Not every piece of German culture takes off in the US. Headless commerce is a case in point.
By the time the phrase was coined in 2013, by commercetools cofounder Dirk Hoerig, the conditions that gave rise to headless commerce had been building worldwide for some time. Essentially, these conditions were the need to quickly and affordably develop new customer experiences across different retail environments and different devices.
But it was in Europe where headless commerce first took hold, in response to the complexities of doing business in the region, and Europe remains the market where been most widely adopted. In the US, the opportunity for headless commerce remains largely untapped. This is despite the presence of plenty of suitable clients, and some excellent reasons why many more US retailers could be benefitting from the technology.
As someone who’s worked for two decades in martech and ecommerce, on both sides of the pond, it’s clear that there are three core problems facing solutions vendors:
- misunderstanding the US market: including the specific challenges that retailers are facing and how these compare to challenges for retailers in Europe
- failure to recognize the opportunities for headless architecture to deliver better value than legacy solutions in the USA’s unique circumstances
- …and related to the last two: solutions vendors not sufficiently differentiating their go-to-market positioning for the US market.
Here are my thoughts on how headless ecommerce vendors can accelerate their growth in the USA.
Europe vs the US: two different ecommerce landscapes
The headless ecommerce market is distinctly Eurocentric. Of the major headless platforms, three – Spryker, Contentful, and commercetools are all German, and Vue Storefront was founded in Poland. With BigCommerce being an Australian business and Shopify a Canadian one, three-quarters of the major back-end providers are founded outside of North America, with the founders of front-end solutions more evenly represented across the globe.
This is not by chance; Europeans are eager online shoppers. There are different estimates but this research from 2021 indicates that the share of ecommerce vs. total retail in the USA is 20.7%, with the share greater in Germany and the Netherlands, and at 28.9% in the UK.
You can also see that, while the average European ecommerce share is smaller than the US, it’s grown significantly faster, especially in Italy and Poland.
The US market is also currently less competitive.
In Europe, smaller or independent retailers in Europe quicker to get established online, and they’ve proven harder for the world’s biggest retailer to unseat. Amazon occupies 37.9% of American ecommerce sales as of September 2020, compared to as little as 9.8% across Europe overall, and 30% in Germany in the UK.
Conversely, in the US, many businesses have not wished to go online, or not faced the same competition – especially considering that many businesses (including some very large ones) sell only in their home states, making competitive incursions less likely.
Weaker competition and a smaller market inevitably adds up to slower innovation, and alleviates pressure on businesses to evolve.
This is a shame. The leading benefits of headless commerce – better, more personal customer experiences across all channels – should be available US customers and retailers alike.
The trouble is that Europeans and Americans are often guilty of thinking of each other’s landmasses as heterogenous places. Americans talk of vacationing ‘in Europe’ without going into specifics; Europeans might come back from New York or Florida and tell people they’ve ‘done America.’ Businesses often make similar faux pas, and this can hold them back in new markets.
The truth is that there are actually some key parallels in retail, between America and Europe, which would allow headless solutions to be marketed and sold effectively into the US market. Chiefly, these are:
- the need to negotiate multiple different regulatory environments, should businesses sell beyond their home state
- the opportunity to sell better, by personalizing content to the customer’s language and culture.
To deal with each of these in turn…
Headless systems can improve interstate ecommerce
The United States is a hodgepodge of differing regulations arrangements, and this makes processing transactions in different states a complicated affair.
BigCommerce (whose website publishes a lot of useful information for retailers facing technological challenges) explains part of the complexity in their ‘Complete Sales Tax Guide for Online Sellers’. Salespeople would do well to read BigCommerce’s guide since it shows the scale of the challenge facing a retailer who wants to venture into interstate ecommerce.
To summarize, the problem that the retailer is responsible for charging the correct amount of sales tax in the customer’s state, and remitting the collected tax back to the state in question. This requires technology to ensure the right pricing appears and to handle the resulting transactions, and likely also some front-end localization to any necessary wording to customers.
The problem does not stop with taxation.
A blog on the website of Elastic Path, a vendor of a range of headless ecommerce tools, gives the example of regulated items such as alcohol.
“Wine, spirits, and beer distributors also face a multitude of shipping regulations that differ by state, some of which even have ‘dry zones’ or areas that won’t allow alcohol delivers at the township or zip code level. Some states only allow wine to be shipped, while others will allow beer and spirits, and all states have limits on the quantity of liquor that can be delivered. All of these regulations, each a data point in the back-end of your eCommerce site, need to be applied during your cart and checkout process.”
You could further add to the list state-level shipping regulations, and customer service obligations around refunds, returns and data protection.
The advantage of headless ecommerce architecture is that a retailer that wants to undertake large-scale national growth is likely to face all these hurdles and more, in an admixture that changes over time. Retailers will also often want to retain the freedom to determine how tax pricing and regulatory necessities are communicated to the customer in the front end environment, in order to continually tailor and optimize their UX.
Applying multiple disparate microservices in order to manage these various hurdles, whilst ensuring continuity of service, safe use and storage of data, and smooth communication between software modules, is an ongoing task. Legacy bundled ecommerce systems alleviate some of this legwork; TaxJar, and a few other similar companies, offer out-of-the-box integrations with many legacy ecommerce back ends, so headless architecture is not necessarily required in order to manage every aspect of this complexity. But the use of legacy solutions comes at the cost of business efficiency and a greater cost of future innovation.
Hurdles such as these are amongst the major reasons why headless architecture first emerged. Jamus Driscoll, CEO of Elastic Path, says,
“There is built-in complexity in EMEA with different languages and varying legislation across countries that means a one-size-fits-all SaaS solution always requires customization.”
If anything, the US is even more complicated that EMEA with regard to regulation. In 2018, The Economist reported that, while the European Union – a free trade area of 44 member states – had harmonized its data privacy laws under GDPR in order to ease cross-border selling, US states were busy drafting their own laws due to a lack of a single federal standard. It looks unlikely that such a standard will ever emerge.
In Europe, such issues always been regarded as hurdles to be overcome; in the US, they have been viewed as insurmountable obstacles. The job of headless sales teams is to help American retailers recognize the potential upside of rising to the challenge.
Unique opportunities for headless commerce in the US market
A French ecommerce store running a ‘Joyeux Noël’ campaign for German customers would require more than just translation services.
Germany, like much of Europe, says ‘Frohe Weihnachten’, and exchanges gifts, on the December 24th. That cuts the retailer’s Christmas shipping deadlines by 24 hours, and requires marketing localization to ensure correct dates are communicated to customers in every customer-facing environment. That’s in addition to managing your suppliers’ and local delivery partners’ seasonal arrangements, which fluctuate year by year at most businesses.
American retailers will be glad this is one complexity they don’t face (although the residents of Fredericksburg, Texas, where the Texas German dialect is still spoken by some, may appreciate a nod to their heritage). But this example does highlight the opportunity that lies in becoming able to effectively tailor experiences for the customer’s local area and personal context.
Few people outside of America realize that many Americans identify by their state first and their country second. People expect a local experience from most commercial channels; local linear television networks are widely watched across the country. The USA is home to six languages with more than a million native speakers and hundreds of lesser-spoken ones – many of which are concentrated in geographical areas which would make them prime targets for marketing localization. Spanish, the most widely spoken after English, is spoken at home by some 45m people.
Delivering content in a user’s first language is intuitively likely to improve sales performance – not only because it eases understanding, but because it resonates emotionally, showing the customer that you care enough to tailor their experience to their culture.
Translating a single website into a single language is not immensely complex. Maintaining a ecommerce system comprising multiple best-in-class microservices, many of which send content into the front-end environment, requires a sophisticated architecture if you want to maintain a coherent experience in every language that you market in.
commercetools gives the example of its client Riedel, a German glassware manufacturer.
With vastly reduced time-to-market cycles… Riedel is able to meet individual customisation requirements for individual countries, even for the smallest functions. Since the flexible microservices architecture allows for specific rules to be easily applied, Riedel can cater for each of its customer demographics simultaneously.
These benefits can also apply to businesses which sell only in one state, since many individual states are so varied in language, culture, landscape and climate that they justify localization efforts.
Arizona is home not only to many Spanish speakers, but also the majority of the Navajo Nation, which levies its own sales tax, and whose the native language has 170,000 speakers. Seven European states have fewer inhabitants than the Navajo.
A lot of US retailers would regard tailoring for preferred languages to be unnecessary, in a market where nearly everybody speaks English. And they’d be right; business success has never been necessary. But the entrepreneurial business owner should spy an opportunity to engender greater customer loyalty and increase order volumes.
The variances go beyond language. Many states have hugely differentiated cultures; the state of Oregon is known by some for its liberal west coast, whilst many people in the rural east want to secede and join Idaho. In some states, customers in some counties may be shopping for snow gear whilst others are buying swim shorts. Headless systems were designed specifically to help retailers capitalize on such opportunities efficiently: making it easier to deliver and maintain multiple different customer experiences from your ecommerce back-end.
Furthermore, for businesses which do wish to cross borders, the opportunity to capitalize on marketing localization recently became significantly greater. In 2020, lawmakers ratified the USMCA, a free trade agreement between America, Canada and Mexico which removed import duty from purchases of $117 to Mexico and $150 to Canada.
These spending limits could be higher, and do not quite expose US retailers to the same levels of cross-border competition faced by European retailers. Nonetheless, the limits are high enough for kinds of online purchases that many consumers make multiple times a week. For businesses with the right technical architecture, the opportunity is ripe for them to sell into these newly exposed markets, whilst slower-moving American competitors get left behind.
A headless go-to-market for the US
I spent a lot of time researching the major headless back-end providers last year, and concluded that the industry is bad at explaining itself to non-technical folk – some of whom operate multi-million-dollar SMEs and could be great customers.
Nowhere, from the companies’ positioning, was it clear that the cost of developing a basic solution in commercetools or Spryker would start around $250,000 and could potentially cost more in annual fees. With BigCommerce, I found the opposite problem. It has far lower starting point on cost, within reach of a family-run business. Big Commerce also has the option of some bundled functionality which may be appreciated by businesses who may want to trade off some of the freedom of a headless system, in exchange for faster development times and lower costs. But none of this is obvious to a potential customer shopping around for the right solution.
Shopify – the least headless of the group, and often bought with a bundled front end – was the only provider which directly markets its affordability for very small businesses (albeit without going into the cost of running it at large scale – which is comparable to the other three systems).
Eric Ingraham, CEO of Swell, a provider of ecommerce developer tools and software, says that…
“Optimizing for that complexity [of the EU market] by improving the customer experience has a higher benefit/cost ratio than the U.S. currently.”
Certainly, solutions providers are selling to a more educated audience in Europe; Jamus Driscoll notes that…
“Eastern Europe, in particular, has been a massive resource for EMEA with deep technical skills that have allowed businesses to hire locally and inexpensively to support headless deployments.”
Headless platform do indeed require permanent development resource to manage the ever-changing network of APIs that surround the headless layer, and to manage the smooth and secure flow of data between software modules. This cannot be DIY’d, and American retailers will have to look harder for the necessary talent – though many have ample spending power to import the right talent should they choose to.
Nonetheless, even if the cost/benefit ratio of headless ecommerce ‘sells itself’ in Europe, it seems counterproductive for solutions providers’ propositions to be opaque. And if you really want to break a new market, you can’t to expect potential customers to pass through weeks or months of meetings in order to make a fair comparison and eventually figure out if headless architecture is really for them.
The task for headless sales teams is helping US retailers recognize that these opportunities are worth a second look.
The US is a curiously offline market, and in many ways, a conservative culture. Large, profitable retailers operate at state level and may never have considered that their existing ecommerce architecture could be improved upon. Some things in the US simply aren’t sold online in the way they are in Europe; price comparison websites for energy and insurance – itself a major European ecommerce submarket – have never taken off in the US where a lot of these agreements are still rubber-stamped.
None of these obstacles should scare off a good salesperson, in a meeting room with the right buyer, since there is so much opportunity on the table. But headless sales teams must work harder with their businesses at getting a foot in the door.
Join the webinar on May 11th
Having worked in executive search in ecommerce for two decades, it’s an honor to be hosting a discussion on headless commerce with some of the best and the brightest in the industry.
If you have questions for our panellists, you can ask them during the live Q&A at the end of the webinar, or you can drop me a note here and I’ll ask them for you during the session.
Look forward to seeing you on May 11th at 12pm EDT/9am PDT – click here to sign up for the webinar.