The business of Ox Verte in Manhattan, an organic catering firm, was halted in March. The company’s corporate clients, which included start-ups offering free lunches and salespeople who offer round-table breakfasts, had all adopted work-from-home policies. For the foreseeable future, conferences and events were cancelled. The only way to beat the pandemic was retail sales, according to Jessie Gould (Ox Verte chief executive). They would deliver to homes instead of catering to offices. They would also sell ready-to-eat meals and grocery boxes to appeal to those who are more health-conscious than ever before. Ox Verte had an existing website but it was not well-suited for taking individual orders. To enable the pivot, they set up a new online storefront with Shopify, an ecommerce platform located in Canada.
Shopify, unlike Amazon, is an online marketplace where customers can buy products. Shopify, however, is a software platform that is visible only to merchants. Shopify is not the same as Amazon. Shopify does not list products on Shopify.com. Ox Verte used Shopify’s software to manage inventory and handle payments. These features have made Shopify a popular choice for “direct-to-consumer” brands who don’t wish to share profits or see their brand suffer on Amazon and other marketplaces like Wayfair or Walmart. The D.T.C.’s whole spirit is to “own the relationship with the customer.” Space is having the relationship with customers, and Shopify does that much better than Amazon. Paul Munford, an angel investor, is the founder of Lean Luxe, a popular direct-to consumer newsletter.
Although Shopify’s operations may be low-profile by design, its success has made the company a key player in what Ben Thompson (author of the tech newsletter Stratechery) recently called the “Anti-Amazon Alliance.” Another member of this alliance, whose name probably resonates more than Shopify, is Google Shopping. Shopify has formed partnerships with advertising giants such as Facebook over the past few years and now performs the same real-world functions as Amazon. Online businesses have long longed for the ability to offer services such as two-day shipping, easy returns and operational efficiency, without even having to go to Amazon. Individual businesses are unlikely to achieve this vision, except for established giants like Nike. Shopify’s software infrastructure, which can be shared among merchants, has not only improved the competitive prospects for existing e-commerce companies but also allowed for the creation of new ones, including mine.
After reporting this article for months, I quit my job as a software engineer to start my own company. The original plan was to spend some time conducting user interviews, then to create a product. My business partner and me saw an opportunity to move as soon as the pandemic hit. Mellow Groceries was an Asian grocery-delivery company that allowed people to shop at local suppliers in Flushing, Queens. Many of these suppliers were not accepting orders via WeChat, the Chinese social-media platform. So I joined Shopify.
Reporting on software is one thing, but it’s quite another to actually use it for a customer. Shopify was a great experience. We uploaded a spreadsheet of product information — images, prices, categories — picked a template for our digital storefront and out popped a fairly sophisticated-looking e-commerce website. Already a checkout page was available, which was linked to various payment providers. Customers could receive customized shipping and purchase confirmation emails. We would receive an email notification when an order was received. The dashboard allowed you to monitor the behavior of site visitors. We were up and running in two days.
We bet on Covid-19’s ability to accelerate e-commerce in general and propel us as a merchant. E-commerce’s share of US retail sales grew to 12 percent in eight years, from 5 percent five years earlier. Only 12 weeks were required between March and June to get from 12 percent to 16 percent. Amazon appears to have been the largest beneficiary of the shopping pandemic. The stock price of the company has risen by as much as 86% since the start of the year. Shopify, however, has also benefited: As supply chains developed wholesalers turned towards retail sales and local businesses moved online. Shopify’s stock has increased by 125 percent since mid-November. In April and May, when Amazon’s performance was not as strong and Prime subscribers faced delivery dates that were months away, shoppers turned to other sources for their e-commerce purchases. This included their local hardware store, fishmonger, and the organic catering company that provided lunch for them at work. They were surprised at Shopify’s unrevealed capabilities, but the experience was actually quite good.
Shopify isn’t the only solution for online businesses. My partner and I discovered that Shopify can solve some of the problems associated with starting an ecommerce store but it doesn’t address all. Shopify’s unique identity as an invisible platform and neutral platform is both its greatest asset, and its greatest weakness in a world where customers are scarcest resources.
The story that has shaped e-commerce over the past two decades has been, in large part, Amazon’s rise from a reseller of books to the default shopping destination and computing engine on the internet. Although many books have been written about Amazon’s success, the simple answer is in plain sight. Amazon’s mission is to provide a platform where customers can buy anything online at the most affordable prices. What makes customers happy? What makes customers want to return and purchase again? These are the questions that Amazon has been trying to answer. Amazon delivers my order within a few days. If there is a problem with my purchase, I can return it without any shipping labels or packaging. The $119 annual Prime subscription is well worth it for all that convenience.
Amazon’s customer pampering has been a blessing for both them and Amazon. However, the merchants, the other panel of the triptych, have not fared so well. Since 1999, Amazon opened its marketplace to third-party sellers. Over 1.7 million have signed up. This is due to Amazon’s large customer base, high sales volumes, and ability to fulfill orders. Fulfillment by Amazon (F.B.A.) is the last service. Fulfillment by Amazon (F.B.A.) is a service that allows companies to stock, pick, and pack their inventory online.
Amazon now has 60% of its commercial activity from third-party sellers. This is a major reason Amazon can call itself “the everything shop”. Their proliferation, paradoxically, has weakened the power they have. They are not well-known brands and have limited negotiating power. Amazon receives $8.50 commission if a clothing business sells a $50 article on Amazon. Amazon also gets $6.50 if the seller chooses to advertise on Amazon. Amazon gets closer to 40% if Fulfillment By Amazon is used. Amazon ships F.B.A. Amazon ships F.B.A. Amazon collects and monitors pricing data. Until last year, title prohibited sellers from selling their goods at a lower price elsewhere. The company currently monitors prices to avoid “practices which harm customer trust”. I was planning to interview one brand, but it decided to stop talking to me after I told it that I would be writing about Shopify’s potential competition with Amazon. Amazon claims it has a mutually beneficial relationship with third-party sellers, and that our interests align.
Shopify’s rise is, in many ways, a response to Amazon’s. This is about a new breed of e-commerce merchants that want to take control and be independent. Shopify has put the merchant first. Amazon has had great success putting customers first. Shopify, which removed the technical barriers to entry into e-commerce in 2010 after Warby Parker launched the direct-to consumer phenomenon, has played a significant role in the boom that has produced indie favorites such as Gymshark and Brooklinen. Shopify also hosts the New York Times’s merchandise shop.
Shopify and other companies have made software a commodity. What makes you stand out is not your code skills, but whether or not you have something to share with others. While the roles of “creator and “influencer” were initially ambiguous and relatively marginal side jobs, they have now become aspirational career options. 86 percent of Gen Z and millennials who were recently surveyed stated that they would create sponsored content for money and 54% said they would be social-media influencers. In turn, influencers have discovered that it is more profitable and meaningful to promote their products than those of others. Shopify allows celebrities such as Kylie Jenner to turn their existing audiences on Instagram and Snapchat into billion-dollar online businesses in a matter of hours.
Brooklinen is an example of a well-funded direct to consumer sheets company. It runs on Shopify and has marketed the New York City subway system with ads. They also started selling on Amazon two years ago. Justin Lapidus (the company’s senior vice-president for growth marketing), told me that they received a report showing that thousands of people searched for Brooklinen using Amazon search. Brooklinen was willing to trade some of its profit for the opportunity to access a market that it wouldn’t otherwise be able to. Lapidus stated that many people simply say that they only buy Prime products.
Shopify was founded in order to be a marketplace. Instead, it offers a direct-to-consumer alternative. It has amassed the power, money and influence to rival many marketplaces and outperform the majority of its clients. Shopify has the potential to use this status to drive traffic towards brands in a global market. Shopify could be a marketplace in its own right.
Finkelstein was hesitant to discuss the possibility when I brought it up with him in February. But Shopify launched Shop in May. Shopify described Shop as a digital assistant for customers who make purchases through Shopify merchants. The app was built from an older app called Arrive that allowed you to track the progress of your package. It is, if it’s not a marketplace, then at least an aggregator. Businesses you’ve already purchased from are pinned, Instagram-stories-style, for easy access, while a section underneath displays new products and recommendations. A new feature from the pandemic era allows you to search local businesses on Shopify. Shop is more like Amazon’s Google Shopping than Amazon because you have to exit the app in order to make purchases. It also lacks the convenience and speed of a single shopping cart. This product reflects Shopify’s philosophical tug-of war between its antimarketplace stance, and its stated goal of helping merchants succeed as best as it can.
Finkelstein stated that Shopify was best placed to “own entrepreneurial” in the same way as Facebook and Google. It felt a little too polished for me at the time. It was then that I began to think about it. Mellow Groceries was, in many ways, a reflection of my worldview. It stated that Asian groceries were difficult to find in New York City and that people would pay for this access during a pandemic. To test this idea, I wouldn’t have tried it if I had to write all the code. Although I didn’t succeed as an ecommerce merchant, Shopify allowed me to try.