Commerce 3.0: Outlook & Investment Trends
Through my Digital Literacy Class, I had the opportunity to delve into what constitutes the technology stack and I wanted to build upon it by highlighting the flexibility in the stack which has led to commerce 3.0.
The acceleration of e-commerce penetration both on the B2B and B2C side is arguably the most permanent shift resulting from COVID-19. According to McKinsey, e-commerce witnessed 10 years of growth within the first three months of COVID-related restrictions last year.
Companies have had to revamp and upgrade their technological capabilities in order to meet this unexpected demand. In doing so, we have entered the phase of Commerce 3.0 where startups are decoupling the front-end from the back-end of the infrastructure stack and providing increased flexibility and agility. This post highlights where the future of commerce is headed, trends in the space, and where investors should be spending their time today.
What are the roots of Commerce 3.0 and what does it entail?
The initial growth stage of e-commerce was created in the dot-com era where companies went “online” and created websites that could take orders and deliver products. Pets.com, Webvan, Boo.com are a few examples of companies that raised hundreds of millions from investors to go bankrupt within two years of going public. The few that survived thrived and most famously Amazon has taken over the global retail landscape over the past decade.
The second phase of e-commerce has been led by Shopify which allowed for the creation of online stores for smaller merchants with order fulfillment capabilities. This online presence was bolstered by the existing offline channel and has led to what is considered “omni-channel retail” today. Furthermore, this rising tide essentially lifted all historical brick and mortar retailers to create, strengthen and focus on their own e-commerce and omnichannel capabilities. Those who did not make this pivot successfully have struggled with the “retail apocalypse” serving as evidence of that failure.
We are now in Commerce 3.0 which is the creation of tech infrastructure that allows customers to experience the seamless integration of mobile, online, and offline. Commerce 3.0 is driven by developers who create APIs and plug-ins to integrate your online activity with retailers and provides them with personalized services, increased speed, and functionality. For example, Attentive is the leader in SMS marketing which allows brands to turn browsers into shoppers by running personalized advertising campaigns and increasing subscriber lists. When you received a message saying that you added a pair of pants to your shopping cart and that there are only three pairs left in inventory, that message is likely to have come from Attentive which is fully integrated with the inventory and back-end of the retailer. The scope and level of analytics they provide to retailers are far beyond what customers see which is why commerce 3.0 is the invisible infrastructure supporting the growth and proliferation of e-commerce.
What is unique about commerce 3.0 is that it is “headless” in the sense that it separates the front-end user interface from the back-end of the tech stack. Historically, the integration was monolithic in nature with both ends being tightly integrated and any change to the user interface required adjustments to the back-end which resulted in a lack of flexibility and delays. Headless commerce provides brands with the ability to be agile and results in faster web page load times and high conversion.
What are the trends in this space?
The most recent trend within headless commerce is that of adding microservices that specialize in certain functions and this has lead to the proliferation of apps on the Shopify App Store which integrate across Shopify, BigCommerce, Magento, and WooCommerce. This enables retailers to add the “best-in-class” service for a particular function. For example, a retailer could add Attentive for SMS Marketing, Shogun for building their storefront and Fast for one-click checkout.
To go a level deeper, there are also cloud platforms such as Vercel which allow developers to create these headless applications through their frameworks. Vercel has React which is an open-source framework that empowers developers by providing the tools and infrastructure to ensure ease of deployment and use for end customers. This is the second layer of headless commerce that allows for applications to scale and has garnered interest from more technical investors.
Where should investors focus today?
Investors have largely been attracted to this universe over the last 12–18 months and I have seen a host of investment firms look at headless commerce including those with an enterprise SAAS, direct-to-consumer and consumer internet focus.
A lot of the innovation within the headless commerce ecosystem is global. For example, Saleor is an incubation lab in Poland with a very lean team that is able to scale and deploy applications. I have been tracking them for the past 8 months and they recently raised their seed round from Cherry Ventures as well as the Founder of Vercel and other notable headless commerce players. Most companies are still in their early innings and have largely attracted seed and Series A rounds. Forward-thinking investors who have had an eye on this space for a while such as Accomplice, CRV, Insight have invested across the application and the infrastructure universe. Other funds have raised dedicated pools of capital to focus on the wave of innovation that is likely to accelerate over the next 5–10 years given the overall tailwind that e-commerce has experienced.
Investors would be wise to data scrape and find applications that are “best-in-class” within specific verticals that are common to enterprise-level websites, given their scale, pricing flexibility, and preference for longer contract lengths. I would love to have further in-depth-conversations with entrepreneurs, investors, and anyone who is interested in understanding and learning about headless commerce further.
