searching for its sheets there and, when they did not find them, buying from other bedding retailers.
Arguably, due to its reach and reputation, Shopify could engage in more marketing and selling of the clients on its platforms, but the company (at this point) resists doing so. It does not want to become Amazon. Yet some indications suggest it is moving somewhat in that direction. A new service, Shopify Capital, provides funding to promising ecommerce practitioners. It has established new fulfillment services, for additional fees, to help retailers get their products to customers faster, though the shipments come in packaging designed by each client, rather than a standard Shopify package (as Amazon would require).
In the meantime, Shopify claims its goal is to ensure the ability of small retailers to compete, experiment, and test out their ideas. If enough small businesses can come together on a single platform, offering their diverse products and establishing their unique identities, perhaps the future will not be determined only by Amazon.
Discussion Questions:
- What else could Shopify do to help its small retail clients succeed in reaching end consumers?
- What kinds of efforts should the small retailers that appear on Shopify undertake to make sure they can reach their customers?
Source: Yiren Le, “Can Shopify Compete with Amazon without Becoming Amazon?” The New York Times, November 29, 2020