In the 21st century, it is difficult not to have heard of the word ‘e-commerce’. However, understanding the meaning of this very word is an entirely different story altogether. Perhaps, when you hear the word e-commerce, you think of major retailers such as Home Depot or Walmart. You may even believe that the very word and idea is simply a reference to the thousands of websites that currently sell products and services online. These definitions are in fact, true, however, they only scratch the surface in terms of what can be learned about this industry.
E-commerce is a fast-growing and lucrative market. In 2019, online shopping reached global sales of 3.5 trillion US dollars. Having accounted for 14.1 percent of the total retail sales online in 2019, and projected to reach 22 percent by 2023 (Statista), its no surprise that businesses and individuals alike are turning to this type of business model.
But, what is e-commerce?
This in-depth article looks at the history, idea, business model, and structure of e-commerce to get you fully up to speed on this very lucrative online industry.
The term e-commerce, or ecommerce, e-Commerce, E Commerce, e commerce, was a term coined from the original phrase “electronic commerce.” Since its initial inception in 1994, the term ecommerce has been used to describe the buying and selling of products or services through the internet (internet commerce), and the associated movement of money and data which goes alongside it.
The Amazons and Alibababas of the world have largely contributed to the notion that e-commerce is purely the sale of physical and digital goods, however the term is also associated with such activities as online auctions, online ticketing and any other commercial transaction that is completed online, yes including banking.
Interesting Facts: The very first purchase ever made online was for a large pizza from Pizza Hut in 1994. But Pizza Hut was not the one to pave the way in regards to ‘secure online purchasing.’ It was in fact done by a company known as NetMarket. The first recorded transaction was made on August 11, 1994 for the purchase of one Sting CD. It wasn’t long after that Amazon and E-Bay launched their own online shopping platforms in 1995. Since then we have seen the landscape of ecommerce evolve into the global giant that it is now.
Things have changed significantly since 1994. Now, consumers can discover and purchase a wide range of products and services through lots of different websites and online platforms. It has truly transformed the way in which merchants sell products. No longer are they restricted to selling their goods through a brick and mortar store.
Merchants now have a whole new world of opportunity to reach as wide a customer base as possible and this is perhaps evident by the impressive global stats.
It is believed that online sales figures are expected to reach 17.5% in 2021 while B2B sales will increase to $6.6 trillion by 2020.
What Types Of Transactions Occur In Ecommerce?
There are 4 main types of transactions that happen between a customer and a business when products or services are being sold. They include:
Business to consumer (B2C): When a business sells a product to a customer. E.g. the sale of a laptop to a customer from an online electronics store.
Business to business (B2B): When a business sells a product or service to another business. E.g. When a web design company sells a website to another business.
Consumer to consumer (C2C): When a consumer sells a product to another consumer. E.g. When a consumer sells an armchair to another consumer on eBay.
Consumer to business (C2B): When a consumer sells a product to a business. E.g. If a member of the public sells a photo of a particular event to the local newspaper.
Keep in mind that it is completely possible for a company to fit more than one of these ecommerce business models.
What Types Of E-commerce Categories Exist?
Goods and services don’t flow the same way in each and every type of transaction. Similarly, the types of goods and services that are being sold also differ too. So, the most common categories of e-commerce are:
Retail: The selling of products to consumers with no one else involved.
Wholesale: The bulk selling of products to someone else, typically a retailer, who then sells the products to a consumer.
Dropshipping: When a trader sells a product, but the making and shipping of the product is dealt with by someone else meaning no warehouse is required for storing the goods.
Crowdfunding: When someone requests funds from a group of people so that a product can eventually be brought to market with the money raised.
Subscription: When a customer pays a regular fee for the delivery of a product or service which can be terminated at any point when no longer required.
Products or Stock: The physical items or inventory which sit in a warehouse and are sold to customers either via a retail store or ecommerce company.
Digital Products: Products such as mobile apps or websites which aren’t physical products but which are purchased for a fee and either used by the customer or put under license for other people to use.
Services: Something that is sold for a fee. Can include someone’s time, in addition to an actual physical product.
For more Information on how Shopify leverages these categories check out our Beginner’s Guide to Shopify.
The Benefits of Ecommerce
The sheer list of benefits for e-commerce easily explain the growth and success we have seen in this industry over the past years. It is no surprise that businesses and individuals are moving over to this type of sales approach.
Unlike physical stores, e-commerce stores, are not limited by the geographical area in which they are set up nor the timezone in which they operate in. This provides a greater reach for customers, allowing businesses to tap into a global market.
No longer are businesses tied to “store hours,” but rather are accessible 24/7/365. Allowing for convenience to the consumer and opportunity for the merchant.
Low Barrier to Entry
Beyond the obvious of not needing to invest in a brick and mortar store, the startup costs for most ecommerce stores are relatively low along with the fact that the maintenance and management of an online store is substantially less as well. Add to the fact that little to no experience is required for setting up an online store and that the speed in which one can set up and be open for business is relatively fast, depending on the nature of the business and the amount of products being sold.
Like most things in the world, setting up an e-commerce store can be as cheap or as expensive as you make it to be.
I want to take this time and look at some of the components of an e-commerce store that can lead to some unexpected costs as you begin to grow and scale your business.
Personalized Shopping Experience
With access to a wealth of customer data and cookie tracking, you are now able to monitor and track your customers interests and buying habits, allowing you to personalize their shopping experience.
Going beyond the limits of your store, you are able to engage with them on multiple fronts (e-mail, social, sms text, ads, etc.) and carry on the sales conversation.
This personalized shopping experience goes beyond just what you know about your customers, but becomes a part of their own shopping experience through the support of comparison shopping, product recommendations, product search and filtering, and other great tools offered through e-commerce.
Niche products can be difficult for both the buyer and the seller. For the buyer, it becomes a difficult task in locating stores that offer such products and for sellers, it is equally, if not more, difficult to locate such buyers.
In the online world, it has become that much easier for buyers and sellers to meet. With a simple online search, your niche products can now be marketed directly to those that have been desperately seeking such products.
Take it one step further and you can tap into audiences and target markets across the world to let them know your products exist.
Work From Anywhere
If the first four benefits didn’t spell it out for you, let me take the time to do so now. Running an e-commerce store can be done from anywhere. With just a computer and an internet connection, you are able to manage your online store from anywhere in the world and in any time zone.
Such business models as dropshipping have made this a very interesting and tangible business opportunity for those looking to travel or work from home.
The E-commerce Ecosystem. What You Need To Know?
The idea of e-commerce is a simple one, and the benefits as outlined above can lead one to believe that success is just but a few clicks away but ‘selling online’ can be quite complicated and this can be explained in much more detail by looking into the various tools that enable those in this industry to be successful. AKA, the ecommerce ecosystem.
Another seemingly complex term, the ecommerce ecosystem describes the various components or systems that link together to make up an ecommerce business as a whole. They play an integral part of the overall shopping experience.
What Are The Main Parts Of An E-commerce Ecosystem?
Typically, they include:
- Ecommerce Platform (Shopify, Magento, WooCommerce, BigCommerce)
- Various Digital Marketing Tools (Customer Reviews, Landing Pages)
- Payment Gateways/Merchants (Stripe, Authorize.net, Paypal)
- Accounting Software
- Helpdesk Support Software (Freshdesk, LiveChat, Zendesk, Zoho)
- Shipping Software Solutions (ShipStation, ShipWorks)
- Inventory Management Systems (NetSuite, inFlow)
- Customer Relationship Management Systems [CRM] (Salesforce, Hubspot)
- Marketplaces (Amazon, Ebay, Etsy, Jet)
- Enterprise Resource Planning [ERP] (NetSuite, SAP, sage)
- Omni-Channel Management Systems
E-commerce Ecosystems. What Should I Consider?
It isn’t strictly necessary to use all of the above if you own an e-Commerce business. However, you will use some at the very least.
A strong factor that determines this is where your e-Commerce business is currently at in terms of its development. Businesses only just starting off will mainly concentrate on developing their sales and processing them effectively.
Starting a new eCommerce business can seem like a whirlwind with the amount of work and preparation to get things off the ground and because of this, owners tend to rush when choosing a platform in fear of losing sales. This is a critical mistake.
You should really do your research before committing, in particular by making sure that your chosen solution integrates well with systems you currently use and/or has those functionalities pre-built within their ecosystem construct. You should also make sure the chosen system is scalable in such a way that it accounts and adapts for future growth. Nothing is more challenging and costly than migrating an entire system that is outdated and unsupported into a new one.
It is usually the case that medium-sized businesses have complicated eCommerce ecosystems because they are trying to link everything together so it flows well. Companies that are at the enterprise level may have enough revenue to afford a standalone ERP system which can be more difficult than using a single system due to the large amounts of data that moves through it.
Retailers can expect another level of complexity because they use point of sale (POS) terminals too. However, the ultimate conclusion is that if you are starting out in eCommerce, make sure to look beyond just your website and consider all parts of the eCommerce ecosystem discussed in this blog.
Now that you have a solid understanding of what e-commerce is, take some time to read the 12 key e-commerce metrics to track to drive growth.