The term e-commerce was introduced back in the 1960s, with the growth of electronic commerce – the buying and selling of goods through the transmission of data – which was made possible by the introduction of the electronic data interchange.
E-commerce has become one of the most popular methods of making money online and an attractive opportunity for investors and also it is easy to use for customers. For those interested in buying an e-commerce business, this article serves to provide an introduction to e-commerce, covering the reason for its popularity, the main distribution models and a comparison of the major e-commerce platforms available.
If you are interested in valuing or selling an e-commerce business, please take a look at our How to Value and Sell and E-Commerce Business article.
‘E-commerce’ and ‘online shopping’ are often used interchangeably but at its core e-commerce is much broader than this – it embodies a concept for doing business online, incorporating a multitude of different services e.g. making online payments, booking flights, etc.
why do people buy online
- E-commerce has experienced fast growth since its humble beginnings with e-commerce sales projected to over2 billion USD by 2017. The power of e-commerce should not be underestimated as it continues to pervade everyday life and present significant opportunity for small, medium and large businesses and online investors. You don’t need to look far to see the potential of e-commerce businesses. Amazon, for example, which set the standard for customer-orientated websites as well as a lean supply chain, has been seen to sell more than 426 items per second. Lower Prices: Managing an online storefront is far cheaper than an offline, brick and mortar store. Typically less staff are required to manage an online shop as web-based management systems enable owners to automate inventory management and warehousing is not necessarily required (as we discuss later). As such, e-commerce business owners can afford to pass operational cost savings on to consumers (in the form of product or service discounts) whilst protecting their overall margin. Furthermore, with the rise of price comparison websites, consumers have more transparency concerning prices and can shop around, typically purchasing from online outlets instead.
- Accessibility and Convenience: Unlike many offline stores, consumers can access e-commerce websites 24 hours a day. Customers can read about services, browse products and place orders whenever they wish. In that sense, online shopping is extremely convenient and gives the consumer more control. Furthermore, those living in more remote areas can order from their home at the touch of a button, saving them time traveling to a shopping center.
- Wider Choice: For the past twenty years, the growth of online shopping has to a large extent been based around increased choice. With an almost endless choice of brands and products to choose from, consumers are not limited by the availability of specific products in their local town, city or country. Items can be sourced and shipped globally. Interestingly, one recent study found that consumers are starting to become frustrated by e-commerce sites that offer too much choice. Whichever way you look at it though, more choice has likely been a good thing over the long term.
why do business sell online
- Higher Margins: Setup costs and ongoing operational costs such as rent, heating, electricity, warehousing (if operating a drop-ship model) and inventory management are often significantly reduced or otherwise eliminated. Further, customer service and other administrative tasks can be automated or outsourced at a relatively low-cost. As such, higher margins can usually be achieved when selling via an online store compared to operating an offline business.
- Scalability: With a brick and mortar business, the owner is often limited by the amount of people who can physically be in the store at any one time. There is no limit when trading online. Running an e-commerce business means tapping into a truly global market. Furthermore, online platforms enable rapid scaling. With the emergence of social media and content marketing as well as the option of generating traffic and conversions through pay-per-click (PPC), expanding into new regions or markets can happen quickly. A great example of this in practice is Choxi, a business that experienced 1,023% growth in revenue in just one year.
- Consumer Insight / Technology: E-commerce businesses typically collate a tremendous amount of customer data. With every element of consumer behavior being tracked, e-commerce business owners are able to understand, tweak and improve the customer shopping experience for customers – making data-led decisions to increase conversion rates and sales. With technology rapidly evolving, it is important that online retailers use tools such as Google Analytics correctly to understand their customers’ buying habits, unlocking insight from this data presents a unique advantage, not available to offline stores. Those who leverage the right systems and technology can see their businesses grow extremely quickly