Checkout Evolution: from Gen 1 to Gen 3

All software markets go through the same lifecycle:

• In the beginning, while the market is not well defined, and the customer preferences are well-studied, it is dominated by generic solutions that are suited for the “average” customer.
• As the market evolves, more and more niche solutions appear. These solutions cater towards specific segments of the market based on their size, industry, business needs or other criteria.

This dynamic is illustrated by the Martech “Marketing Technology Landscape” graphics. It shows how the whole martech space has evolved from roughly 150 vendors in 2010 to over 8000 in 2020.

Commerce is no exception to this rule, as more and more commerce solutions have appeared over the years. Still for a while the fragmentation of the commerce ecosystem was held back by the monolithic nature of the incumbent commerce platforms.

For a long time checkout has been perceived as an integral part of the commerce platform and it’s evolution was held back by lack of focus. But with the proliferation of Composable Commerce this has changed and now it is time to look back and see how the checkout has evolved over the last 20 yers.

In Generation 1, the checkout process was deeply intertwined with legacy commerce platforms like Oracle ATG, IBM WebSphere, and Magento 1. While these platforms provided a comprehensive set of features for web stores, they posed several challenges and limitations when it came to the evolution of the checkout experience.

One significant challenge was the monolithic nature of these platforms. They were designed as all-in-one solutions, offering a tightly integrated suite of functionalities. While this approach provided convenience in terms of having a single platform to manage various aspects of an online store, it also meant that making modifications or customizations to the checkout process was complex and expensive. Brands had to adhere to the "take it or leave it" approach, often being unable to implement specific checkout requirements that deviated from the platform's default behavior.

Additionally, legacy commerce platforms lacked flexibility in adapting to changing market demands and customer expectations. As the market evolved and customer preferences shifted, brands needed the ability to experiment with different checkout flows, implement new payment methods, or optimize the user experience. However, the rigid structure of these platforms made it difficult to introduce such changes without significant development efforts and costs.

Furthermore, legacy commerce platforms often had limited support for seamless omnichannel experiences. As customers increasingly engaged with brands across multiple channels, including mobile devices, social media, and physical stores, providing a consistent and frictionless checkout experience became crucial. However, the monolithic platforms struggled to offer the necessary flexibility to synchronize and optimize the checkout process across different touchpoints, resulting in disjointed customer experiences.

Another challenge associated with Generation 1 checkout experiences was the lack of personalization options. With limited ability to customize the checkout flow, brands had little control over tailoring the experience to individual customers' needs and preferences. This limitation hindered the ability to leverage customer data, contextual information, and behavioral insights to deliver personalized offers, promotions, or recommended products during the checkout process.

Overall, the challenges associated with legacy commerce platforms in Generation 1 revolved around their monolithic nature, limited flexibility for customization, inability to support seamless omnichannel experiences, and the absence of robust personalization capabilities. These limitations restricted brands from adapting their checkout processes to meet evolving market demands and deliver exceptional customer experiences.

Checkouts were built as an integral part of the platform, without any meaningful ability to be modified or customized. Brands usually had to settle for what was available out of the box and preferred not to make any changes to the checkout.

Generation 2. In the early 2010s the commerce platforms started moving towards Headless architecture. Brands gained the ability to create unique commerce experiences across the omnichannel ecosystem of physical and digital touchpoints.

The downside of this progress was brands having to stitch together checkouts from scratch using API endpoints which negatively impacted time to market. On top of this checkout remained an integral part of the commerce platform, forcing brands to stick to the existing checkout capabilities.

In Generation 2, the commerce industry witnessed the emergence of headless commerce platforms, which aimed to address some of the limitations of the previous generation. While headless architectures brought benefits such as flexibility and the ability to create unique commerce experiences, they also introduced their own set of challenges for the evolution of the checkout process.

One of the primary challenges was the increased complexity and development effort required to implement a custom checkout experience. With headless platforms, brands had to stitch together their own checkout flows using API endpoints and third-party services. While this allowed for more flexibility and customization, it also meant that brands had to invest significant time and resources in developing and maintaining their custom checkout solutions. This resulted in longer time-to-market and higher development costs, especially for brands without dedicated technical expertise or development resources.

Another challenge associated with Generation 2 checkout experiences was the integration and compatibility issues between the headless platform and the various components of the checkout process. As brands assembled their own checkout flows using different APIs and services, ensuring seamless integration and smooth data flow between these components became a complex task. Incompatibilities or inconsistencies between different systems could lead to technical glitches, data discrepancies, and an overall fragmented customer experience.

Additionally, headless platforms often lacked comprehensive out-of-the-box features and functionalities for checkout. Unlike monolithic platforms that provided a complete set of checkout capabilities, brands had to build custom functionalities themselves.

Moreover, with headless architectures, checkouts remained tightly tied to the commerce platform, preventing brands from easily replacing or upgrading the checkout experience without extensive development efforts. While brands had more freedom to customize the front-end experiences, they still had to adhere to the limitations and constraints of the underlying commerce platform. This constraint limited the ability to adopt new checkout innovations or experiment with alternative checkout approaches without significant technical overhead.

In Generation 3, the advent of Composable architecture brought about a paradigm shift in the commerce industry, unlocking numerous benefits for the evolution of the checkout process. Composable Commerce enabled the decomposition of the commerce stack into independent components, leading to the proliferation of best-of-breed commerce stacks consisting of specialized solutions such as Product Information Management systems (PIMs), Order Management Systems (OMS), Promotion Engines, and, crucially, checkouts.

One significant benefit of Composable Commerce was the freedom for brands to select the checkout solution that best aligned with their specific needs. With the ability to choose from a wide range of checkout providers, brands could evaluate and select a solution based on factors such as payment options, shipping capabilities, pricing flexibility, and fraud prevention mechanisms. This flexibility ensured that brands could tailor their checkout experiences to match their unique business requirements and provide an optimized and seamless customer journey.

Furthermore, Composable Commerce empowered brands to create multiple checkout experiences that were tailored to individual shoppers based on contextual factors. By leveraging the capabilities of Generation 3 checkout solutions, brands could dynamically adjust the checkout process based on various parameters such as the device being used, the shopper's location, their customer profile, and even the specific stage of their buying journey. This level of personalization and contextualization allowed brands to deliver highly relevant and engaging checkout experiences, enhancing customer satisfaction and increasing conversion rates.