Who Can Beat Amazon (AMZN)?

Who is Amazon’s biggest competition? Walmart? Not likely at this point. The amount of catchup they have to do puts them at a significant disadvantage that likely won’t be able to be overcome. Especially when you look at the scale and dominance they have achieved.

Think about it this way: even if an exact replica of Google in its infancy was created right now and run the exact same way, it would have virtually no chance of succeeding against its older brother. The way network effects and competitive advantages work is exponential, and the attack can’t be executed that way.

A Different Way to Compete

However, from a competitive perspective, Amazon may be vulnerable to Shopify. On the surface, all they share is the fact that they both operate in the e-commerce industry, but there are a few key differences that may start to tip the scales.

For those not well-versed in the e-commerce world, there are many third-party sellers who operate on Amazon. You likely select them as the vendor when they are able to provide the lowest price, and may not even realize it. But they are there and competing on price while they operate through Amazon’s platform.

The issue with their model is they need Amazon to bring in all the traffic necessary to sell their products, and competing on price is a lack of differentiation that usually erodes over the long-term. There are many online business horror stories about sellers being outcompeted by Amazon once their niche reached a strong enough demand level to warrant Amazon’s attention.

Shopify’s Innovation

But for Shopify, the model is very different. Merchants are actually responsible for managing their own traffic, and do so through a variety of social media, advertising, and other marketing techniques. Even more importantly, they operate on a far more differentiated level. Buyers are purchasing from brands, rather than depending on the massive Amazon brand for credibility.

This obviously creates risks for the merchants, but it also manifests opportunity. They have the ability to truly differentiate themselves and have their own customers, rather than having Amazon “own” the customer. And interestingly enough, many buyers often don’t even realize when they’ve bought from a Shopify store. The brand is what they see, and signs of Shopify’s participation are difficult for the untrained eye to perceive.

New Developments

Shopify has recently announced the release of their own fulfillment services, which will involve connecting businesses with Shopify Partners who provide these services, along with other services like themes, apps, and other referral services.

It is now much easier to envision how Shopify could compete with Amazon. By offering a different value proposition to merchants – one that doesn’t point towards the eventual extinction of merchants – they can bring more of them on board, and then connect them with partners. As a platform, they now have the potential to gain high-level success and growth by being able to attract all these parties at once.

Shopify could never compete with Amazon when it comes to customers, but in terms of suppliers, they have a fighting chance because of their ability to provide widespread opportunity to merchants without suffering the costs of failure. In essence, Shopify can act like an incubator with minimal downside risk.

So even though I’m bullish on Amazon long-term, Shopify has a lot of run left in it. At the current price ~$325, it has already jumped up a lot. However, none of the above-mentioned possibilities have manifested yet, which is why I think there’s lots more room for it to increase.

Featured image courtesy of Shutterstock. Charts via Yahoo Finance.