Definition of electronic commerce (electronic commerce)

What is electronic commerce (e-commerce)?

The term electronic commerce (ecommerce) refers to a business model that allows businesses and individuals to buy and sell goods and services over the Internet. Ecommerce operates in four main market segments and can be done on computers, tablets, smartphones and other smart devices. Almost every product and service imaginable is available through e-commerce transactions, including books, music, airline tickets, and financial services such as stock investing and online banking. As such, it is considered a very disruptive technology.

Key points to remember

  • Electronic commerce is the buying and selling of goods and services over the Internet.
  • It is performed on computers, tablets, smartphones and other smart devices.
  • Almost anything can be purchased through e-commerce today.
  • It can replace physical stores, although some companies choose to keep both.
  • E-commerce operates in four market segments, including business-to-business, business-to-consumer, consumer-to-consumer, and consumer-to-business.

Understanding e-commerce

As noted above, e-commerce is the process of buying and selling tangible products and services online. It involves more than one party as well as the exchange of data or currency to process a transaction. It is part of the larger industry known as electronic commerce (ebusiness), which involves all of the processes required to run an online business.

E-commerce has helped businesses (especially those with limited reach such as small businesses) to access and establish a larger presence in the market by providing cheaper and more efficient distribution channels for their products or services. Target (TGT) has supplemented its physical presence with an online store that allows customers to purchase everything from clothes and coffeemakers to toothpaste and action figures right from their homes.

E-commerce operates in the following four main market segments. These are:

  • Business to business (B2B), which is the direct sale of goods and services between companies
  • Business to consumer (B2C), which involves sales between companies and their customers
  • Consumer-to-consumer, which allows individuals to sell to each other, typically through a third-party site like eBay
  • Consumer-to-business, which allows individuals to sell to businesses, such as an artist selling or licensing their artwork for use by a company

Providing goods and services is not as easy as it sounds. It requires a lot of research into the products and services you want to sell, the market, the audience, the competition, and the expected trading costs.

Once that is determined, you need to come up with a name and set up a legal structure, like a corporation for example. Next, set up an ecommerce site with a payment gateway. For example, a small business owner who runs a clothing store might create a website promoting their clothing and other related products online and allow customers to make payments with a credit card or through a. payment processing service, such as PayPal.

E-commerce can be thought of as a digital version of mail order catalog shopping.

Special considerations

Electronic commerce has changed the way people buy and consume products and services. More and more people are turning to their computers and smart devices to order goods, which can easily be delivered to their homes. As such, it turned the retail landscape upside down. Amazon and Alibaba have gained tremendous popularity, forcing traditional retailers to change the way they do business.

But that’s not all. Not to be outdone, individual sellers have increasingly engaged in e-commerce transactions through their own personal websites. And digital marketplaces like eBay or Etsy serve as exchanges where a multitude of buyers and sellers come together to do business.

$ 4.28 trillion

The total global e-commerce sales in 2020. This figure is expected to reach $ 5.4 trillion by 2022.

History of e-commerce

Most of us have bought something online before, which means we have been involved in e-commerce. So it goes without saying that e-commerce is everywhere. But very few people may know that e-commerce has a history that dates back to before the internet started.

Electronic commerce actually dates back to the 1960s, when businesses used an electronic system called Electronic Data Interchange to facilitate the transfer of documents. But it was not until 1994 that the very first transaction. took place. This involved selling a CD among friends through an online retail website called NetMarket.

The industry has gone through so many changes since then which has resulted in a great evolution. Traditional brick and mortar retailers have been forced to embrace new technology in order to stay afloat as companies like Alibaba, Amazon, eBay, and Etsy have become known brands. These companies have created a virtual market for goods and services that consumers can easily access.

New technologies continue to make it easier for people to shop online. People can connect with businesses through smartphones and other devices and by downloading apps to make purchases. The introduction of free shipping, which cuts costs for consumers, has also helped increase the popularity of the e-commerce industry.

Image by Sabrina Jiang © Investopedia 2020

Advantages and disadvantages of e-commerce

E-commerce offers consumers the following benefits:

  • Convenience: E-commerce can take place 24 hours a day, seven days a week.
  • Increased selection: Many stores have a wider range of products online than their traditional counterparts. And many stores that only exist online may offer consumers exclusive inventory that is not available elsewhere.

But ecommerce sites also have some drawbacks. The disadvantages include:

  • Limited customer service: If you buy a computer online, you can’t just have an employee demonstrate the features of a particular model in person. And while some websites allow you to chat online with a member of staff, this is not a common practice.
  • Lack of instant gratification: When you buy an item online, you have to wait for it to be shipped to your home or office. However, e-merchants like Amazon make the waiting game a little less painful by offering same-day delivery as a premium option for certain products.
  • Inability to touch products: Online images do not necessarily translate the entire story of an item, so shopping online can be unsatisfactory when the products received do not meet consumers’ expectations. Case in point: A garment may be made from poor quality fabric than its image online indicates.

Example of e-commerce

Amazon is a monster in the e-commerce space. In fact, it is the largest online retailer in the world and continues to grow. As such, it is a huge disruptor in the retail industry, forcing some large retailers to rethink their strategies and shift their focus.

The company started its business with an e-commerce based online sales and product delivery model. It was founded by Jeff Bezos in 1994 as an online bookstore, but has since expanded to include everything from clothing to housewares, power tools and food and drink to electronics.

The company’s sales grew 38% in 2020 from a year earlier, totaling $ 386.1 billion from $ 280.5 billion in 2019. Amazon’s operating profit also jumped to $ 22.9 billion for fiscal 2020, up from $ 14.5 billion in 2019. Net income increased from $ 11.6 billion in 2019 to $ 21.3 billion by the end of 2020.

The company has also expanded beyond e-commerce, providing cloud storage, video and music streaming services, electronic devices (such as Alexa, the personal assistant, and its Fire TV digital media player).

How to start an e-commerce business?

Make sure you do your research before starting your business. Determine the products and services you are going to sell and examine the market, target audience, competition, and expected costs.

Then find a name, choose a business structure and get the necessary documentation (taxpayer numbers, licenses and permits if applicable).

Before you start selling, pick a platform and design your website (or have someone do it for you).

Remember to keep everything simple at the start and make sure you use as many channels as possible to market your business so that it can grow.

What is an e-commerce website?

An e-commerce site is a site that allows you to buy and sell products and services online. Examples of e-commerce sites are companies like Amazon and Alibaba.

What is the difference between e-commerce and e-commerce?

E-commerce involves the buying and selling of goods and services online and is actually only part of e-commerce. An e-commerce involves the whole process of running an online business. Simply put, it is all the activity that takes place with an online business.

The bottom line

E-commerce is only one part of running an e-commerce. While the latter involves the entire process of running an online business, e-commerce simply refers to the sale of goods and services through the internet. E-commerce companies like Amazon, Alibaba, and eBay have changed the way the retail industry operates, forcing big, traditional retailers to change the way they do business.

If you are considering starting an ecommerce site, be sure to do your research before you start. And make sure you start with a little narrow focus to make sure you have room to grow taller.

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