The Competition Just Ramped Up for Shopify and Square

There are a number of megatrends driving growth in the tech industry. E-commerce and digital payments are among the most transformative, changing how we shop and how we pay. The advances occurring in these relatively new industries are causing paradigm shifts in how sales are transacted and consummated.

Shopify (NYSE: SHOP) has been at the forefront of enabling small businesses to conduct e-commerce sales, acting as a one-stop shop for the budding entrepreneur, providing the tools necessary to set up and manage an online store, while developing a host of other business services. Payments maven Square (NYSE: SQ) provided the namesake device that turned any mobile device into a credit card reader and enabled a new generation of small businesses to emerge. The company has since added a variety of services to help smaller operators flourish.

Two recent acquisitions by well-heeled competitors have both companies on the defensive, and they mark a significant change to the competitive landscape.

Image source: Getty Images.

A move beyond creative

Software-as-a-service provider Adobe (NASDAQ: ADBE) recently announced that it would acquire Magento Commerce for $1.68 billion.

Until now, Adobe provided cloud solutions for creative, advertising, marketing, and analytics, but it lacked a presence in the e-commerce space. Magento fills this strategic gap in Adobe’s offerings, handling digital transactions, order management, and predictive analysis — which will all be integrated with Adobe’s experience platform. It also helps create online storefronts, handle payments, and facilitate shipping and returns.

This acquisition helps forge an end-to-end platform for designing digital advertising and creating and managing an e-commerce site, and integrating with both business-to-consumer (B2C) and business-to-business (B2B) use cases.

Magento has been a smaller rival competing in the same space as Shopify, whose e-commerce platforms make it easier for small businesses to set up and run an online store. With Adobe’s backing, Magento could emerge as a more significant threat to its longtime rival. The biggest challenge may be for Shopify Plus, the program developed specifically for enterprise-level businesses, and one of the company’s fastest-growing segments.

The addition of Magento’s e-commerce capabilities may provide an incentive for the long list of existing businesses that use Adobe’s Cloud to forego using Shopify in lieu of a more integrated approach.

Image source: Getty Images.

Square dance

Digital payments specialist PayPal (NASDAQ: PYPL) recently announced it was acquiring iZettle for $2.2 billion, which will place it “squarely” into competition with Square.

U.S. investors have probably never heard of iZettle, a Swedish company with its own credit card reader aimed at the small business market. To put this into perspective, the company has been called “the Square of Europe.” iZettle operates in brick-and-mortar stores in Brazil, Denmark, Finland, France, Germany, Italy, Mexico, Netherlands, Norway, Spain, Sweden, and the United Kingdom.

The company began its journey providing credit and debit card readers that could be plugged into any smartphone or tablet. iZettle now provides a growing list of complementary services to its 500,000 merchants, including “lightning-fast mobile card readers, intuitive point-of-sale systems, invoicing software, business funding, and a site full of smart analytics so you can evaluate your output and keep getting better,” according to the company’s website.

The acquisition ups the competitive ante for Square in international markets. The U.K. has been of particular interest to Square, and early last year, the company set up shop there to gain a foothold on the European continent. This followed earlier expansions into Canada, Japan, and Australia. PayPal believes its “global scale and mobile and online payments leadership” are a strategic fit with iZettle’s “in-store expertise, recognized brand, and digital marketing strength,” giving PayPal an easy entry into a market that Square is counting on for future growth.

Competition is heating up

It’s important to remember that Shopify and Square have both faced significant competition before these recent revelations and have continued to prosper. Adding PayPal and Adobe to the mix doesn’t necessarily indicate declining fortunes, but keeping apprised of changes to the competitive landscape is an important strategy for long-term investors.

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Danny Vena owns shares of Adobe Systems, PayPal Holdings, and Shopify. The Motley Fool owns shares of and recommends Adobe Systems, PayPal Holdings, Shopify, and Square. The Motley Fool has a disclosure policy.

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