What is ecommerce? Definition, types, and benefits
You’ve probably heard of ecommerce and purchased something through an ecommerce website before. But you might not fully understand how ecommerce works. This article will provide a comprehensive guide to ecommerce — what it is, the various types, advantages and disadvantages, steps to starting one, and more.
Specifically, this post will cover the following:
- What ecommerce is
- How ecommerce works
- Types of ecommerce
- Examples of ecommerce
- The advantages and disadvantages of ecommerce
- Steps to starting an ecommerce business
- History of ecommerce
- Frequently asked questions (FAQ)
What is ecommerce?
Ecommerce refers to any type of commercial transaction made over the internet. Ecommerce platforms enable sellers to list their products and services so buyers can purchase them online. Companies with brick-and-mortar retail locations can use ecommerce platforms to create an integrated omnichannel experience.
The first ecommerce transaction reportedly took place in 1994 on a website called NetMarket. Since then it’s only gotten easier to sell goods online, as ecommerce platforms serve large companies and small businesses alike. Statista estimates revenue from ecommerce will reach approximately $600 billion by 2024.
Ecommerce is just one strategy for selling goods and services — you can sell online only or sell through a physical store as well. This business model helps startups and small businesses — as well as large ones — scale up and reach customers around the world.
How does ecommerce work?
Since ecommerce relies on the internet, customers need an online store to access and browse products and services. This involves using different channels like a dedicated website or social media.
If the transaction is for a physical product, the seller must package and ship the item. A confirmation email is sent for the order, and a tracking number is provided with the time it has shipped to build trust with the customer, creating a positive experience. For digital products and services, follow-up communications are key to ensuring customers are satisfied.
Ecommerce businesses rely on a robust digital platform to facilitate transactions. Since payment information is exchanged through these platforms, security is a top priority. Visitors can jump from one platform to another in a second, so your ecommerce storefront needs to be easy to use, and items should be simple for customers to find.
Types of ecommerce
Whether your business is large or small, ecommerce has different types of models for all. Your business model will depend on the services and goods you provide, as well as how your business is organized.
Here are several examples of popular ecommerce business models:
A business-to-consumer or B2C model sees a retailer selling products and services directly to consumers. A simple example of a B2C transaction is someone purchasing an article of clothing from their favorite retailer.
Retail companies largely make up the business-to-consumer portion of ecommerce storefronts on the internet. An example of a B2C ecommerce company is retail giant Amazon, which sells its own line of products as well as other brands’ products directly to consumers.
B2B ecommerce involves one business engaging in a commercial transaction with another. This is most common with businesses sourcing materials for their production process.
B2B ecommerce accelerates the sales process by eliminating the need for these businesses to meet and negotiate the sales and exchange of goods in person. A prime example of a B2B company is IBM, which creates computer technology for businesses.
In a C2C business model, consumers trade products, services, information, and more with each other. This type of ecommerce business is generally carried out on third-party platforms.
An example of a C2C platform is Etsy, a popular website for selling handmade items. Etsy hosts businesses, but each business has its own shop within the platform to sell to consumers.
C2B ecommerce platforms see consumers make their products or services available online for businesses to purchase. This is the opposite of the more traditional approach of B2C.
One example of a platform that sells to businesses is iStock. Artists share their work on the website in return for royalties, and companies use these stock images in various publications.
C2G transactions take place between a public consumer seller and a government entity.
Government purchases from consumers are rare, but there are some transactions that are necessary in order to maintain public systems. Some examples include taxes, Social Security, and healthcare.
In a B2G ecommerce model, transactions are made between a business and a government agency. Many government agencies depend on e-services or products.
Electronic services purchased by a government agency could include IT infrastructure and software. Physical items could be buildings or highways.
A business that sells directly to consumers is a D2C business. However, as opposed to B2C, D2C businesses bypass intermediary distribution channels entirely. A D2C business does not need to go through a distributor, wholesaler, or retailer.
Dollar Shave Club is considered a D2C because it sells its own products directly to the customer base without a middleman.
Transactions between a business and a type of administration are considered B2A ecommerce selling models. Products and services sold through this business model are typically related to legal documents, fiscal data, Social Security, or employment.
Schools, universities, online consulting, and other organizations that need to collect information from students or employees would utilize a B2A business.
When consumers and public administration or government organizations conduct a transaction, this purchase is considered a C2A model. This ecommerce model is similar to C2G but includes both government organizations and public administration.
While transactions between government officials and consumers or public administration and consumers rarely happen, filing tax returns or making health service appointments requires an exchange between a consumer and a member of public administration.
Mobile ecommerce (mcommerce)
Mobile ecommerce, or mcommerce, refers to online transactions that use mobile devices like smartphones and tablets.
Mobile banking, payment, and shopping platforms fall into this category. Meanwhile, mobile chatbots can help answer questions customers may have.
Examples of ecommerce
Ecommerce gives sellers the flexibility to sell a variety of physical goods, but also digital products and services. Buyers can easily browse and compare product options in seconds to quickly purchase the product that best suits their needs.
Let’s explore some ecommerce examples now.
Selling physical goods
Physical goods are tangible items that are bought and sold. The selling of physical goods typically follows a B2C or D2C ecommerce model — although some B2B companies sell physical goods as well.
There are many brands that have brick-and-mortar stores with an online presence, and some stores solely focus on online sales. Think of your favorite clothing or electronics retailer — these are prime examples of popular goods to buy online.
Selling digital goods
Digital goods include things like files, templates, tools, images, or online classes. Since digital goods are easily transferred through the internet, it makes a great option for an ecommerce business.
Selling digital goods is not only a convenient option for sellers but also allows buyers to quickly receive and start using the product or service they purchased.
Ecommerce services include specialized services like freelance writing, design, marketing, coaching, and more. These services often follow a B2B model but also can be B2C or models that sell to administrations or government agencies.
In-person services can also be reserved online thanks to ecommerce platforms. This could include lawn care or a spa appointment, for example.
Revenue models for ecommerce
There are many business models and types of products and services your ecommerce business can focus on. You’ll want to establish how your company will profit. Ecommerce platforms give you a variety of methods for making money to fit many business models.
- Wholesaling involves maintaining a large inventory of physical products. In this revenue model, you must track orders, maintain shipping information, and manage the physical location where you store the merchandise. Wholesalers may charge bulk pricing to sellers and unit prices for buyers. However, wholesaling generally focuses on connecting buyers with large quantities of a certain product.
- White labeling focuses on selling generic products with your branding on the item. Using this revenue model, your business avoids manufacturing constraints and investment. One of the drawbacks of this model that you may want to keep in mind is the lack of quality control. An example would be selling on-demand t-shirts, mugs, or hats — the base product is the same but with your brand’s logo or artwork on it.
- Private labeling gives you the most control over the products your company sells. Instead of selling a generic product, you have a manufacturer produce a specific item for your brand. Generally, the product ships to the customer directly from the manufacturer. This model usually involves a manufacturing on-demand approach. Using private labeling means avoiding the need to warehouse and store large quantities of physical products.
- Dropshipping relies on using a supplier to fulfill an order. Different from traditional retail models, this store doesn’t have any products in stock. In this revenue model, you advertise a product on a digital storefront, and once the transaction is complete, your ecommerce store passes the order to the supplier that manages inventory and ships.
- Subscription companies depend on repeat orders. These orders can include physical products or digital goods. For a fixed price, an ecommerce business will package and deliver a good or service on a set schedule. This usually involves items and services consumers need regularly, like grooming products, meal kits, and more.
The advantages and disadvantages of ecommerce
Ecommerce provides ease and convenience in many ways but also poses its fair share of challenges. The digital realm offers great opportunity, along with its own set of complexities, when it comes to selling goods and services. Let’s take a look at some of the main advantages and disadvantages that can come with ecommerce.
Advantages of ecommerce
Ecommerce opens many doors to reach new customer bases in a convenient way. Some of the top benefits of ecommerce include the following:
- Rapid growth potential. Sellers who take advantage of ecommerce can also realize a significant boost to their bottom line. An online storefront can reach vast consumer audiences across the globe, capturing incredible opportunities for expansion and revenue growth.
- Convenience. Ecommerce drastically increases the convenience of shopping as consumers can make their purchases almost anywhere at any time from their smart devices. This convenience is complemented by a wealth of shipping options that make rapid delivery possible.
- Greater selection. There is an opportunity to offer customers more options when you are not limited to a brick-and-mortar store. Items can be shipped from different warehouses, and customers have a better chance of finding what they want.
- Potential for low startup cost. Without the need for a physical storefront, companies can save on rent and personnel costs. Ecommerce platforms are also built to scale so companies do not have to spend time or money on back-end infrastructure as they grow.
- Easier to retarget customers. As an online storefront, you have access to a variety of tools to analyze past purchase behavior from customers. You have the ability to create personalized shopping experiences that will lead customers to go back to their carts after leaving items behind.
Disadvantages of ecommerce
Ecommerce offers a plethora of engagement and convenience options but still poses its fair share of challenges. Here are some of the main disadvantages of ecommerce:
- Limited customer interaction. Some messages are more difficult to convey on an online platform. Without having in-person interaction, it’s essential to collect and act on feedback and communicate as much as possible.
- Technical issues. If your website has slow load times or crashes frequently, you are more likely to lose customers. Technical issues can impact product delivery times and affect customer loyalty.
- Data security issues. Customers often store credit card information on ecommerce sites. If the website experiences a data breach, card information could be stolen, and customer trust and company reputation can be damaged.
- Shipping and order fulfillment at scale. When first starting your ecommerce business, storage space may not be an issue. However, as your business grows, you may find yourself short on space and struggling to keep up with increased orders.
- Greater competition. With startup costs being generally lower than founding a brick-and-mortar business, it’s easier for competitors to be a part of the ecommerce market. This means it’s essential for online businesses to stay on top of SEO and other best practices to draw people to their websites.
- Consumers can’t try products. The ecommerce experience may be more challenging for customers to make their purchases because they may have to guess on sizing or quality for certain items. This may slow down or prevent purchases.
Steps to starting an ecommerce business
After determining which business model defines your company best, you’ll need to decide how you want to deliver your products or services, what market space you’ll operate in, and how you can distinguish yourself from the competition.
The following steps can help you start your ecommerce business:
- Research your business idea.
- Ensure there is a demand for your product or service.
- Work out the logistics for selling your product or service.
- Source a supplier or manufacturer.
- Decide the online channels you’ll sell through.
- Build a website or online storefront.
- Create a list of products with optimized descriptions.
- Develop a fulfillment strategy.
- Market what you’re selling.
History of ecommerce
Digital storefronts may seem like a new development that has only come about recently, but the foundations were laid decades ago. In 1979, the American National Standards Institute developed a universal standard for businesses to share documents via electronic networks — ASC X12.
As the ASC X12 user base grew, platforms like eBay and Amazon began to emerge onto the scene in the 1990s. Consumers could then buy items online from ecommerce-only retailers, and brick-and-mortar stores started to shift to selling online as well.
The coronavirus pandemic created a spike in ecommerce activity. According to the United States Census Bureau’s Annual Retail Trade Survey, ecommerce sales grew by $244.2 billion in 2020, an increase of 43% from 2019.
Frequently asked questions (FAQ)
What is ecommerce?
Ecommerce refers to any type of commercial transaction made over the internet.
What is an ecommerce business?
A business that uses digital methods to sell products and services. This can be online-only or incorporate a physical presence as well.
Is ecommerce growing?
Yes, ecommerce is growing quickly. Statista estimates revenue from ecommerce will reach nearly $600 billion by 2024.
Is ecommerce safe?
Yes, and its security is expanding. SSL certifications and other multi-layered security options are increasing security for online transactions.
Use a powerful platform to run your ecommerce store
Ecommerce offers businesses a convenient way to sell products to a vast consumer base with little upfront and maintenance costs. When you’re ready to start your ecommerce store, look for a robust platform to build your online storefront.
Adobe Commerce is the world’s leading digital commerce solution for merchants and brands. With Commerce, you can build engaging shopping experiences for every type of customer — from B2B and B2C to B2B2C. Businesses of all sizes can use it to reach customers wherever they are, across devices and marketplaces.