More people are buying and selling online, and e-commerce revenue keeps increasing, so it’s no surprise that e-commerce was set to bring in $5.9 trillion at the end of 2023. But what exactly is e-commerce? Though the simple answer is that e-commerce, or electronic commerce, is the online exchange of goods and services, let’s break down what it is, how it works, and how to get started with your own e-commerce business.
Definition of E-Commerce
E-commerce (electronic commerce) is the exchange of goods and services and the transmission of funds and data over the internet. E-commerce relies on technology and digital platforms, including websites, mobile apps and social media to make buying and selling possible.
Advantages of E-Commerce
According to the U.S. Census Bureau, e-commerce sales totaled $253.1 billion during the first quarter of 2023, revealing that more businesses are embracing e-commerce. Here’s what you, too, can gain from e-commerce.
Global Marketing Reach
Unlike a physical store that limits a business to its geographical area, an e-commerce website allows you to reach customers anywhere. Once customers can place orders online and you can ship a product to their location or provide a service, there’s no limit to your reach.
Lower Operating Costs
Building an e-commerce website and maintaining it is cheaper than running a brick-and-mortar store. You won’t need to rent retail space or a warehouse or worry about building maintenance or property insurance. Plus, advertising online is cheaper, especially with organic blog posts and social media that can drive traffic to your site.
Convenience and Flexibility
E-commerce websites provide flexibility for their owners and customers. You can offer a wide selection of products while customers make round-the-clock purchases, regardless of their time zone or location. And as a business owner, you can earn even while sleeping.
Easier Management
Customer segmentation and other marketing and sales processes are easier for an e-commerce business. For instance, access to customer data (search and purchase history) combined with artificial intelligence (AI) will give you insight into your target market and help you streamline your marketing strategies, which increases your revenue. Also, you can expand your e-commerce business without the need to relocate or renovate a physical store.
Disadvantages of E-Commerce
Some businesses avoid e-commerce for the following reasons.
Limited Face-to-Face Interaction
Since there’s limited product experience, customers tend to buy products that don’t meet their expectations or are challenging to use. For instance, a shoe might not fit a customer, or they become frustrated when they find it hard to use a product. These expectation issues lead to buying indecisions or refunds that can mess with a store’s inventory or even cost it some money.
Technical Challenges
Since e-commerce websites rely on technology, if you experience glitches, a website crash, a cybersecurity attack or any of your integrated platforms (web builder, web hosting, inventory management software, etc.) experiences downtime, your business suffers. Your website won’t allow buying or selling, let alone completing a purchase.
Data Security Concerns
E-commerce websites often store customers’ card information to allow faster purchases in the future, so if a site is hacked, threat actors can acquire such information. Customer data is compromised, and the website loses sales from a damaged reputation. That’s if the store isn’t even closed down. Last year alone, e-commerce businesses lost $41 billion to fraud.
4 Major Types of E-Commerce
E-commerce takes several forms. A company can sell to its customers, other businesses or the government. Customers can also sell to businesses, government agencies or other customers. However, there are four primary types of e-commerce that describe the electronic transactions that can take place over the internet.
1. Business to Consumer (B2C)
This popular e-commerce model involves companies selling their products or services directly to the end user, the consumer who needs it.
2. Business to Business (B2B)
This e-commerce type refers to the exchange that occurs between businesses. Here, an e-commerce business sells to another business. An example is software-as-a-service, such as web hosting or accounting software for smooth business operations. B2B e-commerce can also be raw materials or machinery exchange over the internet.
3. Consumer to Consumer (C2C)
Some e-commerce platforms are like digital marketplaces connecting consumers. An example is eBay, which allows a consumer to list and sell their products to another consumer.
4. Consumer to Business (C2B)
For this type of e-commerce, consumers sell their products and services to businesses. For example, a photographer sells their photos to companies so that they can use them for ads or social media campaigns.
How E-Commerce Works
E-commerce uses electronic channels to connect buyers and sellers. It works like a physical store—customers visit your e-commerce store to browse your products and make a purchase. However, e-commerce involves back-and-forth communication between your website and its server host.
Typically, e-commerce follows these steps:
A business lists its products and services.
A customer browses the catalog to choose what they want and then adds it to the cart.
The customer pays for the item using any of the available payment options.
The business receives the order on its dashboard.
The payment is processed, and the order is approved.
An order manager sends the order to the fulfillment department or warehouse to authorize a dispatch.
The customer receives the notification of order approval and other details, including shipping and tracking information.
The business ships the product or renders the required service.
Bottom Line
E-commerce is fast growing, with transactions completed on mobile devices in 2022 amounting to $387 billion and desktop purchases almost doubling that amount at $703.2 million. Still, e-commerce can be challenging. So, consider its benefits and drawbacks, and work on incorporating important features on your website. You can also glean from successful e-commerce examples to build yours.
