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In recent years, a rising star has emerged in the e-commerce field - Shopify. Some sellers believe that Shopify will become the second Amazon. This idea is due to Shopify's impressive growth and impressive GMV in recent years. However, Shopify will not become the next Amazon. This article will briefly explain the reasons.
Differences in business models
First, let's look at Shopify's business model. It provides a one-stop solution for individual sellers and businesses to build their own independent sites. Shopify provides these sellers with other services, including payment, lending, and even logistics services. Shopify looks like Amazon on the surface, with third-party sellers entering the platform to sell and achieving resounding success. Both provide a broad platform where sellers can sell goods to consumers and use the platform's logistics services. However, the similarities end there. The key difference between the two is that Amazon is a platform, and sellers only use the platform to sell products, while Shopify is a website that provides services for sellers to build independent websites. It's this key difference that has a huge impact on Shopify's economics.
Amazon is like a huge online department store. The more popular the platform is, the more audiences there are, and the more sellers will want to enter the platform to sell. As the number of sellers increases and the variety of products sold increases, Amazon becomes more popular. This allows Amazon to form a network effect, in which the scale of the network increases the value for the participants .
Amazon is an online retailer that is like a large department store located on a busy street. If Amazon sells physical stores, the rent is very expensive for sellers who want to reach a large number of consumers. Amazon charges a commission of usually 8-15% on each transaction, plus other fees . But with Shopify, you only need to pay a small fee overall. This is why Shopify is neither Amazon nor can it become Amazon. Creating an independent website does not guarantee a large consumer base, and the profit is also low... Amazon's value lies in having high-quality and huge traffic on the platform. The value provided by Amazon has nothing to do with cost. Amazon's value depends on the consumer base it can provide to sellers. However, Shopify's value depends on the website building service it provides to sellers, and this business model does not have high profits. In addition, another reason why Amazon becomes "Party A" is that if sellers want to move their Amazon stores, their related orders will collapse because consumers belong to Amazon, not the sellers. What happens if a Shopify seller wants to move their store? Obviously, consumers will continue to stay because they are attracted by the seller. This is an advantage for sellers. But for Shopify, it is a big disadvantage.
If you think the evidence is not enough, take a look at the following hard data:- In 2018, the total GMV of Amazon's platform was US$160 billion, and third-party sellers on its platform created an astonishing GMV of US$42.7 billion, accounting for 26.7% of Amazon's total GMV.
- In 2018, eBay's GMV was US$92.6 billion, and third-party sellers generated US$10.86 billion in GMV, accounting for 11.7%.
- In 2019, Shopify’s third-party sellers only accounted for 2.63% of total GMV ($13.75 billion, of which third-party sellers generated $360 million). Although Shopify is enhancing related services, this is actually a decrease from the 2.68% in the second quarter of 2018 (GMV total value of $9.14 billion, of which third-party sellers generated $24.5 million).
From the data, the gap is obvious. eBay's gross profit margin is 77.8%, while Shopify's gross profit margin is about 56%. Due to the increasingly complex profit and loss caused by the structurally poor business model, Shopify's operating profit margin is -10.9% compared to eBay, while eBay's operating profit margin is +20.7% (including stock price claims). Shopify’s business model is inherently inferior due to the lack of network effects and Amazon’s massive audience. Amazon is more profitable for sellers . We see that Amazon and Shopify charge completely different fees, and their business models are also completely different.
Shopify's self-built website business does pose a little threat to Amazon. It is much cheaper for third-party sellers to open stores through Shopify, which can lower prices. Over time, this may eventually lead to the loss of some expensive platform sellers. In addition, Shopify also eliminates the risk of consumers buying from "unknown" sellers through payment protection plans. However, even if Shopify does pose a threat to Amazon, Shopify's economic situation will not really improve. At most, Shopify will curb the continued growth of Amazon and eBay.
Although most sellers think that Shopify is the next Amazon platform, it is obviously not. Shopify cannot bring sellers a large consumer base like Amazon, and a large audience is the key to making sellers profitable . For the same GMV, Amazon earns 10 times more commission than Shopify . Even if one day Shopify sellers create the same GMV as Amazon sellers, Shopify’s scale is still far behind Amazon because Amazon’s commission rate is high and its profit is also high.
In short, Shopify and Amazon are not comparable. Most sellers think that Shopify is like the Amazon platform. Shopify and Amazon have some similarities, but the differences are more obvious. The most complete guide to opening a Shopify store, you will know everything after reading it
In addition to Amazon, you can also choose to sell on these niche platforms during the year-end peak season...
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