FRESH TAKES ON BIG IDEAS

E-commerce has been around for more than a quarter century, but many companies still have trouble generating real profits from it. Yes, almost every company has a website, an online shopping experience, and some social media presence, but those are really just trappings. The companies that are most successful with e-commerce don’t treat it like a bolt-on application or channel to their regular business (an all-too-familiar outcome); they embed it into the core of their business. 

Embedding e-commerce into the core of the business means integrating digital into how companies develop, market, and sell products and services to customers wherever they search and shop. Companies that are successful at this don’t think primarily in terms of how to build experiences around their channels, but instead how to use their channels to create the best—and most profitable—experiences. This thinking leads to a profound commitment to next-generation commerce based on integrating capabilities—technology, talent, strategy, operations, marketing, and sales—into a coherent operating model.

Leading companies (those growing at ten percentage points above the market average) commit to next-gen e-commerce. They are prudent with their spending but cutting costs is not their top priority. Instead, they invest in technology (generative AI is the top priority for 20 percent of leaders, while less than 5 percent of laggards make a similar push), talent, channel integration, and shopping-event days, like Black Friday and Cyber Monday.   

Leading companies bring top tech and e-commerce talent in-house. Agencies and vendors will always have a role. But in-house experts who know how to build things—data engineers, software engineers, cloud engineers—give the business the speed and flexibility to innovate at a pace that can keep up with the changes in customer behavior and market dynamics. That’s because successful e-commerce is intensely cross-functional (teams with a range of experts across the business who work together) and end-to-end (functions including R&D, logistics, and customer service that all need to work together to deliver a complete customer experience).  

“Almost 20 percent of business leaders are planning to spend more than $100 million on e-commerce technology infrastructure, compared with about 8 percent of laggards.”

Bringing in the right talent is a big challenge, because companies tend to fall into a few traps. The first is that they aren’t sure about what they’re trying to achieve so they’re not sure what kind of talent they need. The second is that companies don’t look for the best person for the job but rather the best person for the job who fits the pay band they have in place. Getting good talent is expensive, but companies often focus on the cost without understanding the benefit. Paying for top talent is actually a good deal because these people can deliver better results more quickly, and also attract better talent in turn.
 
If companies want to bring in top talent, they need to give them cutting-edge technology to work on. Relying just on monolithic e-commerce systems is a sure way to chase away the best talent, who want to work on technologies that can help build their skills. Almost 20 percent of business leaders, in fact, plan to spend more than $100 million on e-commerce technology infrastructure, according to our analysis (compared with about 8 percent of laggards).
 
In practice, this focus means having a technology architecture that embraces “MACH” development principles (microservices; API-enabled; cloud-native software as a service; and “headless,” where front-end design is decoupled from back-end systems). Open-source technologies meet many of these criteria, providing developers with significant control and flexibility. As AI and gen AI become more important, the critical ability won’t be so much how to build technologies from scratch but how to combine them so they can operate cost effectively at scale.
 
The power of advanced technologies is starting to bear some real fruit when it comes to e-commerce. One European bank, for example, implemented an AI program to understand why customers were opening accounts. In one hour, the program recommended 80 personalized marketing campaigns to target similar cohorts of potential customers. The team narrowed down the options to 40 campaigns, 38 of which ended up being successful. That kind of success rate is unheard of and a sign of how much value AI can generate in e-commerce when it’s well developed and deployed.
 
It's easy to become enamored of today’s modern technologies in terms of what it can do for e-commerce, but it’s critical to remember that it’s never just tech. Effectively developing, deploying, and improving tech programs requires companies to rewire how they work. How companies develop meaningful strategies, work across wider swaths of the organization, use their data more effectively, and scale programs to different regions, products, or customers are all critical building blocks for creating value.

ABOUT THIS AUTHOR

Arun Arora is a senior partner in McKinsey’s Paris office.