Shopify vs. Amazon

In 2014, Shopify took in $105M in revenue. In 2020, it took in over $120B - that's billion, with a B!

How did they do it? By coming in through the back door - Amazon's back door - and "arming the rebels".

This week, Benedict Evans published a short but thoughtful piece explaining Shopify's rise in the e-commerce space. We believe the lessons from the competitive relationship between Shopify and Amazon are broadly applicable to any industry at any time and are worth noting.

The rise of Shopify is best explained by the confluence of two macro trends in the consumer retail space:

1. Customers increasingly demand convenience

Sure, e-commerce stores and tools have been around since the beginning of the internet. But they were difficult to implement and available only to the most tech-forward. Shopify's breakthrough was offering a convenient way for anyone to set up, manage, and grow an online store in a few clicks.

2. Direct to consumer

Big brands and small brands alike are having a harder time standing out in the digital age as shelf space becomes effectively infinite online - especially on Amazon's marketplace. Shopify is addressing some of these concerns by giving brands the tools to easily start selling directly to consumers where the only shelf space available on the site is dedicated to their brand.

While the macro trends are important, Shopify's customer strategy is the crucial piece to the puzzle.

They don't compete directly with Amazon. And why would they?

Amazon sells goods to consumers. Third party sellers sell through their marketplace (the toll booth). Often, there are conflicts of interest between Amazon and third party sellers.

Shopify on the other hand sells tools to retailers. They 'arm the rebels' to sell direct to consumers.

The difference between Amazon and Shopify is what part of the retail value chain they address. In choosing to serve retailers, Shopify is staking out real estate further up the retail value chain (the retailer) and is chipping away at Amazon's downstream (consumer) hegemony.

When evaluating the competitive strategy of your organization, study the value chain from suppliers to manufacturers to wholesalers to retailers to consumers. If there are parts of chain that are underserved, these represent opportunities to compete indirectly by serving a different customer a la Shopify (sell the tools) vs. Amazon (the retail toll road).

In summary, we'll leave you with four questions to reflect on:

1. What are the broad trends affecting your industry?
2. How are these trends affecting the value chain in your industry?
3. Which points along the value chain are in need of better solutions?
4. How would your competitive position improve if you chose to address these particular nodes in the value chain?

The rise of Shopify (Benedict Evans)
+ "Shopify isn’t doing what Amazon does - it isn’t competing directly and it wouldn’t fit inside a competition lawyer’s market definition (I wrote more about the market definition challenge here). But it challenges Amazon at a very basic point of leverage by doing something different, but relevant. This is very often what competitive threats look like in technology. In markets with strong network effects or winner-takes-most effects, it’s very hard to displace a new incumbent directly, but pretty common to address an underlying customer need in another way."

The era of audio creators has arrived (New York Times)
+ "Audio creators are a new kind of influencer, born of the meteoric rise of the audio-only chat app Clubhouse. Together, they are pulling in millions of weekly listeners and building online followings. Now, with Clubhouse booming and other social apps, like Twitter, taking cues from its success, they are banding together and working with big brands."

Chaos strikes global shipping (New York Times)
+ "Viewed broadly, the volume of global trade dipped by only 1 percent in 2020 compared with the previous year. But that doesn’t reflect how the year unfolded — with a plunge of more than 12 percent in April and May, followed by an equally dramatic reversal. The system could not adjust, leaving containers in the wrong places, and pushing shipping prices to extraordinary heights."

Is the 4 day work week coming? (Bloomberg)
+ "Jobs website ZipRecruiter says the share of postings that mention a four-day week has tripled in the past three years, to 62 per 10,000. Consumer-goods giant Unilever Plc in December started a yearlong trial of the idea for its New Zealand staff. Spain’s government is considering a proposal to subsidize companies that offer a four-day week. And even in notoriously busy Japan, whose language includes the word karoshi—death from overwork—lawmakers are discussing a proposal to grant employees a day off every week to protect their well-being."

Selection criteria to consider when acquiring a business (Yale School of Management)
+ "We are drawn to businesses with very specific economic characteristics, and we do not care what the company does, as long as it is legal and ethical. We care intensely about the business’s economic underpinnings and how it works and makes money. This is frequently the opposite approach of budding entrepreneurs, who seek a product-market fit for their conceptual idea (in other words, they have an answer and then seek a question). Our contrary approach starts with a question – the specific economic characteristics – and then seeks an answer: a business that satisfies those selection criteria."

Worldwide estate and inheritance tax guide 2020 (EY)
+ "The Worldwide Estate and Inheritance Tax Guide 2020 (WEITG) is published by the EY Private Client Services network, which comprises professionals from EY member firms. The 2020 edition summarizes the gift, estate and inheritance tax systems and describes wealth transfer planning considerations in 42 jurisdictions and territories."

Software 2021: The rise of the cloud (Battery Ventures)
+ "Averages are misleading! The best companies are shifting their dashboards from tracking “average XYZ” to measuring strictly defined cohorts in order to figure out which of their customer segments are healthiest and which customer-acquisition motions are worth prioritizing."

A guide to potential tax law changes under the Biden administration (Wealthmanagement.com)
+ This piece gives an overview of what is being considered under the new administration's tax policy and how to plan accordingly.

A history of the art market in 35 record-breaking sales (Yale School of Management)
+ "When Pablo Picasso’s “Les Femmes d’Alger (Version O)” sold at Christie’s in New York for $179 million dollars in May 2015, it was only the 36th time in the past 315 years that a world auction record had been set, and the sale raised questions well beyond the art world. How could a single painting be worth so much? Why is art so important to wealthy households? What economic and social factors could lead to enshrining Picasso’s colourful near-abstract portrait as the most valuable picture in the history of the modern world?"

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