Why Amazon’s Newest Partner May Be „one of the Most Important Companies on the Internet”

Why Amazon's Newest Partner May Be „one of the Most Important Companies on the Internet"

We talked about Stripe, a payments provider with ambitions far beyond payments, a year ago. Back then, Stripe launched Relay and Atlas, the latter for companies looking for an easy way to incorporate in the US.

Stripe started out focussing on developers, making it as easy as possible to integrate payments handled by Stripe to your service. The result is obvious: Stripe is popular with startups and grows with them.

Online retailers like Wish, Blue Apron, Postmates, Instacart, Deliveroo and Warby Parker are using Stripe today. Stripe is also implemented at Shopify.

Businessweek has published a lengthy, interesting profile of Stripe and its founders:

Stripe Inc., built software that businesses could plug into websites and apps to instantly connect with credit card and banking systems and receive payments. The product was a hit with Silicon Valley startups. Businesses such as Lyft, Facebook, DoorDash, and thousands that aspired to be like them turned Stripe into the financial backbone of their operations.

The company now handles tens of billions of dollars in internet transactions annually, making money by charging a small fee on each one. Half of Americans who bought something online in the past year did so, probably unknowingly, via Stripe. This has given it a $9.2 billion valuation, several times larger than those of its nearest competitors

​Now, Stripe is a payments partner with Amazon as well:

Over the past couple of weeks, Stripe began handling a large, though undisclosed, portion of Amazon’s transactions. Neither company will address the scope of the deal—which was only revealed by Stripe’s addition of Amazon’s logo to its website—but it could help Stripe greatly increase its trans­action volume.

​Stripe has big ambitions, going far beyond payments:

Seven years in, however, Stripe’s mission is less to send more books, vacuums, and grooming kits into the world than to “increase the GDP of the internet,” Patrick says. To do this, the company is beginning to move beyond payments by writing software that helps companies retool the way they incorporate, pay workers, and detect fraud. It’s part of an ambitious bid to revamp how online business has been conducted for 20 years and to give anyone with a bright idea a chance to compete. “We think giving two people in a garage the same infrastructure as a 100,000-person ­corporation—the aggregate effects of that will be really good,” Patrick says.

​There is tremendous opportunity here. Allowing startups to outsource as much as possible of the adminstrative chores of running a business to a service provider frees those small, young companies up to focus on their core business. For the service provider, as pointed to above, this essentially means you can grow with the Internet economy.

Think of this as the AWS of accounting and the likes. You are bringing the cloud computing way of division of labour to more parts of a business than „just“ to hosting and computing.

Here‘s an investor in Stripe on the company‘s significance:

“They have the advantage of coming to California without being tainted and polluted by what’s in the water supply and air of Silicon Valley,” says Moritz, chairman of Sequoia Capital and a Stripe board member. “They’re more humble and well-rounded. There’s such an improbability to their story—that these brothers from a little village would come to build what could well be one of the most important companies on the internet.”

​Stripe makes it easier to do business. This is important for startups. It is also important for sellers on marketplaces. Services like Stripe allow marketplaces to release more of the long tail earlier. They reduce barriers.

Stripe was built for this from the ground up:

its technology was crafted for the modern internet’s newfangled business models: Marketplace builders such as Shopify needed to divvy up payments between vendors and consumers, and sharing-economy upstarts such as Lyft had contractors and riders to move money between.

It is services like Relay that set Stripe apart:

If you are interested in selling your products across popular shopping and social media platforms, Stripe Relay lets you do so easily. Relay lets apps you connect to order your products using the product and order objects as described above. By connecting to them, you enable users of those applications to buy your products without even visiting your website, greatly expanding your business’s reach. Apps can easily sell your products through every interface they offer, including mobile sites and apps. You can use the apps to promote your products, and then apps will take over: creating the orders and accepting payment on your behalf. […]

Note that you only need to register your products and SKUs in your Stripe account once, and you can connect to as many apps as you’d like. Just select the right platforms for your business, and Stripe takes care of sending them the right info to display your products in their app.

With Connect, Stripe has built a payments solution for platform and marketplace providers:

​This is something PayPal should have been front and center with. But PayPal started in a different era. And being a part of eBay for such a long time certainly didn‘t help either.

In fact, PayPal co-founders Peter Thiel and Elon Musk are investors in Stripe.

​Bloomberg on Stripe‘s business today:​

Today, Stripe is the financial engine for more than 100,000 businesses. It stores key financial information such as credit card numbers, deals with fraud, and adds support for new services such as Apple Pay as they arise. Stripe charges a 2.9 percent fee on credit card payments in exchange for its services, though the fee can be lowered with higher volumes. Stripe won’t disclose the number of transactions it processes, but analysts estimate it’s getting close to handling $50 billion in commerce annually, which would translate to about $1.5 billion in revenue.

​Stripe is also looking for bigger retailers to partner with:

But Stripe is also trying to make deals with Target Corp., Under Armour Inc., and other merchants to snag money available outside the startup scene, partnerships made more possible by the trust Amazon is showing.

Stripe is leveraging data network effects for building new features:

One feature, Radar, is a fraud-­detection system. Stripe uses AI software to analyze payments on its network and identify suspect activity. By looking at such a large data set, Stripe says it can spot patterns better than a single company reviewing its own transactions. Radar comes free, but Stripe wants to find ways to charge monthly fees for add-ons, such as customer support for larger clients. The goal is for this side of the business to look more like a traditional software company, with services helping high-profit payments roll in month after month.

It is very interesting that Amazon and Stripe are partnering on payments. This may mean that Stripe already is very strong in the startup/small merchants segment. Everything Stripe does would make sense for Amazon to do as well: As I said, Stripe is essentially building the AWS for administrative business chores.

Amazon on the other hand, is building the Marketplace to a full one-stop-shop service for businesses selling stuff (anything, everything) on the Internet.

It makes one wonder wether Stripe will be the next big acquisition by Amazon. Stripe would fit perfectly in with Amazon‘s own ecosystem.

​The only counterargument to this is that Stripe is too expensive for Amazon already. Not that Amazon doesn‘t have capital on hand. But the company is spending its capital on large investments in a global logistics infrastructure and internationally in content and more to prop up Amazon Prime (such as in important markets as India).

​Still, Stripe by Amazon makes so much sense.

​(The second counterargument is that the founders don‘t strike me as someone who would want to sell anyway.)

​More on this topic:

​* From Caterpillar to Butterfly: Amazon, eBay & Zalando’s Services Revenues Explosion
​* Stripe Atlas & Relay Show Stripe’s Ambitions Beyond Payments
​* The Rising Alibaba Cloud and the Future of Global Marketplaces
​* The 3 Rules on How to Expand Marketplaces

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