Shopify (SHOP) appears to be doing everything right, or close to it, as it tries to chip away at Amazon.com's (AMZN) dominance. But Amazon's two biggest competitive moats still look pretty formidable.
Shopify CEO Tobi Lütke famously quipped that his company aims to "arm the rebels." That is, give online merchants looking to sell on their own websites and/or platforms other than Amazon, all of the tools that they need to be successful.
And in many respects, Lütke and Shopify have done a superb job of arming the rebels. They've built a soup-to-nuts platform to help small and not-so-small businesses sell online -- one that covers everything from building an online store, to tracking revenue, orders and inventories, to processing payments, to listing products on third-party platforms (including, if one wishes, Amazon), to managing Google (GOOGL) and Facebook (FB) ad campaigns.
Along the way, Shopify has also created hardware and software for handling point-of-sale (POS) transactions at retail stores, and launched a fulfillment service that relies on a network of third-party warehouses. And in recent months, the company has formed new marketplace and digital storefront partnerships with the likes of Google, Facebook and (as announced on Monday) Walmart (WMT) , and has also -- by launching an app that's simply known as Shop -- built its own marketplace of sorts for shopping with merchants relying on Shopify.
In time, thanks to both Shopify's efforts and investments made by the likes of Google, Facebook and Walmart, these platforms might (by gaining more buyers and sellers) reduce the importance of the immense network effects possessed by Amazon's seller marketplace. And here, the fact that -- while a capacity-constrained Amazon prioritizes the delivery of "essentials" -- many online merchants and marketplaces have seen an influx of first-time shoppers in recent months might just help Shopify's cause.
One thing that none of these platforms will do, however, is create a substitute for Amazon Prime (just ask Google and Walmart, both of which tried to launch Prime-like services but ultimately threw in the towel). Prime's massive user and membership fee bases, combined with how those membership fees are used to help subsidize both free rapid deliveries for tens of millions of items and an array of other services, makes it irreplicable.
In addition, for the time being at least, it doesn't seem likely that any third party will build an e-commerce fulfillment and delivery infrastructure that's in the same league as what Amazon has created, and which it continues to invest heavily in expanding.
Shopify is admittedly taking a shot at creating an alternative through its fulfillment network, and even bought a warehouse robot developer to help its cause. However, it has a long ways to go before its reach is comparable to Amazon's, and it remains to be seen just how well a network relying on third-party warehouses will compare with Amazon's infrastructure in terms of efficiency -- particularly given Amazon's giant automation and last-mile delivery investments.
Shopify still has a lot of room to grow, given its current e-commerce penetration rates, e-commerce's current share of total retail activity and the value proposition of its platform. But considering how Shopify now sports a $94 billion market cap and some truly eye-popping forward sales multiples, it's worth not losing sight of how the empire that Shopify-armed rebels are up against still has some giant competitive strengths, and how those strengths have arguably gotten stronger over the last couple of years.