The Future of E-commerce Part 1

Published in

Force Over Mass

7 min readJan 26, 2022

In this three-part series on E-Commerce, Shu Hua Wong charts the development of the space from its inception until today, examine the driving factors and current trends, and gaze into the crystal ball to see what the future might hold. First, we will look at the history of E-Commerce and the different functions within it.

2020 was an inflection point for E-Commerce. After years of steady but slow growth in online shopping, the pandemic forced millions of physical stores to close temporarily. Even among those that remained open, cautious consumers relied more on delivery or click-and-collect to reduce their exposure to the virus.

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The shift in shopping habits was dramatic. Data from the UK’s Office for National Statistics showed e-commerce represented 19.1% of all UK retail spending in February 2020. By May it had risen to 32.8%, before peaking at 37.6% the following January. While the level has sunk back since then, the genie is out of the bottle. We don’t see it ever returning to pre-pandemic levels.

This has been an obvious boon to e-commerce companies, but has also led to an explosion in companies that provide the services and infrastructure to support e-commerce players. Take for example the rise of ‘Q-commerce’ delivery companies such as Blink or Arive.

In the face of such upheaval, we sought to understand the E-Commerce landscape better. E-Commerce is irrevocably changed, and we believe certain trends are likely to accelerate. But, before we explore the trends we see today, we have to first understand how we got here.

The 3 waves of E-Commerce

E-Commerce started in the dot com era when the internet became the new frontier of consumer technology. Back then, businesses could develop simple pages on the web to have an online presence and take orders from customers. The development of E-Commerce mimics the maturation of underlying technology and can be broken down into three eras.

First wave (Dotcom era)

The first E-Commerce websites were simple websites such as Pets.com that existed during the dot com mania. For example, Pizza Hut’s first website in 1994 was a grey, static page called the ‘Pizza Net’ Portal. These clunky websites generally provided information on the stores and allowed users to place orders.

Many processes that we would think of as part of the E-Commerce tech stack today were painful experiences for customers and were by-and-large manual processes for businesses– checking out, handling payment flows, coordinating online orders with fulfilment and shipping goods. If the internet connection gave up mid-payment, it was often easier to phone the other party.

Many early E-Commerce businesses were high profile and raised a lot of money. They were polarising and faced their share of ardent believers and critics. Many of them didn’t make it — Pets.com was unable to price and ship large amounts of goods without losing money on each sale, Boo.com did not receive as much internet traffic as anticipated and many customers did not have the bandwidth to load their virtual assistant. Ultimately, they could not deliver against their high expectations, which led to their downfall.

However, this is not to say that the first wave was a failure. ‘Web 1.0’ as it is known also saw the birth of major players such as Amazon and Ebay, which laid the foundations for the centralised and decentralised models of e-commerce respectively. Amazon also pioneered and patented the “one-click-checkout” which made the checkout experience more seamless, and Paypal, which was founded in 1998, helped smooth the payment flows for the next generation of merchants.

Second wave (post-dotcom era to mid-2010s)

Fast forward to the mid-to-end of the decade when website development and backend solutions began to mature. People moved on from selling on platforms such as Ebay or Craigslist, creating an opening for companies that simplified the launching of E-Commerce stores.

The most famous example from that era would be Shopify, which was created by two Ruby on Rails developers in Canada. One of Shopify’s founders, Tobi Lutke, has a quote that summarises the difference between centralised and decentralised ecommerce well: “Amazon is trying to build an empire, and Shopify is trying to arm the rebels.”

The simplification on the user’s end made it easy for merchants of all sizes to use. A structure emerged (e.g. content management system, inventory list, checkout basket, integration with payment providers), creating the basic features of an e-store. This in turn heightened the rift between the online nature of E-Commerce selling and fulfilment process in which goods were shipped to customers.

Brick and mortar merchants that did not have an online presence found it hard to compete as a larger volume of purchases now took place online. The idea of omnichannel retail — a shop having both online and offline presences took hold. Merchants however had to deal with having two separate inventories — one essentially for the physical store and the other for an online store.

Third wave

E-Commerce tech is undergoing changes similar to those of Fintech and the wider tech space — the “modularisation” of code through the rise of headless architecture. This “modularisation” in E-Commerce is made possible because of the development of APIs that allow the different backend technologies to be integrated within the headless content management system (CMS).

In other words, the monolithic code structure that dominated in the earlier era is now a legacy solution, with headless architecture bringing a more modular approach. This shift allows merchants to assemble bespoke solutions and makes the code more robust and less prone to crashing. In a legacy solution — a single code error can cause the entire store to malfunction, while an e-store running on a headless solution still functions if one component (for example, mobile storefront) is not working. This in turn also gives more options for merchants to customise their storefront displays across different devices.

Startups have sprung up around different areas of the tech stack, each focusing on different aspects . Examples are Bolt (checkout), Bluecore (personalisation for customers and cart abandonment), Recharge (subscription management software). Incumbents such as Shopify and Magento do not want to be outdone and have also begun offering headless options for their platforms.

While a headless CMS can bring many benefits to merchants, adopting a headless solution requires technical talent as it is essentially a developer-first solution, and smaller merchants may not have the budget for development teams. Migration to headless architecture can also be painful for big retailers, as existing systems can be so entrenched in the company’s workflow that an overhaul requires a lot of work.

Although the third wave is dedicated to discussing the evolution in the E-Commerce tech stack, the discussion would not be complete without briefly touching on the influence of Amazon on E-Commerce logistics in the same era. Amazon’s revenue has grown almost tenfold between 2011 and 2021 and has become ubiquitous with a standard 2-day delivery that consumers have come to expect from other merchants as well. This puts pressure on less established retailers whose fulfilment and delivery systems may struggle to match Amazon’s speed.

How the E-Commerce sector is divided

The E-Commerce market can be broadly segmented by the nature of its functions — online-based functions that are centred on managing an e-store, marketing and selling, and offline functions that are related to the movement of goods — the receiving, fulfilment, shipping and returns management.

Online

These tools can be more customer-facing (e.g. product recommendations at checkout, chatbots, or AR tools to help customers visualise how the product might look on them) or tools that aid merchants (e.g. branded communication with customers). With the advent of the third wave, the verticals have become slightly more niche and nuanced, such as frontend store builders for headless architecture, or specialised checkout tools. Most innovations here that we’ve seen are usually trickled down from tech — that is, they tend to be tech applied in the area of E-Commerce.

Offline

These subsectors are generally tied to the movement of goods — fulfilment, shipping, last-mile delivery and returns. The latest trend from this space would have to be the rise of Q-Commerce/instant commerce operators in the last mile delivery space.

So now we understand the history of E-Commerce from a tech perspective and the segments into which it can be divided. In our next instalment, we will seek to understand the forces shaping E-Commerce and current market trends.