Part 1: The Massive eCommerce Opportunity

This is part 1 of a 3 part series on eCommerce. Part 2 can be found here.

One of the markets I’m most excited about is eCommerce both as an active customer with considerable love for the convenience of shopping online, and, as an investor who has focused a good portion of my time chatting with eCommerce entrepreneurs. Trifecta Capital currently has 50% concentration of investments in eCommerce, be it in enabling dev-friendly platform like Moltin; a rich community-driven brand like Wheelys Cafes; or a re-imagining of construction equipment ownership like EquipmentShare.

eCommerce has come a long way just in the last 10 years. In 2007, global eCommerce retail sales where “just” $175 billion. In a decade, the eCommerce industry has grown by greater than >10X with an estimated market size of $1.9 trillion globally in 2016. In the U.S., eCommerce has grown to $322 Billion. And even at that large a number, it has only penetrated 8.4% of the total U.S. retail market leaving a huge amount of room for future growth. As audacious as it sounds, I expect the market to be at least 50% of the total retail market in the next 15-20 years, driven by demographic shifts and innovative technologies. 12-year-olds of today, glued to their phone for all basic needs, will be the 32-year-olds of tomorrow. Buying online will be first nature for the majority of the population, not second nature (as it is for my parents today). Habits drive customer loyalty and consumer behavior and the habits of this and future generations orbit our personal Internet devices.

Moreover, eCommerce allows retailers to provide a rich and dynamic customer experience. The high-touch stylist experience offered by high-end department stores has been achieved by a data-driven approach from StitchFix. Same-day delivery pioneered by Amazon and on-demand startups like Postmates and Instacart have dramatically opened the market to time-sensitive customers. Convenience continues to be improved upon through AI-powered home assistants like Amazon’s Echo, and Google’s Home. Why get into your car and drive to the nearest Target when you run out of toilet paper when you can just tell Alexa to buy it for you and it can arrive same-day! Even the perceived “specialness” of the in-store experience is being replicated through innovative unboxing and content strategies at companies like Floravere. And lastly, with big players like Amazon experimenting with AR/VR, the in-store experience could one day be simulated in one’s home. One could even argue that these online retailers are creating a better online experience than the in-store one.

eCommerce Overview: By the numbers and players

This year global eCommerce sales are expected to grow 23.7% year-over-year. That means there is $437 billion dollars of new untapped global market opportunity for companies in the eCommerce space to seize.

Any mention of eCommerce has to include the behemoth Amazon. Amazon’s average growth rate for its eCommerce division has been 28.8% (outpacing the ~15.8% eCommerce growth rate of the U.S. market) and at almost $100 billion dollars of annual revenue it takes a considerable ~26% share of the U.S. eCommerce market.

However, the biggest eCommerce market globally is China with almost a trillion dollars a year in annual sales and almost half of the entire eCommerce market — a country where Amazon doesn’t make a dent (although they are trying!).

In China, 75% of eCommerce occurs through Alibaba, either through Tmall or TaoBao. Unlike in the US where Amazon has yet to achieve a monopoly, Alibaba, with their goliath size, has become the definitive eCommerce monopoly. (Alibaba founder, Jack Ma, spoke recently at Davos and his talk is worth watching to understand his view on Amazon and Alibaba’s differing business models, among much more.)

In China, eCommerce purchases are frictionless since all your purchases are from a single Tmall account regardless of the store you are purchasing from. You can easily buy through a video, photo, text message or ad all without going to the store itself. Alibaba’s reach and dominance show the power of network effects in eCommerce.

Despite Alibaba and Amazon’s impressive size, the eCommerce market is still large enough for companies with distinct differentiation from the big guys to grab market share. Remember, even 1% of this soon to be >$2 trillion dollar market is $23 Billion dollars. And just like Alibaba usurped Ebay in the early 2000’s through scrappiness, ingenuity, and putting the customer first — another startup too can formidably challenge the eCommerce “Goliaths” from the position as a “David.”

In my next posts, I’ll be sharing a framework for thinking about innovation in the eCommerce space, and market map of eCommerce infrastructure — if you have any companies that you want to make sure are part of the list reach out to me on twitter veronicaosinski