e-commerce (electronic
commerce)
Posted by: Margaret Rouse
WhatIs.com
Contributor(s): Dennis Shiao, Brian Holak and Ben Cole
E-commerce (electronic commerce) is the buying and selling of goods and
services, or the transmitting of funds or data, over an electronic network,
primarily the internet. These business transactions occur either as 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 also sometimes used in reference to
the transactional processes for online shopping.
History of e-commerce
The beginnings of e-commerce can be traced to the 1960s, when businesses
started using Electronic Data Interchange (EDI) to share business documents with
other companies. In 1979, the American National Standards Institute
developed ASC X12 as a universal standard for businesses to share
documents through electronic networks.
After the number of individual users sharing electronic documents with each
other grew in the 1980s, the rise of eBay and Amazon in the 1990s
revolutionized the e-commerce industry. Consumers can now purchase
endless amounts of items online, from e-tailers, typical brick and mortar stores
with e-commerce capabilities and one another.
Types of e-commerce
Business-to-business (B2B) e-commerce refers to the electronic exchange
of products, services or information between businesses rather than between
businesses and consumers. Examples include online directories and product
and supply exchange websites that allow businesses to search for products,
services and information and to initiate transactions through e-procurement
interfaces.
In 2017, Forrester Research predicted that the B2B e-commerce market will
top $1.1 trillion in the U.S. by 2021, accounting for 13% of all B2B sales in the
nation.
Business-to-consumer (B2C) is the retail part of e-commerce on the
internet. It is when businesses sell products, services or information directly to
consumers. The term was popular during the dot-com boom of the late 1990s,
when online retailers and sellers of goods were a novelty.
Today, there are innumerable virtual stores and malls on the internet selling
all types of consumer goods. The most recognized example of these sites is
Amazon, which dominates the B2C market.
Consumer-to-consumer (C2C) is a type of e-commerce in which consumers
trade products, services and information with each other online. These
transactions are generally conducted through a third party that provides an
online platform on which the transactions are carried out.
Online auctions and classified advertisements are two examples of C2C
platforms, with eBay and Craigslist being two of the most popular of these
platforms. Because eBay is a business, this form of e-commerce could also
be called C2B2C -- consumer-to-business-to-consumer.
Consumer-to-business (C2B) is a type of e-commerce in which consumers
make their products and services available online for companies to bid on and
purchase. This is the opposite of the traditional commerce model of B2C.
A popular example of a C2B platform is a market that sells royalty-free
photographs, images, media and design elements, such as iStock. Another
example would be a job board.
Business-to-administration (B2A) refers to transactions conducted online
between companies and public administration or government bodies. Many
branches of government are dependent on e-services or products in one way
or another, especially when it comes to legal documents, registers, social
security, fiscals and employment. Businesses can supply these electronically.
B2A services have grown considerably in recent years as investments have
been made in e-government capabilities.
Consumer-to-administration (C2A) refers to transactions conducted online
between individual consumers and public administration or government
bodies. The government rarely buys products or services from citizens, but
individuals frequently use electronic means in the following areas:
Education: disseminating information, distance learning/online lectures,
etc.
Social security: distributing information, making payments, etc.
Taxes: filing tax returns, making payments, etc.
Health: making appointments, providing information about illnesses,
making health services payments, etc.
Disruption to physical retail
Given the stratospheric rise in e-commerce in recent years, many analysts,
economists and consumers have debated whether the online B2C market will
soon make physical, brick and mortar stores obsolete. There is little question
that online shopping is growing at a significant rate.
Research from BigCommerce has found that Americans are about evenly split
on online versus offline shopping, with 51% of Americans preferring e-
commerce and 49% preferring physical stores. However, 67% of millennials
prefer shopping online over offline. According to Forbes, 40% of millennials
are also already using voice assistants to make purchases, with that number
expected to surpass 50% by 2020.
An example of the impact e-commerce has had on physical retail is the post-
Thanksgiving Black Friday and Cyber Monday shopping days in the United
States. According to Rakuten Marketing data, in 2017, Cyber Monday, which
features sales that are exclusively online, saw 68% higher revenues than
Black Friday, which is traditionally the biggest brick and mortar shopping day
of the year.
According to data from ShopperTrak, physical store traffic on Black Friday
declined by 1% year over year, and the two-day Thanksgiving-Black Friday
period saw a 1.6% decline in traffic. Nearly 40% of sales on Black Friday
came via a mobile device, up nearly 10% from the previous year, an indication
that e-commerce is becoming m-commerce.
Mobile e-commerce (m-commerce)
M-commerce is a type of e-commerce on the rise that features online sales
transactions made via mobile devices, such as smartphones and tablets. M-
commerce includes mobile shopping, mobile banking and mobile payments.
Mobile chatbots also provide e-commerce opportunities to businesses, allowing
consumers to complete transactions with companies via voice or text
conversations.
Benefits of e-commerce
The benefits of e-commerce include its around-the-clock availability, the
speed of access, the wide availability of goods and services for the consumer,
easy accessibility and international reach.
Availability. Aside from outages or scheduled maintenance, e-commerce
sites are available 24x7, allowing visitors to browse and shop at any time.
Bricks and mortar businesses tend to open for a fixed amount of hours and
may even close entirely on certain days.
Speed of access. While shoppers in a physical store can be slowed by
crowds, e-commerce sites run quickly, which is determined by compute
and bandwidthconsiderations on both consumer device and e-commerce site.
Product pages and shopping cart pages load in a few seconds or less. An e-
commerce transaction can comprise a few clicks and take less than five
minutes.
Wide availability. Amazon’s first slogan was “Earth’s Biggest Bookstore.”
They could make this claim because they were an e-commerce site and not a
physical store that had to stock each book on its shelves. E-commerce
enables brands to make a wide array of products available, which are then
shipped from a warehouse after a purchase is made.
Easy accessibility. Customers shopping a physical store may have a hard
time determining which aisle a particular product is in. In e-commerce, visitors
can browse product category pages and use the site search feature the find
the product immediately.
International reach. Bricks and mortar businesses sell to customers who
physically visit their stores. With e-commerce, businesses can sell to any
customer who can access the web. E-commerce has the potential to extend a
business’ customer base globally.
Lower cost. Pure play e-commerce businesses avoid the cost associated with
physical stores, such as rent, inventory and cashiers, although they may incur
shipping and warehouse costs.
Personalization and product recommendations. E-commerce sites can
track visitors’ browse, search and purchase history. They can leverage this
data to present useful and personalized product recommendation. Examples
include the sections of Amazon product pages labeled “Frequently bought
together” and “Customers who viewed this item also viewed.”
Disadvantages of e-commerce
The perceived downside of e-commerce include sometimes limited customer
service, consumers not being able to see or touch a product prior to purchase
and the wait time for product shipping.
Limited customer service. If a customer has a question or issue in a
physical store, he or she can see a clerk, cashier or store manager for help. In
an e-commerce store, customer service may be limited: the site may only
provide support during certain hours of the day, or a call to a customer service
phone number may keep the customer on hold.
Not being able to touch or see. While images on a web page can provide a
good sense about a product, it’s different from experiencing it “directly,” such
as playing music on speakers, assessing the picture quality of a television or
trying on a shirt or dress. E-commerce can lead consumers to receive
products that differ from their expectations, which leads to returns. In some
scenarios, the customer bears the burden for the cost of shipping the returned
item to the retailer.
Wait time. If a customer sees an item that he or she likes in a store, the
customer pays for it and then goes home with it. With e-commerce, there is a
wait time for the product to be shipped to the customer’s address. Although
shipping windows are decreasing as next day delivery is now quite common,
it’s not instantaneous.
Security. Skilled hackers can create authentic-looking websites that claim to
sell well-known products. Instead, the site sends customers forfeit or imitation
versions of those products -- or, simply collects customers’ credit card
information. Bonafide e-commerce sites also carry risk, especially when
customers store their credit card information with the retailer to make future
purchases easier. If the retailer’s site is hacked, hackers may come into the
possession of customers’ credit card information.
E-commerce applications
E-commerce is conducted using a variety of applications, such as email, online
catalogs and shopping carts, EDI, the File Transfer Protocol, web services, and
mobile devices. This includes business-to-business activities and outreach,
such as using email for unsolicited ads, usually viewed as spam, to
consumers and other business prospects, as well as sending out e-
newsletters to subscribers and SMS texts to mobile devices. More companies
now try to entice consumers directly online, using tools such as digital
coupons, social media marketing and targeted advertisements.
The rise of e-commerce has forced IT personnel to move beyond
infrastructure design and maintenance to consider numerous customer-facing
aspects, such as consumer data privacy and security. When developing IT
systems and applications to accommodate e-commerce activities, data
governance-related regulatory compliance mandates, personally identifiable
information privacy rules and information protection protocols must be
considered.
Government regulations for e-commerce
In the United States, the Federal Trade Commission (FTC) and the Payment Card
Industry (PCI) Security Standards Council are among the primary agencies that
regulate e-commerce activities. The FTC monitors activities such as online
advertising, content marketing and customer privacy, while the PCI Council
develops standards and rules, including PCI Data Security Standard compliance,
which outlines procedures for the proper handling and storage of consumers'
financial data.
Margaret Rouse asks:
What are the biggest business benefits
and risks associated with companies'
and consumers' increasing use of e-
commerce practices?
Join the Discussion
To ensure the security, privacy and effectiveness of e-commerce, businesses
should authenticate business transactions, control access to resources such
as webpages for registered or selected users, encrypt communications, and
implement security technologies, such as the Secure Sockets Layer and two-
factor authentication.
