What Is Electronic Commerce (E-Commerce)?

Electronic commerce (e-commerce) refers to companies and individuals that buy and sell goods and services over the Internet. 

E-commerce operates in different market segments and can be conducted using computers, tablets, smartphones, and other smart devices. Nearly every imaginable product and service is available through e-commerce transactions, including books, music, plane tickets, and financial services such as stock investing and online banking. As such, e-commerce is considered a very disruptive technology.

Key Points

• E-commerce is the buying and selling of goods and services over the Internet.

• It is conducted on computers, tablets, smartphones, and other smart devices.

• Almost anything can be purchased online, making e-commerce highly competitive.

• It can replace brick-and-mortar stores, though some businesses use both.

• E-commerce operates in several segments, including business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C), and consumer-to-business (C2B

Understanding E-Commerce

E-commerce is the process of buying and selling tangible products and services online. It involves more than one party along with the exchange of data or currency to complete a transaction. It is part of the broader industry known as electronic business (e-business), which includes all processes required to run a company online.

E-commerce helps businesses—especially small ones—reach wider markets by providing cheaper and more efficient distribution channels. For example, Target combines its physical stores with an online platform that sells everything from clothes to coffeemakers.

Launching an e-commerce business requires research on the products or services to be sold, market demand, audience, competition, and costs. Once those factors are understood, the next steps include choosing a business name, establishing a legal structure, creating an e-commerce site, and setting up a payment gateway. For instance, a dress shop owner could set up a website displaying their clothing and allowing credit card or PayPal payments.

Special Considerations

E-commerce has reshaped the retail industry. With more people shopping via computers and smart devices, companies like Amazon and Alibaba have gained immense popularity, prompting traditional retailers to adapt. Individual sellers now use personal websites or marketplaces like eBay and Etsy to sell directly to customers.

History of E-Commerce

E-commerce predates the Internet’s mainstream use. In the 1960s, businesses used Electronic Data Interchange (EDI) to transfer documents. The first recognized online transaction occurred in 1994 when friends sold a CD via a website called NetMarket.

Since then, companies like Amazon, Alibaba, eBay, and Etsy have built global online marketplaces. New technology and free shipping have further fueled growth.

Advantages of E-Commerce

• Convenience: Operates 24/7.

• Increased selection: Wider variety than most physical stores.

• Lower startup cost: Often cheaper than running a physical location.

• Global reach: Can sell to anyone worldwide.

• Customer retargeting: Easier to direct marketing campaigns to online visitors.

Disadvantages of E-Commerce

• Limited customer service: Less personalized than in-store shopping.

• Delayed gratification: Waiting for delivery.

• No physical interaction: Buyers can’t touch products before purchase.

• Reliance on technology: Website issues halt sales.

• High competition: Low entry barriers mean more competitors.

Types of E-Commerce

• B2C (Business-to-Consumer): Direct sales to end users.

• B2B (Business-to-Business): Selling products or services to other companies.

• B2G (Business-to-Government): Supplying goods or services to government agencies.

• C2C (Consumer-to-Consumer): Consumers selling to other consumers via platforms like eBay.

• C2B (Consumer-to-Business): Consumers offering services or products to businesses.

• C2G (Consumer-to-Government): Consumers interacting with government agencies online (e.g., paying taxes).

E-Commerce Revenue Models

• Drop Shipping: Selling without holding inventory.

• White Labeling: Rebranding existing products for resale.

• Wholesaling: Buying and selling in bulk.

• Private Labeling: Contracting manufacturers to produce goods under your brand.

• Subscription: Recurring sales through long-term customer agreements.

Example: Amazon

Amazon, founded in 1994 as an online bookstore, is now the largest e-commerce retailer worldwide, selling everything from electronics to groceries. The company’s growth surged during the COVID-19 pandemic, achieving years of projected expansion in just over a year.

Starting an E-Commerce Business

1. Research your product, market, audience, and costs.

2. Choose a name, structure, and obtain necessary licenses.

3. Select a platform and design your website.

4. Start small and expand strategically.

E-Commerce vs. E-Business

• E-Commerce: Buying and selling goods/services online.

• E-Business: All online business activities, including e-commerce.

The Bottom Line

E-commerce is a key part of today’s business world, transforming retail and creating new opportunities. While it offers huge potential, success requires careful planning, research, and strategic growth.