Quick definition

E-commerce describes the action of buying or selling goods or services through digital channels like the internet.

Key takeaways

E-commerce frees companies from the limitations of physical stores, making it easier for anyone to participate.

It allows businesses to explore new business models and to scale quickly.

Buyers benefit from an increasing number of choices as well as greater personalization and service.

While B2B companies have been slow to adopt e-commerce, there’s great opportunity for growth as audience expectations continue to change.

The biggest challenge in e-commerce is data privacy and security.

A combination of physical and digital shopping experiences allows businesses to create the most differentiated commerce offerings.

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Learn more about e-commerce in this Q&A with Pat Toothaker, senior product marketing manager for Magento Commerce. Pat has nearly a decade of experience working in e-commerce technology, including time at NetSuite, Oracle, Magento, and now Adobe.

What is e-commerce?

How is e-commerce different from traditional commerce?

What are the biggest benefits of e-commerce?

How is e-commerce changing the way we do business?

How does e-commerce impact customers?

Is e-commerce just B2C?

What are some of the challenges of e-commerce?

How can e-commerce and physical stores work together?

What is the future of e-commerce?

Q: What is e-commerce?

A: E-commerce refers to selling goods or services online. Whatever it is that you want to buy or sell, you’re doing it over the internet, or internet services. If you’re either the buyer or seller, you're involved in the e-commerce process.

Q: How is e-commerce different from traditional commerce?

A: One of the important ways it differs from traditional commerce and physical retail is that it gives people access to goods and services without having to be tied to physical location. This means customers don’t have worry about long lines or how they're going to get to a store or get back. They don't have to go anywhere. Everybody has access to it, as long they have an internet connection. It also gives them access to a wider range of sellers than they would otherwise have when they’re restricted to just to their physical location.

For sellers, it puts them in reach of nearly anyone who has access to the Internet.

Q: What are the biggest benefits of e-commerce?

A: It depends on what the merchant is trying to accomplish, but there are a few things beyond simply breaking free from the physical restrictions of traditional commerce that make e-commerce especially enticing.

One is the ability to explore new business models, for example subscription businesses. Think of examples like BarkBox or BirchBox. These weren’t really possible without e-commerce. And it's not that they’re offering a new kind of product that wasn't available before. It’s that e-commerce enables direct to consumer interaction, which was not prevalent before.

Before e-commerce, manufacturers were selling to retailers, and the retailer was selling to the end consumer. E-commerce enables brands and manufacturers to sell directly to the consumer. We've seen success for a number of different types of companies because they’re able to make very specific products for very specific markets. You don’t have to worry about how you’re going to distribute it. You’re speaking specifically to the people you’re trying to sell to. E-commerce enables this in a way that traditional retail does not.

You're also able to scale your business a lot more easily than you are with physical retailers, because you're not restricted by physical limitations like in-store inventory space. You don't have to worry about how much room is in the back of the store, because there is no back of the store. You have your warehouse that you have essentially unlimited inventory to ship from as the business grows. Sure, you might have more complexity to deal with because you may need additional warehouses or additional logistics options. But you're not adding more physical locations and such. This lowers the cost of running and operating the business.

It also opens the door for you to expand globally. Instead of having to worry about how you’re going to open a store location in Europe or Asia, your main worry may be about whether or not you can to ship to those locations.

Q: How is e-commerce changing the way we do business?

A: We have the fact that we're able to sell things that we weren't able to before. I touched on subscriptions, but an area with new products and services is digital goods — music, eBooks, software, and so on.

This is one of the interesting things about e-commerce. It’s not just about selling consumer goods. It could be me looking at online colleges, where I’m paying for something that’s delivered digitally. In that case, it happens to be an education. But that's still e-commerce.

Overall, e-commerce really changes what a business can be and the cost of ownership. E-commerce lets you grow without having to worry about cost of rent and cost of owning inventory. And when you introduce supply chain innovations like drop shipping, that changes things even more because all you own is the transaction piece. In that case, you're essentially just a person who sells to the end user, but you don't ever actually touch the good. Somebody else is sending it to them on your behalf.

Q: How does e-commerce impact customers?

A: I already mentioned convenience. And theoretically, it benefits the buyer because they're not getting all of those overhead costs of the traditional distribution models. But more importantly, it changes their overall experience.

At Adobe we’re always talking about experiences. And these are really enabled by data — by understanding who your customer is and knowing what they're interested in. By knowing this, companies can tailor the customer’s experience toward that. Even if it’s simply by offering good product recommendations, which is one of the starting points for personalization in e-commerce.

For example, showing somebody who’s looking at a pair of shoes a complementary pair of pants. Or maybe something more complex, like understanding their entire shopping journey. Maybe they’re shopping for a car and doing a lot of different research. By knowing exactly the types of things that they're looking for and figuring out what's important to them, you can be sure that the content you're surfacing is relevant for them. Tailoring the experience like this for your customer is something you can't do in physical locations. It’s something that’s unique to digital channels.

Q: Is e-commerce just B2C?

A: Absolutely not. B2B commerce is huge. And while it’s been slow to adapt to digital channels of e-commerce, there's an enormous opportunity there. By market size it's actually significantly bigger than B2C. According to Forrester, U.S. B2B e-commerce sales are expected to grow to nearly $1.8 trillion by 2023, twice the size of B2C. While e-commerce adoption in the B2B industry is still relatively low, we're getting more people who are starting to become the buyers in B2B industries that have an expectation to have this super easy, online digital experience.

There's no reason why we shouldn't be able to offer these digital transaction experiences. Sure, B2B commerce is different from B2C and often more complex. For example, the B2B sales cycles is often a longer and may require back and forth with quote management and negotiations. But why can't that be enabled online? That’s why we believe there is a huge opportunity there.

Q: What are some of the challenges of e-commerce?

A: A real challenge for e-commerce companies today is Amazon. It’s hard to keep up with their scale. They're basically their own distribution, logistics, and shipping company, which lets them not only offer two-day shipping, but free returns. You can get something sent to you, try it on, and if it doesn't fit, get the new one. That's expensive and hard to compete with.

But it’s more complicated than simply keeping up. Many merchants on Magento Commerce are struggling with how to balance the idea that Amazon is both a partner and a competitor. Tons of merchants host their stores on Amazon Web Services. But they're also maybe selling products that are competitive with things sold on Amazon. This is where merchants have to figure out for themselves what amount of “coopetition” they’re willing to accept.

The reality is that listing with Amazon can extend a merchant’s reach because so many shoppers go to Amazon to start their search for product. If I'm looking for new shampoo, I’m probably going to go to Amazon and type “shampoo.” If you want to be discovered, listing your products on Amazon is a really great place to find new customers and find new audiences. But you're also feeding into the Amazon ecosystem and feeding them data about what products are valuable.

This leads to another major challenge in e-commerce — data. Data security is probably the biggest risk of e-commerce. There have been so many breaches that it sometimes seems like everybody is getting hacked, which makes it a real challenge to ensure your store is secure and safe. Protecting that data is a is an enormous cost for e-commerce companies.

And it gets more complicated with new regulations like GDPR. Some businesses may simply stop selling in Europe because they can’t adapt quickly enough to comply with GDPR and because the costs of violating it are too high. These issues with data, privacy, and security require a lot of time and a lot of resources. Otherwise, you might not only be hacked, but you might become financially obligated to some government institution because you violated their regulations.

Q: How can e-commerce and physical stores work together?

A: There are some interesting things that merchants are doing to connect in-store and digital experiences. In some cases, they have physical locations, but they don't hold any inventory. When you go in, you're working with their in-store associates to help you discover and choose products before effectively placing an order online.

There are other companies who have in-store digital displays that you can shop on. Or companies with smart mirrors in their fitting rooms, so as you try something on, it'll suggest shoes that might go with it. Over time, e-commerce and traditional physical retailers are becoming less independent and much more blended.

Q: What is the future of e-commerce?

A: The companies that I expect to do well at differentiating themselves going forward are the ones that aren’t just selling you some generic thing that you could buy anywhere. They inspire some kind of emotional connection. We talked about personalization and data but it’s also the full experience of it all. Let’s face it, if I want to buy something that I just need quickly, and it doesn't matter what brand it is, or the quality isn't that big of a deal, I'm likely going to go to Amazon. I'm going to get it tomorrow and it’ll it probably pretty cheap. It’s hard to compete with that head-to-head.

But we see more and more companies like TOMS Shoes, where you buy a pair of shoes and they give a free pair to somebody in a less-developed country. These sorts of philanthropy-driven businesses create a real connection with consumers. Others may promote the fact that their products are sustainably built, or maybe how they’re made in the U.S. and are thereby helping our economy and American workers.

It may be just telling a story about why they exist, helping you feel a connection to why the founders built the product in the first place and why they're passionate about it. Creating this kind of connection with the company makes more clients want to shop with them versus the larger, faceless corporations.

And then, of course, it’s important to pay off that connection with a great experience, whether it’s physical or digital. I think in the future, the companies that are going to be successful are the ones that make those digital and physical experiences that complement each other. In other words, finding ways to marry the experience with the transaction.

You can have the e-commerce business that’s driving a lot of the transactional piece and you can have tailored experiences with data on your digital storefront. But how are you able to introduce those kinds of things into retail with in-person digital experiences? In store, how can they detect who you are so you can self-select what you're interested in, or so they can show you new things in the store based on the interactions you've had with the brand before? There are shoe stores using AR to show you different types of shoes on your feet, or the price of different options online, and so on. Finding ways to deliver these digital experiences in physical locations is going to be really interesting.

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