02/11/2021

Enterprise

eCommerce 3.0: Defining the Next Generation of Purchasing

In 2020, almost overnight, the world shifted to moving a lion share of their purchasing behavior to online and eCommerce saw the equivalent of 10 years of growth in 3 months. As COVID subsides, it is unlikely the clock will shift back. This decade will present a new era for eCommerce — one I will call eCommerce 3.0 — and several valuable technology companies that fuel this change will be created.

The first wave of e-commerce simply put offline goods online. Amazon, which continues to define eCommerce today, was launched in 1995 and eBay was founded that year and went public in 1998. In China, Alibaba emerged in 1999.

The second wave of eCommerce entailed two major shifts. First, smaller merchants that previously did not have the resources to build an online footprint were able to start selling online. Shopify launched in 2004 and Etsy launched in 2005. According to BigCommerce, the cost to build an online store in 1999 excluding inventory, warehousing, and shipping costs was roughly $100,000 whereas today putting up an online store can cost as little as $30 and can be launched in a day. Second, the conversation stopped being about online-only vs. brick and mortar. Amazon purchased Whole Foods for $13.7B and several companies that started as online-only such as Casper, Warby Parker, Everlane, Outdoor Voices, and Allbirds all launched physical storefronts. Traditional brands such as Walmart, Home Depot, BestBuy, Target, Kroger, and Costco have shifted to become eCommerce giants in their own right.

Today, we are at the cusp of another fundamental shift in the world of commerce. On the consumer side, the most innovative retailers have realized that they need to deliver a purchasing experience wherever the consumer is — whether that is on a website, mobile app, social feed, text thread, live video shopping, email or in-store. It is not just about incorporating a website or mobile app or building some demo store. The sheer number of channels where a consumer can make a purchasing decision has grown significantly.

By the end of 2020, ~49M consumers opted to receive SMS communications from preferred brands. In May 2020, Facebook and Instagram launched ‘Shop’ allowing businesses to create online stores for free with live shopping functionality. Walmart and TikTok announced a partnership in December to test a shoppable product experience wherein TikTok users can buy Walmart fashion items without ever leaving the app.

On the backend, in order to deliver a unified experience to consumers across so many channels, retailers need to have an integrated view across clienteling and loyalty, stock inventory, order management, pricing and promotions, customer support and returns management. I want my interactions on Instagram to be reflected in my email marketing or my request for a return on a WhatsApp thread be relayed to the physical store where I am dropping off the item. The problem is that only a handful of retailers today have a 360 degree view of their customer. Most struggle with separate data silos and systems that are not interconnected.

As global retail spend is set to reach $6.3T by 2024, there is a massive opportunity for a number of valuable technology companies to emerge that help retailers cross this chasm. eCommerce 3.0 is going to be all about composable commerce.

First, many sophisticated merchants are opting for ‘headless architectures’. In a headless construct, the front-end UI layer is decoupled from the backend. This structure allows front-end developers to easily add or change front-end experiences without disrupting the backend. On the backend, developers can leverage best of breed tools and microservices of their choice without needing to re-configure their entire platform. The stack is in contrast with a monolithic architecture where the backend and frontend of a website were closely tied together limiting the layout, system, and designs to whatever was permitted by the content management system. It is significantly easier for developers to adopt a microservices-based approach where a developer can choose ‘best of breed’ players across every part of their commerce stack like payments, checkout, marketing, order management to create a commerce experience suited to their needs. Below is an infographic comparing the two architectures.

Second, even if a retailer does not decide to go ‘headless,’ there is a growing trend towards using microservices in commerce. Older software platforms like Magento are reconfiguring their solution to enable it to work with products and solutions outside the Magento ecosystem. Large commerce companies like Shopify, WooCommerce and BigCommerce have made massive investments in growing their partner ecosystem. As an aside, Shopify had over 4,600 apps in their ecosystem in 2020. We have witnessed several companies get to massive scale just by selling on these app stores.

In 2021 there are already a number of companies enabling this transition to eCommerce 3.0. I have highlighted a subset of emerging categories and companies innovating in this area below (this list is by no means comprehensive, drop me a line and I am always happy to add other companies and categories):

If you are building a company within the commerce enablement space, I’d love to chat: anoushka@lsvp.com. A big thank you to my partners Ravi Mhatre and Alex Taussig for reading drafts of this post.

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