Online businesses have been growing fast for the last decade — 2.5x faster than global GDP. The UN estimates that Global E-Commerce totaled $26.7 trillion in 2019, and its importance is expected to increase further — in the same year e-commerce accounted for nearly 14% of retail sales worldwide, which became almost 18% in 2020 and it’s predicted to hit 25% by 2025.
This ascent came on the back of a huge wave of technological innovation — E-commerce 1.0 and 2.0 — software, marketplaces and payment platforms that let new entrepreneurs join the global market armed with a laptop and a dream. But the rapid growth of the sector has also revealed the limitations of existing solutions, with new pain points arising as expanded reach, speed, and customer expectations test the limits of what’s currently possible.
But with change also comes opportunity and we’ve seen a range of exciting businesses spring up to solve the infrastructure challenges facing online businesses. These companies are creating the foundation for a new phase of online retail: E-commerce 3.0.
Here’s why we can’t take our eyes off the sector and neither should you.
1. The tailwinds of global e-commerce
While we all saw the huge boost that the pandemic gave to digital commerce, tailwinds have long been driving B2C and B2B e-commerce to play an ever greater role in our lives for much longer.
1.Digital by default
In 2022, if you’re not online, you’re not competing. Companies of all sizes and sectors — B2C, D2C, B2B — all over the world are moving online, with global e-commerce growing another 16.5% in 2020.
Digital is the most efficient route to market for existing products and services — there are now over 6 billion smartphones in the world, used across personal and business activity. Meanwhile, 5G is predicted to add another $12billion to e-commerce revenue in the US alone. For businesses, the ability to quickly access markets anywhere, regardless of size, is a no brainer.
2. The rise of ‘entrepreneurial e-commerce’
New business registrations are growing as the digital economy reduces the capital, infrastructure and risk involved in starting a company. 2021 saw the highest number of business registrations ever in the UK, while the US, which saw a similar spike, reports that up to 78% of new business applications may be planning to sell online, relying on technology and tools rather than staffing for growth.
The heroes of e-commerce have played a huge role in this — Etsy, Amazon, Stripe, Shopify et al. — while creating an innovation flywheel that creates space for new leaders: as new infrastructure enables more companies to sell online, the growing market also reveals the limitations of existing tools and encourages the development of new solutions to solve these challenges, enabling more businesses to spring up and thrive.
3. Consumption is digital
Consumer preferences are trending strongly towards the digital. Between 2017 and 2021, the online commerce as a share of global retail sales nearly doubled. Online sales also soared during Covid-19, with e-commerce growth rising two to five times over previous years.
New generations are increasingly turning to hybrid and digital buying methods, aided by the integration of social shopping via networks such as TikTok and Instagram — a market expected to reach $1.2tn by 2025.
2. The Evolving Landscape of E-commerce Enablers
E-commerce has evolved hand in hand with the tools that enable it, with each generation of technology promoting commercial expansion which goes on to reveal further market, technological and infrastructure opportunities.
What distinguishes these eras is their approach to the e-commerce value chain, and the increasing level of specialisation. While early platforms focused on broader front or back-end enablement, successive evolutions have zeroed-in on specific elements of the merchant and customer journey, from fulfilment and inventory, to paying tax and compliance, widening the scope for new tools and market entrants.
2.1 E-commerce enablers 1.0: Legacy giants, and manual hybrids
The first stage of e-commerce sought to take the physical store and move it into the nascent online world. This was pioneered by foundational tools like SAP and Oracle, with the corresponding high costs that come with early stage technology. This limited the shift online to mostly larger shops which would often require custom built solutions supplemented with manual work.
These solutions were limited by the technology of the time, such as dial-up connections, and the continued fidelity to the traditional retail model, which slowed uptake. However, services that simplified market entry showed what was possible — the prime example being Amazon, which opened its Marketplace in 2000, sharing its entire back-end operations with independent merchants, integrating a software approach with physical infrastructure and growing rapidly.
The first data gathered by the ONS on e-commerce penetration came in 2006, placing online at 2.6% of total retail sales, but that was also the year that e-commerce kicked into a new gear.
2.2 E-commerce enablers 2.0: Out of the box, out of the bag
Once the pioneers in the space had proven that customers would, given the chance, buy online, the next step was to expand the online market. This revolution was spurred on by the second generation of players coming to disrupt the market, including:
- Shopify, founded 2006, was an early leader in enabling independent sellers to quickly create a storefront and while also managing operational elements.
- Companies like Stripe, Adyen and Paypal facilitated easy online payments, enabling companies to offer a smoother online experience to customers and therefore increasing volumes of sales online with simple pricing.
- More recently, all-in-one tools such as WooCommerce, Wix, BigCommerce and Squarespace have enabled e-commerce stores to build their own website, independently from other selling platforms, while offering simple plug-and-play widgets to customise.
The success of these platforms speaks for themselves — but their success has also highlighted new opportunities in the online retail market.
While one-size-fits-all products are a powerful route to market, and many successful businesses have been built on them, there are signs that the market is ripe for disruption. The expansion of the market has revealed new pain points that current solutions will struggle to solve. These players are working with infrastructure that’s 10–15 years old, meaning any changes require significant manual input from the customer side.
E-commerce businesses are now able to form, go to market and sell rapidly, but the current batch of tools don’t account for the challenges that come with the rapid scaling of orders and operations. To deliver the necessary agility, robustness and flexibility requires more best-in-class solutions — a third generation of E-commerce enablers.
E-commerce 3.0: The New Opportunity
The future stars of the e-commerce software market are focused on unique problems that have only become clear through the explosive growth of E-commerce 2.0. This evolution has highlighted two major challenge areas.
Firstly, current infrastructure doesn’t always offer the necessary flexibility, scalability, and customisation that businesses need to meet the demands of modern customers. Secondly, most e-commerce businesses are now global by default, meaning any solutions need to work across borders from day one.
Across each step of the customer value chain we have found innovative solutions solving these and more problems with an eye to the future.
How to build a scalable and flexible e-commerce stack:
E-commerce 2.0 aimed for ‘all-in-one’, but new market trends have tested the limits of off-the-shelf foundations. As retail becomes omnichannel and borderless, it needs the core backend to match, driving us towards a best-of-breed, flexible and modular e-commerce stack.
Companies trying to optimise each element of their online presence need infrastructure that is robust, modern and flexible to their needs, market and customers. This is leading to a more and more specialisation in the tools available, balancing the need to cater to both entrepreneurs and devs with a broader set of approaches.
That’s the world that recent Dawn investment Medusa is building, with decoupled frontend and backend design, lightning-fast API connections, and best-of-breed microservices that can be integrated in moments. Other companies like Commercetools, Spryker, Brink are also focussing on the backend of the headless infrastructure, while Storyblok and Contentful simplify the content management.
Meanwhile, in an increasingly competitive market, more e-commerce businesses are winning through the experience they provide, birthing tools like Vue Storefront, which offers a whole ecosystem of frontend services, or Popup, a no-code tool that lets businesses control the whole customer journey.
How to ensure your product has a global reach:
While online retail has helped products cross geographical borders, others still remain — particularly when it comes to communication.
Translating for a global audience is a vast task, hence why localising your customer experience has long been a slow, manual, dreaded process, and always left to the last minute. The process can also be complex, with multiple stakeholders involved across product, design, engineering and translation, all in separate workflows.
Recent investment Lokalise re-centres translation at the centre of the development process, rather than being a last minute panic. Bringing developers, designers, translators and product teams together, the platform offers built- in translation memory, machine translation and QA checks to help teams automate routine tasks and ship faster — with localisation woven in throughout.
How to manage your operations:
A localised, shiny website may be the first thing to catch your customer’s eye, but unless you can manage your inventory, orders and the production of your products, then you’re not actually selling anything. With many businesses relying on supply chains spread over long distances, there can be a huge number of data points to manage.
Traditional ERPs and SCM systems are expensive, slow to implement and inflexible, which is why there are a number of companies trying to help retailers operate better. These include Odoo, Katana, Xentral and Genie, who have focused on revamping the ERP for SMB manufacturers, or Cogsy, which helps D2C brands track, analyse and improve their operations and planning.
How to manage your E-commerce performance:
As a merchant today, intuition is no longer enough to steer your business. You need to make data driven decisions on a daily basis about budget, buyer behaviour and business metrics.
And given the huge array of sales and marketing channels (Google, Facebook, Tiktok, Snapchat, Pinterest …) a spreadsheet just won’t cut it.
Since most e-commerce businesses don’t have the time or resources to build and operate a complex data system internally, companies like Polar Analytics, Tydo, BeProfit, or Blyp have stepped in. Their integrations with e-commerce platforms (like Shopify for the aforementioned companies, or Amazon/Walmart for Datahawk) enable them to create a one-click onboarding experience and massively simplify the data struggle for their clients.
Other companies like Triplewhale or Conjura are also exploring this category, with a higher focus on attribution, which is becoming increasingly complex as the number of touchpoints to convert a customer increases and cookies becoming less viable.
How to manage your taxes and compliance:
Even once the sale is done, businesses still have a lot of back-office boxes to tick. Regulators are waking up to the huge contribution that online commerce should be making to public finances, cracking down on compliance and demanding businesses follow local rules for applying tax, structuring invoices and declaring revenue.
When working at the scale and speed of online business, tackling this manually quickly breaks down as businesses lack the time, manpower or tools to deal with their compliance. Fonoa and Taxdoo are looking to solve this. Their API-powered, modular platform automates all aspects of tax, from determining and calculating which taxes apply to generating locally compliant invoices and reporting to help businesses scale at the pace of their ambition.
We are only at the beginning
Given the scope of this opportunity, we believe we’ve only scratched the surface of what’s possible.
This new generation of e-commerce enablers has the chance to build on the work of previous generations, paving the way for further digital growth and fueling the next cycle of progress that promotes the creation of new solutions to as yet undiscovered pain points.
If you’re building a business in this space, we’d love to hear your story. You can reach out directly here — let’s have a chat.
