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Apr 6, 2022 | 7 minute read
written by Bryan House
The “great unbundling” is coming for commerce. If you’ve cut the cord on cable and subscribed to a handful of streaming services (as Ben Thompson predicted in 2017), you know how pervasive unbundling has become. Entire value chains controlled by a single vendor in the name of distribution are no longer the norm.
Now, the capabilities of an entire, best-in-class company can be made available through an application programming interface, or an API, turning software into customizable building blocks. Technology is breaking apart these monoliths one industry at a time, and commerce is next in line.
In many ways, commerce’s great unbundling has already begun. According to Benedict Evans in his The Great Unbundling presentation, brands like Nike are breaking up with Amazon and going direct-to-consumer (D2C) with great success.
As of 2021, 40% of Nike’s revenue is D2C, and 22% is generated via Nike.com. Beyond the website alone, larger brands and branded manufacturers are waking up to the fact that merchandisable moments are everywhere: from influencers, to live shopping, to emerging channels like the metaverse. Capitalizing on these moments lies in unbundling the commerce software stack itself – making it composable and adaptable to rapid-cycle change.
Let’s take a look at why this is the case.
The majority of brands still run on old-world, monolithic commerce platforms. The entire value chain (in this case, the software stack) is controlled by a single vendor. Working with these monoliths requires a team of developers that understands the proprietary codebase, an ever- increasingly scarce resource. Often these legacy technologies impose complexity and add frustration for development teams – to the point where they can even deter talent who wants to move fast and innovate. When changes or integrations can take weeks or months, forget about quickly standing up a brand store in a new geography or selling into a new channel.
To contrast, an unbundled, Composable Commerce model embraces LEGO-like building blocks of software connected by APIs. Instead of choosing a single vendor, brands can choose “best-for-me” components based on the requirements of the business. Developers have the ultimate flexibility to meet their business objectives, with the control to work in their preferred programming language. That means they can add to or change the components in their self-designed platform as they wish.
This unbundled software model can change quickly with consumer preferences by yielding faster development and capability-driven application designs.
The unbundling of the software stack isn’t happening in commerce alone. We’ve seen this movie before in the financial services industry. Fintechs like CashApp and SoFi started small, earned consumer trust, and have since stitched together composable finance ecosystems that make them function similarly to traditional banks.
The key difference is that they use APIs to connect to various services (often from other vendors) and build platforms instead. APIs unlock new combinatorial opportunities that enable these companies to build trust with consumers and create a better overall experience in one domain first. These fintech companies can build upon that trust and offer additional platform capabilities to become stickier and generate greater value for their users.
The companies that build components, such as Wise (formerly Transferwise) and Stripe, solve the composability problem and then present those components as rentable APIs. That way, others can connect easily to money transferring or payments services without taking on all the friction themselves. Many of these companies started at the consumer or SMB end of the market, and have since moved upstream to the enterprise.
Rather than build these capabilities from scratch, financial institutions and other organizations can simply integrate them into their own platforms.
Unsurprisingly, traditional financial institutions are doing just that. They’re becoming software companies by building API-first architectures made up of third-party components to replace legacy monoliths. The same can be true for larger brands and branded manufacturers in commerce. Best-for-me architectures might have started small at the SMB end of the market, but are now available to the enterprise. It couldn’t come a moment too soon.
One of the ways commerce companies can start to unbundle is by rethinking the commerce catalog. One of the most common challenges we hear from branded manufacturers is the “Multi” problem – or the need to sell their products in multiple geographies, across multiple channels, across multiple brands, and/or across multiple business models.
The challenge, as my colleague Julie Mall writes in her blog, The eCommerce Catalog is Dead, is that monolithic ERP systems treat the commerce catalog as a tightly coupled, rigid and structured way to display information based on internal business processes. This prevents brands from adapting to customer demands or merchandising needs. She gives an example of visiting a furniture site to “shop the room,” and instead being forced to sift through every color/fabric option to find what was promoted on the original page. That’s a result of an ineffective product catalog under the covers.
Another example is when a brand with an established D2C channel looks to add a B2B channel. One of the primary challenges with B2B commerce applications is each customer has their own, negotiated pricing contract with the branded manufacturer.
In today’s world of commerce platform options, it’s challenging to find a solution that can serve both D2C and B2B channels and, as is the case with Salesforce, requires purchase of a second commerce platform.
Then, the commerce platform’s catalog, along with its integrated ERP, fail to support the negotiated contract pricing in the B2B use case. As a result, developers must build complex custom solutions to support their B2B needs, or implement a punch-out system that directly connects into their ERP system, where they maintain separate catalogs for each customer. All the while, they’re fearing the day they need to make pricing changes across 1,000 unique catalogs in their ERP system.
With EP Product Experience Manager (PXM) in Elastic Path Commerce Cloud, we’ve addressed these issues by applying API- first principles and separating Products, Price Books, and Catalogs into distinct microservices, giving brands unparalleled flexibility to address the “Multi” problem. Using EP PXM, brands can quickly create a Price Book for their existing products to begin selling in a new geography. Or, they can create specific Product selections for each of their B2B customers, with unique Price Books that reflect negotiated contract pricing – all out of the box with zero custom development work.
This API-first approach to the eCommerce Catalog enables multi-channel branded manufacturers to move infinitely faster. Now, their catalog supports the way they do business across brands, geographies and channels - rather than dictating how they conduct business.
Those are just a few examples of how to approach unbundling in commerce, but of course, there are hundreds or even thousands of different ways to approach breaking up a monolith. As Chris Sperandio wrote in a blog post while at Segment, an API-first approach resulted in the “Request / Response” model of the firm that is eating the traditional, monolithic value chain.
If you are a branded manufacturer struggling with your own “Multi” problem, my recommendation is to start with the product catalog. This approach can help you discover what’s holding you back from creating more merchandisable moments and accelerating your business.
In the coming months, we’ll explore more about composable application development. How do our products provide you with the right foundation to build capability-driven commerce applications to support many brands, geographies, and channels? How can you assemble your own platform faster than you ever thought possible? How can you be ready for any future their customers demand? Follow along as we cover emerging commerce trends, and get you ready to take on your own “great unbundling.”