8 Feb 2023

Headless as the Path Forward for Digital Commerce

‘Monolithic architecture’ originally referred to large, single material structures like Egyptian obelisks. These days it describes software that is put together in a centralised way and where each component depends on every other component to work. To meet the growing number of online consumers during the internet boom of the 1990s, companies like Amazon, eBay, and other e-commerce pioneers launched their online storefronts centered on monolithic architectures.

Increasingly however, these relics of the first wave of the consumer internet are not equipped for the complexities of an omnichannel world.

Consumers now expect to browse and make purchases across (i) a range of devices and interfaces – from desktop, smartphones, and non-standard cases such as voice assistants, in-car infotainment systems, and wearables – and (ii) a plethora of platforms, from physical stores to websites, social media and online marketplaces. But monolithic systems force businesses to address these different formats in a rigid and linear fashion, and can break under pressure from high velocity events such as Black Friday or Cyber Monday.

As a result, monolithic architecture is becoming an obstacle to deepening customer engagement and maximizing revenue opportunities. However, there is an alternative, and we believe it’s the future...

Paradigm Shift: Enter Headless Commerce

A ‘headless’ e-commerce architecture is a software framework that makes sure the front-end (the part consumers use and marketers care about) and the back-end (the part which executes requests) are given independence from each other, while still being able to communicate via APIs.

As digital commerce sophistication increases and the number of possible front-ends has exploded, the independence between front and back means merchants can easily add new channels and micro-services, resolve bugs quickly and make adaptions in a much more stable way, because moving one brick (layer of code) will not collapse the entire structure.

It also means that merchants can deploy best of breed solutions to tackle each function, resulting in empowered marketers with more control over experimenting and shaping the user experience, and efficient developers with greater ability and speed to scale and increase functionality. The big prize for organizations is not only lower costs, but the increased consumer reach across channels, higher conversion rates, larger cart sizes and more returning visitors.

This is a large step forward, and we believe headless software represents a secular shift in how online storefronts will be composed.

Monolithic architectures are not going away as they help keep things simple in basic environments, but in a marketplace of rapidly growing sophistication, that is a rapidly diminishing proposition.

Many enterprises and digitally native brands with high technology maturity have been first adopters of headless architecture as they look to differentiate on the digital shelf. We believe the next leg of growth for headless and composable commerce will be driven by more emphasis on user experience, rising consumer touchpoints, and continued e-commerce penetration resulting in demand for extensible, best of breed platforms that are performant and less expensive to scale.

We are closely following the trailblazers comprising tomorrow’s headless storefront and are most excited about new investment opportunities in the following categories:

Commerce platforms are the engines powering digital storefronts as they sit at the intersection between front-end and back-end layers, and provide core checkout and transaction processing functionality.

Content management systems (CMS) are the central content repositories for compiling, storing and rendering content for display to visitors across multiple channels. Headless CMS providers allow developers to connect content to the front-end via API calls while content authors are empowered to focus on content edits, updates, and management.

Front-end builders are used by marketers, merchandisers, and web designers to create the front-ends that consumers interact with. These platforms offer design control, workflows, templates, and creative flexibility purpose built for business users managing the ideation and creation process in delivering the best digital experiences.

Web development platforms reduce the burden on front-end developers by streamlining and automating the hosting, deployment, and maintenance process with their own infrastructure integrations and content delivery networks (CDN) to allow for faster storefront launches, iterations and improved website speeds.

Omni-channel marketing solutions can serve as the marketer’s operating system for creating, orchestrating, and executing campaigns and related communications with visitors across all channels and customer journeys. Platforms leverage customer data and artificial intelligence to also power and automate personalized outreach and product recommendations.

Our funds are long-term investors in digital commerce enablement and are current backers of CommentSold, FullStory, Klarna, Mirakl, mParticle, and Salsify. We look forward to the ecosystem’s shift to best-of-breed technology stacks that promote composability and supporting more companies that are revolutionizing the status quo through ground-breaking innovation.