what is e commerce assignment

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• What Is E-commerce?

Understanding E-commerce

History of e-commerce.

• Pros and Cons
• Revenue Models

The Bottom Line

• Business Leaders
• Entrepreneurs

E-commerce Defined: Types, History, and Examples

Once a novelty, electronic commerce is now ubiquitous

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

What Is Electronic Commerce (E-commerce)?

Electronic commerce, or e-commerce, is the buying and selling of goods and services over the internet. E-commerce can be conducted on computers, tablets, smartphones, and other smart devices. Nearly every imaginable product and service is now available through e-commerce, and it has upended how many companies and entire industries do business.

Key Takeaways

• E-commerce is the buying and selling of goods and services over the internet.
• It is conducted over computers, tablets, smartphones, and other smart devices.
• Almost anything can be purchased through e-commerce today, and it has lowered the barriers to entry for many types of businesses, such as retailers.
• E-commerce can be a substitute for brick-and-mortar stores, though some businesses choose to maintain both.
• E-commerce operates in several market segments, including business-to-business, business-to-consumer, consumer-to-consumer, and consumer-to-business.

Investopedia / Laura Porter

As noted above, e-commerce is the process of buying and selling products and services online. But it involves more than simply a buyer and a seller, relying on a vast, often invisible, infrastructure to keep it running.

E-commerce has helped companies (especially those with a narrow reach, like small, local businesses) gain access to a wider market by providing cheaper and more efficient sales and distribution channels for their products or services.

While some businesses exist entirely online, others straddle the real and virtual worlds. Target ( TGT ), for example, is one of many giant retailers that has supplemented its brick-and-mortar presence with an online store that allows customers to purchase everything from clothes and coffeemakers to toothpaste and action figures without leaving their homes.

At the other end of the scale spectrum, individual sellers increasingly engage in e-commerce transactions via their own personal websites. And digital marketplaces like eBay and Etsy serve as exchanges where multitudes of buyers and sellers can come together and do business.

E-commerce can be thought of as a digital version of mail-order catalog shopping, which once revolutionized retailing in its own way.

Most of us have shopped online for something at some point, which means we've taken part in e-commerce. So it goes without saying that e-commerce is everywhere. But very few people may know that e-commerce has a history that predates the internet.

E-commerce actually goes back to the 1960s, when companies used an electronic system called the Electronic Data Interchange to facilitate the transfer of documents. It wasn't until 1994 that the very first transaction took place. This involved the sale of a CD between friends through an online retail website called NetMarket.

The industry has evolved rapidly since then, with companies like Alibaba and Amazon becoming household names around the world. The introduction of free shipping, which, at least on the surface, reduces costs for consumers, has also helped increase the popularity of the e-commerce industry.

Advantages and Disadvantages of E-commerce

E-commerce offers buyers and sellers a number of advantages:

• Convenience : E-commerce can happen 24 hours a day, seven days a week. Consumers can buy at their convenience, and business owners can make sales while they sleep.
• Increased selection : Many stores offer a wider array of products online than they could ever carry in their brick-and-mortar counterparts. And many stores that solely exist online offer consumers exclusive inventory that is unavailable elsewhere.
• Potentially lower start-up costs : E-commerce companies may require a warehouse or manufacturing site, but they usually don't need a physical storefront. The cost to operate digitally is often less expensive than needing to pay rent, insurance, building maintenance, and property taxes.
• International sales : As long as an e-commerce store can find a way to ship its products to its customers, it can sell to anyone in the world and isn't limited by physical geography.
• Opportunity to collect valuable data : Willingly or unknowingly, consumers share a lot of information on their interests and shopping habits when they buy or even just browse online. Site owners can monetize this data in a number of ways, using it themselves and selling it to others.

Disadvantages

There are also some drawbacks that come with e-commerce. Those can include:

• Limited customer service : If you shop online for a computer, you cannot simply ask an employee to demonstrate a particular model's features in person. And although some websites let you chat online with a staff member, that is not a typical practice. A disadvantage for shoppers, this can also be a money-saver for retailers.
• Lack of instant gratification : When you buy an item online, you must wait for it to be shipped to your home or office. However, e-tailers like Amazon now make the waiting game a little bit less painful by offering same-day delivery as a premium option for select products.
• Inability to touch products : Online images do not necessarily convey the whole story about an item, and e-commerce purchases can be disappointing when the items don't live up to the buyer's expectations. Case in point: an item of clothing may be made from shoddier fabric than its online image indicates.
• Dependence on technology : If a website crashes or must be temporarily taken down for any reason, the business is effectively closed until things return to normal.
• Greater competition : Although the low cost of starting an e-commerce business can be an advantage, it also means means competitors can just as easily enter the market.

Convenient for consumers, often with greater selection

Potentially low start-up costs for operators

Broadens reach of businesses to anywhere they can ship their products.

Opportunity to collect valuable consumer data

Limited customer service or assistance

Products can't be touched

Buyers must wait to receive purchases

Technological glitches can shut down the business

Low cost barriers to entry can also mean more competitors

Types of E-commerce

E-commerce companies can operate using several different business models.

Business-to-Consumer (B2C)

B2C e-commerce companies sell directly to the product's end-user instead of distributing goods through an intermediary such as another retailer.

This type of business model may be used to sell products (like your local sporting goods store's website) or services (such as a lawn care mobile app to reserve landscaping services). This is the most common business model and the concept most people likely think about when they hear the term e-commerce.

Business-to-Business (B2B)

Similar to B2C, an e-commerce business can sell goods to another company. B2B transactions often entail larger quantities, more detailed specifications, and longer lead times. The buyer can also arrange for recurring orders if the purchase is for ongoing manufacturing processes.

Business-to-Government (B2G)

Some e-commerce businesses serve as government contractors, providing goods or services to government agencies and other entities. Often these arrangements require bidding on projects though an established procurement process and can involve large quantities of a given item.

Consumer-to-Consumer (C2C)

Individuals can sell things to other individuals on their individual websites or through e-commerce platforms that facilitate the process. Examples of the latter include Craigslist, eBay, Etsy, and many others.

Consumer-to-Business (C2B)

Some platforms allow individuals to more easily engage with companies and offer their services, especially related to short-term contracts, gigs, or freelance opportunities. Upwork is one example.

Consumer-to-Government (C2G)

Although not an e-commerce relationship in the traditional sense, C2G is a way for individuals to interact with government. For example, uploading your federal tax return to the Internal Revenue Service (IRS) website can be considered an e-commerce transaction as it involves an exchange of information. Taxpayers can also pay what they owe or request a refund for the amount they may have overpaid.

Investopedia / Sabrina Jiang

In the second quarter of 2024, retail e-commerce accounted for 16% of retail sales overall, according to the U.S. Census Bureau.

Types of E-commerce Revenue Models

Due to the unique nature of e-commerce, businesses have a variety of revenue models to choose from, based on how their goods are manufactured, sold, and shipped. Common examples include:

Dropshipping

Often considered one of the easier forms of e-commerce, dropshipping allows a company to create a digital storefront, sell goods, and then rely on a supplier to take it from there. The e-commerce company collects payment from the buyer, after which it passes the order to the dropshipper. This supplier manages inventory, oversees the warehousing of goods, packages the orders, and delivers the product to the purchaser.

White Labeling

In white-label e-commerce, the seller doesn't manufacture the product but buys an existing product from the manufacturer or another supplier and repackages it under its own brand for resale to the ultimate consumer.

Private Labeling

Similar to white labeling, private labeling involves selling a product made by another manufacturer. In private labeling however, the seller may have more control over the actual product, such as having it made to particular specifications. Store brands are an example of private labeling.

Wholesaling

Wholesalers serve the buyers of large numbers of a particular item or many smaller buyers of that item. A more capital-intensive approach to e-commerce, wholesaling can entail maintaining and warehousing significant quantities of inventory.

Subscription

E-commerce companies can also leverage repeat orders or loyal customers by implementing subscription services. The consumer places an order once and receives their goods at a fixed cadence, such as every month. Common subscription e-commerce products include meal prep services, pet food, fashion boxes, and health and grooming products.

Example of E-commerce

Amazon is a behemoth in the e-commerce space. In fact, it is the world's largest online retailer and continues to grow. While its success has been unusually spectacular, its history is not unlike many other e-commerce businesses.

The company launched its business with an e-commerce-based model of online sales and product delivery. It was founded by Jeff Bezos in 1994 as an online bookstore and over the years has expanded to include everything from clothing to housewares, power tools to food and drinks, and electronics. Today it also makes a significant portion of its revenue from services to consumers, other businesses, and governments.

Company sales increased by 11.8% in 2023, totaling $574.79 billion, compared to $513.98 billion in 2022. Amazon's operating income rose to $36.85 billion in 2023, up from $12.25 billion in 2022.

How Do You Start an E-commerce Business?

First, figure out the kinds of products and services you want to sell and research the market, target audience, competition, and expected costs to see how viable that might be.

Next, come up with a name, choose a business structure , and get the necessary documentation (taxpayer numbers, licenses, and permits, if they apply).

Before you start selling, decide on a platform and design your website (or have someone do it for you).

Remember to keep everything simple at the beginning and make sure you use as many channels as you can to market your business so it can grow.

What Is an E-commerce Website?

An e-commerce website is any site that allows you to buy and sell products and services online. Companies like Amazon and Alibaba are examples of huge e-commerce websites.

What Is the Difference Between E-commerce and E-business?

E-commerce involves the purchase and sale of goods and services online, while e-business involves the entire process of running a company online.

What Is an Example of an E-commerce Subscription Model?

Dollar Shave Club offers customers personal grooming, health, and beauty products on a subscription basis. Customers can begin with an inexpensive starter kit and receive new shaver blades and other supplies each month.

E-commerce companies like Amazon, Alibaba, and eBay have changed the way the retail industry works, forcing major, traditional retailers to change the way they do business. At the same time, e-commerce has created new opportunities for small, new companies to find a niche. If starting an e-commerce site is something you're considering, make sure to do some market research and start with a small, narrow focus to give yourself room to pivot and grow.

Cyberchimps. " What Is An E-commerce Website & How to Build One (2021) ."

U.S. Department of Commerce. " Quarterly Retail E-commerce Sales ."

Amazon. " 2023 Annual Report ," Page 38 (Page 50 of PDF).

Dollar Shave Club. " How It Works ."

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Everything you need to know about the E- Commerce. The term electronic commerce or e-commerce refers to any sort of business transaction that involves the transfer of information through the internet.

By definition it covers a variety of business activities which use internet as a platform for either information exchange or monetary transaction or both at times.

E-commerce means using the Internet and the web for business transactions and/or commercial transactions, which typically involve the exchange of value (e.g., money) across organizational or individual boundaries in return for products and services.

Here we focus on digitally enabled commercial transactions among organizations and individuals.

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Electronic commerce, known as E-Commerce, occurs daily when sellers and buyers use the internet to conduct business transactions. Technology makes it possible for anyone to buy or sell practically anything online.

Learn about:-

1. Introduction to E-Commerce 2. History of E-Commerce 3. Meaning 4. Objectives 5. Features 6. Types 7. Need 8. Business Applications

9. Channels 10. Essentials and Procedures 11. Segments 12. Managerial Issues 13. Impact 14. Advantages 15. Disadvantages 16. Threats to Present Day E-Commerce and Its Solution.

E-Commerce: History, Meaning, Objectives, Features, Types, Need, Business Application, Channels and Other Details

• Introduction to E-Commerce
• History of E-Commerce
• Meaning of E-Commerce
• Objectives of E-Commerce
• Features of E-Commerce
• Types of E-Commerce
• Need for E-Commerce
• Business Applications of E-Commerce
• E-Commerce Channels
• Essentials and Procedures of E-Commerce
• Segments of E-Commerce
• Managerial Issues in E-Commerce
• Impact of E-Commerce
• Advantages of E-Commerce
• Disadvantages of E-Commerce
• Threats to Present Day E-Commerce and Its Solution

E-Commerce – Introduction

E-commerce means using the Internet and the web for business transactions and/or commercial transactions, which typically involve the exchange of value (e.g., money) across organizational or individual boundaries in return for products and services. Here we focus on digitally enabled commercial transactions among organizations and individuals.

E-business applications turn into e-commerce precisely, when an exchange of value occurs. Digitally enabled transactions include all transactions mediated by digital technology and platform; that is, transactions that occur over the Internet and the web.

Hence, e-tailing is a subset of e-commerce, which encapsulates all “commerce” conducted via the Internet. It refers to that part of e-commerce that entails the sale of product merchandise and does not include sale of services, namely railway tickets, airlines tickets and job portals.

There are three types of destinations that cater to retail sales:

i. Traditional retail- brick-and-mortar

ii. Corporatized retail- brick-and-mortar

iii. Corporatized retail- e-tailing

E-Commerce – History of E-Commerce

Early Development:

The history of E-commerce begins with the invention of the telephone at the end of last century. EDI (Electronic Data Interchange) is widely viewed as the beginning of ecommerce if we consider ecommerce as the networking of business communities and digitalization of business information. Large organizations have been investing in development of EDI since sixties. It has not gained reasonable acceptance until eighties. The meaning of electronic commerce has changed over the last 30 years.

Originally, electronic commerce meant the facilitation of commercial transactions electronically, using technology such as Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). These were both introduced in the late 1970s, allowing businesses to send commercial documents like purchase orders or invoices electronically. The growth and acceptance of credit cards, automated teller machines (ATM) and telephone banking in the 1980s were also forms of electronic commerce. Another form of E-commerce was the airline and railway reservation system.

Online shopping, an important component of electronic commerce was invented by Michael Aldrich in the UK in 1979. The world’s first recorded business to business was Thomson Holidays in 1981. The first recorded Business to consumer was Gateshead SIS/Tesco in 1984. During the 1980s, online shopping was also used extensively in the UK by auto manufacturers such as Ford, General Motors and Nissan. The systems used the switched public telephone network in dial-up and leased line modes.

From the 1990s onwards, electronic commerce would additionally include enterprise resource planning systems (ERP), data mining and data warehousing. An early online information marketplace, including online consulting, was the American Information Exchange, another pre Internet online system introduced-in 1991. In 1990 Tim Berners-Lee invented the World Wide Web and transformed an academic telecommunication network into a worldwide everyman everyday communication system called internet/www(dot)Commercial enterprise on the Internet was strictly prohibited until 1991.

Although the Internet became popular worldwide around 1994 when the first internet online shopping started, it took about five years to introduce security protocols and DSL allowing continual connection to the Internet. By the end of 2000, many European and American business companies offered their services through the World Wide Web. Since then people began to associate a word “E-commerce” with the ability of purchasing various goods through the Internet using secure protocols and electronic payment services.

The Internet and the Web:

The Internet was conceived in 1969, when the Advanced Research Projects Agency (a Department of Defense organization) funded research of computer networking. The Internet could end up like EDI without the emergence of the World Wide Web in 1990s. The Web became a popular mainstream medium (perceived as the fourth mainstream medium in addition to print, radio and TV) in a speed which had never been seen before. The Web users and content were almost doubled every a couple of months in 1995 and 1996.

E-Commerce – Meaning

The term electronic commerce or e-commerce refers to any sort of business transaction that involves the transfer of information through the internet. By definition it covers a variety of business activities which use internet as a platform for either information exchange or monetary transaction or both at times.

For example, the numbers of consumer brand retail sites like Amazon(dot)com and Flipkart(dot)com which normally provides information about products and also allows monetary transactions to happen over the internet.

On the contrary there are the auctions sites like Quickr(dot)com and Ebay(dot)com where the information about certain listed products and services are provided but the monetary transactions normally happen physically.

Apart from these two categories of e-commerce sites, there are some sites which enable businesses to exchange trading goods and also service between two or more companies. All of these forms of internet based business platforms are known as e-commerce.

Over the last decade the advent of e-commerce has actually transformed the manner in which people used internet. People now are not only just using internet for gathering information, leisure or socializing online but also at the same time they are seeking measures to conduct business.

Even popular social networking sites like Facebook(dot)com are allowing people to promote and sell products and services online and the introduction of computer and mobile based e-commerce application software like Shopify provides evidence of how e-commerce have boomed over the past 5 years.

E-Commerce – Objectives: Development of Business-Relationship, Better-Customer Service and Getting More Customers

The various objectives of the e-commerce can be laid down as follows:

1. Development of Business-Relationship:

The business development can be done through the e-commerce being the primary and the basic object. As their direct contact in between the company and the consumer, their business relationship will be enhanced. Hence the area of the market can be increased.

2. Better-Customer Service :

As it is done round the clock, the customer will always have online help regarding the products. As all the information is furnished to the customer, it becomes easy to him to choose the best product among all other alternatives. As even the service can also be done through the net immediately, the customer service will be ballooned. By highlighting the customer service, the companies are trying to subjugate a lion-share in the market.

3. Getting more Customers :

In these days it becomes the mandate of the companies to double its customers, and this can be done by rendering the value add service and maintaining the quality. Hence, it is also one of the primary objectives of the companies which supply impetus for the robust growth in sales and overall profit.

E-Commerce – 9 Important Features: Technology-Enabled, Mediated,Universality,Intercommunication,Delivery of Information,Virtual Communities and a Few Others

E-Commerce has pertain key features which are explained as follows:

Feature # 1. E-Commerce is Technology-Enabled:

Traditional commerce is taking place since times immemorial but E-commerce is result of integration of digital technology with business processes and commercial transactions. The technological foundations of E-commerce are internet, WWW and various protocols.

Feature # 2. Technology Mediated:

In E-commerce buyers and sellers meet in cyber space rather than physical place. Hence E-commerce does not involve face to face contact.

Feature # 3. Universality:

Buying and selling take place through websites in E-Commerce. The websites can be accessed from anywhere around the globe at any time therefore it possess the feature of universality.

Feature # 4. Intercommunication:

E-commerce technology ensures two way communications between buyer and seller. On one hand by using E- commerce firms can communicate with customers through E-commerce enabled websites. On the other end, customers can also fill order forms, feedback forms and can communicate with business operating firms.

Feature # 5. Delivery of Information:

E-commerce serves as the best channel of communication. E-commerce technologies ensure speedy delivery of information at very low cost and considerably increase information density as well.

Feature # 6. Electronic Completion of Business Processes:

By using E- commerce we can perform business transactions like accounting and inventory through computers at global level.

Feature # 7. Virtual Communities:

Virtual Communities are online communities created by means such as chat rooms and specifically designed sites like, where people can interact with each other having common interest using the internet.

Feature # 8. Inter-Disciplinary in Nature:

Implementation of E-Commerce needs a lot of knowledge of managerial, technological, social and legal issues. Besides this, understanding of consumer behaviour, marketing tools and financial aspects is as crucial as designing interactive E- Commerce websites.

Feature # 9. Customization:

With the use of E-commerce technology, the world is moving from mass-production to mass-customization. Product customization ensures that goods are tailor made as per the requirements and preferences of customers.

Like Dell Computers Website www(dot)dell(dot)com enables the consumers to mention configuration of a Computer and then the product is made available and delivered as per the configuration ordered by the customer.

E-Commerce – 5 Major Types: Business-to-Business, Business-to-Consumer, Business-to-Government, Consumer-to-Consumer and Mobile Commerce 

The major different types of E-Commerce are:

I. Business-to-Business (B2B);

II. Business-to-Consumer (B2C);

III. Business-to-Government (B2G);

IV. Consumer-to-Consumer (C2C);

V. Mobile Commerce (M-Commerce).

Type # I. Business to Business (B2B):

1. Business to Business or B2B refers to E-Commerce activities between businesses.

2. In E-Commerce B2B, transactions are usually carried out through Electronic Data Interchange or EDI. EDI is an automated format of exchanging information between businesses over private networks.

3. EDI is composed of standards that enable businesses’ computers to conduct transactions with each other, without human intervention.

4. For Example- Manufacturers and wholesalers are B2B companies.

Type # II. Business to Customer (B2C):

1. Business to Customer or B2C refers to E-Commerce activities that are focused on consumers rather than on businesses.

2. For instance, a book retailer would be a B2C company such as Amazon.com.

Type # III. Customer to Business (C2B):

1. Customer to Business or C2B refers to E-Commerce activities, which use reverse pricing models where the customer determines the price of the product or services.

2. For example – tele workers and online auctions are C2B processes.

Type # IV. Customer to Customer (C2C):

1. Customer to Customer or C2C refers to E-Commerce activities, which uses an auction style model.

2. Customers are also the business and C2C enables customers to directly deal with each other. An example of this is peer auction giant, E Bay.

Type # V. M-Commerce (Mobile Commerce):

1. M-commerce (mobile commerce) is the buying and selling of goods and services through wireless technology i.e., handheld devices such as cellular telephones and personal digital assistants. Japan is seen as a global leader in m-commerce.

2. As content delivery over wireless devices becomes faster, more secure and scalable, some believe that m-commerce will surpass wire line e-commerce as the method of choice for digital commerce transactions. This may well be true for the Asia-Pacific where there are more mobile phone users than there are Internet users.

E-Commerce – Need in Modern Business Era: Wider Audience, Cost Efficiency, Faster Information and Enhanced Service

The study of following factors show the need for E-Commerce in modern business era:

1. Wider Audience- The internet provides businesses, access to millions and millions of people. A 2010 survey by Internet World Stats showed there are 266,244,500 internet users in North America. On the World Wide Web, companies move beyond geographic limits to reach wider audience.

2. Cost Efficiency- At the beginning of the internet age in the 1990s, creating websites was a costly undertaking. As the years passed, building websites became less and less expensive. In fact, small businesses can now build their own sites.

3. Faster Information- The information superhighway permits speedy exchange of data across the world, which also means new information, is available faster.

4. Enhanced Service- Development of E-Commerce equipped domestic providers to offer more services to clients.

E-Commerce – Business Applications: Sale, Purchase of Goods, Real Estate Market, Online Banking, Delivery of Goods, Import and Export, E-Tailing and a Few Others 

Following are the major business application areas where E-Commerce is used widely:

1. Sale, Purchase of Goods:

By using E-Commerce, consumers can buy the various products and services from the different manufacturers. Industries can purchase raw materials, components etc. using E- Commerce. Sellers can sell their products by using E-commerce.

2. Real Estate Market:

Online real estate services are provided by websites that show listing of houses, shops and flats put up for sale and rent. Online real estate sites play supporting role for property dealers.

Now builders can use virtual reality technology on their website to demonstrate three dimensional floor plans to buyers. This helps real estate companies to attract buyers. So transactions normally can be initiated online but materialize offline in a face to face contact of parties. Many websites are providing online real estate services.

3. Online Banking:

Online Banking is also known as electronic banking, Net banking, virtual banking and internet banking online banking is defined as automated delivery of new and traditional banking products and services through electronic and interactive communication channels. Customers can access online banking services by using electronic devices like personal computer, laptop, palmtop, ATM, kiosks etc.

4. Delivery of Goods:

E-Commerce allows the delivery of products. For example, the computer software is directly downloaded by the software manufacturer on computer of the customer.

5. Import and Export:

Electronic payments are playing a great role in import and export business. The internet has simplified the import and export business. By using E-commerce importers can make enquiries about the products, their manufacturers, price, quality, other terms and conditions etc.

Exporters can also make enquiries about suitable customers. Payments can be made by electronic modes including digital means like internet payment or internet money transfer.

6. Supply Chain Management:

A supply chain is a set of relationships between a number of companies who have a symbiotic relationship with each other in that one company supplies commodities or services to other companies which, in turn, supply commodities or services to other companies, and so on.

An important point about an application such as this one is that information should be kept confidential as it flows across the internet.

7. E-Tailing:

E-tailing refers to retailing over the internet. Thus an e-tailer is a B2C business that executes a transaction with the final consumer. E-tailers can be pure play businesses like amazon(dot)com or businesses that have evolved from a legacy business, Tesco(dot)com. E-tailing is a subset of e-commerce.

E-Commerce – Channels: Commercial Channels and The Internet

These are of following two types:

(i) Commercial Channels:

Various companies have set up on-line information and marketing services that can be accessed by those who have signed up for the service and pay a monthly fee. These channels provide information, news, libraries, education, travel, sports and reference, entertainment, shopping services, dialogues opportunities and e-mail etc.

(ii) The Internet:

The Internet is a global web of computer networks that has made instantaneous and decentralised global communication possible. Internet usage has spread with recent development of the user-friendly World Wide Web (www) browser software such as Netscape Navigator and Microsoft Internet Explorer.

Users can surf the Internet and experience fully integrated text, graphics, images and sound. Users can send e-mail, exchange views, shop for products, and access news and business information. The users need to pay an Internet provider-to be hooked up to it through their computers.

Internet Strategies for Business and Key Success Factors in E-Commerce:

Internet users are better educated, better informed. As more and more people find their way onto the internet, the cyberspace population is becoming more mainstream and diverse.

Younger users of Internet in general place a greater value in information, entertainment, socialising etc.

Old users are more likely to use Internet for investment and more serious matters. In general, Internet users respond to messages aimed at selling, and receive information about products and services. In on-line marketing through internet, the consumers, and not the marketer, gives permission and controls the interaction.

Internet ‘search engines’ such as “Yahoo” and “Google” give consumers access to varied information sources, making them better informed and more discerning shoppers.

Consumers gain the following capabilities in the E-commerce providing information-rich regime:

1. They can get objective information for multiple brands, including costs, prices, features and quality without relying on the manufacturer or retailers.

2 They can initiate requests for advertising and information from manufacturers.

3. They can use software agents to search for and invite offers from multiple sellers. These new buyer capabilities mean that the exchange process in the age of information has become customer initiated and customer controlled.

Marketers and their representatives are held at bay till customers invite them to participate in the exchange process, customers define the rules of engagement, and insulate themselves with the help of agents and intermediaries.

Customers define what information they need, what products or services they are interested in and what prices they are willing to pay.

E-Commerce – Essentials and Procedures: Product/Service, Processing Mechanism, Payment Gateway, Delivery of Product, After Sale Service and Reverse Logistics

E-commerce operates digitally. It has some unique ways to put a business transaction in place.

Let’s see how this happens:

1. Product/Service:

For E-commerce to happen there should be a prod­uct or service that has value and for which someone is willing to pay a price. If this criterion is met, then you can sell anything on ecommerce websites—gadgets, books, automobiles, grocery, toys, apparel, vegetables and digital goods such as music, e-books, software, air tickets, magazine subscriptions and the like.

2. Processing Mechanism:

The ecommerce website of a company should put an easy process in place so that the customer browsing through the site can place an order. The software that makes this happen is called a shopping cart.

3. Payment Gateway:

Once the customer fills the cart with items that he or she has shopped, the site should take the customer towards the payment gateway, which collects money electronically. If the product is downloadable such as music, e-book etc., the website must also provide for that after accepting payment from customer.

4. Delivery of Product:

Once customers make the payment, the e-com­merce site must ensure the delivery of product in good condition on time. Logistics is a specialized function, so most sellers outsource it to third party logistics providers. Like Amazon using the services of FedEx.

5. After Sale Service:

Customers need to be serviced pre-sales as well as post sales. Before the sale, customers might have queries about product features that are not mentioned on the website. They might have ques­tions about customization and accessories. After the sale, customers might have queries related to the usage, repair or enhancement of the products or services that they have already purchased.

6. Reverse Logistics:

There is no guarantee of supplying an error-free product. If products get damaged or stop functioning after a while, or a wrong product is delivered—the ecommerce seller must ensure the flow of products in the reverse direction—known as reverse logistics—where goods flow from customer to the seller.

E-Commerce – 4 Major Market Segments: E-Tailing, E-Advertising and E- Marketing (With Advantages and Disadvantages)

E-commerce is a means of conducting business, where the buying or selling of goods and services or the transmitting of funds or data, occur via electronic medium. There are no physical market places and the entire process of marketing and selling of goods, takes place on-line or electronically. This means, the buyer and the seller do not often meet face to face. It is a replica of a physical market place in the virtual world.

E-commerce, also called e-trading, operates in all four major market segments – Business to Business, Business to Consumer, Consumer to Consumer and Consumer to Business. Examples of E-commerce include on-line shopping, electronic payments, on- line auctions, internet banking, on-line ticketing etc.

1. E-Tailing :

E-Tailing is the abbreviation of electronic retailing. It is the sale of goods and services through the internet. E-tailing involves business-to-business or business-to-customers transactions. It can be regarded as the internet front of any traditional retailer.

E-tailing shops believe in building strong brands. The web sites they create are easily understood by the visitors. They also provide discounts and offers to engage the customers. The pricing, in E-tailing shops, is generally lower than that of a traditional shop.

In this way the e-tailing shops lure the customers to make purchases on-line. The customers also get benefited from the fact that he/she does not need to physically visit the shop for making the purchase. The customers are free to make their own decisions regarding the purchase, at their own leisure time.

However, e-tailing shops need to have a strong distribution network in order to secure the delivery of the products. Otherwise, the purpose of the e-tailing site will be defeated. Big e-tailing sites like Ebay(dot)com and Amazon(dot)com are making great business in this country.

Advantages of E-Tailing:

1. No requirement of physical infrastructure.

2. Order completion is smoother than that of physical shops.

3. Customers might get addicted to on-line shopping, which in turn boost sales and increase revenue.

4. It is easy to review the product before, actually, purchasing it.

5. Most items available on-line are cheaper with quick and easy shipping and returns.

Disadvantages of E-Tailing:

1. Creating and maintaining an e-tailing web site is an expensive process.

2. Customers do not often get to check the actual dimensions of the products and the quality displayed there.

3. Customers may have trust issues before providing their personal details and credit card details.

2. E-Advertising :

E-Advertising is the mechanism of promoting products or services on-line. It is the process of gaining attention of the customers, through the digital media.

The main purpose of e-advertising is to reach out to a wider range of customers. It is more cost effective when compared to the traditional forms of advertising. E-advertising also enables you to target the specific customers.

On safeguard to be taken regarding E-advertising is that advertisement had to be consistently monitored and controlled because if it is done poorly, it can severely damage the image of the company.

1. E-advertising will only be published on the internet.

2. Sometimes e-advertising will provide hyperlinks to the company’s web site.

3. Can include image, texts, and even animations within the advertisements.

Types of E-Advertising:

There are various types of e-advertising:

(a) Wallpaper Advertising – It changes the background of the web site to the chosen promotion.

(b) Pop Up Advertising – It pops up a new screen upon clicking on a certain link on the web site, that it advertises the product.

(c) Floating Advertising – The floating e-advertising is a kind of a floating banner on the web site, which tempts the visitor to click on it.

(d) Ad Sense Advertising – This refers to companies’ paying major search engines (such as Google) to promote their business within the first three links that appear when a search is entered.

3. E-Marketing :

Electronic marketing (e-marketing) is also known as internet marketing, web marketing and digital marketing on on-line marketing. It is the process of marketing a product or service using the internet, e-mail and wireless media. Unlike e-advertising, e- marketing is very subtle. It is not always a direct message of persuasion but rather it is something which will educate the customers and convince them to buy the product or service.

Digital marketing techniques include Search Engine Optimization (SEO), Search Engine Marketing (SEM), content marketing, e-commerce marketing, social media marketing, display advertisement, marketing through SMS and on-hold mobile ring tones, etc.

When compared to the means of traditional marketing, e-marketing offers several advantages.

Advantages of E-Marketing:

1. E-marketing provides much better return on the investment made by the marketer.

2. It reduces the cost of marketing campaign.

3. The marketer can easily monitor and track the results of the campaign.

4. The results are often easily measurable and quickly obtained.

5. E-marketing allows marketers to create viral content, allowing viral marketing.

Disadvantages of E-Marketing:

1. Devising a strong online marketing campaign involves spending money, the cost of which is ultimately borne by the customer. The cost of website design, software, hardware, maintenance of website, online distribution cost and invested time, are also factored in, while deciding the cost of providing a service or a product online.

2. Website of the company has to be constantly updated, which required research and skills and thus timing of updates are also critical.

3. Digital marketing is not suitable for marketing of industrial goods and pharmaceutical products making it useful for only specific categories of products, namely consumer goods.

Types of E-Marketing:

There are several options through which the e-marketers can promote their product and services:

1. Article Marketing – Writing articles about products and services often helps in the process of educating the customers.

2. Affiliate Marketing – It is a kind of referral marketing where reference of any product will be provided on the other websites and when the customer buy’s the product based on the recommendation this website owner with gets commission.

3. Video Marketing – In this kind of e-marketing, a video will be shared describing the usage and benefits of the product or a service. It is often similar to television commercials.

4. Email Marketing – Direct emails are being sent to potential customers describing benefits of the product or service.

5. Blogging – Publishing blogs about similar products is also a very subtle way of marketing some business.

6. Social Media Marketing – This form of marketing means promoting company’s products and service on social media handles like Facebook, Twitter and Instagram – It is cost-effective because these platforms allow business to create profiles for free.

E-Commerce – Managerial Issues: Formulate Ecommerce Strategy, Re-Engineering for ecommerce, Managing Ethical, Cultural and Legal Issues and a Few Others

Nowadays companies are transforming themselves into e-commerce enabled organizations. To assure successful implementation of e- commerce, management of the organization has to deal with certain type of issues.

Some of the important issues before the organizational management are explained as follows:

i. Formulate E-Commerce Strategy:

Management has to develop e-commerce strategy based on the analysis of industry and competition. Many companies like IBM created independent division for formation .and implementation of e-commerce in the organization. The e-commerce division, formulates strategy in the light of corporate strengthens and weaknesses.

Then e-commerce division communicates the vision of top management throughout the organization and annual objectives are identified. Essential education and training is given to those who are to implement the e-commerce plans. Efforts are made to change the behaviour and attitude of executives, managers, and trading partners.

The management needs to view electronic commerce potential in the light of the competition and not just as technological advancement. E-commerce needs to be used as a strategic tool to gain and sustain competitive advantage in the industry.

ii. Re-Engineering for E-Commerce:

Organizations are to be restructured and re-engineered in to a network based organization. Therefore, building and integrating infrastructure is a big challenge faced by company managements. Integrating information technology with existing business processes is a big task. In fact network of computers, complex transmission lines and dozens of pieces of software must all work together to make E-commerce happen.

The business process re-engineering team has to ensure that they do not miss anything significant while building and implementing E- commerce system Manufacturers have to decide whether the whole manufacturing and distribution system is to be restructured to become committed to direct Internet based supply chain and marketing or to use e-commerce website as a simple channel of distribution.

Company management has to make decision regarding in sourcing or outsourcing. Big companies go for in-house development of website. It means company’s own staff build e-commerce enabled website. Company management can also outsource this task to some third party, normally an experienced web development firm.

iii. Managing Ethical, Cultural and Legal Issues:

There exist big ethical and cultural differences between countries. Something may be ethical in our country but unethical in another country. So MNCs have to study culture of each country and develop corporate ethical code.

For example, France has certain language and cultural laws that must be obeyed. Therefore, it is necessary that advocates, accountants and executives of the companies must understand legal, trade, cultural and monetary issues of the countries with which their company has to deal.

iv. Making Cost Benefit Analysis:

Company management has to make cost benefit analysis of implementing e-commerce venture. Costs associated with e-commerce includes costs of hardware like PC clients, web servers, transaction servers routers and other networking devices, leased line and software like operating system, firewall, application software, web server software and transaction processing software, cost of recruiting and training staff for e-commerce etc.

Benefits can be measured through economic indicators like return on investment or through indicators like numbers of online customers, customer satisfaction and business partner satisfaction.

Organization of developed countries that have implemented e-commerce solutions have gained by way of realizing lower cost per transaction and taking advantage of economies of scale. In developing countries cost may exceed benefits in initial years of e-commerce initiatives.

v. Promoting E-Commerce Venture:

Company management has to take steps to promote the website.

Broadly, promotional activities can be classified into two categories:

a. Online Promotional Activities:

Online promotion is concerned with submitting your site to search engine. The objective is to get your site registered with the search engine so that the site appears as a link in search results of certain keywords-typed by internet user at the search engine like Google. This requires use of appropriate keywords in META tag.

Moreover, web team needs to search related sites and contact them so that their pages provide link to their web pages. So seeking reciprocal link is an effective way of promoting your e-commerce web site. Moreover, e-mails can be made of customers. Company that have advertising budget can promote the site by placing banner ads at popular websites and portals.

b. Offline Promotional Activities:

As far as offline promotion is concerned, company can advertise the web address through visiting cards, letter pads, bill books etc. Moreover, URL can also be advertised at various trade fairs, exhibitions and business related events like seminars, conferences etc. Therefore, company management has to set up advertising budget and decide the tools that it shall use to promote the e-commerce website.

vi. To Deal with Security & Privacy Issues:

Websites collect information about visitors through filled in order forms, questionnaires and by recording browser information thought programs like cookies. But the personal information so collected must be used for stated business purposes. But many surveys have shown that online consumers have little privacy protection.

Therefore, it is necessary that company management must form privacy practice and must assure consumers and partners that information so collected shall be kept confidential.

In addition management needs to form security policy. Data security and network security are major issues. There have been cases when vital information like credit card numbers are stolen by hackers. Similarly e-mails can be and are often intercepted as they travel through the network.

This type of data and message security needs security measures like encryption, password protection etc. Similarly network security measures like firewall needs to be installed so that intruders are not able to make authorized access to corporate network. The firewall prohibits hackers from entering corporate network via internet. Therefore management needs to set up some kind of intrusion detection system an establish security policy.

vii. Handling Human Resource Management Related Issues:

Electronic commerce is changing the manner in which staff is recruited, motivated, trained and educated. Two way interactions are now possible in video conferencing used for employee training and education. So, management needs to incorporate the impact of e-commerce on its human resource management practices.

viii. Adopting Electronic Fund Transfer System:

Company management has to make agreement with acquiring bank, Credit Card Company and payment gateway to ensure that it is able to receive and make payments electronically through modes like credit cards, smart cards, e-cash etc. The management has to devise ways and means of integrating Internet based payment system with offline system.

E-Commerce – Impact of E-Commerce: Impact on Direct Marketing, Organisation, Manufacturing, Finance and Supply Chain Management

E-commerce has made a profound impact on society. People can now shop online in the privacy of their own homes without ever having to leave. This can force larger brick and mortar retailers to open an online division. In some cases, it can also force smaller businesses to shut their doors, or change to being completely online.

It also changes the way people look at making purchases and spending money. E-commerce has changed the face of retail, services, and other things that make our economy work. Undoubtedly, it will continue to influence how companies sell and market their products, as well as how people choose to make purchases for many years to come.

The following are the impacts of e-commerce on the global economy:

1. Impacts on Direct Marketing :

i. Product Promotion – E-commerce enhances promotion of products and services through direct, information-rich, and interactive contact with customers.

ii. New Sales Channel – E-commerce creates a new distribution channel for existing products. It facilitates direct reach of customers and the bi-directional nature of communication.

iii. Direct Savings – The cost of delivering information to customers over the internet results in substantial savings to senders when compared with non-electronic delivery. Major savings are also realized in delivering digitized products versus physical delivery.

iv. Reduced Cycle Time – The delivery of digitized products and services can be reduced to seconds. Also, the administrative work related to physical delivery, especially across international borders, can be reduced significantly, cutting the cycle time by more than 100 percent.

v. Customer Service – Customer service can be greatly enhanced by enabling customers to find detailed information online. Also, intelligent agents can answer standard e-mail questions in seconds and human experts’ services can be expedited using help-desk software.

vi. Corporate Image – On the web, newcomers can establish corporate images very quickly. Corporate image means trust, which is necessary for direct sales. Traditional companies such as Intel, Disney, Dell, and Cisco use their web activities to affirm their corporate identity and brand image.

vii. Customization – E-commerce provides for customization of products and services, in contrast to buying in a store or ordering from a television, which is usually limited to standard products. Dell Computers Inc. is a success story of customization.

Today, we can configure not only computers but also cars, jewellery, gifts, and hundreds of other products and services. If properly done, one can achieve mass customization. It provides a competitive advantage as well as increases the overall demand for certain products and services.

viii. Advertisements- With direct marketing and customization comes as one-to-one or direct advertisement, which is much more effective than mass advertisement. This creates a fundamental change in the manner in which advertisement is conducted not only for online trades but also for products and services that are ordered in traditional ways.

ix. Ordering Systems- Taking orders from customers can drastically be improved if it is done online. When taken electronically, orders can be quickly routed to the appropriate order-processing site. This saves time and reduces expenses, so sales people have more time to sell. Also, customers can compute the cost of their orders, saving time for all parties involved.

x. Markets- The physical market disappears as does the need to deliver the goods to the marketplace. In a market space, which is an electronic market, goods are delivered directly to buyers when purchasing is completed making markets much more efficient.

Already, small but powerful software packages are delivered over the internet. This fundamentally affects packaging and greatly reduces the need for historical distribution.

New selling models such as shareware, freeware are emerging to maximize the potential of the internet. New forms of marketing will also emerge, such as web-based advertising, linked advertising, direct e-mail, and an increased emphasis on relationship marketing. Customer’s convenience is greatly enhanced, availability of products and services is much greater, and cheaper products are offered.

2. Impacts on Organisation :

i. Technology and Organizational Learning:

Rapid progress in e-commerce will force companies to adapt quickly to the new technology and offer them an opportunity to experiment with new products, services, and processes. New technologies require new organizational approaches.

For instance, the structure of the organizational unit dealing with E- commerce might have to be different from the conventional sales and marketing departments. To be more flexible and responsive to the market, new processes must be put in place. This type of corporate change must be planned and managed.

ii. Changing Nature of Work:

The nature of work and employment will be transformed in the digital age; it is already happening before our eyes. Driven by increased competition in the global marketplace, firms are reducing the number of employees down to a core of essential staff and outsourcing whatever work they can to countries where wages are significantly less expensive.

The upheaval brought on by these changes is creating new opportunities and new risks and forcing us into new ways of thinking about jobs, careers, and salaries.

The digital age workers will have to become very flexible. Few of them will have truly secure jobs in the traditional sense, and all of them will have to be willing and able to constantly learn, adapt, make decisions, and stand by them.

iii. New Product Capabilities:

E-commerce allows for new products to be created and existing products to be customized in innovative ways. Such changes may redefine organizations’ missions and the manner in which they operate.

E-Commerce also allows suppliers to gather personalized data on customers. Building customer profiles as well as collecting data on certain groups of customers, can be used as a source of information for improving products or designing new ones.

Mass customization enables manufacturers to create specific products for each customer, based on his or her exact needs. For example, Motorola gathers customer needs for a pager or a cellular phone, transmits them electronically to the manufacturing plant where they are manufactured, along with the customer’s specifications and then sends the product to the customer within a day.

3. Impacts on Manufacturing:

The production systems are integrated with finance, marketing, and other functional systems, as well as with business partners and customers. Using web-based ERP systems, orders that are taken from customers can be directed to designers and to the production floor, within seconds.

Production cycle time is cut by 50 percent or more in many cases, especially when production is done in a different country from where the designers and engineers are located.

4. Impacts on Finance:

E-commerce requires special finance and accounting systems. Traditional payment systems are ineffective or inefficient for electronic trade. The use of the new payment systems such as electronic cash is complicated because it involves legal issues and agreements on international standards.

Nevertheless, electronic cash is certain to come soon and it will change the manner in which payments are being made. In many ways, electronic cash, which can be backed by currency or other assets, represents the biggest revolution in currency since gold replaced cowry shells.

Its diversity and pluralism is perfectly suited to the internet. It could change consumers’ financial lives and shake the foundations of financial systems and even governments.

5. Impact on Supply Chain Management:

Electronic commerce and the internet are fundamentally changing the nature of supply chains, and redefining how consumers learn about, select, purchase, and use products and services.

The result has been the emergence of new business-to business supply chains that are consumer- focused rather than product-focused. They also provide customized products and services. E-commerce impacts supply chain management in a variety of keyways.

These include:

i. Cost Efficiency:

E-commerce allows transportation companies of all sizes to exchange cargo documents electronically over the internet. E-commerce enables shippers, freight forwarders and trucking firms to streamline document handling without the monetary and time investment required by the traditional document delivery systems.

By using e-commerce, companies can reduce costs, improve data accuracy, streamline business processes, accelerate business cycles, and enhance customer service. Ocean carriers and their trading partners can exchange bill of lading instructions, freight invoices, container status messages, motor carrier shipment instructions, and other documents with increased accuracy and efficiency by eliminating the need to re-key or reformat documents.

The only tools needed to take advantage of this solution are a personal computer and an internet browser.

ii. Changes in Distribution System:

E-commerce will give businesses more flexibility in managing the increasingly complex movement of products and information between businesses, their suppliers and customers. E-commerce will close the link between customers and distribution centres. Customers can manage the increasingly Complex movement of products and information through the supply chain.

iii. Customer Orientation:

E-commerce is a vital link in the support of logistics and transportation services for both internal and external customers. E-commerce will help companies deliver better services to their customers, accelerate the growth of the e-commerce initiatives that are critical to their business, and lower their operating costs. Using the Internet for e-commerce will allow customers to access rate information, place delivery orders, track shipments and pay freight bills.

E-commerce makes it easier for customers to do business with companies: Anything that simplifies the process of arranging transportation services will help build companies’ business and enhance shareholder value.

By making more information available about the commercial side of companies, businesses will make their web site a place where customers will not only get detailed information about the services the company offers, but also where they can actually conduct business with the company.

Ultimately, web sites can provide a universal, self-service system for customers. Shippers can order any service and access the information they need to conduct business with transportation companies exclusively online. E-commerce functions are taking companies a substantial step forward by providing customers with a faster and easier way to do business with them.

iv. Shipment Tracking:

E-commerce will allow users to establish an account and obtain real-time information about cargo shipments. They may also create and submit bills of lading, place a cargo order, analyse charges, submit a freight claim, and carry out many other functions.

In addition, e-commerce allows customers to track shipments down to the individual product and perform other supply chain management and decision support functions. The application uses encryption technology to secure business transactions.

v. Shipping Notice:

E-commerce can help automate the receiving process by electronically transmitting a packing list ahead of the shipment. It also allows companies to record the relevant details of each pallet, parcel, and item being shipped.

vi. Freight Auditing:

This will ensure that each freight bill is efficiently reviewed for accuracy. The result is a greatly reduced risk of overpayment, and the elimination of countless hours of paperwork, or the need for a third-party auditing firm. By intercepting duplicate billings and incorrect charges, a significant percent of shipping costs will be recovered.

In addition, carrier comparison and assignment allows for instant access to a database containing the latest rates, discounts, and allowances for most of major carriers, thus eliminating the need for unwieldy charts and tables.

vii. Shipping Documentation and Labelling:

There will be less need for manual intervention because standard bills of lading, shipping labels, and carrier manifests will be automatically produced; this includes even the specialized export documentation required for overseas shipments. Paperwork is significantly reduced and the shipping department will therefore be more efficient.

viii. Online Shipping Enquiry:

This gives instant shipping information access to anyone in the company, from any location. Parcel shipments can be tracked and proof of delivery quickly confirmed. A customer’s transportation costs and performance can be analysed, thus helping the customer negotiate rates and improve service.

E-Commerce – Advantages: Convenience, Information, Fewer Hassels, Lower Cost, Relatively Building, Audience Sizing, On-Line Marketing and a Few Others

E-commerce provides the following main advantages:

(i) Convenience – Customers can order products or services 24 hours a day wherever they are.

(ii) Information – Customers can find reams of comparative information about companies, products, competitors and prices without leaving their office or home.

(iii) Fewer Hassels – Customers don’t have to face sales people or open themselves upto persuasion and emotional factors, they also don’t have to wait in line.

(iv) Quick Adjustment to Market Conditions by Marketers – Companies can quickly add products to their offering and change prices and descriptions.

(v) Lower Cost – On-line Marketers avoid the expense of maintaining a store and the costs of rent, insurance and utilities.

They can produce digital catalogues for much less cost than the cost of printing and mailing paper catalogues.

(vi) Relatively Building – On-line marketers can dialogue with consumers and learn from them. Marketers can download useful reports or a free demo of their softwares.

(vii) Audience Sizing – On-line Marketers can learn how many people visited their web site and how many of them shopped at particular places on the site. This information can help them improve offers and advertisements.

(viii) On-line Marketing – It is easy affordable by small firms, who otherwise would not have been able to advertise in the print or broad cost media.

(ix) E-Commerce – E-commerce through Internet and web site can access and retrieve information very fast, compared to overnight mail and even fax.

(x) Large and Medium – These companies have designed their own websites to automate corporate purchasing. The high cost on invoices and purchase order copies including time are saved a great deal due to E-commerce and Internet phase.

(xi) Internet newsgroups set up for commercial purposes help companies place on-line advertisements and thus save cost and time.

(xii) New groups, Bulletins board systems (BBSs) and Web committees help also buyers, sellers and people in general to have access to valuable information on diverse topics including information of cultivation for farmers.

E-Commerce – Disadvantages: Security, System and Data Integrity, System Scalability, ecommerce is Not Free, Customer Relationship Problems and a Few Others

1. Security:

Security continues to be a problem for online businesses. Customers have to feel confident about the integrity of the payment process before they commit to the purchase. Banks such as ICICI Bank, HDFC Bank, State Bank of India have added secure payment gateways to process online bank­ing transactions quickly and safely.

2. System and Data Integrity:

Data protection and the integrity of the system that handles the data are serious concerns. Computer viruses are rampant, with new viruses discovered every day. Vi­ruses cause unnecessary delays, file backups, storage problems, and other similar difficulties. The danger of hackers accessing files and corrupting accounts adds more stress to an already complex operation.

3. System Scalability:

A business develops an interactive interface with customers via a website. After a while, statistical analysis determines whether visitors to the site are one-time or recurring customers. If the company expects 2 million customers and 6 million show up, website performance is bound to experience degradation, slowdown, and eventually loss of customers. To stop this problem from happening, a website must be scalable, or upgradable on a regular basis.

4. E-Commerce is Not Free:

So far, success stories in e-commerce have forced large business with deep pockets and good funding to invest in creating on-line web­sites. According to a report, small retailers that go head-to-head with e-commerce giants are fighting losing battle. As in the brick-and-mortar environment, they simply cannot compete on price or product offering. Brand loyalty is related to this issue, which is supposed to be less impor­tant for online firms. Brands are expected to lower search costs, build trust, and communicate quality. A search engine can come up with the best music deals, for example, yet consumers continue to flock to trusted entities such as HMV.

5. Consumer Search is not Efficient or Cost-Effective:

On the surface, the electronic marketplace seems to be a perfect market, where worldwide sellers and buyers share and trade without intermediaries. However, a closer look indicates that new types of intermediaries are essential to e-commerce. They include electronic malls that guar­antee legitimacy of transactions. All these intermediaries add to transaction costs.

6. Customer Relations Problems:

Not many businesses realise that even e-business cannot survive over the long term without loyal customers. Building customer loy­alty to a specific site is not an easy task. Customers are notoriously fickle-minded, and do not minding visiting a competing website just to avail even one-time benefits or discounts.

7. Products-People Won’t Buy Online:

Imagine a website called furniture, com or living.com, where venture capitalists are investing millions in selling home furnishings online. In the case of a sofa, you would want to sit on it, feel the texture of the fabric etc. Beside the sofa test, online furniture stores face costly returns which makes the product harder to sell online.

8. Corporate Vulnerability:

The availability of product details, catalogues, and other information about a business through its web­site makes it vulnerable to access by the competition. The idea of extracting business intelligence from the website is called web framing. And such threats are in­creasing day by day in this digital, networked world.

9. High Risk of Internet Start-Up:

Many stories unfolded in 1999 about successful executives in established firms leaving for In­ternet start-ups, only to find out that their get-rich dream with a dot.com was just that – a dream.

E-Commerce – Threats to Present Day E-Commerce and Its Solution

Major threats to present day e-commerce may be listed thus:

i. Money Thefts E-commerce services are about transactions, and transac­tions are very largely driven by money. This attracts hackers, crackers and everyone with the knowledge of exploiting loopholes in a system. Once a kink in the armor is discovered, they feed the system (and users) with numerous bits of dubious information to extract confidential data (phishing).

This is particularly dangerous as the data extracted may be that of credit card numbers, security passwords, transaction details etc. Also, Payment gateways are vulnerable to interception by unethical users. Cleverly crafted strategies can sift a part or the entire amount being transferred from the user to the online vendor.

ii. Identity thefts Hackers often gain access to sensitive information like user accounts, user details, addresses, confidential personal information etc. It is a significant threat in view of the privileges one can avail with a false identity. For instance, one can effortlessly login to an online shopping mart under a stolen identity and make purchases worth thousands of dollars.

He/she can then have the order delivered to an address other than the one listed on the records. One can easily see how those orders could be received by the impostor without arousing suspicion. While the fraudsters gains, the original account holder continues to pay the price until the offender is nabbed.

iii. Threats to the system Viruses, worms, Trojans are very deceptive methods of stealing information. Unless a sound virus-protection strategy is used by the ecommerce Solutions firm, these malicious agents can compromise the credibility of all ecommerce web solution services. Often planted by individuals for reasons known best to them alone, viruses breed within the systems and multiply at astonishing speeds. Unchecked, they can potentially cripple the entire system.

Solutions :

The following precautionary steps might prove to be helpful:

i. Authentication:

Most notable are the advances in identification and elimination of non-genuine users. E-commerce service designers now use multi-level identification protocols like security questions, encrypted passwords (Encryption), biometrics and others to confirm the identity of their customers. These steps have found wide favour all around due to their effectiveness in weeding out unwelcome access.

ii. Intrusion Check:

The issue of tackling viruses and their like has also seen rapid development with anti-virus vendors releasing strong anti-viruses. These are developed by expert programmers who are a notch above the hackers and crackers themselves. Firewalls are another common way of implementing security measures. These programmes restrict access to and from the system to pre-checked users/access points.

iii. Educating Users:

E-commerce is run primarily by users. Thus, E-com­merce service providers have also turned to educating users about safe practices that make the entire operation trouble free. Recent issues like phishing have been tackled to a good extent by informing genuine users of the perils of publishing their confidential information to unauthorized information seekers.

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Published: 29 February 2024 Contributors: Molly Hayes, Amanda Downie

Ecommerce, or electronic commerce, is the process of buying and selling goods and services over the internet. It involves the exchange of products or services between businesses, consumers, or both. 

Ecommerce business is facilitated through platforms such as websites, mobile apps, or online marketplaces. 

Where ecommerce once described a simple process—a consumer purchase from an ecommerce site, for instance—the term has expanded as technologies have advanced. Today, ecommerce can refer to business-to-business commerce or internal business transactions. It can also apply to, for example: 

• The online stores of multichannel retailers with brick-and-mortar locations
• Sharing economy platforms facilitating the purchase of services like rideshares
• Social media sites like Facebook where consumers engage with so-called social commerce

As the ecommerce industry has developed, it has also grown to encompass related technologies that facilitate the sales process, such as mobile payment platforms and secure data transfer technologies. 

Explore the IBM Insitute for Business Value's report on how generative AI can give companies the tools to meet rising consumer expectations.

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Since the first item was sold over the internet in the 1990s, ecommerce has transformed how organizations do business across borders, thus reshaping the global economy. The expectation that businesses operate at least somewhat online—for example, bidding for contracts on a government portal or receiving funds through a mobile payment processor—has come to shape how the economy operates today. And in the wake of the COVID-19 pandemic, the global ecommerce market has grown exponentially. As of 2021, the ecommerce market had grown to represent USD 26.7 trillion. 1

In the last 30 years, the online retail sector has come to encompass far more than just a small business selling goods in a browser-based ecommerce store. To compete and flourish in this vast ecosystem, organizations have deeply integrated ecommerce solutions with many of their business processes, allowing for holistic customer experiences across platforms and optimizations like automation and conversational analytics. 

While ecommerce has expanded to touch nearly every aspect of business, the first known sale by an ecommerce company occurred just two decades ago, when a New Hampshire-based online company sold a Sting CD for USD 12.48 plus shipping in 1994. 2  In the two years following that transaction, both eBay and Amazon started. By December of 1999, the latter company had shipped 20 million items to 150 countries globally. 3

The dot-com boom of the late 1990s saw a proliferation of e-commerce startups as well as the development of online marketplaces and retail websites. During this time, payment platforms like PayPal were developed, paving the way for a new era of secure, instant online transactions. In 1996, both Sam’s Club and Wal-Mart debuted online stores. 4 The ecommerce market matured through the early 2000s as other brick-and-mortar retailers recognized the importance of online shops to complement their physical businesses. 

In 2000, the grocery store Safeway made its first foray into home delivery by using online platforms. Later in the decade, a collection of businesses based entirely on the ecommerce industry started. These businesses, including Shopify and Magento, helped manage online storefronts. Around this time, online advertising tools proliferated, allowing marketers to target potential consumers with precise product suggestions.

The ecommerce industry continued to flourish. It became more complex with the introduction of streaming services like Netflix, cryptocurrencies like Bitcoin, and a wide variety of sharing-economy platforms and new payment companies. As mobile technologies became ubiquitous, ecommerce vendors embraced location-based product recommendations and allowed consumers to shop for or sell goods anywhere they happened to be. The ecommerce industry has also revolutionized the business of global retail and trade: By 2016, almost all cross-border transactions had a digital component. 5

The COVID-19 pandemic of 2020 influenced the role ecommerce plays in the global economy. In 2021 alone, the number of ecommerce websites grew from 9.7 million to 19.8 million. Today, there are roughly 26.5 million ecommerce sites operating across the globe. 6

Today, retail ecommerce sales have risen to USD 6.3 trillion globally, and by 2026 they’re expected to make up 24% of all retail sales. 7 Advanced technologies such as artificial intelligence (AI) and machine learning have again transformed the sector by enabling personalized recommendations, chatbots for customer service, and predictive analytics. 

Broadly, the above history of retail ecommerce can be understood through four distinct phases, each of which has built on the one that came before it.

T his evolution can be useful in understanding how and why multi-channel ecommerce solutions and unified business processes have become the standard across industries: 

Single-channel commerce is the historical mode of retail commerce as it’s existed for the last century. In single-channel commerce, an individual purchases goods thought one distribution option (for example, an online shopping cart, through a catalog, in the mail, or in a brick-and-mortar store). 

Multichannel commerce has emerged over the last 20 years. It is the practice of selling services or goods over multiple sales channels. This might include a brick-and-mortar store that uses an online store to sell its products, or an online-only company operating on both a website and a mobile app. 

This type of ecommerce, also known as cross-channel commerce , has become a dominant strategy over the last 10 years and a major ecommerce trend across industries. Building on multichannel strategies, it aims to provide goods and services across multiple channels, but organizes those channels to be complementary and coordinated. 

Unified retail commerce, the latest generation of ecommerce tactics, unifies all sales channels, processes, and data into a single platform. Instead of coordinating channels across a business, unified commerce consolidates all back-end processes, from inventory to advertising to sales, creating holistic sales and marketing environments across platforms. 

There are several types of ecommerce, each catering to different types of transactions and participants. As with other widely adopted technologies, ecommerce is in a constant state of flux and innovation. The following are the primary types of ecommerce, following by some emerging types within the industry. 

Business-to-business (B2B): B2B ecommerce refers to transactions between businesses . In this model, businesses sell products and services to other businesses. 

Business-to-consumer (B2C): B2C ecommerce involves transitions between businesses and individual consumers. It is the most common type of ecommerce, and includes online retail stores that sell products and services directly to end-users. 

Business-to-government (B2G): B2G ecommerce involves transactions between businesses and governments. Examples include government procurement portals where businesses can bid on contracts to provide goods or services to government agencies or departments. 

Consumer-to-business (C2B): C2B ecommerce is the inversion of the traditional B2C model. In this type of ecommerce transaction, individual consumers offer products or services to businesses. This model is most often seen in freelance or gig economy platforms, where businesses can hire individuals for various tasks or projects. 

Consumer-to-consumer (C2C): Consumer-to-consumer ecommerce involves transactions between individual consumers. In this model, individuals sell products or services directly to other consumers through online platforms. Examples include platforms Craigslist or Etsy, where individuals can buy and sell used items or homemade crafts. 

In addition to these primary types of ecommerce, other business models have emerged in recent years that deepen or augment the foundational genres and will likely play an outsized role in the future of retail. They include: 

Direct-to-consumer marketing: D2C marketing connects audiences directly with brands and can facilitate community-building among customers, as well as involve them in the testing process. 

Live commerce: Live commerce, popular in China, blends entertainment with the ability to purchase goods instantly. During live commerce events, popular on the Chinese platform Alibaba, customers watch a livestream broadcast that is synced with an ecommerce store. 8

Social commerce: Social commerce allows consumers to make purchases through social media and content creation apps. This might include a live shopping event on TikTok or in-app retail purchases through Instagram.  

While the central components of a successful ecommerce strategy vary widely between a small business and a large international firm, there are some basic concepts that apply to nearly every ecommerce solution.

Successful ecommerce strategies carefully consider how each of these aspects can best apply to the needs of an individual business. Those components are: 

Providing a seamless and streamlined user experience is crucial for the success of an ecommerce business, from browsing to checkout. This might include intuitive website navigation, product search functions, responsive customer support, or the ability to order a customized product online and pick it up in-store. For omnichannel ecommerce businesses, this may also mean to ensure a customer experience is consistent between mobile and web platforms. 

Ecommerce platforms can collect significant data on consumer behavior, often in real-time. Organizations can choose to let this data guide their inventory management or product offerings to ensure customers and the business are always aligned. 

Ecommerce transactions are facilitated through various digital payment options. This means that an organization will likely need to engage several third-party integration and payment processes. This might include credit cards, digital wallets, online currencies, or other web-based payment systems. 

Efficient supply chain management is essential for delivering products to customers in a timely manner. Organizing an effective order management process might be as simple as ordering an item that a customer requests on a case-by-case basis (as in drop shipping), or tightly integrating a manufacturing base with the internet-of-things (IoT) to ensure the timely delivery of goods. 

As with any retail, ecommerce requires effective marketing and promotional strategies to attract customers and drive sales. This might include search engine optimization (SEO), retargeted email marketing, brand-building on social media, or other forms of advertising. 

With the proliferation of smartphones and tablets, a massive number of ecommerce transactions occur on mobile devices. Mobile-responsive websites and dedicated apps allow customers to browse and make purchases anywhere they are. 

Ecommerce primarily operates through online stores, digital platforms where businesses showcase their products and services. These online stores can take various forms: They might be small independent websites, large online marketplaces, sharing-economy platforms, or venues where customers make online purchases.

Security is a critical aspect of ecommerce, ensuring that transactions remain safe and sensitive customer information is protected. Secure sockets layer (SSL) encryption, payment gateways, and secure authentication mechanisms can all be deployed to safeguard personal and financial data. 

As ecommerce has grown, it has expanded to incorporate several discrete technologies and platforms that ideally work in unison to create a seamless ecommerce ecosystem.

Some of the most common technologies that are involved in ecommerce are: 

AI and machine learning have been increasingly deployed to augment the shopping experience for ecommerce consumers. These tools may give product recommendations, respond in natural language to service requests via chatbot, or provide personalized marketing messages based on a customer's interests or prior purchases.

CRM software helps organizations manage customer data, interactions, or relationships by centralizing data, unifying customer-facing processes, and prioritizing customer care .  

CMS platforms allow organizations to create, manage, and publish digital content. A CMS might manage product listings, blog posts, or landing pages for an organization’s ecommerce business. 

A successful ecommerce business will collect and manage vast troves of customer data. To use that data, an organization might deploy specific tools to gain insights into consumer behavior, sales trends, or perform advanced analytics. 

Designated ecommerce platforms provide ready-made infrastructure for product catalog management, order processing, payment integration, and customer management. Depending on an organization’s specific needs, it may opt to join an existing ecommerce platform or build its own from scratch.  

Inventory management software, which may be integrated with CRM software or business intelligence tools, tracks inventory levels and optimizes storage and distribution. Some inventory management systems also automate certain processes like ordering based on sales or other variables. 

These technologies enable secure online transactions by processing payments. Some may integrate with CMS or mobile technologies, allowing for seamless and secure payments between consumers and businesses. 

To protect sensitive consumer information and prevent data fraud, organizations implement an array of security technologies. These might include encryption, tokenization, firewalls, and fraud detection systems. Ecommerce companies may also invest in advanced data storage options to efficiently and securely store collected data. 

As ecommerce has reshaped the business world, it has created significant value for organizations, consumers, and the economy at large 

Unlike physical stores with fixed operating hours, ecommerce websites are accessible 24x7, enabling customers and vendors to do business at their convenience regardless of time zone or location. 

Ecommerce transactions and platforms generate valuable customer data on users’ behavior, preferences, and purchasing patterns. Organizations can analyze these insights to make informed decisions about marketing strategies and product offerings. 

Ecommerce has contributed to economic growth by creating new business opportunities, stimulating innovation, and fostering entrepreneurship in the digital economy. It has allowed for heightened economic activity for those who might have been absent from the global economy, including entrepreneurs in developing countries and female business owners. 9

Ecommerce allows businesses to reach customers worldwide, breaking down geographic barriers and expanding market reach beyond brick-and-mortar stores.

Running an online business typically incurs lower costs compared to maintaining a physical storefront, saving money on rent and staffing. In this way ecommerce can level the playing field for small- and medium-sized businesses, allowing them to compete on a global scale without investing in physical infrastructure.

Ecommerce platforms use data analytics and AI technologies to provide personalized product recommendations and targeted marketing messages, enhancing the shopping experience for customers. 

For large businesses as much as small proprietors, ecommerce provides businesses with the opportunity to scale their operations and reach a larger customer base, leading to potential increases in sales and revenue. 

If organized holistically, ecommerce can streamline various aspects of business operation including inventory management, order processing, and payment processing. This can lead to increased efficiency and an improved bottom line as disparate processes are centralized. 

While implementing an online store or other ecommerce solution can be a massive boon to an organization, building an effective online retail environment has its challenges. This has been particularly true since the market grew drastically in the years after 2020. 

Some of these challenges include: 

Consistency across channels:  As omnichannel ecommerce becomes the norm, it’s crucial to ensure a consistent experience across platforms. This requires creating a seamless, cohesive set of messages and customer interactions across various channels including social media, live chats, email, ecommerce stores, and phone calls.

Data security:  As ecommerce collects some of the most valuable information a consumer might share – credit cards, bank accounts, and shipping addresses – it's imperative to create solid data security practices with built-in redundancies and strong encryption. These processes should be frequently tested to combat fraud, cyberattacks, and data breaches. 

Global trade and compliance:  Many ecommerce organizations sell goods over international borders, meaning they’ll interact with myriad regional regulations. These might include data protection laws (such as GDPR), product safety regulations, and local laws around taxation, all of which need to be assessed and complied with.

Market saturation and rising consumer expectations:  Particularly since 2020, when the popularity of online shopping exploded, consumers have high expectations for vendors. Legacy ecommerce organizations face competition from DTC outfits and smaller vendors, while customers increasingly want perks like free returns and same-day shipping. 

Supply chain management:  Managing inventory and order fulfillment, depending on the size of the business, can be a challenge in itself, particularly if an organization is engaging multiple suppliers. 

Technical issues:  Downtime and technical glitches can be devastating for an ecommerce business, not only in terms of lost sales but in consumer trust. Managing several channels at once and ensuring a seamless customer experience is crucial for an ecommerce business. 

Discover how IBM's digital commerce and ecommerce consulting services can transform the omnichannel commerce experience with AI and automation, making commerce truly intelligent. 

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1 Global E-commerce Jumps to USD 26.7 trillion, fueled by COVID-19 , United Nations, May 2021

2 Attention Shoppers: Internet is Open , New York Times, 12 August 1994 

3 This Day in History: Amazon Opens for Business , History.com 

4 Walmart , Encyclopedia Britannica, 20 February 2024

5  E-commerce Policy and the Global Economy: A Path to More Inclusive Development? , Management International Review, 3 November 2022

6 The Race to Regulate E-Commerce is Just Beginning , Thomson Reuters, 7 February 2024

7  The Race to Regulate E-Commerce is Just Beginning , Thomson Reuters, 7 February 2024 

8 Its Showtime! How Live Commerce is Transforming the Shopping Experience , McKinsey, 21 July 2021

9  E-commerce is globalization’s shot at equality , World Economic Forum, 19 January 2020 

• Electronic Commerce

E-Commerce or Electronic Commerce means buying and selling of goods, products , or services over the internet. E-commerce is also known as electronic commerce or internet commerce. These services provided online over the internet network. Transaction of money, funds, and data are also considered as E-commerce. These business transactions can be done in four ways: Business to Business (B2B), Business to Customer (B2C), Customer to Customer (C2C), Customer to Business (C2B). The standard definition of E-commerce is a commercial transaction which is happened over the internet. Online stores like Amazon, Flipkart, Shopify, Myntra, Ebay, Quikr, Olx are examples of E-commerce websites. By 2020, global retail e-commerce can reach up to $27 Trillion. Let us learn in detail about what is the advantages and disadvantages of E-commerce and its types.

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 e-commerce or electronic commerce.

E-commerce is a popular term for electronic commerce or even internet commerce . The name is self-explanatory, it is the meeting of buyers and sellers on the internet. This involves the transaction of goods and services, the transfer of funds and the exchange of data.

So when you log into your Amazon and purchase a book, this is a classic example of an e-commerce transaction. Here you interact with the seller ( Amazon ), exchange data in form of pictures, text, address for delivery etc. and then you make the payment .

As of now, e-commerce is one of the fastest growing industries in the global economy . As per one estimate, it grows nearly 23% every year. And it is projected to be a $27 trillion industry by the end of this decade.

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Types of E-Commerce Models

Electronic commerce can be classified into four main categories. The basis for this simple classification is the parties that are involved in the transactions. So the four basic electronic commerce models are as follows,

1. Business to Business

This is Business to Business transactions. Here the companies are doing business with each other. The final consumer is not involved. So the online transactions only involve the manufacturers, wholesalers, retailers etc.

2. Business to Consumer

Business to Consumer. Here the company will sell their goods and/or services directly to the consumer. The consumer can browse their websites and look at products, pictures, read reviews. Then they place their order and the company ships the goods directly to them. Popular examples are Amazon, Flipkart, Jabong etc.

3. Consumer to Consumer

Consumer to consumer, where the consumers are in direct contact with each other. No company is involved. It helps people sell their personal goods and assets directly to an interested party. Usually, goods traded are cars, bikes, electronics etc. OLX, Quikr etc follow this model.

4. Consumer to Business

This is the reverse of B2C, it is a consumer to business. So the consumer provides a good or some service to the company . Say for example an IT freelancer who demos and sells his software to a company. This would be a C2B transaction.

What is m-Commerce?

Examples of E-Commerce

Advantages of e-commerce.

• E-commerce provides the sellers with a global reach. They remove the barrier of place ( geography ). Now sellers and buyers can meet in the virtual world, without the hindrance of location.
• Electronic commerce will substantially lower the transaction cost. It eliminates many fixed costs of maintaining brick and mortar shops. This allows the companies to enjoy a much higher margin of profit.
• It provides quick delivery of goods with very little effort on part of the customer. Customer complaints are also addressed quickly. It also saves time, energy and effort for both the consumers and the company.
• One other great advantage is the convenience it offers. A customer can shop 24×7. The website is functional at all times, it does not have working hours like a shop.
• Electronic commerce also allows the customer and the business to be in touch directly, without any intermediaries. This allows for quick communication and transactions. It also gives a valuable personal touch.

Disadvantages of E-Commerce

• The start-up costs of the e-commerce portal are very high. The setup of the hardware and the software, the training cost of employees, the constant maintenance and upkeep are all quite expensive.
• Although it may seem like a sure thing, the e-commerce industry has a high risk of failure. Many companies riding the dot-com wave of the 2000s have failed miserably. The high risk of failure remains even today.
• At times, e-commerce can feel impersonal. So it lacks the warmth of an interpersonal relationship which is important for many brands and products. This lack of a personal touch can be a disadvantage for many types of services and products like interior designing or the jewelry business.
• Security is another area of concern. Only recently, we have witnessed many security breaches where the information of the customers was stolen. Credit card theft, identity theft etc. remain big concerns with the customers.
• Then there are also fulfillment problems. Even after the order is placed there can be problems with shipping, delivery, mix-ups etc. This leaves the customers unhappy and dissatisfied.

What is Digital Economy?

Solved Question for You

Q: Corporate vulnerability is a disadvantage of e-commerce. True or False?

Ans: This is True. E-commerce means the sellers have to give the consumer all the product details. This information reveal can make the company vulnerable with its competitors, who can use this information to their advantage.

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What is e-commerce?

In 30 short years , e-commerce has revolutionized the way we shop. No longer does shopping refer only to going to a store, picking out and paying for goods, then bringing them home. Shopping trips that used to take hours can now take seconds, and can be done from anywhere with an internet signal. The thrill of the purchase is now stretched out, starting with the click to buy and culminating with the “unboxing” (which has become an industry in itself).

Get to know and directly engage with senior McKinsey experts on e-commerce

Arun Arora is a senior partner in McKinsey’s Paris office; Yuval Atsmon , Ralf Dreischmeier , Kate Smaje , and Bjorn Timelin are senior partners in the London office; Julien Boudet is a senior partner in the Southern California office; Marc Brodherson and Ari Libarikian and are senior partners in the New York office; Karel Dörner is a senior partner in the Munich office; Aimee Kim is a senior partner in the Seoul office; Sajal Kohli is a senior partner in the Chicago office; and Paul Roche is a senior partner in the Bay Area office.

Simply put, e-commerce is anything—goods or services—that is bought or sold on the internet. E-commerce has been growing consistently ever since the first online transaction in 1994, when someone sold his friend a Sting CD for $12.48 plus shipping. But when the COVID-19 pandemic hit, triggering lockdowns all over the world, customers went all in : year-over-year growth of e-commerce as a share of total retail sales grew 1.6 times in China, 3.3 times in the United States, and 4.5 times in the United Kingdom. E-commerce sales penetration in the United States more than doubled  to 35 percent in 2020 from the previous year, roughly the equivalent of ten years of growth . Globally, nearly 20 percent of total global sales in 2021 were made from online purchases. By 2025, nearly a quarter of all global sales are expected to be made online.

Large retailers were the primary beneficiaries of this massive collective pivot, particularly those who had invested in e-commerce infrastructure and capabilities for years prior. But for businesses accustomed to operating offline, incorporating e-commerce into the customer experience can be fraught with challenges. According to McKinsey analysis, small and medium-size retailers (those with less than $5 billion in annual revenue) and brand manufacturers, such as consumer packaged goods and apparel companies, realize a much smaller portion of revenue  from e-commerce than large retailers with years of experience in the e-commerce realm. For those who rushed to launch e-commerce services, cracks are already beginning to appear. But we’ve also seen that the e-commerce opportunity, particularly for SMEs, is tremendous .

Read on for a deep dive into e-commerce: we’ll start with how e-commerce can drive value for small and large retailers. Then, we’ll move onto how other types of organizations, including brands, consumer packaged goods companies, and B2B companies, can build value via e-commerce. Finally, we’ll turn to how organizations in emerging markets are embracing e-commerce.

Learn more about McKinsey’s  Growth, Marketing & Sales Practice.

Looking for direct answers to other complex questions?

How does e-commerce drive value for retailers.

E-commerce builds value for retailers of all sizes by driving efficient sales and creating alternative revenue streams, like retail media networks.

Smaller retailers

Many small companies, in their rush to launch a new business, fall into traps that inhibit long-term growth. The stats for new business survival are grim: only 24 percent  of new businesses launched in the past ten years have become viable large-scale enterprises.

Nascent e-commerce businesses face special challenges. McKinsey analysis has identified five short-term traps  that hamper small- and medium-size companies’ e-commerce growth, as well as ways to guard against them:

• Leading with tech focus, while deferring investment in areas such as operations and channel management. To avoid inventory shortfalls, ensure that sales and operations leaders have the same success metrics as IT teams, and build all elements of the business in parallel.
• Building a directionless tech stack solely useful for launch. The wrong tech architecture will create technical debt that hampers efforts to scale. To combat this, define the longer-term architecture and build a minimum viable product as a steppingstone to a larger goal.
• Underinvesting funds and capabilities. Companies are frequently tempted to spend as little as possible on launching e-commerce businesses, and then expect an immediate ROI for every dollar spent. To guard against this trap, build in a “learning buffer” to any budget, to allow for necessary (and instructive) setbacks.
• Learning the economics on the fly, rather than taking time to fully understand unit economics and implement a business model with long-term potential. Instead, work to understand the key drivers of growth and profitability through the lens of profit and loss.
• Building the new business too close to the core. Corporate business-building activities are often hampered by internal policies that slow the development of new business. Combat this by creating distance between the new e-commerce business and core businesses. This allows for more agile ways of working to develop that reflect the nature of the new business.

Larger retailers

For larger retailers looking to get a piece of the e-commerce pie, time is of the essence . Generally, companies can create a working e-commerce site in less time than they think; in McKinsey’s experience, new businesses can be launched in fewer than four months.

McKinsey worked with a European retail chain that had around 1,000 brick-and-mortar retail stores across the world, and that had decided to create an e-commerce presence. Thirteen weeks later, it had a fully functioning e-commerce business in one of its regions. Launch was successful from the first month, generating nearly 3 percent revenue growth in the region, tripling average basket size compared to retail stores, and maintaining high customer satisfaction. Here are the three main lessons  from that program:

• Be pragmatic. Rather than attempting to launch a full-blown digital business across all markets at once, the retail CEO decided to go to market fast, in one region, with a limited offering. All initiatives that didn’t have direct customer impact were postponed in favor of efforts that did.
• Assign ownership, not tasks. By clearly designating which teams were responsible for which tasks, the retail chain was able to launch at speed. The chain created four teams in charge of the launch: tech and design, operations, product assortment, and marketing.
• Learn and adapt. Putting in place the right key performance indicators early in the process of launching an e-commerce business is critically important. These allow companies to track what’s happening, and adapt to drive continual improvement.

Learn more about McKinsey Digital .

What’s a retail media network?

2020 was a tough year for traditional retail. Customers shifted to e-commerce channels by nearly 30 percent, adding to retailers’ pandemic-related challenges. In order to compete, retailers have needed to rethink their growth strategies.

One way to approach the problem is by joining a retail media network  (RMN). RMNs hold potential value for retailers by offering the chance to build a high-margin business to drive e-commerce innovation. RMNs work by leveraging retailers’ detailed knowledge of their customers to offer advertising opportunities for brands to target customers through a retailer’s digital channels, physical stores, and syndication on third-party platforms like Google. RMNs also offer brands the opportunity to access customers directly via first-party data. And finally, RMNs can help brands deliver a seamless, digitally enabled omnichannel  shopping experience.

Many large retailers in the United States, like Amazon and Target, have already built and scaled RMNs. The biggest opportunity is for retailers in Europe, the Middle East, and Africa, where RMNs are still a relatively hidden and fast-growing profit stream. (For example, in the United Kingdom, RMNs are growing by more than 10 percent  year over year.)

How can e-commerce drive value for brands?

One way brands can build value is via direct-to-consumer (DTC) e-commerce . There are distinct advantages for retailers establishing direct relationships with end consumers. Here are a couple of examples of brands that successfully used DTC e-commerce :

• Harry’s, a men’s grooming product company, used DTC to generate customer insights and build community . A pre-launch campaign helped the company gather 100,000 email addresses from potential customers through a waitlist and social sharing. Harry’s also learned from its interactions with early customers and tweaked its products before releasing them more widely.
• DTC also gives brands like L’Oréal direct access to consumer feedback for evaluation and testing. In 2018, the beauty brand launched its augmented reality try-on service to let customers sample makeup and hair-color products at home. The use of this touchless service increased dramatically during COVID-19.

A clear strategy that identifies the opportunity and execution capability to convert consumers can help businesses get set up for DTC e-commerce success.

E-commerce can also drive value for brands via live commerce and social commerce . Live commerce blends entertainment with instant purchasing, offering retailers, brands, and digital platforms a new channel with massive scope for creating value. Its cousin social commerce is where consumers explore products and make purchases through social media and content creation platforms, within an app.

Both live commerce and social commerce got their start in China. Brands in China have achieved conversion rates of almost 30 percent on social platforms, up to ten times higher  than conversion in conventional e-commerce. They’ve achieved these remarkable numbers by developing partnerships with social media influencers  and participating in live-stream shopping (an experience that combines instant purchasing of a featured product and audience participation). In 2021, Chinese consumers spent $352 billion—or 13 percent of total e-commerce gross merchandise value—on social commerce. The staggering numbers from China offer a glimpse of what’s possible in the US and globally: already, in 2021, $37 billion in goods and services were purchased through social commerce channels. That number is expected to grow to nearly $80 billion, or 5 percent of total US e-commerce.

Live commerce was pioneered by Alibaba in 2016, with the launch of Taobao Live, a streaming service that allows users to sell items and engage with other users. Customers responded, and live commerce became a mainstay of sales campaigns for Single’s Day, a major shopping event in China, as well as a reliable tool for boosting customer engagement and sales. The numbers speak for themselves: In 2020, the first 30 minutes of Alibaba’s Single’s Day campaign on Taobao Live generated $7.5 billion in total transaction value . And in a 2020 survey, two-thirds of Chinese consumers  said they had bought products via livestream in the preceding year. Taking China’s experience as a bellwether, live commerce seems to hold enormous potential for brands and e-commerce platforms.

Live commerce creates value  in two ways. First, live commerce accelerates conversion by keeping viewers entertained during an immersive shopping experience. Time-limited tactics like one-off coupons can be used to create a sense of urgency. Live commerce also improves brand appeal and differentiation by increasing a brand’s distinctiveness in the context of entertainment.

To get started in live commerce, brands will need to take a thoughtful, iterative approach  to the medium, exploring low-risk options first. Test the waters, running infrequent streams on one social media channel or marketplace focused on only a few products. Also, track the performance of livestreams with key performance indicators for numbers of views, conversion rates, and best-selling products. Gradually, brands can begin to experiment with a regular schedule of live events hosted on their own websites, managed by a full-time in-house or agency team. Finally, brands can scale up to broadcast frequent livestreams across multiple channels, focused on different audience segments and product categories.

Learn more about McKinsey’s Growth, Marketing & Sales  Practice and McKinsey Digital .

How can e-commerce drive value for consumer packaged goods (CPG) manufacturers?

Consumer packaged goods are items used on a regular basis by most people, such as food, clothes, cleaning products, and toiletries. As we’ve seen, with COVID-19, there has been a rapid and large-scale shift from in-store retail to e-commerce. Before the pandemic, only 13 percent  of US households had purchased groceries online; as of late March 2020, that number had risen to 31 percent. And consumer sentiment surveys taken as the pandemic wore on indicated that US consumers were happy with the shift to omnichannel shopping . McKinsey analysis shows that online sales in US retail jumped 40 percent  year over year in 2021.

This news has come as a mixed blessing for CPG manufacturers. That’s because e-commerce has, for many manufacturers, historically been less profitable than brick-and-mortar sales. Looking ahead, manufacturers should strategize about how to maintain margins.

McKinsey analysis points to four ways to improve margins :

• Establish detailed transparency into e-commerce profits and loss. This means integrating into business reporting the e-commerce metrics that enable business leaders to get a full picture of performance, make informed investment trade-offs, and align decision makers.
• Earmark specific e-commerce marketing investment, rather than drawing from shopper-marketing budgets.
• Use e-commerce revenue growth management  tactics, including introducing channel specific products to prevent consumers from making direct price comparisons.
• Incorporate omnichannel  supply chain actions, including improving demand forecasting  and executional precision, and redesigned, lower-cost packaging.

McKinsey forecasts that, in the future, new ways to reach consumers  will continue to emerge, competition for marketing and trade dollars will heat up, and personalization and precision targeting will become top priorities .

Learn more about McKinsey ’s   Consumer Packaged Goods  and Growth, Marketing & Sales  Practices.

How can e-commerce drive value for B2B companies?

Misconceptions abound when it comes to B2B e-commerce. Despite e-commerce being a key purchasing gateway for many corporate buyers, McKinsey frequently hears from B2B companies that “customers aren’t ready,” or that “e-commerce is an immature space for a business like ours.”

In reality, according to McKinsey research , two-thirds of corporate buyers rely on digital and remote channels throughout their purchasing journey. And B2B suppliers are ramping up their capabilities at incredible speed.

Here are five myths around B2B e-commerce  that are past due for dispelling:

• Most B2B companies don’t offer e-commerce. Actually, 65 percent of B2B companies across industries now offer e-commerce capabilities, up from 53 percent in early 2021. And in a remarkable first, B2B sellers are now more likely to offer e-commerce channels than in-person selling.
• B2B buyers prefer face-to-face interactions. In reality, two-thirds of corporate customers prefer digital or remote in-person engagement when given the choice.
• A basic e-commerce site is enough. Incorrect: McKinsey research shows that a majority of B2B companies treat e-commerce as a full-service channel and are investing accordingly. More than 80 percent of B2B companies say they hold their e-commerce channel to the same or higher standard as other channels.
• E-commerce is only for repeat or low-ticket B2B purchases. This assumption is based on outdated wisdom. These days, businesses have shed any trepidation about conducting large transactions online. More than one-third now say they are willing to spend $500,000 or more on digital channels, and 15 percent say they are comfortable making purchases of over $1 million online.
• Digital marketplaces are a next-level nice-to-have. The opposite is true. B2B buyers see digital marketplaces as a critical part of the purchasing mix. Sixty percent of buyers say they are open to purchasing on digital marketplaces.

How can e-commerce support business growth in emerging markets?

E-commerce in Africa, for instance, supports a very mobile population in efficiently accessing goods and services. In an interview with McKinsey, Sacha Poignonnec—the CEO of Jumia, Africa’s largest internet group—says e-commerce gives users in villages and small cities more choice  than they would have otherwise.

A major challenge in Africa, and other emerging markets, is logistics. Because there are no address systems in most cities in Africa, e-commerce players need local partners who know where to find customers. Sometimes the address is “the third street by the church with the blue door,” Poignonnec says. You need someone on the ground who knows what that means.

Poignonnec also emphasizes the potential for small businesses  in emerging markets to grow via e-commerce, because the investment required is small compared to the number of customers a business can reach. Rather than going offline to online, as many merchants are doing in Europe and the US, retailers in emerging markets can start small, invest in an online store, then eventually leverage e-commerce success to open a brick-and-mortar store.

Learn more about Growth, Marketing & Sales  consulting at McKinsey—and check out job opportunities related to e-commerce if you’re interested in working at McKinsey.

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