What Is E-Commerce?

E-Commerce Explained

A couple smile as they make a purchase using a credit card and a laptop while lying in bed

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E-commerce is the buying and selling of goods and services online in exchange for money and data to complete the transaction. E-commerce is primarily conducted on computers and smartphones, but can also be facilitated by other smart devices, such as TVs and even watches. 

To understand the e-commerce experience, it’s important to learn what it is, how it works, and the different types that exist. 

What Is E-Commerce?

E-commerce is the buying and selling of goods and services online, with a transfer of money and data to execute the transaction. While e-commerce can take place on a variety of devices from mobile phones to desktops, mobile has accounted for nearly two-thirds of e-commerce traffic in recent years. However, just over half of actual sales have taken place via mobile. 

E-commerce platforms come in many forms, from massive marketplaces like Amazon, to the artisan/craftsperson-driven shopping experiences on Etsy. E-commerce also includes consumer-to-consumer shops hosted by eBay, and small mom-and-pop shops powered by platforms such as Shopify. 

Alternate names: electronic commerce, internet commerce

How E-Commerce Works

Depending on the type and size of e-commerce platform, customers may have the option to search for specific items like a brand of shoes in a certain size, or browse broader categories like electronics. This makes it easier for them to do comparison shopping before deciding where to shop. 

Once a customer makes their buying decision, the path to purchase should be pretty seamless. Most e-commerce sites offer a “Shopping Cart,” an electronic cart that customers can fill by selecting their items of choice and clicking the “Add To Cart” option. When they are done shopping, customers can pay for their items all at once by going to “Checkout” and filling out billing, shipping, and credit or debit card information to finish the transaction. 

Some e-commerce stores may even offer coupon or promotional codes that offer a discount on your first transaction, or other perks like free shipping. This sales tactic can be used to compel you to create an account and become a repeat customer. 

Some e-commerce sites may post reviews from customers detailing their experiences with a specific product you’re looking for. This can foster a communal experience among fellow consumers while browsing. There are sometimes hundreds of reviews to consider, from harsh to glowing, and they can have an impact on sales. 

There are similar attractions for sellers as well when it comes to e-commerce. Merchants, manufacturers, or mom and pop operations can sell their goods and services on their own sites or pay a fee and commission to sell them on other sites—or do both. 

Why E-Commerce Works

Anyone anywhere with access to the internet and a means to pay electronically can take part in e-commerce. One way to explain how e-commerce works is to explain why it works so well. In general, e-commerce is attractive because of:

  • Convenience
  • Selection
  • Product and price comparison
  • Reviews
  • Ease of transaction
  • Ease of returns
  • Delivery 

In his final shareholder letter as Amazon CEO, Jeff Bezos perhaps best summed up the power of e-commerce. He wrote that in comparison to traditional shopping, “Customers complete 28% of purchases on Amazon in three minutes or less, and half of all purchases are finished in less than 15 minutes.”

According to Amazon, small and medium sellers account for 50% of all units sold in its online stores, which garnered over $302 billion in sales in the U.S. in 2020. This, however, accounts for just a fraction of total global e-commerce sales, which reached $4.28 trillion last year.

Types of E-Commerce

There are a few major e-commerce models represented below with their acronyms and examples of who is selling what to whom:

  • Business-to-consumer (B2C): A business sells a blouse to a consumer.
  • Business-to-business (B2B): A business sells to another business, like a paper company selling to a printer.
  • Direct-to-consumer (D2C): A business like Sony, for example, sells a TV directly to a consumer with no intermediary. 
  • Consumer-to-consumer (C2C): A consumer sells a product to another consumer on sites like Etsy or eBay.
  • Consumer-to-business (C2B): A consumer or an independent contractor sells goods or services to a business. 

Of course, sellers are free to move between categories and market to businesses and consumers at the same time. 

Key Takeaways

  • E-commerce is the buying and selling of goods and services online in exchange for money and data. 
  • E-commerce takes place on buying and selling platforms of all sizes, from Amazon, to Etsy, and mom and pop shops.
  • The e-commerce experience generally provides an easy path to purchase. Customers browse items and categories on a platform, add items to a “cart,” and go to “Checkout” to complete the transaction by entering billing, shipping, and card info.
  • There are different types of e-commerce arrangements, such as business-to-business (B2B), business-to-consumer (B2C), direct-to-consumer (D2C), consumer-to-consumer (C2C), and consumer-to-business (C2B).