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Why Amazon Doesn’t Need to Worry About Shopify’s New Shop App

By John Ballard – May 9, 2020 at 9:46AM

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While Shopify seems to be going after Amazon, these are two very different offerings in the e-commerce race.

Shopify (SHOP -1.42%) is a rising juggernaut in e-commerce, with more than 1 million businesses using its platform to get started selling online. The stock has skyrocketed in value in just the last few years, but Shopify is still growing fast and continues to invest in new opportunities to expand its moat.

Recently, Shopify introduced its new shopping app, called Shop. It signals a change of pace for a company that has been primarily focused on helping small businesses grow online. With the Shop app, Shopify is bringing its expertise serving the merchant side to help consumers discover products and place orders for those products through Shop Pay.

It seems Shopify continues to roll out new features and services that could undermine (AMZN -0.64%). Last year, Shopify acquired 6 River Systems, a provider of cloud-based software and mobile robots that will significantly improve Shopify's fulfillment operations. 

But I don't think Amazon has anything to worry about. Here's why.

The Shop app logo with pictures of various items that customers can buy.

Image source: Shopify.

A tool to drive sales for small businesses

The Shop app is not new. The app is basically a rebranding and improvement on Shopify's Arrive app, which lets consumers track orders made with online merchants that use Shopify's services. Arrive was used by 16 million shoppers. The new app integrates Shop Pay, which has processed over $8 billion in sales, and will serve as the payment method for processing orders placed through the app. 

The timing of the app's release during the COVID-19 crisis illustrates what Shopify is really thinking with this move. In a press release, Shopify stated, "As a result of social distancing and stay-at-home measures, customers have become more reliant on online ordering than ever before as it becomes more challenging to stay connected to the brands they love." 

In this environment, small businesses are hurting. Large corporations that sell household-name products through Amazon are going to be fine, but there are countless small business owners who would love for people to shop their stores right now and provide some extra cash to help fund operating expenses in the short term, especially payroll.

The Shop app is designed to help those merchants drive higher sales, since it recommends new products to customers based on purchase history. This is a different system than Amazon, which uses advertising and recommendation features to steer customers to new products from brands they may not otherwise have thought about. 

As it stands now, the Shop app is basically a tool to help drive repeat purchases with merchants you have already purchased from in the past. However, there is the potential for this app to recommend new brands over time, based on the growing network of businesses that are on Shopify's platform. In the press release announcing the app, Shopify said, "Shop ensures merchants' customers consistently rediscover the storefronts of their favorite brands, as well as new brands." (Emphasis mine.)

If the Shop app becomes a more robust discovery tool to find products from brands you haven't heard of before, there is still one reason Amazon should be able to protect its turf.

AMZN Chart

AMZN data by YCharts

The Shop app can't replace Prime

Amazon's ultimate trump card is its Prime subscription program, which not only gives members fast shipping on unlimited orders for a fixed fee, but also provides other extras like Prime Video and Music. Amazon's entertainment services are not the most popular in the field, but they provide additional benefits for the more than 150 million people who subscribe to Prime. 

Millions of customers use Amazon for specific purposes, such as Prime delivery from Whole Foods or fast shipping on millions of other items. For those special items that cannot be found on Amazon, many small merchants connect with customers with their own websites, and the Shop app will help those merchants increase visibility with customers.

Shopify's fulfillment efforts will help merchants meet the demand for fast shipping that Amazon Prime helped popularize. 

There could be potential for Shopify to overlap some of the categories that Amazon sells down the road. But in retail, it's all about selling at a competitive price. Amazon beat Walmart to e-commerce 25 years ago, but Walmart is still here and growing. There is obviously plenty of room for several big players in the wide open world of e-commerce.

The Shop app is not an Amazon killer

The Shop app is a tool to help increase connections between merchants and their previous customers. But it's not going to replace Amazon's 272 million square feet of fulfillment and data center capacity around the world and the vast selection and fast shipping that it provides Amazon Prime members. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon and Shopify. The Motley Fool owns shares of and recommends Amazon and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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