Is Shopify Evolving Into Amazon’s Greatest Threat?

by Jonathan Adams

There is a growing school of thought that if anyone can pose a challenge to the dominance of Amazon in ecommerce it is the dark horse of Shopify. Shopify has a very different model to that of Amazon. And removed from the Silicon Valley goldfish bowl, happily based in the relative tech ‘wilderness’ of Ottowa, Canada, Shopify’s growth has been largely off the radar. That’s been helped by a business model that doesn’t promote the Shopify brand. The company is an ecommerce enabler rather than consumer brand.

But Shopify has now quietly reached a stage in its evolution that means the world has begun to notice. And the company, led by German-born founder and chief executive Tobi Lütke, does not lack ambition. It simply manifests it in a very different way to the Silicon Valley norm. Why exactly is Shopify now increasingly viewed as a potential up and coming, but genuine threat to Amazon’s sprawling empire?

Just How Big A Share Of The International eCommerce Market Does Amazon Control?

Amazon bestrides international ecommerce like a demi-God. It’s impossible to know precisely what share of the overall ecommerce market Amazon accounts for because the company doesn’t offer a precise enough breakdown of revenues. And the size of the international ecommerce market is more approximately estimated than most markets.

But it’s safe to say it’s a colossal share, though the company itself makes every effort to play it down now that competition regulators are stirring. But different market share analysis methodologies put Amazon’s share of the U.S. ecommerce market at somewhere between 37% and 56%.

Source: Marketplace Pulse Research

In the UK, a 2019 survey conducted GlobalData suggests 84.3% of UK shoppers had made at least one purchase from Amazon in the past 12 months with almost 25% of consumers purchasing more frequently than a year ago. A huge 51.4% of UK consumers who responded to the survey had made at least one Amazon purchase in the past month.

The only major international ecommerce market not dominated by Amazon is the Chinese-speaking market, where Alibaba’s ecommerce brands reign. Statistics company estimates that in 2019 Amazon holds almost 14% of online retail sales globally. That means almost 1.5 in 10 sales made online across the entire world go through Amazon.

And Amazon’s revenues continue to grow at breakneck speed. It’s not all from ecommerce, with the company’s cloud computing unit, Amazon Web Services (AWS) its fastest growing business segment. But it still only counts for 11% of revenues. eCommerce revenues, combining online store income and income generated from third party seller services accounted for 71.2% of Amazon’s total revenue based on full year results for 2018.


Amazon has also started the process of moving into bricks and mortar retail through its 2017 acquisition of Whole Foods and 2018 launch of own-branded Amazon Go tech-enabled convenience stores. The company has also started to develop other online marketplaces outside of ‘consumer’ retail. Pharmaceuticals seems to be the most important of these to the company, which spent $753 million on Boston start-up PillPack in 2018. The online-bricks and mortar hybrid approach is also being pursued in pharma, with physical PillPack locations reportedly being planned.

Amazon is a juggernaut. It’s now so big that regulators in different parts of the world, particularly Europe, are starting to discuss at what point it becomes too big for any pretence at a competitive online retail environment.

Many readers, if not connected to ecommerce professionally or as investors, may well never have heard of Shopify until recently. So why is the still low profile company now emerging as a potential threat to Amazon’s undisputed dominance of the online retail market?

The Rise of Shopify

Amazon started out as an online bookstore before developing into an ‘online everything’ store. Shopify started as a spin-out from an online snowboard store owned by co-founder Tobi Lütke, a 39-year old German who moved to Canada in 2002 as a young 20-something. Lütke has a tech background and dropped out of school after 10th grade to start a vocational apprenticeship to become a programmer – having started coding by the age of 11 or 12. Before starting his own business Lütke was part of the core team behind the Ruby on Rails programming framework.

Lütke started Shopify as a side-project alongside his online snowboard shop. Having custom built his online store himself, he decided to create a platform that would allow other e-merchants lacking programming skills to create their own e-commerce stores. An e-commerce specialist equivalent to WordPress, if you like. The company was founded in 2004 as a stand-alone enterprise by Lütke, alongside Scott Lake, Daniel Weinand, the other two co-founders. By February 2019, 800,000 merchants from 175 countries were using the Shopify platform to power their own e-commerce stores.


The difference between Amazon’s third-party sellers platform and Shopify is that the former is hosted on the main Amazon e-commerce site, which takes a cut of sales as well as charging for logistics such as warehouse storage of inventory and delivery. Amazon also earns from selling third party sellers additional advertising packages and options. Shopify offers third party sellers most of the same technology and capabilities but with almost full control and their own brand. The platform offers free and premium ecommerce site templates as well as an App store that offer add-ons which can be compared in many ways to WordPress plug-ins. It also offers software that help merchants manage their store. But Shopify sits in the background. Shopify-powered e-commerce stores don’t even display a ‘powered-by Shopify label’ anywhere.

Shopify users pay a monthly subscription based on a sliding scale of plans that vary based on what is required or wanted and how big the store is in terms of inventory and the volume of orders it processes. Plans go from about $29 a month to over $2000 and are all-in, including hosting. A commission of between 0.5% and 2% on sales is also charged. Amazon charges in a more complex way but third party sellers would expect to pay somewhere between 16% and 20% on sales in commission and other fees.

The Shopify revenue model seems to be working and investors are now sitting up and taking notice at the rapid progress the company is making. The company went public in May 2015, raising $131 million in an IPO that sold shares at $17. By the time they had started floating freely on the NYSE they were up 60% to $28. It then took a while for the company to build up a head of steam as a stock market-listed company but the share price started gaining serious traction in 2017. 2018, coinciding with a major tech stocks correction from September onwards, was unspectacular, though Shopify’s stock suffered to a lesser degree than most. And 2019 has seen the Shopify stock price fly – up around 170% since the beginning of the year. With a market capitalisation having surpassed $40 billion, Shopify is now worth more than Twitter and Spotify and zoomed past eBay’s value early in the year.

Source: Google Finance

Of course, a market capitalisation of just under $45 billion is still nothing compared to Amazon’s $875 billion. But there is a feeling that Shopify is just getting started. Its next big step will be a move into logistics and fulfilment – like Amazon offering it as a service to third-party sellers who can struggle with that side of their business. It’s an evolution Lütke has had his eyes on for some years. Most of Shopify’s sellers are small businesses that find warehousing, shipping and returns ‘wickedly difficult’. That’s especially the case in today’s e-commerce environment, where buyer expectations have been raised by Amazon fulfilling more and more orders within a day or two.

But the move into logistics now puts Spotify into much more direct competition with Amazon – a challenge few companies would take on. Especially if, like Shopify, there is entangled business interests. Shopify platform allows users to sell through Amazon’s Marketplace as well as their own website. Risking Amazon’s wrath by setting up as genuine competitor could quite conceivably imperil that tie-up.

Shopify’s business model also relies heavily on social media platforms such as Instagram, Pinterest and Facebook. As Lütke explains, with a focus on Instagram:

“Instagram has been the most phenomenal growth vector for small businesses. It’s a great way to tell stories about products that Amazon, with its static pictures and very sanitised listings, doesn’t offer people.”

One threat is the independent push of social media platforms into ecommerce and ‘social selling’ – particularly Facebook. But Shopify is betting on third party sellers continuing to rely on Shopify software to manage the backend of their ecommerce operations, even if more sales start to move through social media sites like Facebook.

Can Shopify Genuinely Challenge Amazon?

If Shopify can grow enough over the next several years to become a genuine threat to Amazon is a very open question. The move into logistics and fulfilment is brave but comes with a lot of risk and teething troubles can be expected. It’s how Shopify moves beyond those that will be key. The company’s stock price, based on revenues and profits (the company recorded operating and net losses of $39.6 million and $28.7 million respectively in Q2 2019) also looks even more expensive than the premium on Amazon after the stellar gains of 2019. So a correction is far from out of the question.

Realistically, Shopify is still a long way from laying claim to competing with Amazon and makes sure to steer clear of doing so. Rather, the company says it offers the technology that supports ‘an army of Amazon competitors’. But Shopify is also on a trajectory which, if maintained, could mean a few years from now it does finally offer challenge to the undisputed dominant force in eCommerce outside of the Chinese-speaking world.

This article is for information purposes only.
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