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Amazon, Shopify competition grows following business e-commerce platform deal

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Amazon, Shopify competition grows following business e-commerce platform deal Inc.'s recent acquisition of Australian firm Selz signals the company's interest in potentially developing online storefront tools aimed at entrepreneurs as it looks to compete with growing e-commerce player Shopify Inc., retail analysts said.

The Selz deal arms Amazon with a business platform that could be used to assist its base of third-party sellers, which contribute to the majority of sales on Amazon's site. It's a corner of the e-commerce market from which Amazon retreated several years ago, but the rise of Shopify is luring the company back, analysts said.

Shopify's cloud-based platform powers online sales for more than 1.7 million merchants, including footwear company Allbirds Inc., greeting card giant Hallmark and fashion designer Elie Tahari, according to Shopify's latest quarterly earnings report. Selz offers a platform that allows businesses to create a custom online store, manage orders, process payments and sell on social media.

SNL ImageSource: Shopify

"They [Amazon executives] see a big market opportunity and also I think they see a gap in terms of what they are currently offering," said Scott Kessler, global sector lead for technology, media and telecommunications at Third Bridge.

An Amazon spokesperson declined to specify how much the company paid for Selz or how it planned to use Selz' tools but said Selz will "continue its mission of supporting small businesses" under Amazon.

Amazon previously offered business tools with its Webstore business, which helped small and midsize retailers create and operate their own online shops. Amazon shuttered Webstore in 2015.

"[Amazon] is working very hard with its vendors as customers who are selling in a third-party environment there," Kessler said. "I think they are trying to figure out ways that they can provide those types of folks with more options, more services."

The Selz deal comes at a time when Shopify has become more of competitive threat, said Dan Romanoff, an analyst with Morningstar who covers Shopify.

Shopify reported fourth-quarter 2020 net income and revenue that beat analysts' expectations as more businesses joined its platform. Analysts predict the company's revenue will more than double in the coming years, from $2.93 billion in 2020 to $5.52 billion in 2022 and $8.32 billion by 2023, according to S&P Capital IQ consensus estimates.

SNL Image

Amazon is far larger, however, and analysts expect its revenue will more than double to $821 billion by 2025.

Shopify's sales soared over the last year as more businesses moved to the company's platform during the pandemic, Romanoff said. Shopify's tools proved adept at helping small businesses pivot online quickly, he noted.

"You can get a storefront up and running in a matter of days instead of it being this really complicated process," he said.

Another growing area of competition is logistics. Shopify announced plans in 2019 to launch a physical distribution network designed to provide fast, affordable delivery service to small and midsized businesses in the U.S.

The network is still in its early stages, but it mirrors the much larger service provided by Amazon's Fulfillment By Amazon program, which handles packing and shipping for third-party sellers' products and makes those goods eligible for Prime one-and two-day shipping options.

"That's sort of head on competing with Amazon even though you don't really go to to shop," Romanoff said of Shopify's logistics program. "It makes sense that Amazon would punch back a little bit and say 'we are going to offer a set of tools that would be attractive to small business customers.'"

But any effort to directly compete with Shopify will not happen overnight, said Mark Shmulik, vice president and senior analyst with AB Bernstein.

Rather, the purchase of Selz may be simply Amazon "dipping their toe in the water" to explore offering businesses web-based tools while maintaining the company's customer-facing culture.

"They are going to probably use [Selz' tools] sparingly at first, maybe in markets where they are not necessarily the incumbent or leader," Shmulik said.