What is ecommerce? – Definition, processes, and models
Tips / 13.01.2022
It wouldn’t be an overstatement to say that we’ve all probably purchased something online over the past two and a half decades. After all, with the proliferation of the world wide web, the Internet, and the technologies that go along with these developments, it’s become even easier to shop online.
Whether through your smartphone, computer, laptop, or tablet – ecommerce has become a household name. And there’s a good reason for this. It enables people to shop at their convenience 24/7. No more open and close hours like we have with physical stores.
These are important factors to consider when thinking about what e-commerce is and how it all works. Let’s shed some light.
Table of Contents
What is ecommerce?
The definition of ecommerce or electronic commerce actually refers to a type of business model, which enables both businesses and private individuals to purchase and sell goods over the Internet through a virtual marketplace.
It also requires the exchange of information, such as cardholder data, and security is a must. It has also been called a “disruptive technology” because it enables consumers to purchase almost anything they can think of online. From plane tickets to card payment machines, books, music, subscription services, fashion, and more.
What’s more is that this trend is predicted to see some serious growth, with 95% of all purchases expected to be made via e-commerce by 2040, while 21.8% of the world’s population already shops online. What does this mean for you and your business? Quite a lot, actually.
For starters, it means that you need a fast-loading website as 75% of all cart abandonment happens due to slow websites. What’s more, is that approximately 43% of all ecommerce traffic comes from organic Google searches.
And speaking of Google, estimates show that around 35% of Google product searches are converted into purchases within five days. Also, just over 50% of all online sales are conducted through consumers’ smartphones.
One of the enormous advantages of e-commerce is that it has helped smaller retailers with a narrow reach to “gain access to and establish a wider market presence” through the provision of more affordable and more efficient distribution channels for their products and services.
How does ecommerce work?
For starters, one would need to determine which products or services they are going to offer their consumers. Next up is setting up the business entity to ensure all legalities are taken care of.
From there, one would need to set up a website with checkout for accepting payments. As mentioned above, the speed of your website is critical to the success of your sales as 75% of people abandon their shopping carts when it comes to slow-loading websites. The checkout you choose must be PCI DSS compliant, your website needs to be secure, with an SSL certificate, and you need to be GDPR compliant too.
You will also need to ensure that your website has a brilliant design with your product and/or service offering is displayed in attractive ways. Once all of this is taken care of, you’re ready to sell online through e-commerce or even social commerce. However, you’ll need to drive traffic to your site and you can use social media, email lists, paid advertising, and more to do so.
When your first customer browses your product or service offering and decides to purchase it, your site will take them to a secure page where they can enter their card details in order to make the payment. This is where your checkout comes in. After that, the issuing bank, card schemes, acquirers, and others communicate with each other to ensure that they settle your funds in your merchant account, which you should have set up right from the outset.
And voila! This is how you get paid through e-commerce.
History of ecommerce
Looking at the origins and roots of ecommerce, it is said to be dated all the way back to the 1960s when companies used the Electronic Data Interchange to “facilitate the transfer of documents”. However, the very first e-commerce transaction involving the payment of funds for an item took place after the onset of the Internet on 11 August 1994 when two friends engaged in an online sale of a Sting CD through retail website NetMarket.
Since then, there’s been a drastic change in the niche and we can plainly see this through the establishment and exponential growth of companies like Amazon, eBay, Etsy, and more. Amazon, for example, was launched one year after the sale of the CD in 1995 and it has grown to be a household name. In 1999, global ecommerce reached the value of $150 billion.
Just a few years later, in 2003, Amazon posted its first profit. In 2015, Amazon accounted for over half of niche growth and in 2017, global retail e-commerce sales reached $2.304 trillion, a 24.8% increase on the previous year.
During the same year, global ecommerce transactions generated $29.267 trillion, with a majority of the sales being driven by business-to-business transactions, followed by business-to-consumer sales.
What is an ecommerce business?
Although it may seem straightforward, an ecommerce business is one that sells online, and there are several types of these businesses which cater to various audiences.
The main e-commerce business models are:
This is the most popular type of ecommerce business model. For example, when you purchase a book from an online marketplace.
This is when a business sells something to another business. An example of this is myPOS selling POS devices to merchants across Europe.
This is the newest model of e-commerce and it involves brands that sell directly to end customers without going through retailers, distributors, or wholesalers. Some examples of the platforms where this takes place are Facebook, Pinterest, Instagram, and Snapchat.
This model affords brands more control over brand messaging and consumer engagement, more opportunities to innovate, direct access to customer data, higher margins, stronger brand loyalty, and expanded market opportunities.
This type of business model entails the sale of a good or a service by a consumer to another consumer. Some platforms which offer this type of exchange include Fiverr and eBay.
This model involves the sale of a product or service by a consumer to a business. Examples of this include consultants, photographers, influencers, freelance writers, and more.
Advantages and limitations
What are the advantages of ecommerce?
Because 95% of the global population is expected to purchase from e-commerce businesses by 2040, which opens a lot of doors to business owners through the variety of advantages it offers.
Here are just some of them:
- It provides a global marketplace of consumers that is not limited to a certain geographical area
- An online store never sleeps, ensuring round-the-clock availability
- Lower operational costs of running a business because of fewer expenses involved
- Automated and sped up inventory management to help businesses save on costs
- Targeted marketing through the much wider availability of customer data
- Ecommerce businesses can better target and serve niche markets
- It requires minor investment in hardware and software, and business owners can run their business from anywhere
- The convenience offered to customers through quick delivery and easy returns
- Personalisation of the customer experience
- Wider offering and increased selection of products and services
- Borderless transactions ensure you can maximise your selling potential
- Ability to scale your business easily, affordably, and with much less effort than you would with a physical store
- Innovative technological developments make it easier to market your products, improve team collaboration, and boost your customer service.
What are the limitations of ecommerce?
As with all business models out there, e-commerce also has its limitations.
- Your customer service will be limited as customers won’t easily or readily have a staff member show how your product works or answer questions your customers may have
- Instant gratification is delayed as customers will have to wait for their item to be shipped to them
- Customers can’t physically touch the products and online images cannot always convey the entire story about a product.
Ecommerce vs electronic business
While ecommerce is all about the sale and purchase of goods and services online, this is just one part of the story. Electronic business, or e-business, “involves the entire process of running a company online”.
While the former is just one part of ebusiness, the latter involves all the activities that are a part of running an online business.
Examples of successful ecommerce businesses
As mentioned above, e-commerce businesses come in many forms. These range from retail to dropshipping, digital products to wholesale, services to subscription, crowdfunding, click and collect, and more.
Some of the most successful businesses of this type in the world today are Alibaba, Amazon, Walmart, eBay, and Wayfair.
How to start an ecommerce business
Are you convinced that ecommerce is the way to go for your business? Then it’s time to look at some steps involved in getting started.
- Do your research: target audience, competition, and costs
- Choose the product/service you’d like to offer your customers
- Source your products and find suppliers
- Determine the name of your business, if it’s a brand new one
- Draft your business plan
- Determine all aspects of your brand
- Determine your shipping strategy
- Set up your free online shop and either have it designed or use a free template such as those offered by myPOS Online
- Set up a payment gateway
- Market your business using a variety of channels: social media, email, paid
- Identify key performance indicators and measure success
Now that you know what ecommerce is, how it got started, and why it’s a good idea to invest in your own online store, it might be overwhelming to think about getting started. However, if you’ve already determined what products and/or services you’re going to offer your customers, there’s an easy way to get started and that’s with a free myPOS Online store.
There are many beautiful pre-defined design templates for you to choose from and the payments side is taken care of for you. Also, you can enjoy instant settlement of all received funds, as this is a great way to help ease liquidity challenges. You also get 24/7 customer support from us as well as a free business card.
All your received funds will be transferred to your free multi-currency merchant account and you’ll be able to sell even while you sleep!