It’s an exciting time for companies with ecommerce initiatives. Now a multi-trillion-dollar global marketplace that continues to expand, ecommerce has become a strategic opportunity for growth. But whether they’re new to ecommerce or looking to move to the next level, companies must stay up-to-date on the latest ecommerce terminology, technology, best practices and trends.
In this guide, we’ll explain what ecommerce is, how it works, its many different forms, nuances of government regulation — and many points in between.
What Is Ecommerce (Electronic Commerce)?
Ecommerce — short for electronic commerce — is the buying and selling of products and services over the internet via computers and mobile devices. It also includes the transfer of money and data to enable transactions.
The seller-buyer relationship comes in a variety of configurations, including between business and consumer, business and business and business and government. Ecommerce sales range in scope from individual, one-time transactions to ongoing services subscriptions to continuous, automated transactions between business partners, triggered by complex, integrated supply-chain systems.
What Is an Ecommerce Platform?
An ecommerce platform is a software system that provides the infrastructure a business needs to launch and operate an ecommerce website. Ecommerce platforms relieve companies of the need to create an ecommerce site from the ground up and should include a unified set of features for website integration, accounting, point-of-sale and inventory and order management.
Advanced platforms also provide additional ecommerce functions, such as marketing and merchandising, and integrate with other platforms, like an ERP or CRM, to ensure operational efficiency. An example is working with inventory and supply-chain systems to ensure popular items are reordered on a timely basis so they never go out of stock.
While some companies purchase ecommerce systems to run on-premises, many now subscribe to ecommerce software-as-a-service (SaaS) solutions that operate in the cloud.
- Ecommerce is the buying and selling of products and services online.
- Ecommerce connects all types of buyers and sellers, from individual consumers to businesses to the government.
- Ecommerce is growing rapidly, serving more industries and more types of products and services.
- High-quality mobile experiences are essential to ecommerce given the growing percentage of transactions made through smartphones and other devices.
Ecommerce is a form of commerce in which sellers engage with buyers of goods and services through online websites and marketplaces as opposed to physical, “brick-and-mortar” stores — though many businesses sell through both channels.
It also includes the transmission of data and funds between parties. Ecommerce has become a 24/7 global phenomenon, providing sellers from a multitude of industries with the ability to reach customers anywhere, and providing customers with the ability to find new, innovative vendors and make purchases on their devices of choice, regardless of where the seller is located. Customers may be individual consumers, other businesses and the government.
How Does Ecommerce Work?
Ecommerce transactions proceed in a variety of ways, but one template is to follow the steps of a basic business-to-consumer (B2C) transaction.
A customer wants to buy a product: Take the common scenario of a person looking to purchase the latest bestseller. First, she either goes straight to a specific, known ecommerce website to buy it or conducts an online search to find a desirable seller. As the customer browses the website, the business’s ecommerce system performs multiple tasks in the background, including displaying appropriate product images, related books by the same author or in the same genre and up-to-date pricing.
The customer adds the product to a cart: If the book is in stock, the customer can add it to a virtual shopping cart. There she can review her selection, change the quantity — perhaps deciding to buy an additional copy for a friend — or delete the book from the cart.
The customer checks out: Next, the customer clicks through to the payment gateway, or the online equivalent of a point-of-sale (POS) system. For consumers, this is better understood as the “checkout” page. The payment gateway facilitates online transactions the same way a POS system does. However, the payment is processed as a “card-not-present” transaction because the card cannot be verified in person. Instead, the business must rely on billing information entered by the customer. At this stage, the customer also provides contact and delivery information and reviews shipping costs and timelines.
Payment is made: When the customer orders the book, the payment gateway uses Secure Socket Layer (SSL) encryption to safely transmit payment data to the business’s payment processor, which verifies, and hopefully approves, the transaction by communicating with the customer’s financial institution in real time. Payment is transmitted from the customer’s account to, first, the business’s merchant account — a holding account that enables businesses to receive credit or debit card payments — and then to the business’s bank account.
The business fulfills the order: Once the book order is placed, the ecommerce system triggers processes to pick the product off a warehouse shelf, arrange for delivery and create a shipping label. These processes might be handled entirely by the seller or by another firm contracted to handle logistics. Once shipped, the ecommerce system — either on its own or via integration with other systems — tracks the customer’s order until it’s received.
Advantages of Ecommerce
Early adopters quickly discovered that ecommerce offers several compelling advantages. As others, including traditional retailers, joined the fray, they learned the same. These advantages include:
Greater reach: Companies can sell 24 hours a day, 365 days a year, and potentially reach customers all over the world without staffing locations at all hours or in all the locations where customers live and operate.
Effectively track trends: Using data generated by their ecommerce websites, companies can quickly spot trends, adjust their product mix and merchandising if necessary and hopefully capitalize on new opportunities ahead of competitors.
Personalization: Data plays a big role here, too. Ecommerce sites can provide personalized experiences that reflect everything known about an individual site visitor. For example, when our book buyer arrives for the first time, the site may already know which digital ad attracted her attention and be able to direct them to a relevant page based on that ad. When an existing customer returns, an ecommerce site might display different merchandise or offers based on what it knows that person purchased before. As companies build online relationships with customers, they can deepen their knowledge and thereby grow sales and loyalty.
Ability to scale: Using ecommerce tools and services, companies can more easily grow their businesses — for example, by adding site features that help a visitor choose a product and answer questions. Companies also have the option of working with third-party fulfillment services, aka 3PLs, to deliver more products and handle returns more effectively.
A (more) level playing field: Small companies can leverage an intimate understanding of their customers and access to data to build ecommerce sites that are laser-focused on market niches that competitors haven’t explicitly targeted and don’t understand as well. By doing so, they can extend their reach worldwide and compete effectively against far larger companies.
Disadvantages of Ecommerce
Every form of business presents its own challenges and trade-offs. Ecommerce is no exception. Businesses that understand — and prepare themselves — are well-positioned to meet these challenges head-on.
High customer expectations: As ecommerce has become more sophisticated, customers’ expectations have grown. Ecommerce sites are expected to work ever more smoothly, efficiently, conveniently and reliably. Companies will need the talent, tools and resources to meet these expectations, and that infrastructure can be expensive.
High maintenance: Ecommerce sites need frequent upgrades. Even when the core infrastructure is stable, customers may continually expect new functionalities. Companies need to keep product catalogs up-to-date and accurate, add new features that improve user experience, post new content that is relevant to customers and make sure their sites aren’t compromised or taken down by cyber attackers. All this requires effort, skills and resources.
Rising marketing costs: As online markets become more competitive, the costs of online advertising are rising in the race for scarce customer attention. For example, if a business wants to purchase online advertising from a search engine, it may be competing with others for the same keywords, which increases ad spending. Other marketing channels businesses have at their avail include social media, email, affiliates and online video. While some content can be created in-house, others may need more costly, specialized online marketing skills that require new hires or outside agencies.
Customer resistance: In some industries, customers may still be hesitant to buy online. An example is big-ticket items, like a car. Dealerships are responding with creative applications and technologies, such as online test drives via virtual reality, to help customers “see” themselves in their new cars. They may also offer liberal return policies that reduce risk for the customer.
Ecommerce Business Models
As ecommerce has evolved, multiple business models have emerged based on who is selling, who is buying and the relationships between them. Many of these models are known by their three-letter acronyms — some more familiar than others.
B2B (business-to-business) ecommerce involves sales from one business to another. For example, a business might purchase products or services it needs for employees, such as office supplies. It might purchase components that will be incorporated into its own products. Or it might act as a wholesaler or distributor, using ecommerce sites to acquire products for resale.
B2C (business-to-consumer) ecommerce refers to sales made directly from a business to a consumer. B2C purchases run the gamut — from books and eyeglasses to streaming audio and software subscriptions.
C2C (consumer-to-consumer) ecommerce represents sales made between consumers, often via auction marketplaces such as eBay, fixed-price marketplaces such as Etsy or paid or free online classifieds such as Craigslist. C2C providers may earn revenue through a percentage of sales, via advertising or both.
C2B (consumer-to-business) ecommerce occurs when a person sells something of value — often, their influence or creative material like writing or design — to a business. For example, a social media influencer with a large audience might promote a company’s product for a fee or in return for free merchandise or services. Or, an individual might sell website design and copywriting services to a company via a freelance services platform such as Fiverr.
B2A (business to administration) ecommerce streamlines sales from businesses to governments at all levels, from local to state and federal. B2A might involve a portal where authorized suppliers can quickly access and respond to new government requests for proposal. B2A ecommerce is often called B2G, or business to government.
C2A (consumer to administration) ecommerce refers to electronic transactions between a consumer and a government administration. Examples of C2A transactions include paying federal taxes or municipal utility bills via an online portal. This ecommerce is sometimes called C2G, or consumer to government.
Extending across all these business models is “m-commerce,” or mobile ecommerce, which describes ecommerce designed for and transactions made on mobile devices, such as smartphones, tablets, even smartwatches and smart home devices. As the roles and ubiquity of mobile devices have grown, more ecommerce is transacted this way: M-commerce is forecast to hit $488.0 billion, or 44% of all e-commerce(opens in new tab), by 2024.
Types of Ecommerce
Another way to consider ecommerce is by type. Some types are analogous to commerce in the traditional sense, while others are unique to the online world.
Retail: Ecommerce retailers sell products or services online directly to consumers (B2C) and businesses (B2B). They might manufacture, source, fulfill and ship the products they sell or rely on partners to perform some of these tasks.
Wholesale: The wholesale ecommerce model is based on a business selling products in bulk and at a discount to other businesses that, in turn, sell directly to consumers or other businesses. Wholesale is a form of B2B in which the wholesaler acts as an intermediary.
Dropshipping: In dropshipping, a business sells a product or service that is fulfilled and shipped by the manufacturer or wholesaler of the product sold. The business doesn’t need its own warehouse or logistics operation because the partner handles these tasks. Choosing a reliable partner is paramount.
Crowdfunding: Common among entrepreneurs and small businesses seeking to develop new products, crowdfunding asks individuals to contribute financially upfront so the creator has the resources to bring a product to market. Crowdfunding platforms act as clearinghouses for the funds and handle payment-related administration
Digital products: Digital products include apps, audio and video, consumer goods and many other offerings that can be delivered instantaneously over the internet. In most cases, these products are created once and then simply duplicated.
Physical products: A physical product is any tangible piece of merchandise that is manufactured, stored, shipped and delivered. Examples are books, clothes and electronic devices.
Services: Services are intangible offerings with value to a customer — for example, technical support or copywriting. Increasingly, many popular services can be facilitated and delivered online. An example is an employment coach who serves clients via videoconference.
Subscriptions: For subscription products and services, including software sold in an as-a-service model, customers purchase the right to use an online service or access new editions of online content for a given period of time. The seller benefits from a generally consistent revenue stream but must deliver services customers are willing to continue paying for every month.
In many cases, ecommerce offerings comprise more than one type. For example, a paid email newsletter is both a digital product and a subscription service. Or, a company can do business through its own retail ecommerce site while also building a wholesale channel.
Examples of Ecommerce
Ecommerce is remarkable for its breadth and diversity. Amazon is the obvious example. It offers a wide selection of physical products that it owns and in some cases brands as Amazon Essentials. It also hosts thousands of smaller entrepreneurs who sell through its site and may fulfill their products using Amazon’s services and facilities.
Other ecommerce websites may specialize in specific product categories. Chewy, for example, is a B2C company that sells pet food and supplies. Digital-only Apple Music offers a music and video streaming service. Grainger is a B2B company that provides industrial maintenance, repair and operations supplies. Mark43 is a B2A company that provides a public-safety platform for government agencies. The list goes on.
History of Ecommerce
Ecommerce began years before businesses joined the internet. By the 1970s, large companies could exchange purchase orders and other transaction-related documents online, which streamlined B2B relationships. Meanwhile, universities began using the early internet's informal messaging facilities to buy and sell privately.
As more consumers purchased personal computers during the 1980s, private services like CompuServe, Prodigy and America Online enabled members to buy products online. In 1991, the internet officially opened to commercial applications, and by 1994 early ecommerce websites were experimenting with the use of encryption to accept credit cards. Amazon launched as a bookstore in 1995 and rapidly expanded to sell other media and then a virtually unlimited array of products. Within months, eBay launched to allow individuals to auction products. In 1998, PayPal launched to simplify electronic payments.
Soon, other companies recognized the potential of internet sales and began building online stores. At first, most ecommerce stores were built individually by hand, until software providers began to provide basic shopping carts, product catalog databases and other ecommerce functions.
Throughout the early 2000s, software companies began building increasingly sophisticated tools and platforms for running e-commerce sites. These offerings have since added increasingly powerful capabilities for personalization, effective merchandising, improved user experience and larger customer volumes.
Growth of Ecommerce
As markets mature, growth rates often decline because they are calculated from a larger customer base. In contrast, ecommerce growth rates have remained strong. Estimates vary, but Digital Commerce 360 reports that U.S. online spending grew 44% year-over-year to $861.12 billion in 2020, accounting for 21.3% of all retail sales — up from 15.8% in 2019 and 14.3% in 2018.
Globally, ecommerce growth rates have remained high in most places, though they tend to vary by nation and demographic. For example, retail ecommerce grew by 19.4% in Latin America during 2020. Meanwhile the number of online grocery shoppers over 55 in the United Kingdom tripled, according to UK grocery chain Waitrose and Partners.
Similarly, B2B and B2C buyers have become increasingly comfortable with purchasing online. In 2020, 70% of global B2B decision-makers(opens in new tab) said they would consider making new, fully self-service or remote purchases over $50,000 online, while 27% would consider purchases of $500,000 or more. In addition, more than three-quarters of B2B buyers and sellers say they prefer digital self-serve and remote human engagement over face-to-face interactions.
Impact of Ecommerce
Ecommerce growth is helping to fuel the economy, particularly against the backdrop of the COVID-19 pandemic, which has kept people around the world out of physical stores. Unsurprisingly, it’s becoming a core part of many companies’ business strategies: It’s reshaping budget allocation — particularly for businesses with a physical presence — and it’s changing how companies bring products to market as more companies look to ecommerce to acquire customers and expand more cost-effectively.
Of course, as ecommerce markets continue to mature, companies that already do business online will face more competition and will need to work harder to differentiate themselves and maintain their advantage and margins. These trends, in turn, impact the skillsets companies need to hire and the software needed to operate in an online environment.
From a cultural standpoint, the rapid evolution of ecommerce also puts a premium on a business’s ability — and openness — to change. For example, companies need to continually learn new ways to attract and retain customers online. They may also need to use their physical locations in new ways, such as fulfilment centers, or divest some real estate.
Recent ecommerce statistics indicate continuous growth over the past decade and, as noted above, especially in the past year. In 2020 — for the first time ever — ecommerce sales accounted for all U.S. retail sales growth (6.9%); sales through all other channels — stores, catalogs and call centers — shrank, Digital Commerce 360 reports.
Mobile shopping has also increased and is expected to continue to grow. One prediction, for example, forecasts that $164 billion of online transactions will be performed via smart home devices by 2025, an increase of 630% over 2020.
Statistics about customer experience are important to note, too, especially when retention and loyalty are among a company’s strategic goals. For example, a Retail Touchpoints survey shows that 84% of shoppers say they’re unlikely to make a repeat purchase after a poor delivery experience. Nearly 70% of shoppers abandon their online shopping carts for reasons including high shipping costs, UX researcher Baymard Institute reports, having to create an account or because the checkout process took too long.
Global Ecommerce Trends
Ecommerce growth is an important trend, but it isn’t the only one. Others advances — involving mobile, shipping and marketing — are important for ecommerce businesses to understand.
As smartphones have become nearly ubiquitous worldwide, more ecommerce has moved to mobile devices. The growth in m-commerce has been especially notable in regions where mobile infrastructure has leapfrogged traditional wired telecommunications, such as throughout Africa. But it has been equally remarkable in mature markets where faster, more reliable 4G and 5G networks have supplanted earlier technology. The worldwide move to mobile means companies must provide superior mobile experiences, factoring for smaller screens and omnichannel purchasing behavior in which different parts of the purchasing journey take place on different devices, including personal computers.
The bar on shipping is likely to keep rising, with consumers expecting next- or same-day delivery on growing numbers of items. More customers are expecting “BOPIS” — buy online, pick up in stores — which requires retailers to improve their coordination across online and brick-and-mortar channels. Free shipping is another growing expectation on at least some purchases. And as ecommerce retailers compete in this environment, many will also face growing pressure to demonstrate sustainability and move toward carbon-neutrality.
As online markets become more competitive, ecommerce sites will need to sharpen their focus on reaching new customers and retaining existing ones. Systematic and sophisticated use of analytics, combined with other forms of customer research, can guide online marketers on creating more relevant content that aids in a buyer’s decision-making — for example, video how-tos for new product users.
One-on-one personalized experiences are also maturing and increasingly expected by customers. These require tools that integrate data sources and channels to optimize each interaction on the fly. For example, a clothing retailer would be able to recognize an individual customer’s buying patterns and display the brands they’re most likely to be interested in.
Future of Ecommerce
The future of ecommerce starts with a single word: more — more transactions, more speed, more consumer expectations, more competition and more opportunity. These changes will be both quantitative and qualitative, affecting investments, strategy, people, technology and culture. As companies prioritize online-centered customer experiences, resources will shift from offline channels deemed to offer less growth potential or to be less cost-effective.
The need for increased speed and accuracy is expected to lead to greater investments in areas such as automation and analytics. The ubiquity of ecommerce will also drive greater accountability for how well these investments perform. As mobile ecommerce plays an ever-greater role, the way companies communicate with their customers will evolve.
The choices companies make today will create a foundation for how they will compete online in the coming years, so those decisions will have outsized impact.
Government Regulations for Ecommerce
Companies that compete online already face significant regulatory scrutiny. As ecommerce becomes even more central to life, it is likely to attract more attention from the government on issues ranging from privacy and security to antitrust and unfair business practices.
Within the United States, the Federal Trade Commission (FTC) regulates several aspects of ecommerce. For example, the FTC requires companies to ship items when they promise or within 30 days if they haven’t promised a specific date. The FTC also establishes rules for commercial email and online advertising and enforces the Children’s Online Privacy Protection Act (COPPA), which restricts how ecommerce and other websites can handle information about children.
The State of California has passed stricter privacy laws that impact ecommerce providers nationwide if they do business with California residents. It gives Californians certain additional rights to know about the personal information a business collects about them, to delete it, opt out of its sale and not be discriminated against if they choose to exercise these rights.
Globally, different countries and regions have different ecommerce regulations. For instance, 82% of countries(opens in new tab) have laws specifically related to electronic transactions, 56% have relevant consumer protection laws, 66% have privacy laws and 80% have cybercrime laws. One important example is the General Data Protection Regulation (GDPR), which regulates how companies protect their customers’ personal data and privacy and restricts how and where they can send or store that information. GDPR is in effect throughout the European Union and the European Economic Area.
Governments aren’t the only organizations that regulate ecommerce providers. For example, if a business accepts credit cards, it’ll need to follow rigorous security standards, such as obtaining Payment Card Industry Data Security Standard (PCI DSS) compliance certifications that aim to maintain network security and secure customer payment information.
Choosing the Best Ecommerce Platform
Choosing an ecommerce platform will be one of the most important decisions a business makes as it plans its ecommerce strategy. Increasingly, the best ecommerce platforms help companies integrate multiple channels to give customers the best and most consistent experience possible. They also unify and streamline everything from order management and inventory to customer service and financial management.
As you evaluate platforms, consider these questions:
- Will this platform align with my strategy and help me grow in the ways I hope to grow? Will it scale? Does it offer capabilities I may want to implement next year or the year after?
- Does this platform help me provide an omnichannel experience that serves all my customers, whether they prefer to interact in a store or online?
- What will be my total cost of ownership — both to launch and in various realistic growth scenarios?
- How does the platform integrate with my existing infrastructure?
- How does the platform support mobile ecommerce?
- What can I automate with the platform? How does it help me control my costs?
- How will this platform provide or support the analytics I need to make better decisions about marketing, merchandising and pricing?
- How quickly can I launch? If I already have an ecommerce site, what will the transition involve?
- How easy is the platform to work with? Can I find the staff and third-party help I’ll need?
- How does the platform support international business and help me follow its rules and regulations?
- Is the platform secure, and does it help me protect my data, payments and my customers’ personal information?
- Who can I speak to that has used the platform to address ecommerce challenges similar to mine?
Sell Online With an Ecommerce Platform
2021 will be a pivotal year for thousands of companies moving into — or taking major steps forward — with ecommerce. A robust ecommerce platform can support any mix of products and services, address any channel and scale as a business grows. It can help a business deliver a compelling buying experience to users on any device, mobile or otherwise, wherever they’re geographically located. It can integrate digital and in-person shopping experiences, allowing customers to move between channels at will — for example, to pick up an online purchase in a nearby store. It can provide a single, consistent repository of all information about products and individual customers, paving the way for personalized experiences. It can help you implement best practices for efficient order management and integrate tightly with company financials to improve visibility into all facets of business performance.
Recent events have accelerated the sustained, long-term shift to ecommerce. More customers are beginning to prefer online transactions, and more industries and regional economies have overcome traditional obstacles to engage more fully in ecommerce. For many companies, ecommerce is more central to business strategy than ever before — making it all the more important to understand the ins and outs of digital marketplaces.
Q: What exactly is ecommerce?
A: Ecommerce — short for electronic commerce — is the buying and selling of digital and physical products and services over the internet via computers and mobile devices. It also includes the transfer of money and data to enable transactions.
Q: What are the 3 types of ecommerce?
A: There are many ways to categorize ecommerce. It can be classified by the types of goods, namely physical, digital or service. Ecommerce may also be classified by the relationship between buyer and seller, including B2C (business-to-consumer), B2B (business-to-business) and B2G (business-to-government), such as a defense contractor.
Q: Is Amazon an ecommerce provider?
A: Amazon is a quintessential example of an ecommerce provider: It has built an enormous business selling products online directly to consumers. It has also established its website as a marketplace where other ecommerce providers can reach and sell to customers. In addition, Amazon also offers services to help businesses fulfill and ship their orders.
Q: How can I start in ecommerce?
A: If you’re ready to join the ecommerce world, this general outline can get you started:
- Clarify your company’s strategies and goals. What types of products or services do you intend to offer online? Who are your customers? If you’re already a brick-and-mortar business, ask some customers what they would like from your ecommerce presence. Research the competition.
- If you’re a new business, choose a business name and a legal structure. Next, get an employer identification number, open a business bank account and obtain any necessary business permits and licenses. If you’re already a business owner, proceed to step 3.
- Build an ecommerce website or use an ecommerce platform. Speak to some experts, partners and companies that offer ecommerce platforms before making a selection. If you choose a partner to help build your site, work together to create a plan and timetable for launch. In addition, choose a payment gateway so you can transfer customer payments into a dedicated merchant account, then into your business bank account. You’ll also need a payment processor.
- Launch and market your ecommerce business. Identify the products and services you can launch with and fulfill quickly. Begin promoting your business, making sure to reach out to your existing customers and contacts. Build your free social media presence, and start creating content that can attract search traffic. Implement basic analytics to understand where your traffic is coming from and how to build more of it.