What is E-commerce? Definition & Types – All You Need to Know
The history of E-commerce began with the first-ever online sale when a man sold a CD of the Sting band to his friend through his website NetMarket (US retail platform) on August 11, 1994. It is the first example of a consumer buying a product from a business via the Internet or E-commerce as we know it today.
Since then, E-commerce has continued to develop, making it easier to find and purchase products through online retailers and marketplaces. Independent freelancers, small businesses and large companies all benefit from E-commerce, which allows them to sell goods and services on a scale that traditional offline retail cannot achieve.
Over the years, E-commerce sales have been growing steadily and are expected to continue to grow. At present, two-thirds of the sales revenue in most industries come from online buyers. According to Statista, from 2014 to 2021, the total number of global digital shoppers has increased by more than 1 billion and is expected to maintain growth.
E-commerce is often confused with E-business, although they are quite different from each other. E-commerce only refers to the transaction of goods and services between sellers and consumers, while e-business refers to the complete process necessary to manage an online business. e-business includes Inbound Marketing, Sales promotion, Stock Control, SEO, Email Marketing etc. Moreover, E-commerce is usually used to refer to the sale of physical products online, but it can also describe any type of commercial transactions promoted through the Internet.
The boundaries between E-commerce and traditional retail also sometimes overlap. When customers compare their smartphone shopping while standing in a brick-and-mortar store to browse smart products, it is difficult to categorize the experience as another.
What is E-commerce?
E-commerce is the process of buying and selling products and services electronically (such as through mobile applications and the Internet). E-commerce meaning is online retail, online shopping and electronic transactions. In the past few decades, the popularity of E-commerce has greatly increased, and to some extent, it is replacing traditional physical stores.
E-commerce allows you to buy and sell products around the world 24 hours a day without incurring the same overhead costs as operating a brick-and-mortar store.
However, E-commerce definition is usually used to describe all the efforts of a seller when selling products directly to consumers. It starts from the potential customer’s understanding of the product and continues until the purchase, use, and continued customer loyalty. Data powers the most successful E-commerce operations that utilize best practices such as targeted email marketing, customer segmentation, marketing automation to name a few. For example, after a customer puts an item in an online shopping cart but does not complete the transaction, at this time if you follow up with the customer for online sales, it can greatly increase the likelihood of your sales.
E-commerce is a $2.3 trillion industry and it is growing every year, so anyone who wants to become an E-commerce development company and benefit from the rise of E-commerce needs to understand its basics.
Working of E-commerce
E-commerce is supported by the Internet, where customers can visit online stores to browse and order products or services through their own devices.
After the order is placed, the customer’s web browser will communicate back and forth with the server hosting the online store website. The data relating to the order will then be relayed to a central computer called the order manager and then forwarded to the database that manages inventory levels, the merchant system that manages payment information and the bank computer, and then transferred back to the order manager. This is to ensure that store inventory and customer funds are sufficient to process orders. After confirming the order, the order manager will notify the store’s web server, which will display a message to inform the customer that their order has been successfully processed. Then, the order manager sends the order data to the warehouse to successfully send the product or service to the customer. At this point, intangible and digital products can be made accessible to the customers.
Platforms hosting E-commerce transactions may include online marketplaces where sellers simply register, such as Amazon.com. Software as a service (SaaS) tools that enable customers to rent online store infrastructure; or open-source tools for companies to use in-house E-commerce developer for management.
Types of E-commerce
The best way to describe different E-commerce businesses and different types of E-commerce businesses is to divide them into existing E-commerce business models. E-commerce business models can be divided into three main categories:
Every E-commerce business can be distinguished according to the types of products it sells. Every E-commerce business online can fall into one or more of these categories, which tells you what kind of products they sell to customers. Any E-commerce company can sell four main products:
- Physical products: The companies that sell tangible products to customers, and when customers open the package, they can touch, feel, and see the physical product.
- Digital products: Digital products are products that E-commerce companies can sell online, but they are not actual physical products that can be shipped to customers. Usually, once a digital product is purchased online, the customer can download the digital file immediately without the need for the business to ship the product to the customer.
- Services: Companies can also provide digital or in-person services that their customers can purchase online.
- Affiliates: E-commerce companies can also earn commissions through affiliate links, which pay them a portion of their revenue to promote sales. E-commerce companies that earn membership commissions can be blogs, influential websites, or websites that can manage products sold online for consumers.
The E-commerce business can be distinguished by who the product is sold to. It may be a common idea to assume that all products are sold to consumers, but this is not always the case. Sometimes the consumer can be another business.
1. Business-to-Business E-commerce (B2B)
“B2B” stands for “business to business”. The term covers all companies that create products and services for other businesses. B2B companies are supporting companies that assist other business in their operations and growth. Payroll processors and industrial suppliers are some examples.
Successful B2B companies include HubSpot, which provides inbound marketing and sales software, and Xero, which provides accounting software for small and medium-sized enterprises.
2. Business-to-Consumer E-commerce (B2C)
Business-to-consumer refers to the process of directly selling products and services between a company and consumers who are end-users of those products and services. Most companies that sell products directly to consumers can be called B2C companies.
B2C was very popular in the Internet boom of the late 1990s when it mainly referred to online retailers that sold products and services to consumers via the Internet.
3. Consumer-to-Consumer E-commerce (C2C)
Customer-to-customer is a business model in which customers can conduct transactions among themselves in an online environment. In other words, C2C E-commerce occurs when consumers sell products directly to other consumers. The two ways to realize the C2C markets are auctions and classified ads. With the advent of the Internet, C2C marketing has rapidly become popular.
In the past ten years, this has seen a special period of prosperity.
eBay which was established in 1995, is still the market leader in this segment followed by Etsy, which was established in 2005.
4. Consumer-to-Business E-commerce (C2B)
Consumer-to-business is a business model in which consumers produce products and services that can be used by organizations or businesses to complete their operations. The C2B approach completely subverts the traditional business-to-consumer (B2C) model, in which companies produce services and products for consumers.
The consumer-to-business model is less common in E-commerce. Companies that use crowdsourcing or Kickstarter campaigns to fund their businesses will come under the category of C2B.
5. Business-to-Administration (B2A)
B2A E-commerce, also known as B2G, refers to the model where businesses provide online services to the government. One example of B2A E-commerce is taxation. Government taxes can be paid online through third-party services. This type of E-commerce occurs when the company and the public administration conduct online transactions. It involves various services such as social security, employment and legal documents. In recent years, due to increased investment in e-government, this type of E-commerce has increased
6. Consumer-to-Administration E-commerce (C2A)
C2A involves all transactions between individuals and public administrations. C2A transactions are as simple as paying for parking tickets or ordering a new government ID. However, to be considered a C2A E-commerce transaction, it must be completed online.
Some examples of this are publishing and disseminating information, distance learning, taxation-tax return, payment for sanitation services to name a few.
Mobile commerce or m-commerce is a fast-growing new approach to E-commerce, driven mainly by the expanding market and the impact of smartphones and millennials on the comfort of online shopping.
Although most companies usually sell their products to one of these categories, E-commerce companies can sell products to consumers in multiple categories. E-commerce companies must understand the exact object to whom they sell products.
You can also differentiate E-commerce businesses based on how they sell products to customers. These options are:
- E-commerce stores: These are E-commerce stores owned and operated by the founders. They sell their products to the customer on their terms.
- E-commerce market: E-commerce companies can also sell through online markets such as Amazon, eBay or Etsy. For businesses, it’s like renting space in a shopping mall. Online markets are responsible for marketing and bringing in the flow of people however, companies have to abide by the market’s regulations, such as business hours, what products can and cannot be sold, and so on.
- Conversational commerce: As social media has become an important part of consumers’ daily work; social media platforms make it easy for consumers to make purchases through posts. Some examples are Instagram, Facebook, Pinterest and Snapchat.
Benefits of E-commerce
The major advantage of E-commerce is low financial costs, but other advantages include international sales, repositioning customers, and a personalized buying experience. These advantages of E-commerce will help you determine whether it is suitable for you to open an online store. Following are some of the benefits of E-commerce:
- Unlimited Reach
Physical stores are geographically restricted to nearby markets. If you have a store in Delhi and want to sell in Mumbai, you need to open another physical store. E-commerce does not have this restriction. Instead, you can sell it to anyone anywhere in the world through your digital E-commerce business. As long as you have a laptop and an internet connection you can run your E-commerce business successfully.
- Open 24*7
Brick-and-mortar companies usually limit working hours, but online E-commerce stores remain open 24*7. This brings great convenience to customers and also provides excellent opportunities for merchants.
- Lower operating costs
Compared with physical stores, the operating costs of E-commerce companies are greatly reduced. There is no rent, no employees to be hired and paid, and fixed operating costs are low. This makes E-commerce stores extremely competitive in price, which greatly increases market share.
- Ease in Inventory Management
Use of electronic online tools and third-party suppliers to automate inventory management has saved billions of dollars in inventory and operating costs for E-commerce companies. You can easily manage inventory across multiple channels. Therefore, you can sell and monitor inventory in your own store as well as eBay, Amazon, Etsy, or physical stores.
- Targeted Marketing
Online businesses can easily collect large amounts of consumer data to ensure they locate the right people for their products. This reduces the cost of acquiring customers and keeps E-commerce online businesses agile and profitable. It increases the ability to target your ideal customer manifold.
Challenges in E-commerce
It is important to be realistic when opening an online store. The following are some of the shortcomings of E-commerce that companies usually encounter.
- Building trust
It is difficult to build trust within the potential customers for your company, payment gateway and quality of products and services. A trusted payment solution and review system can help imbibe trust in your potential customers.
Identifying the correct way of dealing with the technical aspects of your E-commerce website is very important. You need to identify whether you want to establish an in-house technical team or outsource the solution from a third party. Using an ideal payment solution, integration of latest and relevant technologies, coding expertise, bug fixing, web design experience, database management system and server load are some of the crucial aspects of any software solution.
- Keeping a check on the market
The initial setup cost associated with developing an E-commerce business is very small which can lead to a saturated market. Therefore, it is important to research and find a suitable location before launching the product.
The fact that visitors cannot see or feel any of your products can lead to a failure. Building customer-friendly policies, providing easy and free returns and refunds, showcasing the images with every product, displaying customer reviews and testimonials, including a very detailed description of your product and putting a FAQ section on each product page can help in solving the above problem.
- Establishing Cost
The biggest challenge of E-commerce is to start and achieve the first sale. For this, you may need to spend some money to earn some. Some cost-effective ways to get started include running campaigns, using website pop-up windows for data collection, targeting abandoned shopping cart through emails, posting an upsell/upgrade bar on your website, distributing products to influencers for promotion.
E-commerce can take many forms, involving different transaction relationships between enterprises and consumers, as well as different objects exchanged as part of these transactions. It can include Retail, Wholesale, Drop shipping, Crowdfunding, Subscription, Physical products, Digital products and Services.
Below are some of the popular E-commerce websites:
eBay is not only suitable for C2C business, but a lot of B2B and B2C transactions occur on this site. If a product does not sell well on your website, try putting it on eBay for auction to get some money back.
Around the world spending on Amazon is about $90,000 every minute, so your products must be listed here.
Etsy has an amazing community atmosphere, which is very suitable for building a good reputation among sellers.
Since 2015, global retail E-commerce sales have boomed and are expected to grow further. The share of E-commerce in total retail sales has not stopped growing, although the annual growth rate of global E-commerce sales now seems to be increasing at a slower rate. Taking into account the impact of COVID-19, the E-commerce CAGR rate of emerging economies is expected to be higher than that of the BRIC countries.
In the past year, E-commerce has achieved greater development. Restrictions due to the pandemic resulted in many of us being forced to shop online. The restriction of personal activities due to Covid has led to an online retail boom in almost all industries. With so many people filling up their online shopping carts, many entrepreneurs have begun to build E-commerce sites.
As there are many new converters in the market, this favourable trend will continue in 2021. Some of the main trends that will influence the future of E-commerce in the coming year are Boom in competition, Change in consumer behaviour, authenticity standards, retention to name a few.
There are more advantages of an E-commerce business than disadvantages. Besides, you can overcome the challenges by sticking to and implementing the correct solutions. E-commerce is a booming field, and we only expect to grow in the next few years.
Starting an E-commerce business is practically possible for anyone, and you can build, start and develop your own E-commerce business, and start your entrepreneurial journey.