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What Does E-Commerce Mean?

November 2, 2023

E-commerce has helped businesses establish a wider market presence by providing cheaper and more efficient distribution channels for their products or services.

What is Ecommerce?

Ecommerce, also known as electronic commerce or internet commerce, refers to the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions. Ecommerce is often used to refer to the sale of physical products online, but it can also describe any kind of commercial transaction that is facilitated through the internet.

Whereas e-business refers to all aspects of operating an online business, ecommerce refers specifically to the transaction of goods and services.

The history of ecommerce begins with the first ever online sale: on the August 11, 1994 a man sold a CD by the band Sting to his friend through his website NetMarket, an American retail platform. This is the first example of a consumer purchasing a product from a business through the World Wide Web—or “ecommerce” as we commonly know it today.

Since then, ecommerce has evolved to make products easier to discover and purchase through online retailers and marketplaces.  Independent freelancers, small businesses, and large corporations have all benefited from ecommerce, which enables them to sell their goods and services at a scale that was not possible with traditional offline retail.

Global retail ecommerce sales are projected to reach $27 trillion by 2020.

Types of Ecommerce Models

There are four main types of ecommerce models that can describe almost every transaction that takes place between consumers and businesses.

1. Business to Consumer (B2C):
When a business sells a good or service to an individual consumer (e.g. You buy a pair of shoes from an online retailer).

2. Business to Business (B2B):
When a business sells a good or service to another business (e.g. A business sells software-as-a-service for other businesses to use)  

3. Consumer to Consumer (C2C):
When a consumer sells a good or service to another consumer (e.g. You sell your old furniture on eBay to another consumer).

4. Consumer to Business (C2B):
When a consumer sells their own products or services to a business or organization (e.g. An influencer offers exposure to their online audience in exchange for a fee, or a photographer licenses their photo for a business to use).

Examples of Ecommerce
Ecommerce can take on a variety of forms involving different transactional relationships between businesses and consumers, as well as different objects being exchanged as part of these transactions.

1. Retail:
The sale of a product by a business directly to a customer without any intermediary.

2. Wholesale:
The sale of products in bulk, often to a retailer that then sells them directly to consumers.

3. Dropshipping:
The sale of a product, which is manufactured and shipped to the consumer by a third party.

4. Crowdfunding:
The collection of money from consumers in advance of a product being available in order to raise the startup capital necessary to bring it to market.

5. Subscription:
The automatic recurring purchase of a product or service on a regular basis until the subscriber chooses to cancel.

6. Physical products:
Any tangible good that requires inventory to be replenished and orders to be physically shipped to customers as sales are made.

7. Digital products:
Downloadable digital goods, templates, and courses, or media that must be purchased for consumption or licensed for use.

8. Services:
A skill or set of skills provided in exchange for compensation. The service provider’s time can be purchased for a fee.

SOURCE: Shopify

Growth of Ecommerce

Ecommerce has come a long way since the CompuServe launch in 1969. Changes in technology have certainly driven ecommerce growth, along with global circumstances. Today, ecommerce must meet consumers’ expectations for safety and convenience.

  • The United Parcel Service Inc. rode a pandemic-fueled surge in ecommerce to higher profits and a 13% jump in revenue during the June 2020 quarter. During that same quarter, UPS saw a 65% increase in deliveries to residences.
  • In 2019, U.S. e-retail sales on Amazon increased by 19.1% and amounted to over 222.6 billion U.S. dollars.
  • By the end of 2020, U.S. spending online is expected to reach approximately $375 billion. Experts forecast that by the end of 2024, online spending will surpass $476 billion.
Ecomm Sales Graph

The Impact of Ecommerce

The impact of ecommerce is far and wide with a ripple effect from small business to global enterprise.

1. Large retailers are forced to sell online.

For many retailers, the growth of ecommerce has expanded their brands’ reach and positively impacted their bottom lines. But for retailers who have been slow to embrace the online marketplace, the impact has been different.

Retailers that fall into the middle ground are the ones feeling the biggest changes in response to the impact of ecommerce.

In February of 2019, online sales narrowly surpassed general merchandise stores for the first time, including department stores, warehouse clubs and supercenters. Because Amazon Prime took away the price of shipping, more consumers are comfortable with online shopping.

2. Ecommerce helps small businesses sell directly to customers.

For many small businesses, ecommerce adoption has been a slow process. However, those who’ve embraced it have discovered ecommerce can open doors to new opportunities.

Slowly, small business owners are launching ecommerce stores and diversifying their offerings, reaching more customers and better accommodating customers who prefer online/mobile shopping.

Pre-pandemic, small businesses were working to expand their ecommerce presence. Today, 23% of small business owners feel they’ll have to strengthen their ecommerce capabilities in order to survive in a post-pandemic world. Another 23% of small business owners have created a website or updated their existing one since COVID-19 lockdowns began.

3. B2B companies start offering B2C-like online ordering experiences.

B2B companies are working to improve their customer experiences online to catch up with B2C companies. This includes creating an omnichannel experience with multiple touchpoints and using data to create personalized relationships with customers.

Ecommerce solutions enable self-service, provide more user-friendly platforms for price comparison, and help B2B brands maintain relationships with buyers, too.

By 2026, B2B transactions are expected to reach $63,084 billion.

4. The rise of ecommerce marketplaces.

Ecommerce marketplaces have been on the rise around the world since the mid-1990s with the launch of giants we know today, such as Amazon, Alibaba, and others.

In this chart, we can see that Amazon is the outlier in regard to ecommerce marketplace growth, but we can see that others are making headway.

Annual Revenue In Billions Of U S Dollars

By offering a broad selection and extreme convenience to customers, they’ve been able to quickly scale up through innovation and optimization on the go.

Amazon in particular is known for its unique growth strategy that has helped them achieve mass-adoption and record-breaking sales.

But Amazon doesn’t do this alone. As of 2020, 52% of products sold on Amazon were sold by third-party sellers (i.e. not Amazon).

Those sellers also make high profits from the sales on the marketplace, though they are required to follow strict rules enforced by Amazon.

5. Supply chain management has evolved.

Survey data shows that one of ecommerce’s main impacts on supply chain management is that it shortens product life cycles.

As a result, producers are presenting deeper and broader assortments as a buffer against price erosion. But, this also means that warehouses are seeing larger amounts of stock in and out of their facilities.

In response, some warehousers are now offering value-added services to help make ecommerce and retail operations more seamless and effective.

These services include:

  • Separation of stock/storage for online vs. retail sales.
  • Different packaging services.
  • Inventory/logistics oversight.

6. New jobs are created but traditional retail jobs are reduced.

Jobs related to ecommerce are up 2x over the last five years, far outpacing other types of retail in regard to growth. However, growth in ecommerce jobs is only a small piece of the overall employment puzzle.

A few quick facts on how ecommerce has impacted employment:

  • Ecommerce jobs are up 334%, adding 178,000 jobs since 2002.
  • Most ecommerce jobs are located in medium to large metropolitan areas.
  • Most ecommerce companies have four or fewer employees.

The flip side of this, however, is that upticks in efficiency paired with a shift away from traditional retail may lead to some job losses or reductions in workforces as well.

As with any major market shift, there are both positive and negative impacts on employment.

7. Customers shop differently.

Ecommerce (and now omni-channel retail) has had a major impact on customers. It is revolutionizing the way modern consumers shop.

Today, we know that 96% of Americans with access to the internet have made a purchase online at some point in their lives and 80% have made a purchase online in the past month.

And not only do customers frequently use ecommerce sites to shop: 51% of Americans now prefer to shop online rather than in-store.

Millennials are the largest demographic of online shoppers (67%), but Gen X and baby boomers are close behind at 56% and 41% participating in online shopping activities respectively.

Americans Shopping Online

8. Social media lets consumers easily share products to buy online.

Researchers have discovered that ecommerce has made an interesting social impact, especially within the context of social media.

Today, ecommerce shoppers discover and are influenced to purchase products or services based on recommendations from friends, peers and trusted sources (like influencers) on social networks like Facebook, Instagram and Twitter.

If you’ve ever been inspired to buy a product you saw recommended on Facebook or featured in an Instagram post, you’ve witnessed this social impact as it relates to ecommerce.

9. Global ecommerce is growing rapidly.

In 2018, an estimated 1.8 billion people worldwide made an online purchase.

Chinese platform, Taobao, is the biggest online marketplace with a gross market value (GMV) of  $484 billion. For context, Tmall and Amazon ranked second and third with $458 and $339 billion GMV in annual third-party global market value respectively.

Advantages of Ecommerce

Ecommerce has many different advantages — from faster buying to the ability to reach large audiences 24/7.

Let’s take a look in detail at some of the top perks it has to offer.

1. Faster buying for customers.

For customers, ecommerce makes shopping from anywhere and at any time possible.

That means buyers can get the products they want and need faster without being constrained by operating hours of a traditional brick-and-mortar store.

Plus, with shipping upgrades that make rapid delivery available to customers, even the lag-time of order fulfillment can be minimal (think Amazon Prime Now, for example).

2. Companies can easily reach new customers.

Ecommerce also makes it easier for companies to reach new, global customers. An ecommerce store isn’t tied to a single geographic location — it’s open and available to any and all customers who visit it online.

With the added benefit of social media advertising and email marketing, brands have the potential to connect with massive relevant audiences who are in a ready-to-buy mindset.

3. Lower operational costs.

Without a need for a physical storefront (and employees to staff it), ecommerce retailers can launch stores with minimal operating costs.

As sales increase, brands can easily scale up their operations without having to make major property investments or hiring a large workforce. This means higher margins overall.

4. Personalized experiences.

With the help of automation and rich customer profiles, you can deliver highly personalized online experiences for your ecommerce customer base.

Showcasing relevant products based on past purchase behavior, for example, can lead to higher average order value (AOV) and makes the shopper feel like you truly understand them as an individual.

SOURCE: BIGCOMMERCE

Conclusion

We’ve looked at all corners of ecommerce, including its different types, how it's grown over the years, and its impact on consumers and how business is conducted.

There are certainly advantages and disadvantages to ecommerce, but the future has many opportunities for even greater expansion. What are you waiting for, start your own eCommerce store now on Shopify.

SOURCE: BIGCOMMERCE

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