E-Commerce - What Is E-Commerce?

E-commerce (electronic commerce) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet.

What is e-commerce?

E-commerce (electronic commerce) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet. These business transactions occur either as business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer or consumer-to-business.

The terms e-commerce and e-business are often used interchangeably. The term e-tail is also sometimes used in reference to the transactional processes that make up online retail shopping.

In the last two decades, widespread use of e-commerce platforms such as Amazon and eBay has contributed to substantial growth in online retail. In 2011, e-commerce accounted for 5% of total retail sales, according to the U.S. Census Bureau. By 2020, with the start of the COVID-19 pandemic, it had risen to over 16% of retail sales.

How does e-commerce work?

E-commerce is powered by the internet. Customers access an online store to browse through and place orders for products or services via their own devices.

As the order is placed, the customer's web browser will communicate back and forth with the server hosting the e-commerce website. Data pertaining to the order will be relayed to a central computer known as the order manager. It will then be forwarded to databases that manage inventory levels; a merchant system that manages payment information, using applications such as PayPal; and a bank computer. Finally, it will circle back to the order manager. This is to make sure that store inventory and customer funds are sufficient for the order to be processed.

After the order is validated, the order manager will notify the store's web server. It will display a message notifying the customer that their order has been successfully processed. The order manager will then send order data to the warehouse or fulfillment department, letting it know the product or service can be dispatched to the customer. At this point tangible or digital products may be shipped to a customer, or access to a service may be granted.

Platforms that host e-commerce transactions include online marketplaces that sellers sign up for, such as Amazon; software as a service (SaaS) tools that allow customers to "rent" online store infrastructures; or open source tools that companies manage using their in-house developers.

• Types of e-commerce

Business-to-business

e-commerce refers to the electronic exchange of products, services or information between businesses rather than between businesses and consumers. Examples include online directories and product and supply exchange websites that let businesses search for products, services and information and initiate transactions through e-procurement interfaces. A Forrester report published in 2018 predicted that by 2023, B2B e-commerce will reach $1.8 trillion dollars and account for 17% of U.S. B2B sales.

Business-to-consumer (B2C) is the retail part of e-commerce on the internet. It is when businesses sell products, services or information directly to consumers. The term was popular during the dot-com boom of the late 1990s, when online retailers and sellers of goods were a novelty.

Today, there are innumerable virtual stores and malls on the internet selling all types of consumer goods. Amazon is the most recognized example of these sites. It dominates the B2C market.

Consumer-to-consumer (C2C) is a type of e-commerce in which consumers trade products, services and information with each other online. These transactions are generally conducted through a third party that provides an online platform on which the transactions are carried out.

Online auctions and classified advertisements are two examples of C2C platforms. EBay and Craigslist are two well-known examples of these platforms. Because eBay is a business, this form of e-commerce could also be called C2B2C -- consumer-to-business-to-consumer. Platforms like Facebook marketplace and Depop -- a fashion reselling platform -- also enable C2C transactions.

Consumer-to-business (C2B) is a type of e-commerce in which consumers make their products and services available online for companies to bid on and purchase. This is the opposite of the traditional commerce model of B2C.

A popular example of a C2B platform is a market that sells royalty-free photographs, images, media and design elements, such as iStock. Another example would be a job board.

Business-to-administration (B2A) refers to transactions conducted online between companies and public administration or government bodies. Many branches of government are dependent on various types of e-services or products. These products and services often pertain to legal documents, registers, social security, fiscal data and employment. Businesses can supply these electronically. B2A services have grown considerably in recent years as investments have been made in e-government capabilities.

Consumer-to-administration (C2A) refers to transactions conducted online between consumers and public administration or government bodies. The government rarely buys products or services from individuals, but individuals frequently use electronic means in the following areas:

• Social security: Distributing information and making payments.

• Taxes: Filing tax returns and making payments.

• Health: Making appointments, providing test results and information about health conditions, and making health services payments.

Mobile e-commerce (m-commerce) refers to online sales transactions using mobile devices, such as smartphones and tablets. It includes mobile shopping, banking and payments. Mobile chatbots facilitate m-commerce, letting consumers complete transactions via voice or text conversations. 

Advantages and disadvantages of e-commerce

Benefits of e-commerce include its around-the-clock availability, the speed of access, the wide availability of goods and services, easy accessibility and international reach.

• Availability: Aside from outages and scheduled maintenance, e-commerce sites are available 24/7, enabling visitors to browse and shop at any time. Brick-and-mortar businesses tend to open for a fixed number of hours and may even close entirely on certain days.

• Speed of access: While shoppers in a physical store can be slowed by crowds, e-commerce sites run quickly, which is determined by compute and bandwidth considerations on both the consumer device and the e-commerce site. Product and shopping cart pages load in a few seconds or less. An e-commerce transaction can comprise a few clicks and take less than five minutes.

• Wide availability: Amazon's first slogan was "Earth's Biggest Bookstore." It could make this claim because it was an e-commerce site and not a physical store that had to stock each book on its shelves. E-commerce enables brands to make a wide array of products available, which are then shipped from a warehouse or various warehouses after a purchase is made. Customers will likely have more success finding what they want.

• Easy accessibility: Customers shopping a physical store may have difficulty locating a particular product. Website visitors can browse product category pages in real time and use the site's search feature to find the product immediately.

• International reach:  Brick-and-mortar businesses sell to customers who physically visit their stores. With e-commerce, businesses can sell to anyone who can access the web. E-commerce has the potential to extend a business's customer base.

Lower cost. Pure play e-commerce businesses avoid the costs of running physical stores, such as rent, inventory and cashiers. They may incur shipping and warehouse costs, however.

• Personalization and product recommendations: E-commerce sites can track a visitor's browse, search and purchase history. They can use this data to present personalized product recommendations and obtain insights about target markets. Examples include the sections of Amazon product pages labeled "Frequently bought together" and "Customers who viewed this item also viewed."