Shopify: Amazon’s Antitrust Counterargument?

Last week, the Wall Street Journal published a piece titled With Shopify, Small Businesses Strike Back at Amazon. WSJ Reporter Christopher Mims described Shopify as the emerging “third option” for retailers to use instead of “list[ing] their goods on marketplaces run by giant companies, or sell[ing] to consumers directly, hoping they’ll make more on each transaction despite fewer sales.”

Shopify is a subscription-based service that allows retailers to set up an online store and sell their products. The company’s website describes it as a “commerce platform that offers a way to quickly launch your dream business and start selling to your customers.” It’s possible that you’ve bought products online not realizing that the retailer is using Shopify’s platform. For online merchants, that is part of the appeal: it gives them access to cloud-based e-commerce tools while letting them maintain control of their branding and customer relationships, which is very much in contrast to the experience of selling through Amazon.

As Shopify grows, it has begun competing more directly with Amazon. According to the WSJ, Shopify is building its own network of fulfillment warehouses, intended to rival Amazon’s sprawling logistics operation. Shopify has also taken a few shots at Amazon on Twitter as well, poking fun at how the company treats third-party merchants (“Corporate meme warfare has commenced,” declared Bloomberg columnist Tae Kim in response to the tweet). The competition between the two companies was further highlighted last month when Amazon acquired Selz, a startup that mirrors Shopify’s service by helping merchants set up their own online retail experience.

Ironically, Shopify’s escalating competition with Amazon could be in Amazon’s self-interest in a different domain: Shopify’s growth offers Amazon a strong data point to show antitrust regulators that it isn’t an e-commerce monopoly.

Over the last few years, Amazon has faced scrutiny from antitrust regulators in the US and the EU. Last week, President Biden appointed Columbia Law Professor Lina Khan to the Federal Trade Commission. Khan is best known for being an outspoken critic of Amazon’s alleged market dominance. Her widely circulated 2017 paper “Amazon’s Antitrust Paradox” argued that US antitrust law needs to evolve to better address competitive harms caused by Amazon’s market power. Biden also recently appointed Tim Wu, another antitrust scholar who has been critical of large tech companies, to the White House’s National Economic Council.

While Biden’s appointments indicate that Amazon could be in the regulatory crosshairs of the FTC, Shopify’s accelerating growth during the pandemic raises questions about the strength of Amazon’s alleged monopoly. In 2020, Shopify’s revenue grew 86 percent to $2.9 billion. Although that is only a fraction of Amazon’s online retail revenue (which is still by far the largest), it demonstrates that Amazon’s power in the e-commerce space might not be as durable as critics claim. In October, the House Judiciary Subcommittee on Antitrust released its report on competition in digital markets, which Lina Khan co-authored. The subcommittee’s final report argued that Amazon “has monopoly power over many small- and medium-sized businesses that do not have a viable alternative to Amazon for reaching online consumers.” Shopify – a viable alternative and arguably the biggest threat to Amazon’s power in the online retail space – was only mentioned once in the 450-page report.

As Shopify takes market share from Amazon with its tools now being used by over 500,000 e-commerce businesses in 175 countries, it could be indirectly making an argument that Amazon might not be the dominant monopolist that critics claim it is. Before making any definitive determination on that, we’ll have to wait to see what Amazon does with its newly acquired Selz platform.