The Software Tools That Power Modern E-commerce
Photo by Brooke Lark on Unsplash
Shopping/Commerce has experienced a secular shift in recent years as consumers have reallocated their spending from physical retail to online. The pandemic has accelerated this trend, pushing the e-commerce share of total retail sales to 21% in 2020 (from 6% in 2010) and by some estimates as high as 30% in certain categories. As I heard Harley Finkelstein (President, Shopify) say recently: “The center of gravity for retail has flipped entirely — from physical stores to online”. We completely agree.
Source: Digital Commerce 360
There have been two major beneficiaries of this shift from physical retail to online — Amazon and Shopify.
While each of these companies has distinct business models (Amazon is an Aggregator while Shopify is a Platform, see great Stratechery piece on the distinction here), the growth of these two players is being driven by an explosion of Sellers/Merchants selling goods through these respective services. As of Q1 2021, Amazon had over 2M Marketplace Sellers globally and Shopify was supporting over 1.7M Merchants.
As the number of Sellers/Merchants has grown, so too has the number of third-party software tools that support their e-commerce operations. Many of these tools have been built as apps on top of Shopify; this makes sense given its (more open) platform nature. Per Shopify’s 2020 annual report, there were 6,000 apps available in their app store. Much of the core functionality associated with building a modern e-commerce business can be built using best-in-class software tools available via Shopify (e.g. Attentive, Klaviyo). Great Base10 Partners article on this subject here.
Perhaps unsurprisingly, venture investment into retail technology has also seen very strong growth. Global funding to retail-tech tripled year-over-year in Q1’21 and hit its highest quarterly level in 5 years. Funding to e-commerce tech specifically in Q1’21 jumped 71% from the previous quarter, per CB Insights. The first wave of e-commerce enabling software businesses (understandably) addressed core functionality and many of these businesses have scaled impressively with some even crossing the billion-dollar valuation threshold (congrats Yotpo).
That being said, e-commerce has continued to evolve. There has been a proliferation in the number of channels through which commerce is taking place alongside a shift in the nature of Sellers themselves. Excellent piece by Forerunner on this topic; the quote below sums it up nicely:
“Beyond a corporation or mass retailer, the seller is now frequently a person or small business… learning how to make the internet work in their favor, enabled by social media. With the platforms and tools emerging to sell products, services and content, “creators” want to cut out the middleman and sell directly to their consumer”
We believe that as the nexus of commerce moves online, the channels through which commerce takes place expands, and the nature and number of sellers grows, a new generation of purpose-built software will emerge to service this new reality.
Resultantly, we are increasingly turning our attention to the emerging set of “enabling software tools” that will underpin the tectonic shift taking place across the e-commerce landscape. To become smarter about (i) what tools already exist across the ecosystem and (ii) where there may be compelling investment opportunities, we have developed a comprehensive market map that you can download here.
Areas we are particularly interested in at the moment include:
Brand Discovery Marketplaces that help consumers navigate the plethora of new products and services coming to market
Cross-selling Networks that help intelligently recommend new brands to consumers based on the ones they have previously purchased from or interacted with
Streaming & Video tools that deliver more immersive, interactive, or communal shopping experiences
Commerce enabling tools that help Sellers sell via emerging channels (e.g., Live Chat, Messenger, DMs)
This article was written by Amit Sharma, NYA Board Member and General Partner at Black Jays Ventures.
