What is e-commerce - definition, benefits and examples

What is e-commerce?

E-commerce (electronic commerce) is the buying and selling of goods and services or the transmission of funds or data through electronic networks (mainly the Internet). These business transactions take place in the form of business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer, or consumer-to-business. The terms e-commerce and e-business are often used interchangeably. The term e-tail is sometimes used to refer to the transaction process that constitutes online retail shopping.

In the past decade, the widespread use of e-commerce platforms such as Amazon and eBay has contributed to the substantial growth of online retail. In 2007, e-commerce accounted for 5.1% of total retail sales; in 2019, e-commerce accounted for 16.0%.

How it works?

E-commerce is driven by the Internet, and customers can visit online stores to browse and place orders to purchase products or services through their own devices.

After the order is placed, the customer's web browser will communicate back and forth with the server hosting the online store website. Then, the data related to the order will be forwarded to the central computer called the order manager-and then forwarded to the database that manages inventory levels, the merchant system that manages payment information (using applications such as PayPal), and the bank computer- before going back to the order manager. This is to ensure that store inventory and customer funds are sufficient to process orders. After the order is verified, the order manager will notify the store's web server, which will then display a message to inform the customer that their order has been successfully processed.

Then, the order manager will send the order data to the warehouse or fulfillment department in order to successfully deliver the product or service to the customer. At this point, tangible and/or digital products can be shipped to customers, or access to services can be granted. Platforms hosting e-commerce transactions may include online marketplaces where sellers only need to register, such as Amazon.com; software-as-a-service (SaaS) tools that allow customers to "rent" online store infrastructure; or open source tools for companies to use internally developed for management.

Types

With the continuous development of business, the way it proceeds is also constantly evolving.

The following are the most traditional types of e-commerce models:

• Business-to-consumer (B2C): is the most popular e-commerce model. Business-to-consumer means that sales occur between the business and the consumer, just like you buy carpet from an online retailer.

• Business-to-business (B2B): refers to businesses that sell goods or services to other businesses (such as manufacturers and wholesalers, or wholesalers and retailers). Business-to-business e-commerce is not consumer-oriented, and usually involves products such as raw materials, software, or combined products. Manufacturers also sell products directly to retailers through B2B e-commerce. Find the best EPAM solutions for building e-commerce products, headless content management systems and e-commerce mobile development.

• Consumer-to-consumer (C2C): refers to the sale of goods or services to another consumer. Consumer-to-consumer sales occur on platforms such as eBay, Etsy, and Fiverr.

• Consumer-to-business (C2B): refers to individuals selling their services or products to commercial organizations. C2B includes influencers, photographers, consultants, freelance writers, etc. who provide exposure.

• Direct-to-consumer (D2C): is the latest model of e-commerce, and trends in this category are constantly changing. D2C means that brands sell products directly to their end customers without going through retailers, distributors or wholesalers. Subscription is a popular D2C project, and social sales through platforms such as InstaGram, Pinterest, Facebook, SnapChat, etc. are popular platforms for direct-to-consumer sales. Since the emergence of the pandemic, direct-to-consumer (D2C or DTC) has seen substantial growth, as brands that do not accept D2C e-commerce are busy adapting. From CPG to wholesale to automobiles and so on, every industry is now paying attention, hoping to better attract customers and provide what they want.

Benefits

The advantages of e-commerce include its round-the-clock availability, speed of access, providing consumers with a wide range of goods and services, easy access and international influence.

• Availability: Except for power outages or regular maintenance, e-commerce sites are available 24x7, allowing visitors to browse and shop at any time. Business hours of physical enterprises are often fixed, and may even be completely closed on certain days.

• Access speed: Although shoppers in physical stores may slow down due to the crowd, e-commerce sites run very fast, which is determined by the computing and bandwidth considerations on consumer devices and e-commerce sites. The product page and shopping cart page load in a few seconds or less. E-commerce transactions require only a few clicks and take less than five minutes.

• Easy to access: Customers shopping in physical stores may find it difficult to determine which shelf a particular product is on. In e-commerce, visitors can browse product category pages and use the site search function to find products immediately.

• International influence: Brick-and-mortar businesses sell products to customers who visit their stores in person. Through e-commerce, companies can sell products to any customer who can access the Internet. E-commerce has the potential to expand enterprise customer base

• Lower costs: Pure e-commerce companies avoid the costs associated with physical stores, such as rent, inventory, and cashiers, although they may incur transportation and storage costs.

• Personalization and product recommendations: E-commerce sites can track visitors' browsing, searching and purchasing history. They can use this data to provide useful personalized product recommendations and gain valuable insights about the target market. Examples include sections of Amazon product pages.

Examples and use cases

From independent freelancers to the largest companies, everyone can benefit from the ability to sell their goods and services online on a large scale.

1. Retail: Selling products directly to consumers without an intermediary.

2. Dropshipping: selling products manufactured by third parties and shipped to consumers.

3. Digital products: downloadable items such as templates, courses, e-books, software or media that must be purchased to use. Whether buying software, tools, cloud-based products, or digital assets, these all account for a large portion of e-commerce transactions.

4. Wholesale: products are sold in bulk. Wholesale products are usually sold to retailers, who then sell the products to consumers.

5. Services: These are skills such as online buying and paid tutoring, writing, influencer marketing, etc.

6. Subscription: A popular D2C model, the subscription service is to purchase products or services repeatedly on a regular basis.

7. Crowdfunding: Crowdfunding allows sellers to raise start-up capital in order to bring their products to the market. Once enough consumers have purchased the product, it will be created and shipped.

Today, it is almost impossible to imagine a company that will not use the digital space to drive sales and profitability.

Here are some of the most well-known examples:

• Alibaba: The Chinese company Alibaba, founded in 1999, is by far the most successful e-commerce company and retailer in the world. It has the world's largest B2B (Alibaba), C2C (Taobao) and B2C (Tmall) markets. Since 2015, their online profits have exceeded the sum of all US retailers including Walmart and Amazon.

• Amazon: Amazon is the largest e-commerce retailer in the United States. It has greatly changed the face of the retail industry, so that an urgent problem facing most retailers is how to beat Amazon.

• Walmart: Walmart was once the largest retailer in the United States. Now it is very focused on their online business and has achieved good results, providing traditional retail sales as well as grocery delivery and subscription services.

• eBay: As one of the earliest e-commerce sites, eBay still dominates the digital market space, allowing businesses and individuals to sell their products online.

• Wayfair: This home electronics retailer is an affiliate and has almost no inventory. They manage suppliers, orders, and fulfillment, and attribute their success to personalization—which means they study how customers engage and provide the products they think consumers want most.

Government regulations

In the United States, the Federal Trade Commission (FTC) and the Payment Card Industry (PCI) Security Standards Committee are the main agencies that regulate e-commerce activities. The FTC monitors activities such as online advertising, content marketing, and customer privacy, while the PCI Security Standards Committee develops standards and rules, including PCI Data Security Standard Compliance, which outlines procedures for the proper handling and storage of consumer financial data.

To ensure the security, privacy and effectiveness of e-commerce, companies should verify business transactions, control registered or selected users' access to resources such as web pages, encrypt communications, and implement security technologies such as secure socket layer and two-factor verify.

Latest tendencies in retail

In view of the substantial growth of e-commerce in recent years, many analysts, economists, and consumers are arguing whether the online B2C market will quickly eliminate physical stores. There is no doubt that online shopping is growing at a significant rate.

BigCommerce's research found that Americans have roughly the same proportions of online, offline, and traditional retail shopping. 51% of Americans prefer e-commerce, and 49% of Americans prefer physical stores. However, 67% of millennials prefer online shopping rather than offline shopping. According to Forbes, 40% of millennials are already using voice assistants for shopping, and this number is expected to exceed 50% by 2020.

An example of the impact of e-commerce on physical retail is the Black Friday and Cyber ​​Monday shopping days after Thanksgiving in the United States. According to data from Rakuten Marketing, in 2017, the revenue of Cyber Monday, which features fully online sales, was 68% higher than that of Black Friday, which is traditionally the largest physical shopping day of the year. According to ShopperTrak's 2017 data, Black Friday physical store traffic dropped 1% year-on-year, and Thanksgiving-Black Friday traffic dropped 1.6%. Nearly 40% of Black Friday sales come from mobile devices, an increase of nearly 10% over the previous year, indicating that e-commerce is becoming a mobile commerce. Like physical retail, as distribution channels become increasingly digital, e-commerce is changing the supply chain management practices between enterprises.