Who will win the digital commerce race?

Michelle Swan Profile picture for user Michelle Swan September 26, 2022 Audio mode
Summary:
The race is on for digital commerce tech providers - but who will win? Michelle Swan of Tercera looks at the competition.

High demand products, sale season e-commerce discount website or marketing campaign drawing customers to buy product concept, consumer people with shopping cart compete in running race track © eamesbot - Shutterstock
(© eamesbot - Shutterstock)

Providers of digital commerce technology have fired their engines in the race to capture the $5.4 trillion in e-commerce spend that is projected by 2026, and customers and investors are watching the race closely to see which model will surge ahead for the win.

  • Will it be the single-vendor commerce stacks from vendors like Adobe, Salesforce, SAP, Shopify and Oracle that dominate the market today?
  • Or will it be the fully-composable, MACH (Microservices, API-centric, Cloud-native, Headless) architectures favored by vendors like commercetools and Elastic Path that promise a more customized commerce experience using best-of-breed components?
  • Or will it be a hybrid 'headless' architecture that uses APIs to separate the backend commerce engine from the front-end user interface, which offers greater flexibility than a single-vendor stack but not full composability?

Like most technology decisions, there won’t be one winner in this race. Different types of customers have different needs and preferences. Someone with a family of six isn’t going to buy a convertible. They’re probably going to choose something a bit more utilitarian (albeit less cool) like a minivan. A single person on a budget isn’t going to go with a fully-loaded luxury car, but might choose a basic compact. And someone who is looking for speed and handling is going to opt for a sports car.

The same can be said for commerce engines. A small, online retailer will probably be fine with an all-in-one platform like Shopify that can handle everything from a website to inventory but doesn’t offer a ton of flexibility. However, a large retailer with multiple brands in multiple countries needs a more sophisticated solution.

Increasingly the solution of choice for larger sellers is going to be composable commerce –  the race car of digital commerce architectures. These architectures are designed for speed and agility, and perform more like a Porche than a Prius. Although handling one takes some getting used to.

When will composable take the lead?

According to Gartner, IT architectures are already leaning into composable, and commerce is leading the charge. Gartner predicts that by 2023 50% of new commerce capabilities will be incorporated as API-centric SaaS services, and that those organizations that have adopted a composable approach will outpace the competition by 80% in how quickly they can implement new features.

While a fully composable architecture might not be on the roadmap for every large retailer yet, once they see competitors starting to outpace them, it’s going to move up the priority list fast.

The primary pull of a composable architecture is the need to handle what one consultancy calls 'the multi-problem'.  How do you provide a consistent, stellar customer experience across multiple channels, multiple brands, multiple geographies, multiple languages, multiple currencies and multiple commerce models? That, in and of itself, is overwhelming. However, if you’re saddled with slow, silo’d, monolithic platforms that were architected for a different era, it’s nearly impossible.

Legacy commerce platforms like ATG (acquired by Oracle), Magento (acquired by Adobe) and Hybris (acquired by SAP) – perhaps you’re sensing a theme here – were created when e-commerce penetration was in the single digits. Today, it’s nearly a quarter of all sales globally. These platforms were created at a time when subscriptions brought to mind magazines not software, and today, more than 50% of software spending is through a subscription model. By 2026, it will be two-thirds of software spending.

These platforms simply weren’t designed for the complexity and pace of commerce today and they are starting to show their age and becoming more expensive to maintain. All of which is giving composable an opening in the market. According to the 2022 Ecommerce Platforms Report, 18% of the retailers surveyed said they planned to switch e-commerce platforms. Of the B2B sellers, 61% said e-commerce platforms were one of their top three technology priorities.

Headless is a great first step into a more modular architecture, and it gives B2B and B2C sellers a certain level of flexibility. However it doesn’t solve the multi-problem fully, nor does it allow  sellers to use the best tool for the job across the entire commerce stack.

Early adopters that have moved to a composable architecture, brands like Harry Rosen, LEGO and Wolford, are already seeing the benefits from their early investments. They’re able to roll out new features or introduce new brands or stores in weeks, not months, and they all point to the cost, reliability and scalability benefits of this new architecture. Composable architectures allow companies to easily swap out components as technology and customer preferences evolve. For those that want to future proof their tech stack, this will become increasingly important.

Lessons from the cloud

All of this feels eerily similar to the shift that happened with cloud computing. When Software as a Service (SaaS) and Infrastructure-as-a-Service (IaaS) first came on the scene, it was evangelized by the early adopters, but it took time hitting the mainstream. Large enterprises questioned whether it was the right model and incumbents fought against it. But eventually the tides turned.

Companies sitting on the sidelines saw their peers moving faster than they could with the cloud. The arguments around security and scalability started to lessen. Even IT folks clutching desperately to their servers became convinced that cloud might be a better solution in most cases. And then the incumbents jumped on the bandwagon. Anyone remember Oracle’s front page Wall Street Journal ads claiming to be the #1 public cloud vendor?

Composable commerce may not be mainstream yet, but it feels like it’s on the precipice. It still requires in-house IT support, implementation and ongoing development, but the technology is maturing and specialist composable consultancies like Orium (formerly Myplanet) are providing accelerators and guidance to make the shift easier.

More and more vendors are also getting into the mix. The MACH Alliance, which was introduced a few years ago to educate customers and certify vendors on MACH architectures, now has more than 60 members. And dedicated communities like Composable.com (which is operated by Orium) are starting to pop up to provide a destination for those going through the process.

My take

There won’t be one winner when it comes to digital commerce technology. No one vendor will be able to offer all the capabilities to appeal to every type of customer. However, there is a giant shift taking place in how sellers look at their commerce systems, and the vendors and service providers that are leading the pack now, will likely not be the front-runners 5 to 10 years from now. Just like what happened with cloud computing.

Those looking to win this race can learn a lot from that shift to the cloud. It will come down to more than just a superior technical architecture. Mass adoption only happens when vendors and service providers can offer a superior user experience and demonstrate real value to the business. This is where technology and service providers alike should focus.

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