The State of the Commerce Market - A View from the Ground
I have spent the last seven years observing a revolution in the modern commerce market. Driven by Covid and kick-started by Headless, API-based commerce, there has been a significant change of the guard. A market once dominated by SAP, Oracle, IBM, Salesforce, and Adobe is now being replaced by a new set of players and technology.
I have read options and reports from various analysts, thought leaders, and agencies and their views on the commerce market landscape. They each have their own set of criteria with which they evaluate the market. The results are the MQ’s, Wave’s, Market Snapshots, Commerce Reports and so on. While there is value to these reports, they do not give you the whole reality of what is happening on the ground, where the deals happen. That is what I would like to share with you, an unvarnished view of what is happening on the ground. Full disclosure, I currently work for Elastic Path, which provides commerce software for brands leveraging Composable Commerce, so I will not include Elastic Path in this report. Before I joined Elastic Path, I worked at Commercetools. My colleagues at Elastic Path, collectively, have worked at virtually every major commerce vendor.
I will start with SMB and the Enterprise Markets, as they have clear leaders. I will then cover the Mid-Market and then separately B2B, as they are both reasonably wide open, with no clear leader yet.
This is easy… Shopify. They own it. Anything D2C under 10M in GMV is theirs. I don’t see this changing in the short term. In the long term, I primarily see the competition coming from either the large cloud providers like Google, AWS, or Microsoft or the Social vendors: Facebook, Instagram, Snap or even TikTok. These are the channels new up-and-coming brands use to reach their target audiences.
I am not sure what officially defines the GMV for the Enterprise Market. I tend to think it starts around 250M in GMV. There are two motions in this Market: Retaining your current customers and winning net new ones.
The vendors focused on retaining their customers include Oracle, SAP, Salesforce, with a little IBM/HCL every now and again. These vendors were smart, as most started to take their platforms headless 3-4 years ago. This allowed their customers more flexibility on their front end, and the API layer, while not perfect, was enough to support other channels and devices. The real value to the vendors was extending the life of their monolithic platforms. Salesforce and SAP did it better than the others because they could also leverage the strength of their CRM, Service and Marketing Clouds.
The clear leader in winning net new logos is Commercetools. After Walmart, Best Buy and Target built their own microservices-based platforms, it opened the door for Commercetools to provide a similar platform for the rest of the enterprise market, in particular, the ones that didn’t have hundreds of developers to build their own. Commercetools was selling speed, flexibility, and a better architecture. But the market has changed with the advent of other MACH (Microservices-based, API-first, Cloud-native, & Headless) platforms into the market, and it has become more difficult for Commercetools to differentiate. Momentum is everything with new technology and Commercetools had it. Now, with more MACH vendors in the market who provide modern commerce technologies to companies that do not have the skilled and large development teams, Commercetools’ momentum has slowed.
Salesforce is still competing in the Enterprise Market, but not on the higher end (500M plus). They win if they leverage their Salesforce install base and work their existing strong relationships with the business teams.
Fabric has the money to compete with close to 300M raised over the last few years. They are adding some customers, and have the money to scale their sales and marketing globally. The issue I see and hear about, is that there is market confusion around what they actually sell. The product seems to move the way the wind is blowing on any given day.
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The Mid-Market within commerce is somewhere between 20M-150M in GMV. The mid-market is wide open, and this is where the battle is today. Everyone has their share; however no one has dominated this market, and the players from the other markets are trying to compete here. For example, Shopify has tried to punch up with Shopify Plus with little success, and Commercetools has tried to push down with the acquisition of a front-end, Frontastic, also with little success.
The Mid-Market is inherently tricky. Brands in this space would like to adopt more modern MACH based platforms however, they don’t have the large internal teams with the necessary technical skills required to implement, support and enhance such a platform. Platforms like Commercetools are therefore viewed as too complex. Mid-Market Brands would like the key benefits of MACH (speed and flexibility) balanced with the ease of use. For this reason, you still see Magento and Salesforce competing in mid-market with their headless offerings. You get the ease of an all-in-one platform with some front-end flexibility.
The Hybrid MACH solutions like BigCommerce and VTEX also give customers some benefits of MACH, paired with ease of use. They have lightweight CMS, Storefronts, and in VTEX’s case, some OMS and Marketplace functionality. (I use the word Hybrid MACH because some platforms are more MACH than others. Hybrid being less MACH)
BigCommerce has a strong focus on Mid-Market. They have aligned their Marketplace (downloadable Apps), SI Network and Sales team to the Mid-Market. Their focus is on customers that outgrow Shopify, so their strategy is tightly aligned to the Mid-Market,
VTEX has a Mid-Market product, but I believe they fumbled their go-to-market in the US after their Softbank investment. They went after the Enterprise Market with a Platform that was built for South American Mid-Market customers. They did a better job in the UK focusing on Mid-Market. Had they focused on Mid-Market from the get-go, they may have had different results.
A new entry into the US Market is Shopware. They are an open-sourced German SMB/Mid-Market solution that has been around for 20 years… the German Commerce pedigree continues. They just raised 100M to scale globally, and Shopware 6 shows some promise.
Overall, the Mid-Market is crowded and with no clear leader having emerged. Likely each of the players will gravitate towards a niche based on which platform best fits the needs of a particular industry or company. This is down to two factors, first the differentiation between platform capabilities is evolving in this direction and second, the SIs that will cover the gap mid-market companies face when it comes to in-house teams adept at managing their own implementations.
I have been hearing for years that B2B companies would start building more B2C like experiences, adopt more modern technology, and invest in personalization and recommendations. That just hasn’t happened yet. That is why you see so many customers still using monolithic applications like SAP or even more legacy platforms like Intershop and IBM/HCL Websphere.
The MACH Platforms do have a place in B2B architectures, however, in the enterprise space you will not see most B2B customers interested in leveraging the full ecommerce stack. Instead, many large B2B companies have invested in Enterprise PIM’s, for managing their complex catalogs. Some have invested in pricing solutions to manage their complex and dynamic pricing needs, or pricing is calculated in the ERP. Customer master data is kept in their CRMs. So, all that is left is checkout. Therefore you see companies like Commercetools winning checkout only deals in the Enterprise B2B space.
In the B2B Mid-Market specifically, you will see more of the MACH Platforms competing, because these companies are not quite as complex. I believe both Spryker and VTEX have a chance to make a move in the mid-market B2B space. Sprkyer may also be able to move up to Enterprise. Spryker has a strong B2B history in Germany however, the fact that their solution is a monolith and not SaaS will hurt them long term. VTEX has a nice B2B “solution in a box” if they would just sell it that way. Again, as I said before, VTEX fumbled their North American strategy. They do seem to be refocusing and could emerge as a leader in the B2B mid-market. They have a stronger architecture than Spryker but lack some of the necessary B2B features.
Fabric is spending big money to go after B2B…. just like their B2C, OMS, CMS and store front (also billboards in the Airport, is that back in style?). I have not seen much success from them yet in B2B, and quite honestly, I don’t expect to see it.
Salesforce will still win in Salesforce Blue accounts. I don’t see them winning much outside of their own ecosystem, same as SAP.
Big Commerce and Shopware have both made a move to win in this space by adding B2B capabilities. All the commerce platform companies recognize the massive opportunity in B2B, as it is a much larger addressable market than B2C. However, I still see B2B organizations focusing more on Supplier Portals than I do modern B2B experiences.
In summary, I don’t see a clear commerce platform winner emerging in the next couple of years. I believe that all the vendors will all get their share, most likely by carving off a sub-set of the B2B market and specializing in that niche.
Mid-market and B2B will remain competitive in the near future as these niches are established. For companies in these spaces, one platform might suit their unique needs better than another. For now, the best way to determine which platform that might be will depend entirely on a POC process for each use case.