After a growth spurt that accompanied pandemic-era lockdowns, e-commerce merchants faced slowing sales growth and tough comps, spurring some companies to look for additional ways to grow their businesses. As the world's leading online retailer, Amazon (AMZN 0.21%) was hit harder than most, struggling for much of the past year to reenergize its growth.
Now, the company is hitting back. Amazon revealed Tuesday that it plans to expand its Buy with Prime service, a program that allows other online merchants to tap into the company's massive logistics and fulfillment network to deliver their goods.
This move gives Amazon a new way to monetize its existing operations and could have far-reaching implications for rival Shopify (SHOP +8.30%), and to a lesser extent PayPal (PYPL +3.33%).
Image source: Getty Images.
What is Buy with Prime?
Following the success of an invitation-only pilot program that launched last April, Amazon announced Wednesday that it plans to expand the Buy with Prime program. The service allows participating merchants to display a Prime badge on their website for products covered under the program. Prime subscribers can then order the items using their Amazon account and stored payment methods, which entitles the buyer to a simple checkout experience and fast, free shipping and returns, all without leaving the merchant website.
In typical Amazon fashion, the company was mum regarding how much merchants pay to participate in the program. It did, however, reveal that the price it charges merchants includes the cost of fulfillment and storage, which can vary, and depends on the inventory of products eligible under the program. Amazon plans to make the service widely available to eligible merchants by Jan. 31.
Amazon also announced an addendum to the program -- Reviews from Amazon -- which allows merchants to post its product ratings and reviews directly on their own sites.
A resounding success
Amazon made the decision to expand the program after the initial rollout was a resounding success. The company said the customer conversions -- or the number of customers that purchased an item after initially clicking on it -- increased by 25%, on average, for merchants that used Buy with Prime. The company also cited examples of merchants that had reduced their delivery periods from one to two weeks to just a few days.
"If you offer 'Buy With Prime,' the increase in shopping conversion will more than offset the fees we are charging," Amazon vice president Peter Larsen told Bloomberg. He went on to point out that sellers can increase sales with just a nominal investment.
This suggests plenty of incentive for independent sellers to use Buy with Prime, which is sending ripples through the e-commerce industry.
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The move sends a shiver through rivals
Buy with Prime poses an immediate threat to Shopify, which has been developing its own logistics and fulfillment operations for merchants that use its e-commerce software. The company has long distinguished itself by offering turnkey services, allowing any seller to ramp up its online retail presence simply and easily.
A number of merchants initially tested the Buy with Prime service. Soon after, however, Shopify began cautioning merchants when it became clear that Amazon's Prime badge overwrote its own code. Shopify warned that this violated the company's terms of service, which states, "You agree to use Shopify Checkout for any sales associated with your online store."
Shopify went even further, suggesting that installing the Prime badge and participating in the program "removes Shopify's ability to protect your store against fraudulent orders, could steal customer data, and may cause customers to be charged the wrong amount," the company wrote in a message to sellers. Currently, merchants can still opt to use Buy with Prime, though Shopify refuses to protect them from the potential consequences.
One of the big selling points of Shopify is that merchants need not worry that Amazon will use the information it gathers from third-party merchants to launch competing products, an allegation that has been made against Amazon in the past. Shopify suggests this could change if Amazon gets access to merchants' customer data.
To a much lesser extent, Buy with Prime could also have implications for PayPal, which is one of the preferred checkout methods used by shoppers on unfamiliar websites. Customers using Buy with Prime will default to payment methods stored in their Amazon account, potentially depriving PayPal of some merchant transactions. While Amazon doesn't let shoppers pay with PayPal, it recently added the option to pay with PayPal's Venmo.
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A new revenue stream
Amazon has struggled over the past year as its pandemic-era growth spurt evaporated. Concerns regarding macroeconomic conditions and already-slowing growth have hit the company hard in recent months. Amazon has countered by shuttering a number of existing warehouses, canceling plans for dozens of others, and announcing widespread layoffs.
In a period characterized by slowing sales growth, the expansion of the Buy with Prime program is a brilliant move by Amazon. It allows the company to leverage its existing shipping and logistics operations -- which it bolstered during its lockdown-induced growth spurt -- to generate additional revenue, while also providing a new benefit for its Prime subscribers. This proves once again why Amazon remains a buy.
