A vision for the future of e-commerce
Venture capitalist, e-commerce expert and board member at Emporix, Moritz Zimmermann, recently took part in Oddity Open – a virtual event on composable commerce. Entitled ‘How to keep up with today’s accelerating pace of change’, Moritz was also joined by Michelle Beeson, Analyst at Forrester, and Dr. Roman Zenner from Shopify to discuss the future direction of digital commerce.
"I started in e-commerce in 1997 at a time when there was no Amazon or Google, and certainly no Smartphones. With my team, we have built over four generations of e-commerce platforms along the way. Now, as a venture capitalist, it’s a really interesting time to be looking at the future of e-commerce because a completely new generation of software is what is needed to take the industry forward. That's my hypothesis as an investor, and I'll explain why."
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The growth of the vendor market
The biggest thing that we’re seeing in enterprise software right now – and that’s not just in e-commerce but across the industry – is that the traditional monolith is being replaced by the swarm or microservices architecture. It’s really quite surprising how granular things have become with the opportunities to buy single, individual features. My mental model is that every Linux service will ultimately become its own company in the Cloud and be reinvented in a new form.
Currently, there are some industries that are leading in this space, and some are following, but the reason why I am so convinced that this trend will continue is because of the level of flexibility and specialization that the swarm approach offers. The growth of APIs and SaaS means that this has all become a lot easier. You can now concentrate on developing just one thing that your company is good at and then scale that up, easily and also globally.
Estimates are that there are currently over 8,000 e-commerce or MarTech vendors on the market, but that number will continue to grow at a rapid rate. On the one hand, it’s great because it offers more variety, but then equally it also has the potential to become overwhelming in terms of how do you actually make sense of it all, and how do you make it work together?
Speed of change
The growth of SaaS and cloud-native have certainly been catalysts for this trend, but there is also another trend that I think is particularly important in terms of e-commerce, and that’s the increasing speed of deployment. This is due, in large part, to the influence of one company above others – Amazon.
Around a decade ago Amazon started to develop a capability that allows it to roll out new things, on the software side, in a very, very rapid way, and then iterate and test.
To put this into perspective, for many businesses a normal rate of deployment might be every two weeks, or it might even be every couple of months. However, for Amazon, there are around 54 million deployments in a single calendar year – almost a deployment every single second. It's not the same team deploying every second, of course, but many, many teams working in parallel. That’s what speed is about today.
It’s this capability that has allowed Amazon to roll out new features and updates so regularly and very quickly iterate them to make them better so that customers really want them. That's the agile method and it’s all made possible through this split of the monolith into lots of small, separate services. Every small service can be managed by a separate team, and they can innovate on their own and deploy on their own.
What about the legacy players?
There are many companies that have been around for quite some time. You could then argue that if they’ve been doing e-commerce for 25 years, then it must be a pretty mature industry. Yes, it's true. But I think the existing incumbent players are struggling to keep up with the pace of change. It's almost like having to fix the engines on an old airplane when it is in mid-flight.
These legacy players have to do a number of things in parallel to try and keep up. For example, many of their architectures still stem from the early 2000s and from a single-tenant approach that was originally designed to be deployed on the premises in a customer data center.
With single tenancy, there's a huge burden on the customer running the system on the testing side – on the customization side – to make sure that when every new release comes out, everything else still works. The cost to do this can mount up to six figures each time, and with multiple releases a year, this quickly begins to add up.
The company might say that it is too expensive to maintain, so they’re not going to upgrade and just stay put for the next two years. In doing so they become cut off from the future innovation that the vendor will have planned on their product roadmap.
They’ll also be thinking that they need to move the whole thing onto the Cloud, which most of these vendors have done. However, they tend to just be hosting different versions of single tenancy architecture online, meaning it’s more like a managed hosting arrangement than being cloud-native. To make any update there will still be a need to take the big monolith apart into smaller services, while at the same time still serving the needs of their existing customers, so they require an efficient approach to replatforming.
The next generation
The e-commerce technology landscape is changing. There are new generations of tech coming with more focus on capabilities and features, and looking at end-to-end business processes. Rather than having a suite, all of these processes need to be composed and cloud-native, which means that it must be a microservice, multi-tenant approach with the ability to scale elastically, and to have a cloud-native extension concept. They need to all work with other components and be assembled in the cloud, not necessarily pre-integrated.
With these massive changes, many of the existing main players in the market are quickly falling behind, which means that there’s an opportunity for new disruptors to come in and grab market share.
What we typically see in e-commerce is that B2C will be the front runner in terms of innovation, mainly because they have competitors like Amazon to define the drumbeat of the industry. Around $1.6 billion has been invested as capital into companies that are more broadly aligned with these new paradigms – and not just in start-ups but in larger companies too. That's probably significantly more capital than many of the incumbents have to invest in their own R&D.
The B2B market
While investors are bullish, they also don't like a market space that has become too crowded – like a red ocean. B2B commerce, on the other hand, can be seen as a blue ocean and is currently an underserved part of the market.
B2B companies – not all of them, but in general – are lagging behind in the adoption of the latest and greatest technologies. Yes, they are being disrupted. There are aggressive new entrants coming in – platform players with digital business models. Millennials are seen as a new user-base that exhibits different buying patterns and expect more digital solutions too. But from an e-commerce perspective, it is still an underserved market.
And B2B is a completely different animal to B2C. You have to navigate a much more complex customer process across a swarm of B2B capabilities or services. For example, it might start with a search for a product, but then maybe what you are interested in is more determined by your already installed base. What other products have you bought from the vendor before? Maybe there's a special configuration needed for a complex piece of machinery. Maybe you also need to add service pieces to the shopping cart.
Maybe you need to request a quote because B2B prices are usually negotiated. Maybe there's a complex pricing engine involved. Maybe somebody on the CRM and SFA-side is involved in assembling the quote and performing their own negotiations. Maybe you accept the quote and then somebody needs to come to your site to install the machinery. Maybe a maintenance contract is sold on top. As you can see, this is all far more complicated than just putting an item into a shopping cart and more complicated than B2C.
Integration of capabilities
Another challenge – and one that is left unanswered by most vendors – is that somebody has to make this swarm of capabilities all work together in one place. There are a lot of different interfaces to manage, and a lot of integration work. B2B e-commerce needs to be delivered more in terms of separate business processes and then allow a customer to select whichever options are required to fulfill their own business process.
So, perhaps I might use a drop-down menu to select this shopping cart service, another vendor for pricing, another SFA or CRM tool, this one for my ERP system, and so on – I select everything that I need before the whole process is assembled instantaneously for me. From there you can start to customise and add all of the extra bells and whistles to differentiate your business.
That's the vision, and it’s already here. We can expect to see it become mainstream in the next five to ten years