Amazon (NASDAQ:AMZN), the world's largest e-commerce and cloud company by annual revenue, has crushed many smaller companies over the past decade. Its online marketplaces pulled shoppers away from brick-and-mortar stores, while AWS (Amazon Web Services) locked organizations into its ever-expanding portfolio of cloud services.
AWS' profits also subsidized the growth of Amazon's lower-margin e-commerce businesses, which powered a positive growth cycle for Amazon but pressured its smaller competitors in the cloud and retail markets.
That business model makes Amazon a formidable beast -- but there are still plenty of companies the tech giant can't crush. Let's take a closer look at three of those resilient rivals -- Etsy (NASDAQ:ETSY), Shopify (NYSE:SHOP), and Microsoft (NASDAQ:MSFT) -- and why they could be worth investing in.
Etsy, the online marketplace for handmade goods, established a first-mover's advantage in its niche market 15 years ago. Amazon launched a competing marketplace, Amazon Handmade, five years ago, but the platform failed to pull merchants and customers away from Etsy.
Many sellers stuck with Etsy because it offered a simpler sign-up process, lower commissions, and more lenient rules regarding manufacturing processes and self-promotion than Amazon. Etsy also charged simple listing fees instead of Amazon's monthly fees, which made it a more cost-efficient platform for smaller merchants.
Meanwhile, buyers continued to visit Etsy to buy unique and personalized gifts that weren't available on Amazon or other large retailers. Shifting consumer tastes among younger shoppers also helped Etsy: 37% of Millennial women in the U.S. prefer receiving handmade gifts over mass-produced ones, according to a Faire survey conducted by The Harris Poll.
Like Amazon, Etsy generated robust growth throughout the pandemic as shoppers spent more time online. Its revenue and GMS (gross merchandise sales) more than doubled year over year in the first nine months of 2020 as its adjusted EBITDA soared 171%. Etsy's growth will inevitably decelerate after the pandemic passes, but it will likely remain one of the fastest-growing e-commerce platforms for the foreseeable future.
Shopify, the Canadian e-commerce services company that helps businesses set up their own online stores, is also naturally shielded from Amazon. It serves over a million merchants worldwide, many of which are small- to medium-sized businesses (SMBs) that don't want to tether themselves to a big online marketplace like Amazon.
By offering those businesses the tools to run their own e-commerce websites, process payments, fulfill orders, and build marketing campaigns, Shopify lets them independently expand their own online brands.
Shopify recently launched its own fulfillment network, which is similar to Amazon's FBA (Fulfilled by Amazon), to make it easier to ship and track orders. It also launched a consumer-facing mobile app, Shop, to provide searchable listings for local and independent businesses. These moves, along with its integrated payments service Shopify Pay, make it a disruptive and decentralized threat to Amazon's e-commerce dominance.
Shopify also generated explosive growth throughout the pandemic. Its revenue soared 82% year over year in the first nine months of 2020. Its gross merchandise volume (GMV) grew at triple-digit percentage levels in the second and third quarters, and it generated an adjusted net profit -- compared to a loss a year ago. Shopify will face tougher comparisons next year, but it will likely remain a thorn in Amazon's side for years to come.
AWS is the world's largest cloud infrastructure platform by a wide margin. But between the third quarters of 2019 and 2020, AWS' global market share dipped from 33% to 32%, according to Canalys. During the same period, Microsoft's Azure -- which ranks second after AWS -- grew its share from 17% to 19%. Azure continues to grow in AWS' shadow, for two simple reasons.
First, Microsoft has a massive base of enterprise customers, thanks to its Windows operating system, Office productivity software, and Dynamics customer relationship management (CRM) tools. It's leveraging those strengths to expand its cloud services (such as Office 365) and Azure's cloud platform.
Second, many companies that directly compete against Amazon, especially brick-and-mortar retailers, don't want to use AWS because it's Amazon's most profitable business.
Microsoft's commercial cloud revenue grew 36% to over $50 billion, more than a third of its top line, in fiscal 2020 (which ended on June 30). That growth continued in the first quarter, as its commercial cloud revenue rose another 31% year over year to $15.2 billion. As in previous quarters, the segment's growth was led by Azure, which grew its revenue 48% year over year.
The growth of Microsoft's cloud services, which complements its other massive software, gaming, and hardware businesses, make it a tech titan that Amazon simply can't topple.