The End of the Anti-Amazon Alliance
Three takeaways from the surprising Amazon-Shopify deal last week
In the U.S. ecommerce space, there is Amazon, and then there’s everybody else. The Jeff Bezos-owned ecommerce giant has been the undisputed market leader for nearly two decades now, with a U.S. market share of nearly 40% in 2022. Last week, it scored another big win that could further solidify its market-leading position.
On Wednesday, August 30, Bloomberg broke the news that Amazon had struck a deal with Shopify, a key member of the so-called “Anti-Amazon Alliance,” to allow all Shopify merchants to use Amazon’s logistics network to ship their goods by the end of September. As part of the deal, Amazon’s “Buy with Prime” feature will soon be among the tools available to Shopify’s merchants in the U.S., enabling a seamless checkout experience for more online sellers, although it is unclear whether (or how) Shopify will be involved in the payment process for orders made with “Buy with Prime.”
For those uninitiated, the Anti-Amazon Alliance refers to an informal coalition consisting of retailers and ecommerce platforms that offer alternative ways for consumers and merchants to shop and sell online. Some of the key players in this coalition included Shopify, Walmart, Target, and Google (via Google Shopping). Ben Thompson of Stratechery fame is often credited with popularizing the term in a 2020 article, although earlier reference to it dates to as early as 2017.
It’s important to note that this alliance has no formal or exclusive partnerships, but rather represents a loose network of platforms and retailers that share a common goal: to challenge Amazon’s dominance in ecommerce and offer more choice and value to consumers and merchants. For years, these players have been collaborating and partnering with each other to ensure that they can strategically compete against Amazon. For example, Shopify partnered with Google in 2021 to make it easy for small retailers to get into Google’s search results.
As a neutral ecommerce solution provider, Shopify had been the glue of this loose coalition of Amazon competitors. In 2022, over 2 million merchants used Shopify to create and host their online stores. Shopify also extends their product listings to Google Shopping, as well as other social media sites like YouTube, Instagram, and even TikTok. For retailers like Walmart and Target that directly compete with Amazon, having Shopify as an alternative ecommerce platform for independent merchants to sell online without resorting to selling on Amazon had been a particularly important strategic block.
Thus, this recent partnership between Amazon and Shopify dealt a heavy blow to the Anti-Amazon Alliance, as it demonstrates that the battle lines are getting increasingly blurry in the ecommerce arena. To understand why Shopify decides to strike a deal with Amazon requires some contextualizing in the current industry landscape.
Logistics continues to be Amazon’s biggest competitive moat
There’s no question that logistics is a key component of online shopping experience. A reliable and punctual delivery experience is now a table-stake for most ecommerce brands, and Amazon set the bar for the entire industry on fast, free deliveries. For Shopify, this new deal will allow the merchants paying to use its services to access a world-class logistics network and presumably drive sales, but without having to completely surrender their customer relationships entirely to Amazon. If this new deal has proven one thing, it’s that Amazon’s logistics prowess continues to be its biggest moat against competitors.
The funny thing is, it’s not for the lack of trying that no one has tried to challenge Amazon’s logistics networks. In fact, Shopify gave it a try just over a year ago, In May 2022, Shopify announced that it had acquired Deliverr for $2.1 billion, with the ambition to build out its own logistics and fulfillment network to serve its merchants. Yet, one year later, as part of a round of cost-cutting that trimmed off 20% of its then workforce, Shopify announced in May 2023 that it will selling its fulfillment assets, including those gained from the Deliverr acquisition, to logistics provider Flexport in an all-stock deal, effectively abandoning its logistics ambitions.
At the time, Shopify blamed the move on the post-pandemic slowdown in online shopping, as well as rising inflation amid economic uncertainty. But looking back, the unspoken truth is that the logistics market is complex and challenging, and It requires a lot of capital investment and operational expertise to build and sustain a high-functioning logistics network. Shopify’s core business is ecommerce software; as a software-as-a-service (SaaS) company, it simply do not have the resources or experience to run logistics effectively — at least not at the same level as Amazon, which has spent the last two decades building out an unparalleled logistics network across the globe. Factoring in some heavy economic headwinds, it’s easy to see why Shopify quickly threw the towel and re-focused on what it does best.
Ease of payment still matters a lot to online shoppers
The other important piece of this Amazon-Shopify deal once again points to payment as a key integration point in the ecommerce value chain. One side effect of supporting “Pay with Prime” is that Shopify is likely losing out on some Shop Pay sign-ups from prospective shoppers, as U.S. shoppers are more likely to have a Prime account than a Shop Pay profile,
This move came as a surprise somewhat, considering that Shopify has long betted on its one-click payment solution Shop Pay as a key differentiating factor for its service. In fact, the integration of Shop Pay has been a major draw for merchants who want to facilitate a seamless checkout experience. Just three months ago in June, Shopify hosted an inaugural Shop Day event to mark the official launch of Shop Cash with more than $1,000,000 in giveaways, signaling a strong intent to keep building out its own payment solution.
So why did Shopify cede this key point of differentiation to Amazon? As Ben Thompson pointed out in his analysis, Amazon likely ceded the profit margins from the payment processing fees to Shopify in order to sweeten the deal. This deal is obviously a big win for Amazon, which has dramatically increased the total addressable market for its logistics services. So in exchange, Shopify gets to keep the profits from handling the payments.
As Amazon puts it in a press release, the new “Buy with Prime” app for Shopify will give Prime members the option to select Buy with Prime on a product’s detail page before completing their order within Shopify’s Checkout. After signing into their Amazon accounts, Prime members pay for their orders using a payment method from their Amazon wallets, and Shopify Payments will process the payment through Shopify’s Checkout. In other words, you can buy with the payment methods you saved with your Amazon account, but Shopify will be the one processing the payment (and pocketing the fees).
The ease of payment is still a key factor for online shoppers because it can make or break the shopping experience. If the payment process is too complicated or time-consuming, shoppers are more likely to abandon their cart. Amazon recently boasted that Buy with Prime can help merchants increase shopper conversion by 25% on average, which I’m sure are quite welcomed by the Shopify merchants.
Scale always wins in the end
Lastly, this deal also points to an inherent hierarchy of concerns among merchants and online retailers that prioritizes scale above all. One of the key reasons that the Anti-Amazon Alliance exists in the first place is because most online merchants do not want to give Amazon full access to their sales data and become commodified as a mere supplier in the process. Shopify’s biggest advantage comes from the fact that it is a neutral ecommerce infrastructure provider. Unlike retail giants like Amazon or Walmart, or new entrants like Gap or American Eagle, Shopify does not own a retail operation — it exists solely to serve merchants with an increasingly all-in-one solution for starting your own online shop.
With the Amazon-Shopify deal, however, it seems safe to say that, once again, scale wins in the end. Amazon’s full stack ecommerce service offers the kind of integrations that only makes sense given its massive, global scale, and that is something that even Shopify could not compete against. And as the old saying goes, if you can’t beat them, join them. Shopify can only resist a potential Amazon link-up for so long before its merchants start to wonder if they are missing out on a key segment of online shoppers: aka Amazon Prime subscribers. It’s understandable that concerns over their proprietary business data matters for merchants, but that would never be placed above archiving scale and finding a bigger audience to sell to. And if achieving scales means they have to give up some data in exchange for accessing Amazon’s world-class logistics network that could improve their customer experience? Well, that became a trade-off that Shopify merchants would have to decide for themselves whether it’s worth it.
