The eCommerce market is poised for far greater growth, creating a massive opportunity for software businesses supporting a Headless eCommerce strategy.

As COVID-19 shut down brick-and-mortar stores across the globe, a huge number of once digital-hesitant shoppers adopted online purchasing. The net effect? A significant rise in eCommerce sales that is unlikely to subside.

Online purchases now make up about 15% of all retail sales in the U.S., up from 10% prior to the pandemic. But this is only the beginning. With Millennials in the U.S. making about 60% of their purchases online, and dynamic markets like China already seeing online retail market share above 40%, it’s clear the eCommerce market is poised for far greater growth in the coming years.

The software opportunity

This presents an incredible opportunity for the software companies supporting eCommerce. As small and medium-sized digital merchants experience greater traffic and sales, their basic one-stop-shop platform solutions are being strained. Many SMB platforms do a great job of helping merchants stand up a store, but gaps in their delivery infrastructure begin to appear once the stores reach certain transaction and inventory volumes.

Headless eCommerce allows merchants to enhance their existing commerce by simply bolting on best-of-breed tools as needed to support business growth.

Website performance may start to lag as traffic and orders increase beyond what SMB platforms were designed to handle. Merchants also increasingly may find themselves needing greater sophistication along the value chain, including in marketing, fulfillment and shipping, inventory management, payments, and finance.

However, completely replatforming to a higher-grade commerce platform is a daunting, disruptive, and expensive process, and one that many merchants will be hesitant to take on.

As a result, we believe this creates a massive opportunity for software businesses supporting a Headless eCommerce strategy. This concept allows merchants to enhance their existing commerce by simply bolting on the best-of-breed tools as they need them to support their business growth.

Here are four key reasons why we think the future of eCommerce technology is headless.

1. Bridging the gap: There is a wide gap in the market between SMB eCommerce platforms and the enterprise-grade functionality available in higher-end product offerings. Flexible, best-of-breed headless solutions can bridge this gap for merchants who are outgrowing their SMB platforms but are unwilling to go through the pain and disruption of a rip-and-replace.

2. Manageable scaling of costs: While replatforming can be a laborious effort, it’s also very expensive. By building a Headless eCommerce stack, merchants can tack on modular solutions on an ad hoc basis, allowing them to align cost outlays to their most urgent needs. For example, if load times are impacting their customer experience, they can find a solution that takes over their delivery infrastructure; if they need better content management, they can source a solution to address that specific issue.

Merchants seeking to meet consumers where they’re buying need a flexible architecture that allows them to seamlessly connect data sources, commerce functions, and user experience.

3. Greater purchasing flexibility: Customers aren’t just buying on a merchant website. Increasingly, they are buying across platforms like marketplaces, apps, and social media. As merchants seek to meet consumers where they are, they need a flexible eCommerce architecture that allows them to seamlessly connect their data sources, commerce functions, and user experience.

With a headless eCommerce stack, a merchant is able to support these purchasing experiences by integrating best-of-breed solutions into their existing platform. It also provides flexibility to adjust cross-platform functionality as consumer habits continue to evolve while capturing the data needed to inform such a decision in one place.

4. Reducing opportunity costs and driving revenue: eCommerce performance is measured in milliseconds; as merchants scale, the opportunity cost of site performance grows substantially. According to a 2020 Deloitte Digital study, a 100-millisecond improvement in site speed leads to an 8.4% increase in transaction volume, a 9.2% increase in average order value (AOV), and a 5.4% reduction in bounce rate. With a headless approach, merchants can prioritize performance and add on a solution aimed directly at driving better site speed.

The next winner in eCommerce will offer a suite of best-of-breed functionality on a modular basis, such that it can support this headless architecture that grows along with its merchant users.

Capitalizing on the future of eCommerce technology

The market opportunity for headless software players is huge. Despite Amazon’s dominance, the eCommerce market as a whole continues to be incredibly fragmented. More than 20,000 merchants already process in excess of $10 million GMV annually (NAICS Association), and the number of businesses joining that group is rapidly rising as consumer spending increasingly shifts to digital.

In the near future of eCommerce technology, we believe the next winner could be a player that offers a suite of best-of-breed functionality on a modular basis, so it can support this headless architecture that grows along with its merchant users. Building those capabilities will likely require organic and inorganic investments, as well as the capabilities and resources of an aligned capital partner like LLR.

Here’s the bottom line.

The eCommerce space is undergoing a massive expansion that is set to continue for years. The headless eCommerce model is going to play a critically important role in supporting merchants as they grow along with the space, representing a tremendous opportunity for software providers who help address merchants’ common growing pains and enable them to deliver an optimized, seamless digital buying experience.