Shopify and the promise of delivery

The release of this feature comes on the heels of Amazon’s announcement that it will introduce a new badge of its own to guarantee shipping and returns. Called Buy with Prime, it will allow merchants to embed Amazon Prime’s checkout, two-day delivery and free returns into their own websites for members of the ecommerce platform’s subscription service. Giving merchants access to Amazon’s vast logistics network, this effectively offers an option that decouples Amazon’s services from Amazon.com.

The timing here naturally heightens speculation about competition between Amazon and Shopify. The Deliverr acquisition sets up Shopify to offer DTC merchants similar services to what Fulfillment by Amazon (FBA) provides to third-party Amazon sellers. Buy with Prime, which will initially be offered to FBA merchants, debuted the day after news broke about the potential Deliverr acquisition, and it was immediately viewed as a “Shopify killer.”

With Shop Promise, Shopify appears to have an answer – or at least its side of a call and response. Its blog post announcing the service added that Shop Promise allowed merchants to maintain “full ownership of their brand, business intelligence, and customer data.” That could easily be read as a swipe at Amazon, as one of the tradeoffs quickly presented in analysis of Buy with Prime was that companies would have to give up customer data to Amazon.

Lütke was asked about Amazon’s Buy with Prime during the earnings call, and agreed to address it. His conclusion: It’s good news. In remarks, he said Shopify was a mission-driven company, centered around providing tools for entrepreneurs.

“What we get excited about is if infrastructure is shared with small businesses,” he said. Digital infrastructure developed over the last couple of years benefited players that were already big, he said. So, he said he was “thrilled” about Amazon making a move to open up its tools and logistics network to small merchants.

“This fits perfectly into our worldview and it’s not nearly as zero-sum as some people make it out to be,” he said. “Whatever is good for merchants will cause more entrepreneurship, which is exactly the vision of the company.”

And from Shopify’s perspective more tools mean Shopify’s platform is more useful. He said Shopfiy could integrate Buy with Prime into its offerings, alongside tools from many of the other big tech companies.

“This is actually really good news from our perspective,” he said.

(Update: After Lütke's remarks raised speculation that Shopify had decided to integrate Buy With Prime, a spokesperson told The Information that the company was still weighing this decision. 5/6/22, 4:58 p.m.)

Amazon and Shopify started out with different kinds of offerings.

Amazon had a single marketplace where brands could opt in to sell alongside others. The company offered access to the scale of the audience and a massive fulfillment network, but in turn merchants gave up some control of their stores and bowed to the price requirements of Amazon. It said it now has excess capacity in its warehouses following a big buildout post-pandemic, making rollout of a program that could entice more merchants to use its services a logical next step.

Shopify, in turn, built tools that helped merchants power their own websites. While it meant these companies had to work harder to attract audiences to individual websites, the entrepreneurs had independence, the ability to control their brand and how they reached customers. Now it is strengthening a logistics network of its own. Seeking to expand the services it offers for brands to solve key problems, the company said it is now seeking to provide an "end-to-end" platform that can manage products' journey from "port to porch."

To be sure, a difference in scale remains. Amazon sales make up roughly 40% of US ecommerce, while Shopify accounts for roughly 10%. Both want to offer merchants the ability to get orders out the door quickly and seamlessly. They’re making long-term bets based on the continued growth of ecommerce. Lütke said the Deliverr acquisition will impact profitability this year, but deemed the move worth it given the strategic imperative of building out fulfillment.

Yet they’re also both facing the same macro dynamics, as the current ecommerce trajectory is "normalizing" to its more steady pre-pandemic growth pace, as Shopify's own chart put it, and inflation brings new challenges. Shapero added shoppers' return to physical stores and labor shortages as additional challenges. Ecommerce sales for April were down 1.8%, even as overall retail sales were up 7.2% year-over-year, according to MasterCard SpendingPulse.

This has led to short-term pressure on platforms. Amazon reported its first quarterly loss since 2015 in its earnings call last week. As Shopify reported revenue growth of 22% and gross merchandise value of 16% year-over-year on Thursday, its profits were deemed a miss by Wall Street, and its stock price has declined 70% over the last year, Yahoo! Finance said. They're not alone, as Etsy, Wayfair and Poshmark also saw stocks drop.

Now, both Amazon and Shopify will be looking to add merchants to new logistics-based services. Even if they aren’t on a collision course, they appear to at least be moving toward parallel tracks. It remains to be seen whether merchants will have to choose sides.