The pandemic’s acceleration of ecommerce is well documented. We’re now accustomed to shopping online more than ever, in more categories, and physical retail has changed forever. This poses a new set of questions for online brands and merchants. How do you stand out? How do you build meaningful relationships with customers, from discovery to checkout and beyond? How do you convert and retain these customers?

With any figurative gold rush comes the hunt for picks and shovels. The tooling and infrastructure for ecommerce is evolving, with brands and consumers increasingly eager to interact directly. Platforms like Shopify have been the clearest beneficiaries of the first D2C boom, deeply if not directly competitive with Amazon. Not only have they empowered entrepreneurs to build ecommerce businesses, but they have also created large ecosystems of startups building additional tools to support merchants – from logistics to loyalty to merchandising to marketing to wholesale marketplaces, and much more.

Now, a new breed of software providers for ecommerce is emerging, to build the infrastructure that will power the next generation of retail. We’ve been studying this landscape in detail, and convened a handful of founders to explore how it will evolve. Here are the three trends that excite us most:

1. The transition to headless commerce accelerates

Brands are striving to offer unique experiences to shoppers as they discover, browse, consider, and buy. As more merchants invest more into their online presence, the storefront is an ever more important site of competition. This means that merchants need greater levels of flexibility and control, to craft unique experiences across multiple channels – and ultimately convert more customers than an ‘off-the-shelf’ solution. High-growth D2C brands are re-platforming over time, as they outgrow the limitations presented by monolithic solutions. Meanwhile, large incumbent brands with primarily B2B distribution are now investing in owned-and-operated D2C channels.

This will accelerate the transition to headless commerce, where retailers can decouple the storefront / frontend from the backend. Retailers are increasingly demanding the ability to iterate quickly, A/B test, and create new consumer experiences across new channels. Headless solutions are ideal for sophisticated retailers who believe that their competitive advantage lies in storytelling and content, and hence need the freedom to experiment with new consumer-facing experiences.

Over time we expect to see a ‘barbell’ pattern in the choice of platforms:

• the long tail of micro-merchants (‘mom and pop’ retailers; the passion economy; often people selling online for the first time) will look for the most lightweight, low-friction, turnkey solutions that take them from zero to a live store as quickly as possible
• larger, more complex merchants will increasingly shift towards headless solutions that give them the freedom to experiment

We believe the latter will represent a growing slice of the market – evidenced by the fact that first-gen ecommerce platforms are increasingly supporting a headless approach. The transition to headless is not a trivial effort, so we hypothesise that the winners in this space are likely to be headless platforms that offer a best-in-class developer experience and sufficiently rich range of out-of-the-box features (international support, multichannel features, robust library of 3rd party integrations, potentially a lightweight storefront out of the box). Equally, we’re on the lookout for providers of novel frontend experiences – particularly for mobile, which suffers from lower conversion than desktop despite driving the majority of traffic.

2. Social, conversational and video commerce become the norm

Content and conversations are emerging as the two standout ways to drive conversion and retention.

Consumers are increasingly using messaging apps for all forms of communication – whether personal, business, or commerce. WhatsApp business accounts handle messages from more than 175M users, and an in-app shopping cart feature is now rolling out. The consumer enjoys a ‘digital concierge’ that guides them through emotive, considered purchases in a personal way. At the lower end of the AOV range, conversational commerce creates a convenient experience, integrated into existing habits: the checkout comes to you, rather than vice versa. Meanwhile, the merchant benefits from an uplift in retention and conversion, and more contextual information about user engagement and intent. Yet the tooling to support this remains nascent – delivering a scalable, personal interaction

In Western markets, shoppable content remains in its early phases. But we see remarkable growth in Asia, particularly in China – and there is evidence of the trend moving west. Alibaba’s video ecommerce Taobao Live generated over $50B in GMV for 2020, while the likes of Douyin and Kuaishou are evolving from short-form video apps to ecommerce platforms in their own right (collectively handling >$100B in ecommerce GMV – in the same zipcode as Shopify).

Consumers are becoming habituated to unboxing videos, reviews, tutorials – all delivered by a large population of influencers, and shoppable with one click. This ‘QVC for Gen Z’ conveniently lowers CAC for the retailer, and creates an experience that resonates with the shopper. This phenomenon is beginning to take root in the West. In the last year, we have seen Shopify develop deeper integrations with Google, Facebook, and most recently TikTok – allowing consumers to check out within social apps. We’re excited to see more creative tooling that helps small brands offer content-rich, conversational shopping journeys.

3. A dedicated analytics stack emerges for ecommerce

Starting an ecommerce business may be easier than ever, but operational complexities soon emerge. As a retailer scales, so does their need for more sophisticated analytics. We hear a common set of pain points from merchants as they grow their D2C businesses:

• How can I track cohort KPIs in real time, and observe customer behaviour across multiple channels?
• How can I understand the return on my limited marketing resources?
• How can I price my products optimally relative to my competitors?
• How can I keep track of a growing network of suppliers and understand how well they’re serving me?
• How can I manage and forecast cash flows accurately, when they can be subject to dramatic fluctuation? What does this mean for the way my business is financed?

These resource allocation challenges are both operational and financial – and we believe they imply a need for verticalised analytics products. While we’ve seen a range of fintech products emerge for SMEs, there is an opportunity to build the specialised financial assistant for the unique dynamics of ecommerce. Larger retailers may be able to address these needs with dedicated teams – but there remains a scarcity of lightweight ecommerce-specific analytics products accessible to smaller merchants.

We’re particularly excited to see products built by former ecommerce operators. Some of the most inspiring founder visions come from those who ‘scratch their own itch’, if you’ll excuse the VC cliché. We often hear compelling stories from founders who felt an unmet need in their own operations, and are now empowering the next generation of sellers with the tool they always wished they’d had.

This merely scratches the surface of a market that we expect to mature significantly. A host of tools and infrastructure will be built to support the next wave of online sellers. Some of this will meet needs that we already understand, and some will cater for emergent behaviours that we haven’t yet anticipated. If you’re building a product in this space, we would love to hear from you.