Deep dive: Is Amazon’s Buy with Prime really ‘bad news’ for Shopify?

Has Amazon just made its prime membership even more compelling?

The ecommerce giant recently announced its ‘Buy with Prime’ (BwP) programme, a new initiative that lets third party retailers use Amazon’s fulfilment service.

The move will allow 200 million Prime members to shop directly from retailer’s online stores with the same benefits they get when shopping directly from Amazon, such as fast and free delivery, easy checkout and free returns on eligible orders.

When shopping on participating sites, consumers will see a Buy with Prime button along with shipping information.

“For over 20 years, we’ve been empowering small and medium-sized businesses with opportunities to grow,” said Amazon vice president of Buy with Prime Peter Larsen.

“Allowing merchants to offer Prime shopping benefits on their own direct-to-consumer online stores is an exciting next step in our mission to help merchants of all sizes grow their business—whether on Amazon or beyond.

“With shoppers purchasing directly from merchants’ online stores, Buy with Prime will allow merchants to build customer relationships and brand loyalty while offering conversion-driving benefits like fast, free shipping.”

It’s a fascinating move from Amazon and one that many analysts believe is aimed to blunt its fast-growing competitor Shopify.

But who will be the beneficiaries of Buy with Prime? And how does the programme tie into Amazon’s wider vision?

Benefits for merchants

“Buy With Prime is a significant benefit to merchants because it allows them to maintain direct control of the consumer buying process, free from the constraints of the Amazon marketplace, whilst offering all of the delivery and returns benefits that Prime provides,” Fulfillment Group co-founder Benjamin Jones tells Charged.

With BwP, merchants are able to access Amazon’s expansive and unrivalled fulfilment network, previously reserved only for sellers on the Amazon platform.

Therefore, customers can purchase directly from a brand’s store with the same quality and speed guarantee as if they were purchasing directly from Amazon.

Consulterce founder and ecommerce strategy consultant Martin Heubel also believes retailers will benefit from the familiarity and trust that customers associate with Amazon Prime.

“BwP merchants will display the Prime badge at checkout, including an automatically estimated delivery date, which in many cases will be one or two days.

“This integrates into the experience customers know and love on Amazon itself.

“The result? Fewer card abandonments as most customers have already had a good experience with Prime shipping, making the delivery experience more predictable.”

Shopify rivalry

Amazon’s new venture is also a potential attack on the growth of rival ecommerce platform Shopify, which helps merchants build their own storefronts.

Unlike Amazon, Shopify does not have its own marketplace for buyers and sellers. Instead, it offers merchants the tools to set up their own shops.

“For Shopify, BwP is bad news,” says Heubel.

“It is a direct move that takes away revenue from their business model. The biggest challenge for Shopify will be to counter this initiative.

“Their executives will have to focus on creating an equally attractive, and presumably more competitive, proposition for merchants than BwP represents. However, given Amazon’s sheer advantages in terms of existing fulfilment volume, economies of scale are unlikely to work in Shopify’s favour.”

Jones concurs that the move represents a challenge for Shopify and believes it will react by making further investments in its fulfilment offering, in order to compete with Prime’s current advantages in speed and service coverage.

“Shopify will need to decide whether it will allow Merchants on its platform to offer BwP,” he explains.

“This is no easy decision because there a millions of Prime members which potentially represent a significant increase in traffic to Shopify sites.

“That said, there’s the obvious risk of inviting Shopify’s largest competitor into its ecosystem, and therefore access to valuable Shopify customer insights.”

Martin Smith, co-founder of Ecommerce Aggregators, believes BwP is clearly a strategic move to halt Shopify’s growing subscriber base.

Smith says the biggest challenge for ecommerce sellers is how to make the Shopify numbers work. Specifically, the third party logistics costs of warehousing, pick, pack, and shipping are often more than double compared to Amazon’s fulfilment.

“Over the years, sellers, myself included, have used bundles and other bulk purchase incentives for Shopify orders. These drive down the unit cost of 3PL to directly improve DTC margins.”

“Yet no matter how creative you are with seller-fulfilled orders, 3PL simply cannot complete with Amazon FBA – both financially and logistically.”

Amazon’s future

The pandemic and subsequent ecommerce boom saw Amazon experience significant organic growth over the past few years.

However, Amazon’s shareholders saw a near 30% decline in the value of its market cap since January 1, 2022.

According to Heubel, Amazon cannot continue to rely on growth facilitated by the pandemic and BwP reflects its broader ambitions to grow and diversify its revenue streams.

“BwP also allows Amazon to use the collected customer data from third-party websites for its future advertising efforts,” he says.

“If customers receive their orders via BwP and thus disclose their purchasing behaviour outside of Amazon, this information can be used to retarget these customers outside the marketplace.

“This is a revenue lever that represents a highly attractive, albeit future, revenue stream for Amazon.”

In addition, Jones believes that the programme signifies the first of a number of steps the ecommerce giant will take to expand its outsourced fulfilment offering, now that it has covered its own in-house requirements.

“This ties into Amazon’s wider ambitions to capture even greater market share in the consumer journey outside the borders of its own marketplace,” he says.

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