Scott Galloway, a professor at New York University’s Stern School of Business, says one of the biggest unexpected threats to e-commerce giant Amazon could be Shopify.
“Shopify has an opportunity to be the protein to Amazon’s virus.”
The Ottawa-founded e-commerce company recently announced a billion-dollar investment in its own Amazon-style fulfillment centres in the United States. Galloway took to Section4’s YouTube to lay out how the Canadian unicorn could challenge one of the world’s largest technology companies.
“As a species, we’re terrible at sizing up risks and threats. This extends to the market. What if anything could breach the most impenetrable fortress in the world of business right now: Amazon? What’s if its something most people don’t see as a threat? Enter Shopify,” Galloway said in Section4’s video. “[Shopify] has the trifecta of a successful unicorn: explosive growth, recurring revenue, and strong, and improving gross margins.”
Shopify’s market capitalization is at $43.7 billion, up nearly 200 percent from last year, he noted, adding that the company also outperformed every company on the S&P 500 Index, including Apple, Amazon, and Nike. But Shopify’s growth is not the only factor that could make it a big threat to Amazon.
Galloway said Amazon partners with companies the same way that a virus partners with a host, in that partnerships will always favour Amazon. The tech giant uses its data to promote its own private label brands, and essentially owns the consumer relationship, he explained, therefore Amazon makes it easy to sell products, but incredibly difficult to establish a brand or sustainable business.
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“Shopify doesn’t operate its own marketplace, so it has no private label brands, and really is a platform as opposed to a competitor,” Galloway stated. “Shopify has an opportunity to be the protein to Amazon’s virus and serve as a true partner to e-commerce firms.”
Shopify unveiled its plans for the fulfillment centres at its Shopify Unite conference. The centres would allow companies to ship products to consumers in customer-branded boxes, rather than Shopify-branded boxes. This would explain Shopify’s customers consisting of direct-to-consumer e-commerce companies that have built their own brands.
One challenge for Shopify will be capital, Galloway said, particularly in light of its earmarked $1 billion for the new fulfillment centres. In Q2 2019 alone, Amazon spent $16 billion on shipping and fulfillment costs. Although Shopify isn’t currently profitable, its market capitalization jumped six percent after its fulfillment announcement.
“The key here … is storytelling. That is their ability to paint a vision that is so compelling that it can attract the cheap capital to, in fact, make the future,” Galloway said. “Shopify will need to make the ultimate jump to light-speed here and convince investors to replace profits with vision.”
Photo by Jim Block, courtesy Berkley-Haas