January 13, 2020 by Sujay Seetharaman

(originally posted in Pipecandy Newsletter #93)

Amazon is responsible for 50% of all US eCommerce…BEEP! A popular research firm sounded that buzzer on Amazon’s market share earlier this year only to slash its estimate from 50% to 38%. The forecast was revised after disclosure in Bezos’s annual shareholder letter in April 2019.

Amazon is big. Is it bigly big or just big?

Amazon would not like you (or the antitrust hawks) to realize that the US’ single largest eCommerce entity is its third-party Marketplace. It accounts for about 31% of all US eCommerce (that’s a chunky $162B!). Its first-party sales meanwhile pale in comparison at $90B. Take a look at the top 10 marketplaces’ sales and you’ll see that Amazon is not just the biggest of them all, but it is bigger than the other 9 marketplaces (eBay, Etsy, Best Buy, Walmart, etc.) combined. It’s the same story when you pit Amazon against the top 10 retailers. Not one major retailer – except Amazon – makes hundreds of billions of dollars in eCommerce sales. To put that into perspective, Amazon’s eCommerce is bigger than those of Walmart, Target, Apple, Kroger, and eBay combined.

So are we heading towards a monopoly, at least when it comes to the US online retail? IMO, its a bit of a non-issue like Amazon would like to point out. Amazon has spent much of the last several months frequently commenting in public that the majority of America’s retail spending takes place in brick-and-mortar stores and that Amazon’s total share of U.S. retail sales is a mere 4%.

They are right (unlike Zuckyberg who tried to convince AOC with his all soothing expressions that facebook is all about free speech. Boy, his haircut is better than mine!). Sorry for the digression. Back to Amazon’s defense. Consumers have a choice of channels to access the same goods and services. eCommerce is but a channel. The operating word here is ‘the same goods and services’. About 6 million sellers make up Amazon’s marketplace and they sell everything from home decor to general merchandise to coffins! However, fewer than 40% (or 2.5 million sellers) are currently active, and >99% of those making less than a million dollars in sales, reflecting just how long-tailed the marketplace is. The longtail is not selling artisanal products like you find it Etsy. Most of them are buying off of Alibaba or the drab factory-politan cities in China. If any of them become successful, Amazon steps in with its private labels to snatch that lunch, because they are a retailer as well!

Even if Amazon has a monopoly over online retail, is it sustainable. Could it be challenged? We have been fixated on Walmart for far too long – a company that still loses billions in eCommerce every year and is busy selling its once-storied eCommerce acquisitions. Shopify is the real challenger if there could ever be one.

Let’s compare some numbers.

Amazon Sellers: 6 Million

Shopify Sellers: 1 Million

Amazon sellers that have money to pay kids’ tuition & US Healthcare (aka $1M): 25,000 (Source: Amazon)

Shopify sellers that have money to pay kids’ tuition & US Healthcare: 13,000 (Source: PipeCandy’s own number-crunching)

Amazon sellers making enough money to afford a home in San Francisco: 900

Shopify sellers making enough money to afford a home in San Francisco: (aka most of Shopify Plus users that aren’t using it to sell media subscriptions): ~2000

Ease of selling on Amazon: Looks easy but LOL. No support eco-system.

Ease of selling via Shopify: Hard. You are on your own, with some help from 2500 app vendors. But at least you know it and you are not elbow-kissing a lookalike.

Ease of storage and shipping on Amazon: Duh!

Ease of storage and shipping on Shopify: $1B check written to build a fulfillment network

Comparing the two platforms, I can say this – if you are selling diapers with Chinese panda pictures on it go to Amazon but if you are building a brand, go to Shopify. Yes, ‘Direct to consumer’ brands are launching through Shopify but the real deal is established CPG brands taking their D2C plunge with Shopify. They have the money unlike the D2C emperors with no clothes. Shopify’s investment in fulfillment centers is not just to help our moms with their basement businesses but to assure to ShopifyPlus customers that they are beyond just an online storefront. And above all, Shopify won’t launch its own private label batteries.

Shopify’s subscription business is an acquisition channel for discovering and nurturing brands that are likely to grow and become a customer for all of Shopify’s other services (Retail, Capital, Fulfillment, etc.). The real businesses that make money in eCommerce are the businesses that Shopify is going after. So Amazon’s billion merchants don’t matter. Amazon knows it. Amazon has 6 times more sellers than Shopify and yet only 2 times more millionaire sellers than Shopify. Shopify already has more $10M+ run-rate sellers than Amazon!

Both the companies have kept the ‘top of the funnel’ wide open for any business to set up eCommerce presence. Amazon’s Achilles heel is that it has to make sense as a ‘sales channel’ for these merchants. It cannot and so it has brilliantly made it its existential purpose to be the earth’s most customer-centric company. So, customers (who don’t care much about wading through 10,000 diaper brands) come!

Shopify though does not have to be the sales channel. It is an enabler. The more it makes the seller better at selling their unique brand, the more it helps the seller tell their stories, the more successful it becomes.

I wager my bet that in 2020, Shopify will announce a complete marketing automation stack, again to help fast-growing and old-money brands master the D2C game and tell the story better. I am also counting on Shopify to launch a ‘brand discovery’ portal (if not a marketplace) within the next 3 years.

Until the skirmishes from the likes of Square and Mailchimp become full-blown offensives, Shopify has the best tools in the box to be the ‘other’ platform for eCommerce.

But being an alternative does not mean that Amazon and Shopify will have to compete. The worlds of utilitarian products and brand-driven products are big enough to support the duopoly.

 

Sujay Seetharaman

Market Analyst @ PipeCandy

Currently donning the Researcher's hat. Talks to himself.