What Is eCommerce? Definitions, Tips & Tools for Your Business
eCommerce is an integral part of our global, modern economy. Over the past couple of decades, it’s transformed the way we shop, and the way we do business. In fact, merchants selling on the Wix eCommerce platform saw sales revenues grow 114% year-over-year in 2020, reaching $5.4 billion in online transactions.
Today, it’s easier than ever for anyone to set up an eCommerce business. At its most basic, you only need to create an online store on an all-in-one platform like Wix eCommerce, and you can start selling products or services anywhere in the world.
If you’re new to eCommerce, you’ve come to the right place. This article will answer all of your questions:
What is eCommerce? A Basic Definition
eCommerce is short for electronic commerce, as in online commerce. It’s an umbrella term for any transaction done over the internet. eCommerce includes retail stores, such as clothing and other physical products, and services of all types, from cyber security to booking a hotel.
The most common way to facilitate online sales and transactions, is through a dedicated online store, or eCommerce platform.
Most eCommerce businesses, especially small ones, are based on retail and wholesale commerce, meaning they sell and provide physical goods. But eCommerce is not just selling products, there are various types of eCommerce.
The History of eCommerce
In 1994, a 21-year-old named Dan Kohn sold his friend a Sting CD for $12.48. What makes this event notable is that Kohn made the sale through his website, NetMarket, and was paid through an encrypted credit card transaction—thus making it the first eCommerce sale in history.
Kohn may have made the first true eCommerce sale, but enterprising parties had been paving the way for online shopping for decades.
CompuServe, which would go on to be a big player in the 90s eCommerce boom, launched in 1969 and established many of the platforms and practices that would allow eCommerce to eventually thrive.
In 1971, two computer science majors from Stanford University and MIT used ARPANET, a sort of precursor to the internet, to remotely negotiate (of all things) a marijuana deal, and in 1984 a 78-year-old woman in the UK used a Videotex device to order groceries to her home. However, since both cases still required in-person payments (and in one case, the product was illegal), neither can be considered a pure eCommerce transaction.
That leaves the Sting CD as the first true, end-to-end eCommerce sale. But things picked up quickly from there. In August of 1994, Pizza Hut launched PizzaNet, through which customers could order—and pay for—their pizzas online.
A year later, in 1995, Amazon launched its online bookselling service, followed closely by eBay and PayPal, which together heralded the age of eCommerce that today spans nearly every product and service imaginable and accounts for billions of dollars in transactions worldwide.
Here’s a timeline of some key eCommerce milestones:
1979: Michael Aldrich invents online shopping by connecting TV sets to phone lines that allow people to order—but not pay for—certain items remotely
1982: Boston Computer Exchange becomes first online marketplace by selling used computers through its website (though payments were made by telephone)
1984: Jane Snowball, a 78-year-old British grandmother, orders groceries to her home using a Videotex device
1994: History’s first end-to-end eCommerce sale is made by 21-year Dan Kohn. The product: a Sting CD
1994: Pizza Hut launches PizzaNet, the world’s first online pizza-ordering system
1995: Amazon launches its online bookselling website
1997: Launch of PayPal
2005: The very first “Cyber Monday” sale announced
2014: $2.68 billion in online sales made on a single Cyber Monday
2019: The first time online retail sales surpassed sales from brick-and-mortar businesses
2024: eCommerce sales predicted to make up 22% of total retail sales worldwide
Types of eCommerce Businesses
There are 2 main ways to categorize an eCommerce business. Either by the parties conducting business, or by the type of products or services a business provides.
Categorizing eCommerce Businesses by the Parties Involved
You may have seen the abbreviations B2B or B2C used in the context of business before. These stand for the two parties participating in a business transaction. But to cover all types of businesses, there are more than just the two possibilities.
B2C - Business to consumer
Business to consumer is one of the most common types of eCommerce models. It’s also the easiest to understand. These businesses sell goods and services directly to the end-customer, and can include anything from physical products to online services.
B2B - Business to business
Business to business models are also very common, and refer to companies that provide goods or services for other businesses.
B2B covers a wide range of businesses, including wholesalers, raw material manufacturers, and service providers, as long as they’re geared towards business.
C2C - Consumer to consumer
Consumer to consumer business models have exploded with the rise of eCommerce.
Basically, any transaction done between two people, rather than business entities, is considered C2C. This includes most transactions done on platforms such as eBay or Craigslist, or on social media marketplaces, like on Facebook or Instagram.
C2B - Consumer to business
Consumer to business is a relatively new business model, used to describe services provided by individuals, for businesses.
This model is often used to include freelancers and other small service providers. A common form of C2B is the purchase of stock images, videos, or music, created by individuals. Platforms like Fiverr or Wix Marketplace are also a great place to find C2B service providers of all sorts.
B2G - Business to government
Not all forms of eCommerce are limited to business and consumers. Another entity that both purchases and provides services is the government.
B2G businesses focus on providing products and services for the government to purchase, be it the federal government, or local government. These include a wide range of sectors such as cyber security, waste management, urban planning, etc.
G2B - Government to business
Government to business transactions reverse the B2G model. This describes products or services the government provides for businesses. This model is often used to refer to information that companies can purchase access to, such as blueprints, or legal files.
These six business models cover all types of eCommerce. But in most cases, when people discuss eCommerce, they’re referring to B2C or B2B business models. This article will also focus mainly on these types of businesses.
Categorizing eCommerce Businesses by Products or Services
Describing eCommerce businesses by the parties involved can be useful. But it doesn’t say much about what a business actually does, what it offers, or how it operates.
A better way to understand the difference between eCommerce businesses, is by categorizing them according to the type of products or services they offer.
Physical products
Businesses that sell physical products online are extremely common, and are often what people refer to when they mention eCommerce.
These online stores include both retailers, and wholesalers, who sell any sort of physical product, from clothes to books, from groceries to gardening accessories.
Most businesses that sell physical goods online will operate a store on their website, or as a merchant on an eCommerce marketplace, such as Amazon.
As physical goods are logistically the most complicated to deliver, there are a few models that have popped up to simplify the process. Services like dropshipping and print on demand allow businesses to manufacture and ship products, without requiring a factory, logistics center or distribution network.
Dropshipping explained
Dropshipping refers to a business model in which a company uses an external service to manufacture and fulfill product orders.
By utilizing dropshipping, business owners can focus on marketing their products and creating a unique customer experience, rather than deal in manufacturing logistics, warehousing, order fulfillment and shipping.
Services
There is an endless variety of services you can purchase online, from hiring freelancers to streaming movies. So not all service-based eCommerce businesses operate similarly.
Many service providers sell their services on their own website, or on a dedicated platform for similar services, much like a product-based business would. It’s also not uncommon for a business to ask first-time customers to contact them, or fill out a form, rather than purchase the service upfront. This often depends on the type of business, as well as the clientele.
Another common business model for eCommerce services is subscriptions. Streaming services, like Netflix, for example, utilize this model. It’s a great way to create a constant income, if you can consistently provide more value.
Digital products
There’s a third type of eCommerce that’s sort of in between physical products and services—digital products. This sector has exploded over the past couple decades. It includes software, music files, in-game purchases in video games, and more.
Digital products are the easiest to provide to the customer, as it’s just enabling a download. They also have the added benefit of being freely duplicatable, as opposed to a physical product, which requires manufacturing.
eCommerce Trends and Statistics
To easily understand the scope and impact of eCommerce on our modern economy, let’s look at some eCommerce statistics.
Online sales are taking over retail
In 2019, online sales accounted for around 14% of all retail sales, worldwide. By 2023, that number is expected to grow to 23%, almost a quarter of all retail sales. According to Nasdaq, by 2040, eCommerce is expected to facilitate 95% of all retail.
Amazon dominates eCommerce in the U.S.
While almost half of all eCommerce transactions occur on small businesses’ websites, big corporations do enjoy over 50% of online sales in the U.S. Amazon alone facilitates almost 39% of all eCommerce sales. Furthermore, 63% of all online shoppers begin their product search on Amazon.
Free shipping is critical
Offering quality products, fast, and at competitive rates isn’t enough to make it in eCommerce. One of the biggest incentives to shop online is free shipping.
Selling products online without offering free shipping may be fatal for many eCommerce businesses, as it can deter potential customers. It’s so important to shoppers, that 85% of them say they prefer free shipping over fast shipping.
Free shipping is undoubtedly good for attracting new customers, but it can also increase profits from each transaction. It’s been found that online transactions are 30% higher when offering free shipping.
Shoppers are more comfortable than ever shopping online
Feeling comfortable shopping online isn’t obvious. Many shoppers were, and still are hesitant to trust online transactions.
But during the past year, with the COVID-19 crisis affecting the way we would normally shop, this has started to shift substantially. Today, 43% of shoppers feel positively about purchasing products and services online. The real shift, however, is in people’s willingness to try new brands online. During the COVID-19 crisis, 44% of shoppers reported they’ve done so.
Customers want quality product images and videos
In a “what you see is what you get” world, being able to accurately see the product you’re about to buy can make or break a deal. That means product photos have a huge impact on your customers’ decision making. In fact, 60% of digital shoppers in the U.S. say they need to see an average of 3-4 images before they decide to buy a product.
Product photos can increase the number of sales you make. But good photography can help you increase the price tag as well. According to CXL Institute, larger product images create a perceived value that’s, on average, $13.50 higher compared to smaller images.
This isn’t just limited to photos though. Product videos also play a big part in promoting sales. Shoppers who watch product videos are 73% more likely to make a purchase.
Social media plays a big part in eCommerce
It’s no secret the people spend a large portion of their online time on social media. That makes it extremely attractive for eCommerce. In fact, 49% of U.S. shoppers find new products on Facebook.
Many eCommerce businesses already use social media to market their products, through paid ads. At an average cost per click of $1.72, and a conversion rate averaging 14.3%, it’s no surprise businesses use Facebook ads extensively.
Pros and Cons of eCommerce
There are many reasons to start an online business. But before you start bouncing around eCommerce business ideas, it’s important to understand what advantages, and disadvantages, eCommerce holds.
Pros
Low investment and operational costs:
Compared to a physical, brick-and-mortar storefront, eCommerce requires a much smaller initial investment. Instead of renting a location and remodeling it to create the perfect store, you simply need to create a website and design your online store digitally.
Operational costs are also lower, as you can forgo hiring employees, at least in the beginning, and you avoid the rent and high utility bills associated with physical properties.
Stay open 24/7:
Online stores, as opposed to physical businesses, aren’t limited to business hours. An eCommerce business can operate 24/7, always generating income, even when you sleep.
Reach more customers:
By operating your business online, your clientele isn’t limited to a physical location, like a storefront. This means you can market and sell to much larger audiences. Your online store can cater to customers around the world, shipping internationally from day one.
Fast and easy for customers:
One of the biggest advantages of eCommerce is the ease of use for shoppers.
Letting your customers order their products online and receive them at home makes the purchasing process much faster, and simpler than going out to the store. This means customers are more likely to make impulse buys, as well as come back for more, given they’re happy with your products.
Easily scalable:
Scaling up an eCommerce business is much easier than scaling up a physical one.
Sure, you may need more storage, and have to hire a few employees to deal with order fulfillment and other tasks. But you won’t have to find new locations, or hire enough employees to run an entire store. Your business may expand, but your online store can always expand with it.
Cons
Harder to interact with customers:
Most of the disadvantages of eCommerce stem from the inability to physically communicate with your customers. This makes it harder to understand their needs, and to make sure they’re happy with your business.
To counteract this, it’s important to keep in touch with your customer base however you can, be it social media, emails, surveys, etc.
Shoppers can’t try products before purchasing:
In an online store, customers can’t physically see the products before they buy them. That means they can’t try on clothes, test gadgets, or even get a general feel from just holding an item in their hands.
Many online stores offer a free return policy to ensure their customers don’t hesitate. Great product photos and videos can also help give your customers a better understanding.
Technology can ruin sales:
When your business is online, any error or bug can cost you. There are many unexpected hurdles that can pop up – transaction errors, glitchy page designs, server crashes, and more. These can not only botch a sale, but also deter customers from coming back to your online store.
Make sure to build your website and store using a reliable host, with a proven track record, to minimize these issues.
Extremely competitive:
In many cases, eCommerce is more competitive than physical retail. Rather than compete with other businesses in your town or neighborhood, you’re competing with the entire world.
There are many ways to stand out though. Good marketing is the key to success in eCommerce.
Getting Started with eCommerce
If you’re looking to create an eCommerce business, starting an online store is a great first step. You can go far more in-depth, but these 5 steps will give you the right start:
01. Choose what to sell online
The first thing you’ll need to do before you start your eCommerce business, is decide what it is you want to sell. You can find products, based on the target audience you’re after, or vice versa.
The products you choose to sell may ultimately determine your success, so take time and really plan your actions before starting.
02. Build and design your online store
To start your online store, you’ll need to build a website using a host that can facilitate eCommerce.
Once you build your website and create your store, it’s time to design it. eCommerce website design is crucial in creating a positive shopping experience and can make or break an eCommerce business, so don’t skip this step.
03. Find a manufacturer
After you’ve decided on a product, or line of products, you’ll need to manufacture them. The type of manufacturer changes from product to product.
If you’re after digital products, you may not need a factory, but you might still need to hire professionals to create or provide the final touches on your products.
04. Find shipping partners
Shipping is a big part of any online store. You want every single customer to receive their products fast, and in one piece. To pull that off, you’ll need a great shipping company.
If manufacturing and shipping products seems like too much of a hassle, you can always turn to dropshipping. Simply connect your store to a dropshipping service that manufactures, fulfills orders and delivers your products for you.
Of course, for digital products, you get to avoid shipping all together. But you still need to make sure your products are distributed properly, meaning emails go out without errors, and download links are always live.
05. Connect a payment provider
No business is complete without getting paid. In order to process transactions and receive payments, you’ll need to connect your online store to a payment provider. To ensure customers always have a comfortable way to pay, you may want to provide several payment options, including credit card, digital wallets like PayPal, wire transfer, etc.
While we’re on the subject of payments, it’s worth mentioning that you should ensure your eCommerce business complies with online sales tax regulations.
eCommerce Marketing Tips
The importance of eCommerce marketing can’t be understated. It’s a critical part of gaining new customers, as well as retaining your existing clientele. No eCommerce business is complete without it.
Optimize your online store’s SEO
One of the most important ways to drive traffic to your online store is by optimizing it to appear higher on search engines. This is called eCommerce SEO (search engine optimization).
Without going in-depth, SEO means optimizing the text, images and the general build of your website, in order for it to receive a higher ranking from search engines like Google.
Use content marketing
Content marketing is extremely common in eCommerce. In short, it means creating content, such as blog posts, to attract visitors to your website. Using content marketing wisely, in conjunction with SEO, can have a huge impact on your store’s traffic.
Utilize Facebook and Google ads
Facebook ads and Google ads are the most common paid advertising channels for eCommerce, and they’re proven to be very effective. Between Facebook, Instagram, and Google, you can cover an enormous share of all internet users. But with all that reach, you’ll need to be very precise when setting up your campaign, or you risk spending your marketing dollars on the wrong audiences.
Market using emails
Marketing emails are a great way to stay in touch with your customers, letting them know about new products, sales, or even a friendly holiday greeting. Email marketing is considered to have one of the best ROI’s in eCommerce marketing. However, in order to operate a truly successful eCommerce business, you’ll need to create a marketing strategy that covers most, if not all of these channels.