Zooming out the headless e-commerce vertical

CM Ventures
11 min readFeb 3, 2021

Hi, I’m Daniil from СM Ventures👋🏻. Our team has spent the past couple of months digging into the headless e-commerce vertical and have decided to share our key findings on why headless stack looks like the next big thing in website building. We are going to share with you the six fundamental drivers behind its future growth. We have created a map (mostly headless e-commerce, but not exclusively*) on which we have identified and grouped all associated companies into 3 main components: CMS, commerce and frontend. Attached is a link to our spreadsheet listing each company with additional data (stage, $ raised, investors, public readings, and web traffic). Let me know if you have any comments or questions!

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💡 Here you can find all the downloadable material we have produced!

🚀 Quick intro to the headless stack

Historically, big players such as Shopify, WordPress, Magento, or Wix have been providing monolithic infrastructure — an all-in-one solution for building an e-commerce storefront, from the backend to the frontend, from scratch. The system works straightforwardly. Shopify or Magento begin by building the backend (cart, checkout, content, etc.), then they create a frontend (UI/UX) for web or app use — now providing a working product for their customers. The functionality is simple and convenient (templates, single platforms, plugins, etc.). The biggest limitation with the monolithic stack is that, by design, it doesn’t allow for much flexibility (if you want to change how the website looks, you need to change your backend as well, and vice-versa). For over a decade this has been the standard for website architecture and generally worked for the market, until now — where a better alternative is emerging.

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But today we’re seeing growing evidence that merchants are increasingly looking for more customisation, flexibility and better performance across all devices. Switching to headless seems to be the right solution.

There are two main steps in the headless development process:

  1. Create a backend (1) and a frontend (2). The process resembles lego building in the way that the development team can choose any tool they want and replace them with another.
  2. Connect the backend and the frontend parts through an API into the final product and deliver it to the customer via their device (3)

A good analogy would be the process of unbundling in the fintech space.

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The benefits of headless? Performance and flexibility.

Headless infrastructure is a valid candidate to become the mainstream for how e-commerce websites are built in the next 10 years.

Headless’ performance is easy to illustrate (and it’s also the greatest selling point for most companies) because separate API-driven services work better than a single mechanism. This also means that websites built on headless are simply much faster. Below are two absolutely identical e-commerce platforms: the website on the left was built on Gatsby, the headless frontend platform and the right has been built on Shopify. You get the idea!

GIF was made from a video of Pavel Ivanov, a software engineer in Gatsby Storefront

Headless’ flexibility and rich functionality are more tricky to illustrate. There are numerous ways to benefit from headless, but a generalized example would be: if you need to change something on the frontend (say, you would like to create a new product category), the frontend team could start developing without waiting for the backend team and all the data from the backend would be automatically connected to the frontend in real-time. On the flip side, the development process is more complex (compared to the traditional monolithic approach), which makes headless a choice for bigger merchants having their own development team (or working with an agency).

We’d like to use a case from a German company, Frontastic, as an illustration of new features allowed by headless. Thomas Gottheil, CEO:

I often talk about the headless complexity trap. The frontend developers break free from the monoliths and that has led to an explosion of frontend frameworks, but the bridge to business is missing. There is a myriad of tools out there, but there is no product made for digital business teams to assemble the actual experience in a headless world. What we do is combining API orchestration, developer and non-developer specific work environments, and frontend delivery into an easy-to-use experience hub for headless that unites developers and non-developers around building great digital customer experiences.

💬 Six reasons why the time is right now

There are two camps in the VC community. One of them thinks that headless is a smart marketing strategy by Shopify and Big Commerce to get large customers to join the platform. The other camp believes that headless is definitely the future of e-commerce (obviously, many of them have already invested in the space).

We are in the second camp (why would be writing this post otherwise?). Below are our thoughts on why headless is definitely not a marketing gimmick, and why it looks to be the right time to get in:

1) Performance matters. For any e-commerce website, lower load time means higher conversion, and higher conversion means more revenue. Headless architecture is faster by design — as you’ve learned above — and it’s much better at handling abnormal traffic peaks like Black Friday (Nacelle has quite a helpful article here explaining this point). This year Cyber Monday has become “the largest digital sales day ever”: it ranged between $10.8B and $12.7B, representing a growth of 15% to 35% from last year.

2) Mobile web is more important than most think. While it’s a given fact that mobile is the fastest-growing segment of e-commerce, it’s not only about apps. Mobile web is a big part of the experience (e.g. Zalando, a European fashion e-commerce leader valued at over $25bln, has over 50% of its mobile web is a big part of the experience (f.e. Zalando, a European fashion e-commerce leader valued at over $25B, has over 50% of its mobile traffic coming from mobile web). Headless is solving most of the pain points on mobile, stemming from the natural limitations of monolithic platforms as it’s easier to simultaneously support desktop, native app, and mobile web / PWA, while delivering significantly faster performance. If desktop users can still somewhat tolerate longer load times, mobile users wouldn’t — three seconds of load time and the user closes the tab.

Source: Nacelle

3) Big merchants are increasingly going online. After our first (and hopefully last) covid year, big retailers realized that e-commerce is not simply a single paragraph about digital transformation in their annual reports. See the chart below showing Best Buy’s: share of online sales almost tripling in 2020. Large merchants who are increasingly investing in digital and omnichannel sales are the natural target audience of the headless stack, as they need flexible and rich websites and have adequate resources for development. The average ACV with most headless companies we talked to ranges from $50k to $100k+.

Best Buy’s share of online sales, 9M 2020

4) DTC rocket. Direct-to-consumer brands are growing fast: Allbirds brought over $100 million in revenue in just its first two years of operations and reached a $1.4B valuation, and Hims reached $100m in revenue and $1B in valuation in under 3 years. As their website or app are their only channel of sales, DTC is strongly focused on customer online experience, with well-designed interactive websites, personalised content and direct communication with consumers, etc. For example, DTC brand Glossier was created as a blog about beauty that allowed the development of strong relationships and engagement with customers. Only after that was Glossier turned into a full online shop. Given all the flexibility it allows, headless is a better option for DTC companies compared to older platforms.

5) B2B digital transition. In B2B commerce, 49% of transactions are still done manually through phone or fax. This, however, is changing (and accelerating on the back of covid) and today B2B companies are following the same customer experience requirements as their B2C counterparts. Think of Faire (take a look at their fabulous website!), a B2B online marketplace founded in 2017 that raised $436M from top VC at a $2.5B valuation. Spryker, an e-commerce enabler in B2B space, raised over $130M in a Series C at a $500M+ valuation. It’s probably too early to say, but we think there is a good chance that the well-resourced B2B players stepping into e-commerce for the first time would gravitate towards the most innovative stack.

6) International e-commerce is on the rise. Facebook and Google allow you to easily scale your marketing worldwide and logistics startups like Flavour Cloud or Passport Shipping allow you to add global delivery without the hassle. So naturally, both DTC companies and traditional players are increasingly going global.

Headless is naturally a better choice for this purpose as it is easier to maintain different versions of the website (think of different currencies, languages, country-specific content, and inventory) while keeping the speed intact. For example, the aforementioned Hims switched to the headless Contentful infrastructure to expand globally, which allowed it to launch its new U.K. site in just 30 days.

We are also seeing a number of strong indirect signals that validate our train of thought:

1) Commercetools, a company founded in 2006, suddenly raised $145M from Insight Partners in 2019; and Bloomreach, founded in 2009, raised $150M Series E from Sixth Street in 2021. We definitely think it indicates their revenue is likely to be accelerating big time.

2) The growing number of strong rounds from the smartest VCs. Fabric’s $15M seed round and Nacelle’s $18M Series A are the best examples.

3) As early signs of traction, many headless companies we talked to were able to ramp up from zero to $1M+ ARR in a pretty short period of time.

4) Shopify and Big Commerce, traditional players, are building their own headless solutions for the enterprise. This summer Big Commerce went public and made headless a big part of its S-1 marketing.

🧭 Mapping the headless e-commerce

The headless landscape is diverse and we came up with 3 big groups:

1) CMS (mostly e-commerce, but not only)
The headless Content Management System is a platform for creating, managing and distributing only desktop or mobile content. For example, many companies are using Contentful for publishing blogs.

The CMS market is really overcrowded. There are a lot of established players such Amplience (founded in 2007 and raised a total of $78M) or Bloomreach (founded in 2009 and raised a total of $247M).

But at the same time, there is a lot of room for emerging new players. For example, Contentful was founded in 2013 and has already become the dominant player in the headless content management market raising a total of $159M from General Catalyst, Balderton Capital, Benchmark, Sapphire Ventures, etc.

Here we can also define two main types of headless CMS:

◾ An open-source project such as Strapi raising $14M from Accel and Index Ventures in May 2020. Strapi is building a successful community around its platform. Currently, the company has 33K stars on GitHub.

◾ Closed-source projects such as Contentstack that raised $31M from Insight Partners, Illuminate Ventures and Ginger Bread Capital in 2019. The company demonstrated strong financial result as revenue grew by 4x in the first half of 2019.

2) E-commerce backend
The headless e-commerce platform is a solution for creating and managing commerce stack items such as pricing, catalogues, baskets, etc. — all information that might be edited quickly.

The headless e-commerce market is still developing. The space is not new and therefore we could highlight several legacy players such as Commercetools (founded in 2006 and raised a total of $167M) or Elastic Path Software (founded in 2000 and raised a total of $54M). Although there is a lot of space for new players and new solutions, we can allocate two existing types of platforms:

◾ Open-source projects such as the fast-growing Saleor commerce with 10.2K on Github.

◾ Closed-source projects such as Fabric develop headless e-commerce backend and frontend for D2C and B2B. Fabric raised a $15M seed round in Oct 2020 from Sierra Ventures, Redpoint, etc.

3) Frontend (mostly e-commerce, but not only)
The headless frontend platform is a solution for creating website visuals. For example, Gatsby allows you to build a website’s frontend in just 10 minutes. Headless frontend development remains in the early-stage with solutions allowing the building and management of the website interface. We would like to highlight 2 types of frontend platforms.

The platforms focusing on developers. Usually, this is an open-source project that is built around the community of frontend developers. The key value is that the community constantly develops additional extensions and plugins that provide more room for customisation. There are a huge number of projects for building any website using any coding language. This type of platform is dominant right now as the headless approach is based on developers first. The best examples of such platforms are Gatsby that raised a total of $47M from CRV, Index Ventures, Trinity Ventures, etc. Gatsby demonstrated amazing results with 2000 plugins, 200K websites built on Github, 48.8K stars on Github, and a $218M valuation. Vue Storefront, an open-source PWA for any e-commerce, is less famous but has huge potential. The company raised $1.5M from Movens Capital and SMOK Ventures in 2021, 8.0K+ stars on Github, 250+ live projects, and 4K community members. Nacelle, providing developer-driven PWA built on top of Shopify, raised $18M Series A from Index Ventures, Accomplice, Lerer Hippeau, Inovia Capital, etc. in Jan-21.

The platforms focusing on marketers and developers. Here we’re talking about solutions that work not only for developing purposes but also for managing the website interface. For example, Frontastic allows developers and marketers to work independently on a single platform — coding a website with JavaScript and testing conversions with no-code tools. Another strong example is Shogun that develops a landing page builder and frontend-as-a service and raised a total of $47M from Accel, Initialized Capital, Pioneer Fund, etc. Shogun has grown 182% YoY with 15K companies.

🎲 Thoughts about future

The bottom line — it’s still early days for the market. But we are very positive and have collected enough evidence so far that has lead us to determine that we are on the right path. We will have to wait and see. Our concluding point about headless is that it is a huge opportunity and there is a lot of stuff to familiarise oneself with around this topic. We hope to surprise you with some new insights in the future…

🎓 For those who like to dive deeper

1) Greylock partner Mike Duboe discusses headless with Steve Sewell, co-founder and CEO of Builder.io, and Jordan Gal, founder of CartHook, here

2) Cofounder of Moltin, Adam Sturrock’s, thoughts about headless, here
We also recommend checking Adam Sturrock’s maps that inspired us: Frontend and CMS

3) The role of headless in the experience-driven commerce from Big commerce, here

4) A good article about the headless growth from SellBrite, here

5) The best structural history of headless we’ve ever seen from Neil Trickett, E2X partner, here

👀 You’re welcome to reach out to us

We’re excited to become more involved in the headless vertical and would be happy to connect with founders, investors, and other ecosystem players based in this vertical. We’d love to hear from you! You can find us on Linkedin or via email at daniil@cmventures.com. Are you curious about CM Ventures? Check our portfolio and focus, and feel free to get in contact.



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CM Ventures is a global venture fund. We provide capital for scaling from earliest stages of growth and beyond. http://cmventures.com/