What Is Electronic Commerce (E-commerce)?

Electronic commerce, or e-commerce, is the buying and selling of goods and services over the internet. E-commerce can be conducted on computers, tablets, smartphones, and other smart devices. Nearly every imaginable product and service is now available through e-commerce, and it has upended how many companies and entire industries do business.

Definition

E-commerce, or electronic commerce, is the process of buying and selling goods and services over the internet through various digital devices and platforms.

Meaning Of E-Commerce

As noted above, e-commerce is the process of buying and selling products and services online. But it involves more than simply a buyer and a seller, relying on a vast, often invisible, infrastructure to keep it running.

E-commerce has helped companies (especially those with a narrow reach, like small, local businesses) gain access to a wider market by providing cheaper and more efficient sales and distribution channels for their products or services.

While some businesses exist entirely online, others straddle the real and virtual worlds. Target (TGT), for example, is one of many giant retailers that has supplemented its brick-and-mortar presence with an online store that allows customers to purchase everything from clothes and coffeemakers to toothpaste and action figures without leaving their homes.

At the other end of the scale spectrum, individual sellers increasingly engage in e-commerce transactions via their own personal websites. And digital marketplaces like eBay and Etsy serve as exchanges where multitudes of buyers and sellers can come together and do business. 

E-commerce businesses can range from small, home-based operations to large, international enterprises. The growth of e-commerce has been explosive in recent years. Global retail eCommerce sales have been growing tremendously.

Several factors are driving this growth. First, the number of people with Internet access is increasing. This is especially true in developing countries, where the number of Internet users has been growing rapidly. Second, the cost of buying goods and services online has been falling. Third, people are becoming more comfortable with making online purchases. And finally, the proliferation of mobile devices like smartphones and tablets has made it easier than ever to shop online.

E-commerce businesses can be divided into two broad categories: online retailers and brick-and-mortar businesses that sell goods and services online. Online retailers are businesses that sell goods and services exclusively online. Online retail businesses typically have no physical storefronts and do not sell through brick-and-mortar retailers. Brick-and-mortar businesses that sell online are businesses that have a physical store as well as an online presence to optimize their offline as well as online sales. These businesses use the Internet to supplement their brick-and-mortar operations by selling goods and services online.

The growth of e-commerce has had a profound impact on the retail sector. The E-commerce site growth has changed the way that people shop and has created new opportunities for businesses. For consumers, e-commerce offers a convenient way to shop for goods and services. For businesses, e-commerce provides a new sales channel and a way to reach new customers.

Advantages

E-commerce offers buyers and sellers a number of advantages:

1. Convenience / Easy availability or access

E-commerce can happen 24 hours a day, seven days a week. Customers can shop online at any time that is convenient for them.Consumers can buy at their convenience, and business owners can make sales while they sleep.

2. Increased selection

Many stores offer a wider array of products online than they could ever carry in their brick-and-mortar counterparts. And many stores that solely exist online offer consumers exclusive inventory that is unavailable elsewhere.

3. Potentially lower start-up costs

E-commerce companies may require a warehouse or manufacturing site, but they usually don't need a physical storefront. The cost to operate digitally is often less expensive than needing to pay rent, insurance, building maintenance, and property taxes.

4. International sales

As long as an e-commerce store can find a way to ship its products to its customers, it can sell to anyone in the world and isn't limited by physical geography.

5. Opportunity to collect valuable data

Willingly or unknowingly, consumers share a lot of information on their interests and shopping habits when they buy or even just browse online. Site owners can monetize this data in a number of ways, using it themselves and selling it to others.

6. Speed of access

e-Commerce is fast. customers can get what they want quickly and easily without having to leave their homes or offices.

7. Personalization and product recommendations

e-Commerce businesses can personalize the shopping experience for each customer and provide product recommendations based on customers’ previous purchases.

Disadvantages

There are also some drawbacks that come with e-commerce. Those can include:

1. Limited customer service 

If you shop online for a computer, you cannot simply ask an employee to demonstrate a particular model's features in person. And although some websites let you chat online with a staff member, that is not a typical practice. A disadvantage for shoppers, this can also be a money-saver for retailers.

2. Lack of instant gratification

When you buy an item online, you must wait for it to be shipped to your home or office. However, e-tailers like Amazon now make the waiting game a little bit less painful by offering same-day delivery as a premium option for select products.

3. Inability to touch products

Online images do not necessarily convey the whole story about an item, and e-commerce purchases can be disappointing when the items don't live up to the buyer's expectations. Case in point: an item of clothing may be made from shoddier fabric than its online image indicates.

4. Dependence on technology

If a website crashes or must be temporarily taken down for any reason, the business is effectively closed until things return to normal.

5. Greater competition

Although the low cost of starting an e-commerce business can be an advantage, it also means means competitors can just as easily enter the market.

6. Security and privacy concerns

Some people are concerned about the security of their personal information when they shop online. There have been some cases of identity theft and fraud.

7. Lack of human interaction

Some people miss the human interaction that they get when they shop in a brick-and-mortar store. When you shop online, you don’t have the opportunity to ask a salesperson for help or advice.

8. Dependency on technology

e-Commerce businesses depend on technology to function. If there is a problem with the website or the payment system, customers cannot shop.

9. Shipping costs and delivery time

Some eCommerce businesses charge for shipping and handling. Customers may also have to wait a few days for their order to arrive.

10. Returns and refunds

Some eCommerce businesses have a no-returns policy. This can be frustrating for customers if they are not satisfied with their purchase.

Types of e-Commerce

Different types of e-commerce business online shopping and business practices are used such as-

1. Business-to-Business (B2B)

B2B e-commerce is when businesses sell products or services to other businesses. The transactions are usually between companies that have a business relationship, such as suppliers and manufacturers.B2B transactions often entail larger quantities, more detailed specifications, and longer lead times. The buyer can also arrange for recurring orders if the purchase is for ongoing manufacturing processes.

2. Business-to-Consumer (B2C)

B2C e-commerce is when businesses sell products or services to consumers. Transactions can be between a business and an individual consumer or between a business and another business that acts as a consumer, such as a retail store.

B2C e-commerce companies sell directly to the product's end-user instead of distributing goods through an intermediary such as another retailer.

This type of business model may be used to sell products (like your local sporting goods store's website) or services (such as a lawn care mobile app to reserve landscaping services). This is the most common business model and the concept most people likely think about when they hear the term e-commerce.

3. Consumer-to-Consumer (C2C)

C2C e-commerce is when consumers sell products or services to other consumers. The most popular platform for C2C e-commerce is eBay.

Individuals can sell things to other individuals on their individual websites or through e-commerce platforms that facilitate the process. Examples include Craigslist, eBay, Etsy, and many others.

4. Consumer-to-Business (C2B)

C2B e-commerce is when consumers sell products or services to businesses. An example of C2B e-commerce is when someone sells their handmade goods on Etsy.

Some platforms allow individuals to more easily engage with companies and offer their services, especially related to short-term contracts, gigs, or freelance opportunities. Upwork is one example.

5. Business-to-Government (B2G)

B2G e-commerce is when businesses sell products or services to government organizations. An example of B2A e-commerce is when a company sells software to the government.

Some e-commerce businesses serve as government contractors, providing goods or services to government agencies and other entities. Often these arrangements require bidding on projects though an established procurement process and can involve large quantities of a given item.

6. Consumer-to-Government (C2G)

C2G e-commerce is when consumers sell products or services to government organizations. An example of C2A e-commerce is when someone files their taxes online.

Although not an e-commerce relationship in the traditional sense, C2G is a way for individuals to interact with government. For example, uploading your federal tax return to the Internal Revenue Service (IRS) website can be considered an e-commerce transaction as it involves an exchange of information. Taxpayers can also pay what they owe or request a refund for the amount they may have overpaid

Types of E-commerce Revenue Models

Due to the unique nature of e-commerce, businesses have a variety of revenue models to choose from, based on how their goods are manufactured, sold, and shipped. Common examples include:

1. Dropshipping

Often considered one of the easier forms of e-commerce, dropshipping allows a company to create a digital storefront, sell goods, and then rely on a supplier to take it from there. The e-commerce company collects payment from the buyer, after which it passes the order to the dropshipper. This supplier manages inventory, oversees the warehousing of goods, packages the orders, and delivers the product to the purchaser.

2. White Labeling

In white-label e-commerce, the seller doesn't manufacture the product but buys an existing product from the manufacturer or another supplier and repackages it under its own brand for resale to the ultimate consumer.

3. Private Labeling

Similar to white labeling, private labeling involves selling a product made by another manufacturer. In private labeling however, the seller may have more control over the actual product, such as having it made to particular specifications. Store brands are an example of private labeling.

4. Wholesaling

Wholesalers serve the buyers of large numbers of a particular item or many smaller buyers of that item. A more capital-intensive approach to e-commerce, wholesaling can entail maintaining and warehousing significant quantities of inventory.

5. Subscription

E-commerce companies can also leverage repeat orders or loyal customers by implementing subscription services. The consumer places an order once and receives their goods at a fixed cadence, such as every month. Common subscription e-commerce products include meal prep services, pet food, fashion boxes, and health and grooming products.