Ecommerce is the act of buying or selling goods and services over the internet. Explore ecommerce’s definition, types, and trends for selling online.
On August 11, 1994, a compact disc of Sting’s Ten Summoner’s Tales was securely exchanged in the world’s first online sale. This transaction marked the birth of electronic commerce, a global shift in shopping habits.
Today, ecommerce is powered by a worldwide system of technologies and platforms, from website builders to payment gateways to social media. With ecommerce sales projected to surpass $7 trillion by 2026, the concept of buying and selling products online has become a part of everyday life.
Ahead, explore the ins and outs of ecommerce: how it works, the main ecommerce models, and the benefits of selling online versus in person.
Plus, learn how to create an ecommerce website and launch your big idea.
What is ecommerce?
Ecommerce is when individuals and companies buy or sell goods and services over the internet. Ecommerce can happen through a website, smartphone app, social media platform, online marketplace, or other sales platform.
Common examples of ecommerce include online shopping, electronic payments, online auctions, and internet banking. You can participate in ecommerce anywhere with an internet connection. The goal of ecommerce for a seller is to drive sales using digital platforms and marketing strategies.
Ecommerce is also known as e-commerce or electronic commerce, and is often used to refer to the wide range of tasks involved in selling online, from running digital ads to transferring payment data over a network.
When did ecommerce start?
What counts as the first ecommerce transaction is up for debate, with some ecommerce technologies developed as early as the 1970s.
The first legal online transaction happened in 1994, when one friend sold a Sting album to another over the internet, facilitating a sale between two people 300 miles apart. From there, ecommerce exploded, with Amazon and eBay launching a year later, followed by PayPal in 1998.
Since then, technology has moved fast to meet the demands of shoppers. Ecommerce platforms like Shopify democratized the industry, allowing businesses to sell directly to consumers anywhere in the world.
Social commerce, mobile wallets, and AI round out today’s ecommerce tools and platforms.
How does ecommerce work?
Ecommerce works through a series of straightforward platforms, tools, and tasks:
- Ecommerce platforms: Sellers choose an online sales platform like a website, marketplace, or social media to list their products and allow customers to browse and place orders.
- Payment processors: Customers pay using methods like credit cards or digital wallets at checkout. Transactions are secured by online payment gateways.
- Fulfillment and delivery: Sellers prepare, package, and ship products to customers. They may fulfill orders themselves or partner with a fulfillment service that manages shipping. For digital products like ebooks or online courses, the product is provided via a portal or download link.
- Supporting services: Various services and industries support ecommerce, including product suppliers, advertising platforms, and ecommerce apps that help sellers enhance the shopping experience.
Where does ecommerce happen?
Ecommerce unfolds across a variety of digital spaces, each offering advantages for sellers and buyers. Here are the main channels where ecommerce takes place:
Ecommerce websites
Ecommerce websites are online stores created by brands or individuals to sell products and services directly to consumers. Ecommerce platforms like Shopify provide tools to build and manage ecommerce websites, from designing the storefront to processing payments.
Key characteristics:
- Seller control: Sellers have complete control over their website’s design, customer experience, and data. This makes it easier to build a brand and create shopping experiences to suit a target market.
- Customer relationships: Ecommerce websites let sellers speak directly with customers, enhancing customer support, data collection, and marketing efforts.
- Marketing requirements: Ecommerce websites don’t come with customers built-in. Sellers need to drive traffic to their stores through SEO, social media, and other types of marketing.
Online marketplaces
Amazon, eBay, and Etsy are examples of online marketplaces where multiple sellers can list their products. These platforms are visited by large volumes of shoppers, providing high visibility for businesses.
Key characteristics:
- Built-in traffic: Marketplaces attract vast audiences, providing sellers access to a steady stream of consumers, typically in return for a fee.
- Accessibility: Marketplaces handle many technical parts of ecommerce, such as website design, hosting, payment processing, and sometimes shipping, which can simplify things for sellers.
- Lack of branding: Selling on marketplaces means giving up some control of how your brand appears to consumers. Additionally, customer and sales data may not be shared with sellers.
Social selling channels
Social media platforms like Facebook, Instagram, and YouTube include features that allow direct sales through posts, ads, and social storefronts. Social selling platforms integrate ecommerce into the social browsing experience.
Key characteristics:
- Audience engagement: Social platforms have large audiences segmented by deep data insights, lowering the cost of finding relevant customers.
- Seamless integration: Selling can be integrated into social media management, making it a natural extension of social media marketing strategies.
- Algorithm dependence: Social sales are often dictated by a seller’s social presence, with platform rules and algorithms determining their reach and success.
Many online sellers use multiple sales channels to reach more customers.
Ecommerce payment methods
Consumers can make online purchases in several ways. Payment methods for ecommerce stores include:
- Accepting credit cards and debit cards through a payment processor like Shopify Payments
- Third-party payment platforms, like PayPal
- Mobile wallets such as Apple Pay, Google Pay, and Shop Pay
- Buy now, pay later (BNPL) services
- Recurring billing for subscription products and services
- Pay in-store after ordering online with a point-of-sale system like Shopify POS
Ecommerce sellers regularly give consumers multiple ways to pay by integrating several of these payment methods into their website or sales channel.
Ecommerce business types
Ecommerce business types describe the relationship between buyers and sellers. The most common online business models include:
Direct to consumer (D2C)
A direct-to-consumer model is when businesses sell goods or services directly to customers, rather than through a retailer or distributor.
Many D2C ecommerce businesses handle everything from creating a product to delivering it to your doorstep. For example, an online footwear brand might design, sell, and ship sneakers directly to customers.
Ecommerce has made it easier and more cost-effective for sellers to connect directly with buyers. This has driven a sharp rise in D2C businesses, with D2C ecommerce sales more than tripling between 2016 and 2021. Many D2C sellers are digitally native businesses that operate solely online (sometimes referred to as digitally native vertical brands, or DNVBs).
Business to business (B2B)
A business-to-business model involves one business selling goods or services to another. For instance, a software company might sell technology licenses to a small business, or a bed linen brand could supply sheets to a hotel.
Ecommerce lets businesses rethink the B2B model, incorporating strategies normally used in D2C, even combining B2B and D2C sales in a single online store.
For example, lighting company Hollis + Morris offers its business customers a consumer-style website with transparent pricing, making its products accessible to all.
Consumer to consumer (C2C)
A consumer-to-consumer model is when one individual sells goods or services directly to another. For example, someone might sell a used sofa to another person through an online marketplace or selling site.
This model thrives on ecommerce platforms that enable peer-to-peer exchanges, like Facebook Marketplace, eBay, and Etsy. People who regularly source and sell products online may become resellers and shift toward a business-to-consumer model.
Ecommerce revenue models
Ecommerce businesses can earn money through various methods. Here are five common revenue models used:
- Sales: This model involves selling products or services for profit. It’s the most widely used method by online brands.
- Subscriptions:Subscription businesses offer products or services on a recurring basis, creating a steady income stream for D2C and B2B businesses.
- Advertising: Often seen with online creators and influencers, this model involves earning money through promotional deals.
- Affiliate:Affiliate marketers earn a commission by providing leads for another company. Individuals and businesses can earn through this model by joining affiliate programs.
- Transaction fee: Some ecommerce companies earn revenue by charging a fee for financial services such as processing payments.
Ecommerce benefits
Running an ecommerce business allows you to launch a business quickly, and access a global pool of potential customers looking for a convenient way to buy your product and interact with your brand.
Here are four benefits of ecommerce:
Convenient shopping
Ecommerce allows customers to shop from anywhere, on any device, at any time, without the need to physically visit a store. Customers can discover your brand and compare products, features, and prices from home.
Increased reach and access
Ecommerce businesses can reach a wider audience than a physical store alone, selling to global customers without the need for a physical international presence. Fulfillment companies help move online orders across the globe.
Personalization and data
While it can be difficult to recreate in-person shopping experiences, online stores capture a wealth of customer data that can be used for marketing personalization. This can include personalized product recommendations, targeted marketing campaigns, and loyalty programs.
Personalized shopping experiences can help businesses build stronger relationships with their customers.
Lower startup and operating costs
Ecommerce businesses often have lower overhead costs than traditional brick-and-mortar stores. Certain ecommerce business models such as dropshipping or print on demand don’t require inventory, and can be inexpensive to set up and run.
Ecommerce challenges
While running an online business has its benefits, it also comes with challenges. If you’re looking to start an ecommerce business, plan for these four potential pitfalls:
Security concerns
Consumers need to feel confident that their personal and financial information is protected when they shop online. Invest in secure payment gateways and SSL certificates to safeguard customer data. All Shopify plans include these security features.
Increased competition
Ecommerce is a highly competitive space, with many businesses vying for the same customers. Online businesses need to differentiate themselves from their competitors by offering unique products, competitive prices, and exceptional customer experiences.
Shipping challenges
Shipping impacts customer satisfaction. Use reliable shipping services to ensure timely and safe delivery of products, and minimize lost orders.
Customer service demands
Effective customer service is essential. Implement strong return policies and customer service strategies to address any issues efficiently.
Ecommerce trends and stats
Staying on top of ecommerce shopping trends will help your business remain competitive and meet changing customer needs. Here are three long-standing ecommerce trends to watch:
Social commerce is on the rise
Social interactions increasingly influence buying behavior, making social media platforms critical to sales.
- Sales through social commerce in the US are projected to reach nearly $80 billion by 2025.
- Engaging customers in meaningful conversations on social platforms can build trust and make a sale more likely.
- Social platforms are the new search engines, with platforms like YouTube, Instagram, and TikTok becoming primary platforms for product discovery.
Mobile shopping is popular
The shift toward mobile devices is reshaping how consumers shop online, underlining the need for mobile-optimized shopping experiences.
- Mobile commerce, or m-commerce, made up 43% of US ecommerce sales in 2023.
- Smartphones are the most common device for taking part in ecommerce in the US.
- A third of US consumers prefer shopping on mobile apps over websites, with global shoppers spending more than 100 billion hours browsing retail mobile apps each year.
Sellers are leveraging AI
The landscape of ecommerce is always evolving, driven by innovative ecommerce brands using new technologies such as AI.
- The mainstream adoption of AI tools is expected to double by 2029.
- Ecommerce brands are leveraging AI to understand their customers and send targeted ads. Shopify’s AI features help sellers automate customer support and write product descriptions.
- Some 80% of ecommerce businesses use, or plan to use, a chatbot to aid customer support.
Consumers like personalization
Personalized shopping experiences and communication impact customer retention and satisfaction.
- A 2023 study indicated 56% of consumers would become repeat customers if their shopping experience was personalized, a significant increase from 49% in 2022.
- 89% of digital businesses are investing in personalization.
Other rising ecommerce trends
- Augmented reality:AR-enhanced shopping experiences are transforming how consumers interact with products online.
- Flexible payment options: The buy now, pay later (BNPL) model is gaining popularity among consumers, offering more flexible payment.
- Privacy and security: There is a growing demand for privacy and security features in ecommerce platforms.
- Sustainability: Consumers are increasingly drawn to brands with sustainable business practices, influencing how companies approach production and logistics.
How to start an ecommerce website
If you’ve decided to start an online business, begin by choosing an ecommerce platform to help execute your idea. Follow these basic steps to launch an ecommerce venture:
- Find an idea: Explore product opportunities, untapped audiences, or market gaps to find your niche.
- Do market research: Investigate your competition by conducting market research.
- Write a business plan: This is essential if you’re seeking funding, craft a comprehensive business plan.
- Develop a brand: Choose a logo and business name to establish your brand.
- Create an online store:Set up your store, customize your site, and add your product listings.
- Choose a shipping strategy: Decide how you will deliver products to customers.
- Develop a marketing plan: Set sales and marketing goals and choose your advertising channels.
Make the leap to ecommerce today
The ecommerce industry has lots of room for newcomers looking to bring innovative ideas to the global market. Retail ecommerce sales continue to grow, making this business model an ideal first business for aspiring entrepreneurs.
If you’re ready to start an ecommerce business, bookmark this guide as a handy resource to revisit on your way to launching your dream job.
