What is E-Commerce? A Definitive Guide for the Beginning Entrepreneur
If you have ever bought or sold anything over the internet, then you can count yourself as one of the many patrons of e-commerce. This lucrative industry continues to take the world wide web by storm, more so now with the COVID-19 restrictions in place.
Statistics show that about 40% of all internet users worldwide have purchased something off the internet. This accounts for almost two billion buyers – a figure that is sure to grow in the next few years.
What is E-commerce?
E-commerce, short for electronic commerce, refers to any business transaction conducted through the internet.
It covers several industries, from the well-known online shopping sites to auction and music platforms. It includes exchanges between business corporations as well.
A Quick History of the E-commerce Industry
Known as e-business back then, e-commerce can trace its roots back to the early ’70s, when the students of Stanford University and Massachusetts Institute of Technology ended up arranging a marijuana sale through the ARPANET.
This seemingly innocent deal has then led to these e-commerce history milestones:
1979: Michael Aldrich successfully presents the first online shopping system.
1981: Thomson Holidays UK installs the first-ever business-to-business (B2B) online shopping program.
1982: France Telecom introduces Minitel, which was used in online ordering.
1984: Gateshead SIS/Tesco utilizes the first business-to-consumer (B2C) shopping system. 72-year-old Madame Snowball becomes the first online home shopper in the face of e-history. That same year in the United States and Canada, Compuserve introduced the electronic mall.
1989: Compumarket, the first internet-based e-commerce system, was launched by Compuserve.
1993: Paget Press releases the Electronic AppWrapper, the first-ever app store.
1995: Jeff Bezos launches Amazon. That same year, Pierre Omidyar founded AuctionWeb, which would, later on, become eBay.
1999: The Alibaba Group was founded in China.
Presently, e-commerce sales account for more than 14% of worldwide retail sales. This figure is expected to increase soon. Projections show that e-commerce transactions would balloon to 22% by the year 2023.
Types of E-Commerce Businesses
E-commerce businesses are classified and categorized according to its participants. It includes six business models, which are the following:
B2B refers to businesses selling to other businesses. It includes online directories and exchange websites where corporations can search for their needed supplies. Transactions are then completed through e-procurement platforms.
A good example of this would be a dairy farm selling milk in bulk to a grocery store. Both of these are businesses, with only the latter catering to the public. Because sales are made in high quantities, the dairy farm can offer a significant discount to the grocery store.
B2B transactions in the US are projected to reach $1.1 trillion by the year 2021. This would account for 13% of all B2B exchanges in the world.
B2C is a type of e-commerce business where retailers sell a small number of products to buyers.
A good example is an online grocery store, where consumers make their weekly retail transactions.
The B2C business model also applies to dropshipping, which is the practice of selling products without keeping them in stock. Instead, you find products for sale from wholesalers around the world, and then sell those items in your own Shopify online store. You don’t have to worry about owning a warehouse or shipping the products to your customers because the wholesaler does that for you.
As the name suggests, C2C involves a consumer selling to a fellow consumer. These consumers make use of an online platform provided by third-party companies.
The most famous examples of C2C businesses are eBay and Craigslist, where people are free to sell various items to other people.
The opposite of B2C, the C2B model involves consumers making their products and services available for bigger businesses.
A popular example of C2B is stock photography websites and databases, where consumers sell their photographs and images for the use of bigger enterprises.
This e-commerce model covers business transactions made between businesses and government agencies.
Private companies provide goods and services – such as employment, social security, and legal documents – to public administrative bodies.
C2A refers to business transactions completed between consumers and public agencies.
It is important to note that the government does not buy goods from consumers. C2A, however, is used to accomplish the following:
- Taxes – completing payments, filing tax returns
- Social Security – making payments, disseminating information
- Health – completing health service payments, setting up appointments, completing information checklists and documents
- Education – distributing information, enrolling or participating in online classes
The Pros and Cons of E-commerce
Like any other business model, e-commerce has its own set of benefits and disadvantages, which you can check out here:
Benefits of E-Commerce
You can sell and purchase items wherever you are, and just have them delivered straight to your doorstep. All you just need is a laptop, tablet, or smartphone, and you are good to go.
Some products and services can be expensive because of the added overhead costs, such as rent and additional employee wages, to name a few.
But since e-commerce minimizes and even eliminates these, retailers can sell their products at lower costs. At the same time, buyers get to enjoy cheaper goods and services.
The best method to do this is dropshipping, where you serve as the middleman. You don’t have to pay for huge overhead costs, expensive rent, a multitude of staff, and other expenses commonly associated with traditional businesses. You can always learn more about running a fully-functional dropshipping business by taking a dropshipping course.
Compared to physical retail stores, e-commerce businesses are open 24/7. Unless there is a scheduled maintenance, buyers can purchase goods or services anytime they wish.
Wide Array of Products
You do not have to go from store to store to purchase all the items you want. Many e-commerce stores are one-stop shops where you can buy almost anything under just one roof.
One good example is Amazon, where you can purchase anything you need, from baby gear to self-help books.
Ever go to a physical Ikea store where the layout is flat-out dizzying? Do you often find yourself spending minutes – maybe even hours – looking for that certain cabinet fixture?
Well, you do not have to waste your time rummaging through shelves just to find something you need. With e-commerce, all you need to do is type “cabinet fixture” in the search query and voila! You get hundreds to thousands of options to choose from!
While you will surely see crowds and long lines during Black Friday and other sale days, that is not the case with e-commerce. You do not have to fight your way through rowdy buyers just to purchase a single product.
There may be some wait time, but this pales in comparison to the winding lines of Black Friday. You can easily purchase stuff in just a matter of clicks.
This is what makes e-commerce attractive to both buyers and sellers. Sellers can make more sales, and subsequently, more profits because they can sell to consumers worldwide.
It is also beneficial for buyers because they get to enjoy more choices. They can purchase more products and services that may not be available in their home countries.
Disadvantages of E-commerce
Limited Customer Service
In stores, you can ask for help from the staff immediately. You can make a return right on the get-go.
With online stores, however, you have to wait to speak to a customer representative, who is only available during office hours. Returns can be slow and stressful since you need to print a label and have it shipped back to the company.
But while this is a common problem among e-commerce websites, you are able to outsource customer support services to a virtual assistant so that your customers get to enjoy 24/7 support wherever they are.
Low Product Quality
Most people want to be able to touch or see the real stuff before buying it.
But with e-commerce, all you have is faith that the product will be similar to the picture you have seen. And if you are not happy with your purchase, you need to wait for quite some time before you can return the product.
To avoid this pitfall, you need to know how to do the right research to be able to discern high-quality yet cost-effective products and suppliers.
Long Wait Time
While Amazon offers same-day and next-day deliveries, most e-commerce stores do not have this option.
As such, you need to wait a few days to get the item that you need. This can be a problem for things you need to use right away.
While identity fraud cases have dropped to 14.4 billion from 16.7 billion, the liabilities have become higher. According to the Insurance Information Institute, out-of-pocket costs have ballooned to $1.7 billion.
Unfortunately, the possibility of identity theft remains to be one of the biggest waterloos of e-commerce. While most stores use strict data encryption, these sensitive data continue to be at the mercy of some talented hackers.
Threat to Physical Businesses
The divide between American consumers is a neck and neck battle.
Statistics show that 51% prefer online shopping, while 49% still like going to physical stores. With 67% of millennials opting for e-commerce, brick and mortar stores may end up phased out eventually. This is obvious with the unceremonious closing of Sears, Kmart, and JCPenney.
How to Start your First E-commerce Business
While e-commerce has its downsides, it is evident that the advantages trump the drawbacks.
For one, e-commerce has a yearly growth rate of 23%. If you want to take a fair share of the $3.46 trillion annual e-commerce sales pie, then it is time that you start your own online business.
Here is a quick step-by-step guide on how to do it.
Step 1: Know what you want to sell.
Any business, whether physical or online, starts with choosing the products to sell.
The first thing you need to explore is your hobby or passion. Are you a creative mind who can create beautiful decors, paintings, and other embellishments? You can make use of these as the selling points of your stores.
If you are not that talented, you need not worry as you can still create your e-commerce store. You can delve into a unique or rare niche. Having a one-of-a-kind product allows you to capitalize on the high demand.
But while you can go selling the things you like, it is best if you check for demand first. You can browse the popular, best selling products on either Amazon, eBay, or Craigslist to get an idea of what products sell easily and profitably.
Once you have decided on which goods to market, the next step is to determine how you can source these items.
If you have a good idea that you would like to materialize, then you could try manufacturing it for yourself. It entails hard work, but you get to control the final output and the pricing for your products.
But if you do not have the time or the talent to create your products, you could always get your stocks from manufacturers. You have the option to stock up and hold an inventory, or you can opt for dropshipping. The latter involves arranging the delivery to the client straight from the manufacturer itself.
Step 2: Find suppliers.
Unless you can manufacture products by yourself, you need to find good sources for your inventory.
You have four ways to do so:
Online Supplier Directories
Some directories that you can browse right at the comfort of your own home include alibaba.com, globalsources.com, and thomasnet.com.
Trade Group Websites
Another convenient way to find manufacturers is to visit trade group websites. All you need to do is search for your preferred product trade organization, and you are good to go.
If you are the touch-and-feel kind of seller, then you can opt for trade shows.
Not only will you be able to see their products, but you can develop some rapport with the traders as well. This may lead to a good relationship that may entail additional discounts.
If you know some industry insiders, maybe you could ask them for referrals. These people are more likely to recommend manufacturers with which they have had a good experience.
Once you have chosen a way to source manufacturers, the next step is to contact them. Here are some important questions that you need to ask them:
- What are the payment terms?
- What is the minimum required order?
- What would be the additional costs, like shipping and handling?
- What are your policies for late or undelivered orders?
- Do you have liability insurance?
To get more information, you can try to read reviews of such suppliers. You can also ask your fellow sellers regarding their experience with your chosen manufacturer.
Step 3: Choose an e-commerce platform.
Now that you have products to sell, the next step is to find an e-commerce platform that will suit your needs. You do not have to be tech-savvy to do this, as it is easy to start an online store these days.
However, there are certain things that you need to consider, such as the following:
Hosting and Domain Registration
When choosing a host, take note of the following factors:
- Server storage capacity
- Maintenance costs and any other additional costs
- Security of credit card payments
- Availability of customer and seller support
If you have a particular name for your store, remember that you have to register the domain as well.
A good domain name is one that is catchy or unique. However, you should be careful not to make the website name too long. These will help foster better brand awareness amongst buyers.
If you are still confused about naming your domain, websites such as leandomainsearch.com, domaintyper.com, and namestation.com will be of great use.
Once you have finalized your domain name, you can register and pay for the hosting fees at sites like godaddy.com, hostgator.com, or bluehost.com.
E-commerce Platform Options
You can choose between hosted and self-hosted platforms.
Hosted platforms do the hosting and server maintenance for you. This is very user-friendly because even if you are not that great with technology, it makes it easy for you to build a website on your own.
Plus, many hosted platforms offer templates. They also come with inventory management, sales, and reporting capacities.
If you would rather do everything yourself, you can get a self-hosted platform. As the name suggests, it requires you to host, activate, and maintain your online store. This is best for sellers with good technical know-how.
Whether you choose a hosted or self-hosted platform, you need to consider its hosting capabilities, features, add-ons, and costs. For best results, avail of the free trial so you can have a feel of the program before committing.
Step 4: Choose a payment gateway.
Payment is one of the most critical parts of e-commerce. As such, you need to choose an excellent payment gateway, which processes the payments done at your store.
Some choices you have include:
Whatever gateway you choose, check for their fees and payment types. You need to make sure that they can be integrated with your e-commerce platform as well.
Step 5: Market your online store.
As with physical retail, you need to spread the word about your online store.
Here are some strategies that you can employ:
Search Engine Optimization (SEO)
SEO allows you to rank higher in Google. This is very important for your store, as research shows that the first five search results account for almost 68% of clicks.
This strategy often involves keyword research and competitor research, both of which can help drive traffic to your site.
This includes creating informative and educational content. Such content allows you to provide value to your customers and become recognized as an authority in your niche. This can greatly boost your SEO rankings as well.
The more website traffic you get, the higher your chances of closing sales.
This allows you to send details about your products and promotions, which can be a good driver of buyer traffic.
With a $42 average return on investment for every $1 spent, email marketing is a cheap and effective way to engage consumers.
Social Media Marketing
Facebook, Pinterest, and Instagram are not just for online socializing. They can be used to market your online shop as well.
Facebook offers a business page that has a “Shop Now” feature, helping redirect traffic to your site. It also has a “Chat” feature so that you can answer questions from your potential customers.
You can also leverage Facebook ads, which remains to be one of the best methods in acquiring highly-targeted leads that has the potential to rake in more revenue in the long run.
There’s also Instagram for Business, which allows you to promote products and reach new audiences. IG Stories is another way to advertise your goods to potential consumers.
Pinterest is another effective method for marketing your website. All you just need to do is pin photos of your products. As the second top source of Shopify traffic, it proves to be one of the most lucrative social media accounts for online businesses.
The Best E-commerce Platforms to Try
An e-commerce platform is an essential part of any online business. Choosing from any of these top platforms can help you manage your operations with relative ease.
This platform is a favourite among many sellers, thanks to its flexibility and ease of use.
With its multi-channel selling and strong SEO performance, it is also relatively affordable, with a starting price of $29.95 per month.
Shopify boasts of faster load time compared to other platforms. It is also quite easy to set up, which makes it a preferred choice for new sellers.
The basic setup costs $29, but you can save more with its 90-day free trial period. It is one of the best options for e-commerce stores, especially those who are just starting out and dipping their toes in dropshipping.
If you are looking for a platform with useful business management tools, then 3D Cart is for you.
With its superb blog feature, it is one of the cheapest with a starting price of $19.99 for the mini plan.
If you want a platform that can boost your SEO rankings, then WooCommerce is the best choice.
It is technically free of charge, but you need to pay $12 for a domain name and $5 to $25 for monthly hosting services.
Volusion proves to be a good choice for proprietors of small to medium-sized businesses. With its reliable help center, Volusion’s monthly fee of $29 is at par with other platforms.