What is Ecommerce? Definition and Examples

Ecommerce (also known as electronic commerce) is the buying and selling of goods and services over the Internet. With the help of electronic systems, today’s shoppers can purchase just about everything online. This on-demand convenience has allowed global ecommerce to skyrocket, with sales projected to reach $5 trillion by 2023.  

Although the concept of online shopping is a given in our technology-driven world, ecommerce is only a little over 20 years old. Despite being a relatively recent phenomenon, ecommerce has dramatically changed the way we do business. In this article, we explain the concept of ecommerce and how buying and selling online has become as familiar to us as visiting the local grocery store. Read on or jump to a section below to learn more: 

• What is an Ecommerce Site? 
• Short History of Ecommerce 
• Types of Ecommerce Models
• Ecommerce Examples
• The Benefits of Ecommerce
• The Disadvantages of Ecommerce
• The Future of the Ecommerce Industry
• How to Start an Ecommerce Business

What is an Ecommerce Site? 

Ecommerce sites are digital spaces that facilitate the exchange of goods and funds between a buyer and a seller. They require maintenance, marketing, policies, IT, accounting, and customer support, just like any other business. 

At its core, every ecommerce website is powered by an ecommerce platform or shopping cart software, stocked with tools and a central hub that help sellers create great online shopping experiences. Effective platforms must provide sellers with robust, flexible tools, integration, and the ability to scale.   

These virtual storefronts can take various forms in addition to online stores, including auction sites, online reservations, and internet banking. The ubiquity of smartphones has also given rise to “m-commerce” (mobile commerce), a subset of ecommerce. 

The Origins of Ecommerce 

While technology like Electronic Data Exchange and Electronic Funds Transfer opened up commercial buying online in 1994, ecommerce didn’t start catching on with the public until about the late 1990s, when security protocols and increased internet access made it possible to purchase goods using secure payment methods and an electronic checkout. 

For more on how it all began, check out our in-depth article on the history of ecommerce. 

Types of Ecommerce Models 

There are five main types of business models that describe the various transactions that occur on the web. These are: 

1. Business-to-Consumer (B2C): This is the most familiar type of ecommerce. B2C describes a business that sells products and/or services to consumers. 
2. Business-to-Business (B2B): “B2B ecommerce” describes online commerce between two businesses. These commodities are often sold in high volume. For example, one company sells rubber tires, glass, and plastic to another company that uses those materials to build a car. Ecommerce allows these bulky orders to be completed easily, efficiently, and securely online. 

3. Consumer-to-Consumer (C2C): C2C is when a consumer sells their personal goods online to another consumer (e.g. you sell your old comic books on eBay). This type of ecommerce gives consumers even more options to find the right buyer or seller and to set their own price. 
4. Consumer to Business (C2B): Less common than the previous three models, C2B involves consumers offering their own products or services to a business or organization (e.g. you sell your own photographs to a stock image library or a business).  
5. Direct-to-Consumer (DTC): In a direct-to-consumer sales model, a manufacturer sells their products directly to the end user. This model has increased in popularity with the advent of ecommerce. 

Ecommerce Examples and Terminology 

Like every industry, the field of ecommerce has its own terminology that describes how goods are sourced, sold, and distributed. Businesses should be familiar with the following terms when planning and executing their strategy.  

Retail: Stores that sell products directly to customers. These products can either be physical (products that involve a physical inventory and shipping to a customer) or digital (products that involve downloadable goods or licenses). A growing number of stores are also implementing initiatives such as in-store pickup. 

Dropshipping: Selling a product that is manufactured and shipped by a third party to a customer. 

Wholesale: A business that sells products in bulk amounts with quantity discounts, usually from one business to another. 

Crowdfunding: An organization or company that collects funds from consumers to raise the capital necessary to introduce a new product or service to the market.  

Subscription: An ecommerce subscription product or service that is automatically purchased and fulfilled to the subscriber. 

Ecommerce vs. Retail 

Ecommerce is conducted online, whereas traditional retail is performed via a brick-and-mortar store. Today, many merchants are embracing a “bricks-and-clicks” model, leveraging both traditional retail and ecommerce. 

Retailers both large and small are using ecommerce to sell directly to their customers and stay competitive. B2B and B2C websites are starting to mimic each other, while online marketplaces continue to rise. The way businesses conduct their logistics and market their products have changed as customers (especially millennials) are frequently using the internet to shop. 

What Are the Benefits of Ecommerce? 

Interest in ecommerce has skyrocketed in the past couple of years, particularly during the time when efforts to limit the spread of COVID-19 resulted in massive disruption of brick-and-mortar businesses. Businesses (and consumers) are capitalizing on the advantages of online shopping, which include:  

1. Convenience and availability: Unlike a physical retail, ecommerce provides the advantage of leisurely browsing, holding an item for a few days for consideration, making wish lists for the future, and cataloging products by interest or availability. Consumers can do all of this on their own time, without having to worry about store hours or the inconvenience of travel.  
2. Global reach: Whereas a brick-and-mortar store is limited by location, an online store offers a business reach beyond their geographic area, generating new awareness for their brand. Many businesses even have an international market to reach a new set of customers. For consumers, this global reach allows them to make purchases easily, regardless of location. 
3. Reduced costs: Since there’s less need to hire a big sales staff for an online store, ecommerce businesses can save on operational costs and invest in warehousing, inventory, customer service, and website deals. Plus, these processes can be automated by digital technology to accelerate orders, delivery, and payment. 
4. Personalized marketing: Ecommerce platforms provide access to a wealth of customer data, giving businesses the opportunity to personalize their messaging and tailor their efforts to their customers’ buying habits. Customers often appreciate this more personal level of ecommerce marketing. 
5. Capturing unique, niche markets: It’s difficult to scale a niche product in a brick-and-mortar store unless it becomes mainstream. Ecommerce sellers, on the other hand, can tap into a larger market and use online search capabilities to lead new customers to their product. For customers, this allows them to find products that they may not be able to find in stores. 

What are the Disadvantages of Ecommerce? 

Although ecommerce offers businesses convenience and profitability, it still comes with its own set of disadvantages. Some of the pitfalls of ecommerce include: 

1. Less interaction with customers: Since the majority of interactions and decisions with your customers happen digitally, it could be harder to assess their needs, wants, and concerns and provide customer service when needed. Human relationships play an important role in retaining online buyers. 
2. Technical difficulties: If your online site is slow, broken, or unavailable to customers, it impacts your ability to sell. Site crashes, technical difficulties, and security issues leave a negative impression of your brand. 
3. Your customers can’t test out your products: An ecommerce experience can be limiting for shoppers who prefer to test out and get hands-on with a product, especially when it comes to physical products like clothing, shoes, and beauty supplies. Find out how savvy online merchants overcome this by bridging the online and in-store shopping experience. 
4. Wait time: While shoppers in physical stores can leave with their purchased products in hand, ecommerce sites can’t provide that instant gratification.  

What Makes a Successful Ecommerce Site? 

Despite these limitations, ecommerce can offer businesses with limitless growth potential and game-changing profitability. While the elements vary from industry to industry, a spectacular shopping experience lies at the core of a successful site. This encompasses a visually pleasing appearance and a functional interface that effectively encourages and facilities online purchases. 

Some of these important elements are: 

1. Design that captures your brand and conveys a pleasing, professional, and trustworthy appearance to keep customers on site. 
2. Optimized checkout offering a seamless, transparent, and friction-free buying experience. 
3. Speed and navigation optimized for a website experience with a clear layout, calls-to-action, and smooth functionality. 
4. Product pages with quick and complete information of products and services and what you sell. 
5. High-quality photos that capture and retains visitor attention. 
6. Email capture for generating leads for future marketing and nurturing. 
7. Customer reviews that establish trust in a business. 

The Future of the Ecommerce Industry 

Every holiday season, ecommerce sales continue to increase as more people see the convenience of online shopping and free shipping and more businesses move their operations online.

Projections for the future of the ecommerce industry are very positive. With the growing use of smartphones, tablets, smart TVs and other Internet-enabled electronics, there will only be more ways to shop online. 

How to Start an Ecommerce Business 

Setting up an ecommerce store requires important steps like research, website development, launching, and marketing. Some key things to keep in mind when starting an online business are: 

1. Choose a profitable product: find a product with good margins and select a suitable sourcing method (making, manufacturing, wholesale, or dropshipping) 
2. Conduct proper research: research pricing strategies, your competition, and your unique brand proposition to plan your success 
3. Build your brand: win customers with memorable branding 
4. Solidify your launch: decide how you will track your progress and promote your products to the market 
5. Keep the momentum after launch: market your store to keep the customers rolling in and refresh your inventory and offerings to maintain their interest  
6. Optimize conversions: Experiment with different marketing and ecommerce strategies to increase conversions and retention 

As the ecommerce industry continues to grow, there’s expansive potential for businesses to grab a piece of the ecommerce pie. Every year, new tools are developed to increase the connectivity between people, helping ecommerce businesses adapt to the needs of their shoppers.  

Interested in learning more? Check out our Ecommerce Resource Center.