Discover more from Tanay’s Newsletter
"Buy with Prime" and Arming The Rebels
Amazon's attack on Shopify?
This week I’ll be discussing Amazon’s recently announced Buy with Prime initiative and the impact it could have on the eCommerce ecosystem.
Amazon’s Buy with Prime allows eCommerce merchants to offer their customers the option to checkout with Prime and get the 1-2 day free shipping and free returns experience they are used to.
Brands can use “Buy with Prime” for their payments/checkout experience while still owning the customer relationship and eCommerce experience.
Users (who are Prime members) can checkout with their stored payment credentials on Amazon and receive the typical delivery experience they are accustomed to with Prime of shipping within 1-2 days and free returns.
With Prime at ~200m members, it is a compelling option for merchants looking to drive increased conversions and offer a better overall experience to their customers. Before I touch on it’s impact, I’ll go into how it fits into the eCommerce stack.
The eCommerce Stack
At a very simplified level, one way of thinking about the key eCommerce stack or “jobs” that a brand or merchant needs to fulfill are:
Platform / Storefront / Infrastructure: Have a presence online for your products (web, mobile, etc.) and manage the backend catalog, take orders, etc.
Distribution: Drive traffic and awareness to your products and storefront
Payments / Checkout: Allow customers to checkout and accept payments from customer
Logistics: Handle logistics of shipping products to customers and taking care of returns and customer service.
The bundled Amazon experience
For those who sell on Amazon, Amazon takes care of all the aspects of the stack.
Platform / Infrastructure: Upload the catalog to Amazon and your product detail pages and storefront is created and available on Amazon.com and their mobile app.
Distribution: Automatically show up to Amazon’s hundreds of millions of customers. Can “purchase” additional distribution via Amazon ads.
Payments / Checkout: Handled by Amazon, including 1-click checkout.
Logistics: Fulfillment by Amazon allows sellers to outsource shipping to Amazon with Amazon handling receiving, packing, shipping, customer service, and returns for those orders. Prime users automatically get 2-day shipping and free returns.
The unbundled experience
But many merchants want to own the customer relationship and experience and so choose to instead operate their own eCommerce store (sometimes in addition to selling on Amazon).
That’s where Shopify came in with its philosophy of arming the rebels. They initially focused on the eCommerce platform/storefront aspect of the stack and built out an app marketplace to support merchants on the other aspects. However, over time, they have been getting into more parts of the experience to increase the value they provide merchants and also grow their take rates.
The typical stack for those who go this route is:
Platform / Infrastructure: Use Shopify or WooCommerce for operating a storefront and running the core eCommerce backend. Also supports integrations with storefronts on Social Media Platforms (Instagram, FB, TikTok, etc)
Distribution: Merchant runs ads on Facebook/Instagram/Google to drive and owns customer relationships so can text/email existing customers via Klayivo/Attentive.
Payments / Checkout: Merchant can self-manage or use Shopify payments in addition to supporting other payment and checkout options.
Logistics: Merchant can self-manage fulfillment or use a third-party fulfillment service including Amazon’s fulfillment network or Shopify’s Fulfillment Network)
If you don’t yet receive Tanay's newsletter in your email inbox, please join the 4,000+ subscribers who do:
Impact of Buy with Prime
Amazon has over time looked to increase the options they provide for merchants who choose to rebel from Amazon and operate their own eCommerce experiences, with products such as:
Amazon Pay for payments and checkout
Amazon Fulfillment for logistics
Buy with Prime marks another step in that journey of “arming the rebels”, by offering a more compelling value proposition to a customer to checkout with Amazon (2-day delivery, free return) rather than a vanilla Amazon Pay.
In that sense, first and foremost it bolsters Amazon’s payment and checkout offering. This will enable Amazon to earn payment processing fees on the payment volume that goes through this checkout flow.
But to offer free 2-day delivery and free returns can be difficult and operationally complex for brands to do. So, in essence, it also helps Amazon’s fulfillment offering, since brands wanting to take advantage of “Buy with Prime” will likely have to use Amazon fulfillment. Currently using FBA is a requirement, although Amazon states it intends to expand Buy with Prime to merchants using other fulfillment as well (although in that case, they will have to ensure the delivery times).
Amazon’s approach seems to suggest: that if you want to rebel from us and offer your own eCommerce experience be our guest, but use us anyway for the parts of that eCommerce stack which make sense.
Impact on Shopify
Shopify has been on a journey over the past few years to continue to provide more value to its customers and also capture more of the value.
If Buy with Prime drives improved checkout rates and is a better checkout experience, then merchants will want to adopt it over time. While Shopify is not impacted too much in its core platform/infrastructure offering (and isn’t at risk of slower growth in merchants or merchant churn from this), Buy with Prime could hurt Shopify in two key ways:
Reduced Payments Volume: Shopify earns ~70% of its revenue from payments and other solutions, with ~50% (and rising) of the total GMV happening on Shopify using Shopify payments (on which Shopify earns ~3% in fees). If merchants adopt Buy with Prime and customers prefer it for checkout, then the share of payment volume on Shopify which goes through Shopify payments could flatten out sooner or even start to fall.
Reduced Demand for Shopify Fulfillment Network: Shopify has been investing heavily in its fulfillment network and trying to use it as a way to grow take rates (~10%+ take rates on fulfillment transaction volumes). It is currently investing $2B over the next few years to support 2-day delivery in the US. However, Amazon’s network is much further along with Amazon having invested 10B/yr over the last few years. If Buy with Prime works and is priced right, it will likely make it more attractive for merchants to use Fulfillment by Amazon than a competing network. This could hurt the demand for the use of Shopify’s fulfillment network.
Amazon Buy With Prime isn’t a direct attack on Shopify’s “core” eCommerce platform product, but an attack nonetheless on two of the most important areas for the company: their largest revenue driver and their heaviest investment area.
Thanks for reading! If you liked this post, give it a heart up above to help others find it or share it with your friends.
If you have any comments or thoughts, feel free to tweet at me.
If you’re not a subscriber, you can subscribe below. I write about things related to technology and business once a week on Mondays.
This can be viewed as separated into two (backend infrastructure and storefronts), but since this piece isn’t going into the details of headless commerce, for simplicity I have shown it as one.