Shopify (SHOP 0.36%) has been one of only a handful of e-commerce companies to successfully take on Amazon (AMZN 0.10%), but now it seems as though the tables may be turning against the disruptor.
Amazon is launching "Buy with Prime," a program that allows Prime customers to take Prime's fast, free shipping outside of Amazon for the first time.
Shopify CEO Tobi Lütke initially welcomed Buy with Prime, saying on his company's May earnings call, "So we are actually thrilled with Amazon making a decision to take the amazing infrastructure that they've built" and share it with small merchants across the internet.
However, a few months later, the company is taking a different tack toward Buy with Prime. Shopify is now warning its sellers that adding the Buy with Prime button violates its terms of service, according to a CNBC report.
What's at stake here
Shopify was a top stock for much of its history, having gained at one point last year more than 10,000% from its 2017 IPO. But the stock has plunged since then, down more than 80% from its peak as concerns about slowing sales, a pivot into logistics, a maturing e-commerce market, and now the threat from Amazon have rocked the company.
At least some of Shopify's historical success is owed to the way it branded itself with its merchants, the third-party sellers that make up its direct customer base. Lütke has long said his company is "arming the rebels," using that phrase as something of a rallying cry for Shopify's massive seller base. Against whom Shopify sellers are rebelling is unsaid but implicit: It's Amazon, the e-commerce monolith that has dominated the industry since its dawn.
For many independent e-commerce sellers, the choice between partners comes down to Amazon or Shopify. Amazon sellers can't brand their online stores the way Shopify sellers can, but they benefit from services like Fulfillment by Amazon (FBA), where the tech giant handles shipping for third-party orders, and Amazon's massive base of Prime customers, which is now more than 200 million strong. Shopify sellers, on the other hand, have the ability to customize their online storefronts. Shoppers know who they're buying from, and the sellers own the customer relationships.
An estimated 70% of Shopify's revenue comes from payments, and Buy with Prime threatens that pillar of the business. Losing it to Amazon, as Buy with Prime threatens to make happen, would be catastrophic for the company and would likely force it to redesign its business model, leaning more on subscriptions or another channel for revenue. Shopify has also been investing heavily in its own fulfillment network, though Buy with Prime also threatens to migrate merchant shipping to FBA if sellers adopt Buy with Prime.
Can Shopify win?
Thus far, Buy with Prime doesn't appear to have had a significant effect on Shopify, but it's currently invite-only and open exclusively to sellers who have an FBA account, though the company expects to make it more broadly available over time.
On online discussion boards, there's been little reaction to Buy with Prime among Shopify sellers, perhaps an indication that there isn't much interest in taking advantage of the new offer. In a Reddit thread, for example, some Shopify sellers trashed Amazon, saying the company treats its merchants poorly, while others complained about Amazon customers, saying they're prone to excessive returns. Some also said Amazon itself uses seller data to compete against its own merchants, even launching copycat products on occasion.
Based on that one small sample, the "arming the rebels" culture at Shopify still seems to be working.
Whether Shopify merchants use Buy with Prime will depend on the cost and the effect it actually has on their business, and it's too soon to know that. However, Shopify's anti-Amazon branding has positioned it well for such a battle, and while Buy with Prime is sure to attract some Shopify sellers, many of its merchants are likely to remain skeptical of Amazon.
For investors, Buy with Prime deserves close attention as it may be the biggest hurdle Shopify faces right now. The stock is down as growth has slowed, but that's largely due to difficult comparisons with 2021, the shift of consumer spending to services like travel and restaurants, and a weaker macro environment -- and those issues are temporary.
If Shopify can overcome the challenge from Buy with Prime and reaccelerate its growth rate, the e-commerce stock looks to have a lot of upside ahead of it.
