Introduction
Having an e-commerce presence is simply table stakes for retailers today. It used to be sufficient to have a functioning e-commerce platform through which customers could make purchases. However, now, e-commerce is not simply a single platform “plug and play” solution – it represents an ecosystem of applications and channels from online shopping to cashless payments to voice commerce and beyond, and retailers are on the hunt for digital commerce solutions that differentiate them in the eyes of the consumer. RevTech looks for disruptive and accelerating solutions in the digital commerce sphere that are revolutionizing shopping channels, product and pricing management, payment, and checkout. Some things we’ve seen recently are solutions for social commerce, livestream shopping, and voice commerce. RevTech is interested in startups that can move the needle for retailers from “table stakes” to differentiated success.
Components of E-Commerce Acceleration include digital commerce platforms, pricing optimization solutions, payment and POS solutions, and e-commerce enablers (e.g. product information management tools, order management systems, etc.).
Global Landscape
Market Size & Growth
The e-commerce market is expected to reach $24.13T globally by 2025 (representing a CAGR of 38%), of which $7.72T will be B2C commerce. [1] This indicates a significant amount of value available for retailers to capture via e-commerce, and they will therefore need to have the capabilities to support the capture of this value.
Digital Commerce platforms, which form the foundation of e-commerce, are expected to reach a CAGR of 15.5% through 2022 in terms of revenue. [2]
When looking at key components of E-Commerce Acceleration, we see the following [3]:
- The product information management (PIM) system market is expected to reach $12B by 2027
- The web content management (WCM) system market is expected to reach $13.58B by 2025
- Multi-channel order management system market is expected to reach $3.9B by 2027
- Point-of-sale software market is expected to reach $30.9B by 2024
- The pricing optimization software market is expected to reach $11.4B by 2024 [4]
- The volume of digital payments has exceeded $4.1T [5]
Given these growth rates, we expect the E-Commerce Acceleration market to be $50B+ by 2024. Startups in the space have the opportunity to capture this value.
Market Trends & Retailers Needs
Key trends pertaining to E-Commerce Acceleration are as follows:
- Channel proliferation beyond web and mobile
- AI for decision-making and process automation
- Increased flexibility and modularity in platforms and supporting technology
- Digital payments innovation
Channel Proliferation Beyond Web & Mobile
Gartner reports that “unlimited channels” is a key pillar of the future of digital commerce. [6] The possible channels, Gartner notes in their report, are as follows:
- Web
- Mobile
- Social
- Marketplaces
- Physical locations
- IoT devices and wearables
- VPAs
- Smart speakers and devices
- AR/VR devices
- Connected vehicles
- Industrial equipment
- Smart appliances
As the number of channels expands, so does the complexity. Therefore, the need to centralize the management of all these channels becomes paramount. It is no longer viable to have separate systems, organizations, and processes for each channel. Therefore, e-commerce platforms and applications will need to evolve in order to support across disparate channels.
Channel proliferation is important for retailers as it will be a main source of revenue growth for retailers going forward. In fact:
“By 2023, 15% of medium to high gross merchandise value (GMV) digital commerce organizations will have deployed their own marketplaces, creating a digital ecosystem on their path to digital business. By 2023, 5% of digital consumer purchases will initiate from a voice-enabled commerce interface, including voice activation devices (for example, Amazon Alexa, OK Google)…” [7]
Retailers will need solutions that help support growth across channels in a scalable manner.
AI for Decision-Making & Process Automation
AI use cases in relation to commerce can be summarized in the below figure:
Figure 1
For the purposes of this report, we will be focusing on the “process automation” and “decision-making augmentation” portions of this graphic. The “better insight” section is largely covered by RevTech’s “Shopper Intelligence & Personalization” report.
Retailers will have the option of building their own AI solutions, leveraging solutions with built-in AI from large vendors (e.g. Adobe), leveraging AI solutions from cloud hosting providers (e.g. Microsoft Azure), or leveraging emerging AI solutions from smaller vendors. [8]
Increased Flexibility & Modularity in Platforms & Supporting Technology
Legacy commerce platform implementations tend to be difficult to upgrade and replace due to a lack of flexibility. [9] This is because e-commerce platforms were large, resource-intensive implementations that involved many complex integrations across systems. However, these legacy platforms are now standing in the way of retailers’ abilities to innovate and adapt to changing consumer needs. This has resulted in a shift to a “decoupled,” modular approach to commerce platforms that allows for more agility as business needs change.
This is also sometimes referred to as “headless commerce architecture,” as the front-end and back-end of commerce platforms are decoupled in order to support more channels such as social and IoT. [10]
“Headless” solutions can deliver content (product information, marketing content, etc.) to any front-end (mobile, web, social, etc.) via APIs. A key component is that the possibility for new applications for your commerce platform are now basically endless. [11] Retailers will therefore be in the market for both “headless solutions” as well as applications that can be easily integrated with their existing commerce solutions.
Digital Payments Innovation
Cash and credit cards are already starting to fade away as a means of payment generally in favor of digital wallets such as Apple Pay. Especially when it comes to e-commerce, digital payments are on the rise. Furthermore, COVID-19 may have accelerated the journey to becoming a cash-less society. [12] Gartner sees the following four trends as shaping the future of digital payments [13]:
- Mobile payments and digital wallets (including wearables)
- Open banking and interoperability
- Real-time payments
- Cryptocurrencies
Other key innovations include social and messaging app payments, voice-activated payments, peer-to-peer payments, facial recognition and biometric payments, blockchain, and hardware and physical interface innovations. [14] The value of total global digital payment transactions is expected to reach $6.7T by 2023, with digital commerce making up over $4T of that value. [15]
In order for retailers to capture this value, retailers need to be flexible and able to accept a variety of digital payment options. [16] Furthermore, the payment experience should be seamless in order to drive customer loyalty and increase revenues. According to Oliver Wyman, “Payment is a crucial and largely untapped opportunity for retailers to increase revenues and improve profitability. [17] ” Retailers will therefore need platforms that are set up to accept multiple forms of payment as well as commerce solutions that support a seamless checkout experience.
Risks & Challenges Associated with E-Commerce Acceleration
Key challenges that retailers face related to accelerating digital commerce presence are:
- Inflexible legacy technology
- Product information management issues
- Organizational challenges
Inflexible Legacy Technology
This challenge goes hand-in-hand with the trend of “headless” commerce platforms. Many e-commerce platforms are built on highly customized legacy systems that can be difficult to update or replace. Legacy systems also often result in siloed and/or messy product data, content, customer data, and other key commerce components. The combination of siloed data and legacy systems only increases the challenge, and cost, of adding capabilities to one’s e-commerce platform. Thus, retailers may need to consider adopting new systems and architecture entirely in order to increase flexibility and scalability.
Product Information Management Issues
Product information, including product images, descriptions, pricing, and other attributes, is crucial for selling products online. Retailers face a number of challenges related to product information:
- Traditional brick & mortar retailers may have challenges moving their product information online
- International retailers have to manage cross-border product information, which may include international pricing and different languages [18]
- New forms of product information, e.g. videos, user reviews, etc. are proliferating
- Inaccurate product information in legacy systems
- Highly manual processes for updating and maintaining product information
Investing in a new, decoupled Product Information Management (PIM) solution and/or leveraging AI for automation are ways of tackling some of the above challenges. Additionally, retailers will need support in cleansing, migrating, and updating product data.
Organizational Challenges
According to Gartner:
“Many organizations deploy digital commerce with a goal of digital transformation but are not yet ready to achieve that because they focus on optimizing performance rather than transforming the business. [19]
The problem, according to Gartner, is that organizations still view digital commerce as a sales channel rather than an ecosystem of products, services, IoT, and customer experience. [20] Shifting organizational thinking and strategy to reflect this can help retailers develop an effective digital strategy, make better decision regarding e-commerce / digital commerce technology, and extract more value and growth from digital commerce. Ways to execute this include shifting to a cross-functional organization based on agile product management principles and creating a “digital commerce” team with all the appropriate skillsets.
Major Players
Main Customers
Traditional retailers form a major buyer of technology in this space:
- Department stores, e.g. Saks Fifth Avenue, Kohl’s, Nieman Marcus, Macy’s
- Specialty stores and brands, e.g. Tiffany & Co., Restoration Hardware
- Discount stores, e.g. Dollar General
- Independent retailers and brands
- Grocery stores and supermarkets
Superstores such as Walmart or Target may be viable customers but may also lean toward building their own solutions in-house. That said, they may target new entrants for acquisitions in order to buy the technology outright.
Direct-to-consumer brands will look for enhanced e-commerce capabilities as they expand their offerings, especially beyond traditional channels such as web and mobile.
Incumbents: Traditional E-Commerce Platforms
The 2019 leaders in Digital Commerce according to Gartner’s Magic Quadrant [21] are:
- SAP Commerce Cloud (hosted on Microsoft Azure)
- Adobe (Magento)
- Oracle (Oracle Commerce and Oracle Commerce Cloud)
- Salesforce
These leading solutions are often part of a large “experience cloud” solution from each vendor that encompasses a suite of products than can be integrated with the commerce solution. These solutions may include content management systems, product information management systems (which may also be built directly into the commerce platform), analytics solutions, and more.
Furthermore, many of these large vendors have their own AI engines (e.g., Salesforce Einstein, SAP Leonardo, Adobe Sensei) or are hosted on cloud providers that have their own AI solutions (e.g., Microsoft Azure AI, Google Cloud AI), which will potentially make it easier to embed AI into these commerce platforms [22].
Challengers: E-Commerce Platforms Challenging the Incumbents
Shopify is considered the main challenger to the incumbents. [23] Shopify is easy to use and supports integration with many channels (social media, Amazon, eBay, others), which is valuable in terms of supporting the channel proliferation trend, but Shopify is harder to integrate with back-end systems such as PIMs, OMS, CRMs, and ERPs.
Commercetools is a niche player (as well as the target of a major investment recently – see “Investment Landscape” section) offering a fully headless, API-based platform as well as a PIM tool. [24] Commercetool has no storefront, meaning there is lots of flexibility in the front-end channel, but that it requires an integration. This can make Commercetools more complex to implement, but leads to increased flexibility.
Other notable players include Episerver, Elastic Path (formerly Moltin – acquired in Jan 2020), and BigCommerce.
New Entrants
RevTech Portfolio Company: Cooklist
Cooklist offers meal planning functionality through a recipe database, shopping list functionality that integrates with local grocery store offerings, and “inventory” tracking of a user’s pantry based on grocery store purchases. While Cooklist itself is not an e-commerce platform in the traditional sense, it is helping to accelerate the adoption of online grocery shopping and has created somewhat of a “marketplace” functionality for local grocery stores.
Non-Portfolio Company Entrants
Later stage entrants:
- Productsup
- Description: SaaS-based “product experience platform” that helps brands and retailers enrich their product content
- Stage: LBO
- Salsify
- Description: Fully integrated platform with multiple modules for managing product content across multiple digital channels (that is, the “digital shelf”) [25]
- Stage: Series D
Early stage:
- Voicefront
- Description: Voice commerce solution leveraging AI; Allows Shopify stores to sell via Amazon Alexa
- Stage: Seed (completed 2020)
- Eversight
- Description: Provider of a digital testing platform designed to offer expertise in promotions, in-store and online retail pricing. The company’s digital testing platform uses predictive analytics, data science, machine learning and multi-tenant cloud architecture to bring digital A/B testing capabilities, enabling consumer goods brands and retailers to improve promotion effectiveness and make efficient use of trade funds.
- Stage: Series A (valued at $51.65M)
- Nate
- Description: Developer of a micro-agent intended to transact online on behalf of consumers. Live on iOS, users can send requests to buy anything, anywhere. The company’s neural networks use deep learning and natural language processing techniques to understand code and execute online tasks, enabling customers to focus on the decisions that matter. You do the shopping – nate does the checkout.
- Stage: Seed (completed 2020)
- Pop Art
- Description: Developer of a web and mobile application platform designed to bring new content, operations and communications. The company’s platform specializes in offering a range of services including iterative development, digital asset management, strategic road mapping and user experience design to reduce inefficiencies through custom technologies, enabling manufacturers and dealers to leverage authentic content, gain customer trust and optimize sales easily
- Stage: Pre-Seed/Angel
- Plytix
- Description: Developer of product search engine platform intended to manage and connect brands and retailers to consumers. The company’s platform runs on a cloud platform that tackles challenges in digital product management by sourcing and sharing product content to monitor their performance from various third-party web shops, enabling retailers to access a whole new level of detailed e-commerce data and analytics.
- Stage: Early Stage VC (no round specified)
- Avana
- Description: Developer of a social commerce platform designed to help retailers optimize their brand and automate their business capabilities. The company’s platform simplifies the selling and buying process online on the web, social media, mobile and tablet, converts likes into paying customers and e-commerce into social media channels, enabling micro-merchants to manage customers, orders, and process payment all in one place.
- Stage: Seed/Early Stage VC
- Buywith
- Description: Livestream shopping platform for brands and retailers to host virtual shopping events using influencers and experts who take their followers on a highly engaging journey through the brand’s website
- Stage: Seed
- Nacelle
- Description: Headless, mobile-first commerce platform that pairs with Shopify to improve page load times and overall experience.
- Stage: Early Stage VC (no round specified)
Investment Landscape
Overall Funding Landscape
VC Deals [26]
From Q1 2019 through Q2 2020, there have been 439 VC deals across all stages in the e-commerce software space totaling over $3.4B in capital raised. These deals cover 349 companies.
Q1 2019 saw the most deals while Q4 2019 saw the least, though there is generally between 50 and 70 deals per quarter. $856M was raised in total in Q1 2019 across 71 deals. However, despite having only 59 deals, Q2 2020 had the most capital raised of any quarter in this time period at $872M.
The largest deal was a late-stage $500M investment in Indonesia-based marketplace Tokopedia. Investors included Alibaba and Softbank. Other notable late-stage deals include:
When looking at pre-seed deals in this same timeframe, the total deal volume is 200 deals (almost half of all 439 deals) and the total capital invested is $215.83M. Top investors include Startup Funding Club, SAP.iO Foundry, Plug and Play, 500 Startups, Y Combinator, and SOSV. Notable deals include:
Early Stage VC deals made up 130 deals during this time frame, with $573.45M invested. Top investors include Bpifrance, 500 Startups, Silicon Road, Wayra, GGV Capital, and Seraph Group. Notable deals include:
- LeafLink ($35M)
- Contentstack ($31.5M)
- Huzan Social Retail ($30.75M)
PE Deals [27]
From Q1 2019 through Q2 2020, there were 32 PE deals in this space, with the majority occurring in Q3 2019:
The largest deal was a $2B buyout of UK-based Travelport Worldwide by Evergreen Coast Capital and Siris Capital. They are a global distribution system operator. Another major deal was the $165M growth investment in German e-commerce services platform Commercetools.
IPOs [28]
Only 4 IPOs occurred in the last 6 quarters:
M&A Activity [29]
From Q1 2019 through Q2 2020, there have been 46 M&A transactions in this space. MailChimp made two of the deals: customizable e-commerce platform LemonStand and “open and real-time” e-commerce platform Reaction Commerce. Other notable deals include:
- Alphabet acquired product tracking software Pointy for $163M
- Shopify acquired B2B commerce platform Handshake
Conclusion
E-commerce continues to be ripe for disruption, especially with the proliferation of channels such as social, voice, IoT, and more. Retailers will need solutions that support the broadening of commerce channels and increase the flexibility of their legacy platforms (or replace them entirely) through modular configurations and AI. Retailers will also need to expand the methods of payment accepted to align with the growing innovations in digital payments
References
[1] Pitchbook Market Size Estimate: E-Commerce
[2] Magic Quadrant for Digital Commerce, Gartner, Inc., August 2019
[3] All estimates from Pitchbook unless otherwise noted
[4] Press Release: Retail Distributed Order Management Systems Software Market Grow with a High CAGR- Global Industry Analysis, Key Manufacturers, Trends, Size, and Forecasts, MarketWatch, June 2020; https://www.marketwatch.com/press-release/retail-distributed-order-management-systems-software-market-grow-with-a-high-cagr–global-industry-analysis-key-manufacturers-trends-size-and-forecasts-2020-06-19?tesla=y
[5] “Visualizing the Rise of Digital Payment Adoption,” Dorothy Neufeld, Visual Capitalist, June 2020; https://www.visualcapitalist.com/digital-payment-adoption/
[6] “2019 Strategic Roadmap for Digital Commerce,” Gartner, Inc., April 2019; https://www.gartner.com/document/3912859?ref=solrAll&refval=251789059
[7] “Harness the Core Capabilities of a Digital Commerce Platform,” Gartner, Inc., September 2019; https://www.gartner.com/document/3956936?ref=solrSearch&refval=251788823
[8] Gartner, Inc., April 2019
[9] Gartner, Inc., April 2019
[10] “Top 12 Ecommerce Challenges for 2020,” Tina Eaton, Plytix Blog, February 2020; https://www.plytix.com/blog/ecommerce-challenges-for-2020
[11] “Headless Commerce: The Ultimate Guide,” Tina Eaton, Morten Poulsen, Plytix Blog, January 2020; https://www.plytix.com/blog/headless-commerce
[12] “Covid-19 pandemic accelerates the rise of digital payments,” Dr. Juergen Braunstein, The Economist, March 2020; https://eiuperspectives.economist.com/healthcare/covid-19-pandemic-accelerates-rise-digital-payments
[13] “The Future of Commerce Payments in a Digital Society,” Gartner, Inc., August 2019; https://www.gartner.com/document/3956560
[14] Visual Capitalist, June 2020
[15] Visual Capitalist, June 2020
[16] Plytix Blog, February 2020
[17] “Payments in Retail,” Oliver Wyman, https://www.oliverwyman.com/our-expertise/insights/2019/dec/retail-consumer-journal-vol-7/payments-in-retail.html
[18] Plytix Blog, February 2020
[19] “Scaling Digital Commerce Into a Digital Platform Business,” Gartner, Inc., August 2019; https://www.gartner.com/document/3847506?ref=algorightrec&refval=3956936
[20] Gartner, Inc., August 2019
[21] “Magic Quadrant for Digital Commerce,” Gartner, Inc., August 2019; https://www.gartner.com/document/3956505?ref=algobottomrec&refval=3912859
[22] Gartner, Inc., August 2019
[23] Gartner, Inc., August 2019
[24] Gartner, Inc., August 2019
[25] “Cool Vendors in Digital Commerce,” Gartner, Inc., June 2020; https://www.gartner.com/document/3985869?ref=algobottomrec&refval=3912859
[26] Pitchbook
[27] Pitchbook
[28] Pitchbook
[29] Pitchbook