New commerce models emerging in the wake of the pandemic

A wave of unprecedented growth

The COVID-19 pandemic accelerated growth in the ecommerce sector. Bellm points out that before the pandemic, ecommerce in the U.S. was growing by between 13% and 15% each year; during 2020, it grew by 33%. It took 23 years for ecommerce to achieve a market penetration of 10% of U.S. consumer spending, and between four and five years to go from 10% to 20%. If ecommerce now accounts for about 20% of consumer spending, and if it maintains a steady 15% annual growth rate, it will take only three years to go from 20% market penetration to 30%, and only two years after that to increase from 30% to 40%. “This has become by far the biggest, fastest global economic transformation in history outside of wartime,” says Bellm. “My best guess is we get to 50% of total consumer spend before it plateaus, and we’ll get there astonishingly quickly."

De Datta attributes this massive growth to multiple trends: first, that under-penetrated internet demographics, such as older consumers, are now being exposed to ecommerce in new ways. Second, he observes that ecommerce is gaining wallet share among individual consumers. People who used to only shop online for clothing or electronics have branched out into using ecommerce to buy other products, like groceries. And finally, vendors who had not previously explored ecommerce have begun to adopt it, such as public transit authorities selling train tickets to commuters and other travelers.

“It’s been fun to watch so many businesses, especially those with a big physical presence who had not prioritized ecommerce, realizing how much bigger their market could be if they would adapt,” adds Bialecki. For some, embracing ecommerce has required making structural changes to their business models. And as workplaces, stores and public spaces reopen, retailers face the challenge of retaining the increased market share they captured online during the pandemic.

Customer experience is a driving force for innovation

Companies increasingly recognize the importance of creating differentiated customer experiences to build their brands and drive sales. As a result, businesses are embracing “headless commerce” – an ecommerce model where the customer-facing aspects of the commerce platform are managed on a separate tech stack than the back-end functions. This enables brands to more fully customize the experiences they deliver to consumers, without having to update the back end of their platforms. It also allows companies to be more creative and nimbler when it comes to delivering fresh content and digital experiences to their customers.

Another quickly evolving element of the customer experience is the drive to increase personalization in ecommerce. “If you walk into a big-box store, nothing is customized for you – whether it’s your first time or your 100th time there,” says Bialecki. Conversely, a digital environment enables retailers to finely tailor and highly personalize each customer’s shopping experience.

De Datta agrees that unique experiences and personalization are crucial, especially for businesses looking to differentiate themselves from the massive, established ecommerce marketplaces. “While marketplaces have made ecommerce remarkably easy, their transactional approach ultimately leads to the commoditization of brands,” he explains. In ecommerce, the winning companies build experiences that cater to the underlying motivation for the purchase, not just the individual transaction. “I might be searching online for plywood, but what I’m really seeking is to build a beautiful deck.” The better a retailer can identify what a customer is really seeking to achieve, the more successfully they can address that need—and the more likely the customer is to return in the future.

For many businesses, the primary obstacle to building more innovative customer experiences is legacy technology. A tech stack built entirely in-house on custom code offers little flexibility and updating the customer experience requires a monumental coding exercise, says Bellm. The other major challenge involves measuring and tracking the ROI on customer experiences and personalization. “Attribution is imperfect, but it doesn’t have to be perfect to be valuable,” notes Bialecki. Finally, De Datta acknowledges that technology providers still need to remove friction from the process in order for retailers to fully embrace digital transformation and deliver the personalized, differentiated customer experiences to which they aspire.

The future of customer acquisition

When it comes to the future of commerce, getting in front of new customers is another area where technology is continuously changing the game, and where challenges and opportunities coexist.

For Bellm, there is no way for brands to circumvent channels like search engines, social media and online marketplaces. “Customers start journeys on other channels. You can’t stop that, and if you don’t advertise or sell through those channels, you’re giving up that customer.” Businesses need to embrace an omnichannel approach to marketing and sales, and then deliver a great experience to customers who engage with the brand to keep them coming back.

De Datta refers to cost-per-action and cost-per-click digital advertising as, “A drug most brands have been on for a lot of years,” and points out that these are well-engineered business models designed to enrich the underlying tech platforms in perpetuity. “Accept that you need to use them to acquire customers, but then make sure the lifetime value of that acquisition explodes,” he advises, reiterating that the way to create valuable repeat customers is to deliver exceptional commerce experiences.

In contrast, Bialecki points out that the big tech brands dominating the digital advertising and ecommerce spaces achieved their status without relying on advertising. “Word of mouth and virality are the cheapest and fastest ways to grow,” he says. He agrees that successful brands are pursuing long-term customer relationships but believes that there is a significant opportunity for brands to influence the means of discovery by creating compelling original content. “I’m not just going to lead with my product; what kind of owned media can I use to build an audience, and monetize it using ecommerce?”

The COVID-19 pandemic accelerated shifts that were already underway in the ecommerce space, from the sector’s increasing adoption among consumers, to the importance of customer experiences online and the evolving ways customers are discovering and engaging with brands. Perhaps now more than ever, the future of commerce is brimming with creativity and innovation. To learn more about opportunities in the ecommerce sector, contact your KeyBanc Capital Markets investment banker.

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About the 2021 Technology Leadership Forum

Technology companies experienced a tumultuous start to 2021 with uncertainty around industry valuations, tax policies, COVID-19 transitions, supply shortages, inflation concerns and valuation thresholds. To assess the current market dynamics we brought together investors, executives and founders from top private and public companies, and industry thought leaders to provide insights and explore opportunities for technology as we progress toward a "new" normal. Attendees included 1,000+ institutional investors, 180+ private equity/venture capital corporate development investors, 105 public companies and 46 private companies. The agenda included 90+ Fireside Chats/Presentations, and 6 thematic panels.