An unlikely competition: How Shopify is mounting a serious challenge to Amazon and Flipkart – The Economic Times

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SynopsisShopify has been quietly and assiduously chipping away as an alternative to Amazon and Flipkart by getting small businesses to use its platform.

The journey of e-commerce in India has been nothing short of phenomenal. With the rise of digital India, online shopping has grown tremendously in the past couple of years and has also seen encouraging participation from Bharat. Interestingly, it is not just the larger online marketplaces such as Amazon and Flipkart making strides in the e-commerce market, but standalone websites and e-commerce enabler firms like Shopify have also started to make their presence felt in the industry.

Canada-based Shopify is, in fact, emerging as a formidable competitor to leading e-commerce firms worldwide. Shopify’s growth is reflected in its impressive financials, where total revenue for the third quarter came in at $767.4 million, a 96% increase from the comparable quarter in 2019. Merchant Solutions’ revenue growth increased 132%, to $522.1 million, driven primarily by the growth of Gross Merchandise Volume (GMV).

The story is repeated in India. Shopify, which set foot in the country in 2014, saw a 123% growth in the six months of 2020. “We have more than doubled compared to the year before. This speaks volumes of the efforts we are making and we are not done yet, we are just getting started here,” Harley Finkelstein, President, Shopify, said at the virtual TiEcon Delhi-NCR.

E-commerce has emerged as a strong winner during the pandemic, and almost every company in the space has posted stellar numbers. However, what explains the reason behind Shopify’s strong growth in the country and elsewhere? The answer lies in its business model.

The host
Shopify was started in 2006 with the objective to create a software that makes it easy and inexpensive for anyone to build an online store within an hour or two. Unlike a typical e-commerce firm like Amazon or Flipkart, Shopify is not a marketplace which lets you sell on its platform, but instead lets you make your own e-commerce platform, manage it like you want. Shopify will not charge you a commission for every single item you sell, but levy a monthly charge for using its tools to run your business.

In simple terms, Amazon and Flipkart is like a fair where sellers come together and sell their products, paying a sum of commission to Amazon for every item you sold along with other charges. Here it gets difficult to create your unique image as you are competing with thousands of similar brands and you’re up against a ton of competitors.

Harley Finkelstein, President, Shopify.Whereas, Shopify is like the building where you’ve occupied a space to run a business and you pay the monthly rent. This allows the space of creating a unique image for yourself and it lets you run your business however you want. On top of it, this eliminates any issue of price disparity between small businesses and e-commerce firms or the debate around competitive pricing and control over these small businesses since Shopify is not selling a single product under its name, but only providing tools to help sell those products.

Further, Amazon and Flipkart provides limited design and payment options to sellers and from professional sellers, it charges selling fees along with a monthly subscription. In Shopify, there are various modes of payments for customers including Amazon Pay and if you are using Shopify Payments, the company’s own gateway, you don’t have to pay a transaction fee. It is this simplicity and the ability to have control over your business that draws many to Shopify. Small businesses are also increasingly wary of big tech companies, and there is a growing perception that e-commerce giants hurt SMEs. For many, platforms like Shopify form an excellent alternative.

The evolution
In 2012-2013, the Shopify team understood how entrepreneurs and businesses were not just selling online or offline, they were selling anywhere the consumer was. They started working on creating a one-stop solution where their clients can easily run an omnichannel business.

“We rethought the way the company operates and moved away from just being a single point solution to a centralized back office where you have your inventory, analytics, reporting, marketing campaigns, orders, shipping, where you can do everything you need to do to run the business,” Finkelstein said.

This was the second phase of Shopify moving from being an e-commerce provider to a retail provider, no matter where consumers might be. Even today, Finkelstein believes that the future of commerce and retail is not online or offline or any marketplace or social media, it’s everywhere.

Today, Shopify is expected to become the second largest e-commerce platform after Amazon in the US. “When you combine tots of tiny little lights you end up getting the sun. What that allows us to do is when we now negotiate with payment companies or shipping companies, we negotiate as if we’re the second largest retailer, but instead of keeping those economies of scale for ourselves, we distribute those economies of scale to all the businesses that use Shopify. It allows them to compete better and grow more easily and become the next incumbent in their space,” he said.

Shopify is benefitting since a lot of local businesses want to go online.Conscious consumerism
In 2020, the retail world transformed rapidly. Since physical stores were closed, there was a massive acceleration of digital retail and Shopify worked on creating a new demand for consumers to seek alternatives to large e-commerce players. During this time, Shopify introduced additional features in its templates such as giving early access to Shop Pay Installments, a ‘buy now, pay later’ product to a select number of merchants. This lets merchants offer different payment options and flexibility at checkout to their customers and was aimed at boosting sales through increased cart size and higher conversion.

In the meantime, the Shopify team spoke to more than thousands of consumers who told them they prefer to buy whenever possible from independent brands. “That is an enormous difference. If you go back 20-30 years, one of the most important qualities or classifications and reasons for purchase from a consumer perspective was price and convenience. But that’s not what consumers said to us. Consumers said, ‘Yeah, those things are important, but what I really want to do is I want to vote with my wallet, to support independent brands and independent businesses, whenever possible’,” he said.

He explained that the countrywide lockdowns made it very convenient for large players like Amazon to expand their customer base, but as went back to their communities, their towns, and cities, they wanted independent businesses around them to do well.

“And to do so, they’re going to support them. That was a really, really big change. That is a change in consumer preference. Consumers shopped at locally owned businesses online to strengthen the local economy and help support job creation and invest in their community. So it wasn’t just that they love great independent products, they also believe in buying from independent retailers. This idea of conscious consumerism, I don’t think it is going away,” he said.

Shopify can become the second largest e-commerce platform after Amazon in the US.Lucrative Indian market
Finkelstein said that the efforts Shopify has been making in India for the past six years are finally paying off. He pointed out that Indian small businesses and entrepreneurs are moving from selling on large e-commerce platforms to having a direct relationship with the end consumer and want to go global.

“They want to sell to a global audience from day one when they hit that launch button on their Shopify store. The demand from global consumers is also increasing. Shopify in India has built incredible brands, where a majority of sales are not from Indian consumers. They sell a lot in India, but they sell way more internationally as well. When you look at the GMV from Shopify stores, it nearly doubled in the first three quarters of 2020. India’s GMV grew along with it about 80% from the same period the previous year,” he said.

Finkelstein also believes that India is a great testing ground for direct consumer brands. He lauded the country’s innovative tech ecosystem, huge potential market and encouraging public policies designed to support local brands. As advice to aspiring entrepreneurs, he says to start from home and see if it resonates or not and then take it globally.

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