What is eCommerce?
Ecommerce (stands for electronic commerce) is the process of buying and selling goods and services on the internet. It encompasses online marketplaces, eCommerce platforms, and a wide variety of data, systems, and tools for online buyers and sellers.
Most businesses with an eCommerce presence use an eCommerce store and/or an eCommerce platform to conduct online eCommerce marketing and sales activities and to oversee logistics and fulfillment.
What’s the difference between an eCommerce platform and an online marketplace?
An eCommerce platform is commonly referred to as a platform that is used by a brand to build their online store such as Shopify, BigCommerce, WooCommerce, or Magento. The eCommerce platform usually offers the brand services like web design, listing customization, SEO, payment encryption, mobile shopping, and other marketing plugins or tools.
An online marketplace is simply an online meeting place between sellers and buyers. These can grow to encompass much more than just a technical toolkit for brands to build their own stores. They come with their own engaged audience and usually only offer the ability to display products and market them through advertising and promotions. They are places like Amazon, eBay, Houzz, Etsy, and Wish.
Types of eCommerce
There are 6 main types of eCommerce transactions.
Let’s look at each one in greater detail.
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1. Business-to-Consumer (B2C)
This is the most common type of eCommerce and it involves a business selling directly to the consumer. For example, if you buy a shirt from a fashion brand’s site you are engaging in a business-to-consumer transaction.
2. Business-to-Business (B2B)
This is a transaction between two businesses, where one firm offers a good or service to another firm. An example would be a social media tool that sells access to social media scheduling features to small businesses. These sales often focus on raw materials or products that are repackaged before they are sold to consumers.
3. Consumer-to-Consumer (C2C)
This is one of the earliest forms of e-commerce that involves a transaction between two consumers. A great example could be the sale of a used book by a consumer to another consumer on Amazon or eBay.
4. Consumer-to-Business (C2B)
This is a traditional eCommerce transaction but in reverse. This is where a consumer sells a product or service to a business. One example of this could be when an influencer charges a business to take a picture or video with a product.
B2A refers to a situation where a business sells its product or services to a government entity. For example, a service company that provides a permitting service to a government administration.
C2A refers to a transaction where a consumer offers a product or service to a government entity. This could be a tax filing or scheduling a health appointment online.
5 eCommerce business models
B2C is the most popular form of eCommerce and it has grown substantially over the last few years. B2C eCommerce is expected to grow 85% by 2023 globally. In China alone, there will be an estimated 1 billion online shoppers by 2022. Nasdaq estimates that 95% of all shopping will be conducted online by 2040.
What’s so powerful about Business-to-Consumer transactions is that they are so versatile. They are five main business models that B2C brands can choose from:
1. DTC - direct to consumer
A new generation of consumer brands has been created by cutting out the middleman. The Direct-to-Consumer model allows the brand to sell directly to its consumers, engage with its audience online, and increase sales rapidly. Instead of the average 10% margins, DTC brands can increase their margins to 30-50% using this model.
2. White label and private label
White labeling is when a brand partners up with a manufacturer or a distributor to create their product. That means the manufacturer produces the product and the brand can focus on technology and marketing.
Wholesaling is when a retailer offers their product in bulk at a discount. This model is traditionally used in B2B transactions but some companies use this for price-conscious consumers.
Dropshipping is when a brand sells a product that is fulfilled by a 3rd party supplier. Dropshipping platforms like AliExpress or Printful act as middlemen that connect brands to manufacturers. This model of eCommerce is a $95 billion market.
5. Subscription service
This is when a brand delivers its product or service at a regular time interval (weekly, monthly, annually, etc.). This is by far one of the most lucrative business models in the eCommerce world because it vastly improves lifetime customer value (CLV). This model was used as early as the 1600s by English publishing companies to deliver books monthly to their customers.
History of eCommerce
1979: Michael Aldrich invents electronic shopping
Michael Aldrich introduced electronic shopping by hooking up a modified TV to a transaction-processing computer via a telephone line. This technology made it possible to transmit payment data in a secure way and became the foundation for modern eCommerce.
1982: The first eCommerce company launches
Boston Computer Exchange launces in 1982. It was an online marketplace for people interested in selling their used computers.
1992: The first eCommerce marketplace launces
Book Stacks Unlimited is launched in 1992 by Charles M. Stack. Originally it was a dial-up bulletin board but it was later launched as an online marketplace from the Books.com domain
1994: Netscape Navigator launches as a web browser
Before Google ever came onto the scene, Marc Andreessen and Kim Clark launched the world’s first web browser called Netscape Navigator. It became the primary web browser on the Windows platform during the 1990s.
1995: Amazon launches
Jeff Bezos launches the business that is to become the world’s largest eCommerce marketplace. It was initially started as an eCommerce platform for books.
1998: PayPal launches as the first eCommerce payment system
PayPal was started by 4 founders - Max Lebhin, Peter Thiel, Like Nosek, and Ken Howery. It was a money transfer tool that later merged with Elon Musk’s online banking company in 2000.
1999: Alibaba launches
Alibaba Online launched as an online marketplace. It had more than $25 million in funding and by 2001 it was profitable. It quickly became the largest online eCommerce platform for B2B, C2C, and B2C transactions.
2000: Google launches Google Adwords
Google Adwords ushered in a new era of online advertising. It was the first tool of its kind that let eCommerce brands advertise their product to searchers on Google. This was the beginning of pay-per-click (PPC) advertising.
2004: Shopify launches
Tobias Lutke and Scott Lake launched Shopify as an ecommerce platform for online stores and point-of-sale systems. It is now the platform of choice for ~80% of all eCommerce brands globally.
2005: Amazon introduces Amazon Prime membership
In an unprecedented move, Amazon launched Amazon Prime which created a way for customers to get free two-day shipping for a flat annual fee. The program has over 150 million members worldwide and helped the company boost its loyalty and repeat purchases. Studies show that 20% of Amazon Prime members shop on Amazon a few times per week.
2005: Etsy launches
Etsy is the first online marketplace for crafters and sellers of handmade goods. It launched in 2005 and marked an important milestone for the “maker community”. The unique marketplace has over 4.3 million sellers.
2009: BigCommerce launches
BigCommerce is a 100% bootstrapped ecommerce platform launched by Eddie Machaalani and Mitchell Harper. Unlike Shopify, BigCommerce had no transaction fees so it offered an edge for new eCommerce brands entering the market.
2008: Groupon launches
Groupon is a global eCommerce marketplace that connects subscribers to local merchants through deals and promotions. By 2010 it was available in 150 in North America and 100 cities in Europe, Asia, and South America. Groupon later launched a goods marketplace in 2015 called Groupon Stores.
2009: Amazon acquires Zappos for $1.2 billion
This marks the first major acquisition of an eCommerce marketplace by a tech giant.
2011: Google Wallet is introduced as a new digital payment method
This is the first digital payment to come out after Paypal and become a global standard. Google Wallet introduced a way for individuals to send and receive money from a mobile device or desktop computer. It later became part of Google Pay.
2011: Facebook rolls out the first form of advertising
Facebook’s earliest advertising was offered to Business Page owners via sponsored stories. It provided a way for brands to advertise in users’ news feeds by promoting the users’ organic posts.
2011: Stripe launches
Stripe is a unique payment processing company that launched in 2011 and provided eCommerce brands a much easier way to process payments.
2014: Apple Pay is introduced
Apple Pay is launched and becomes the third large payment method behind Google Pay and PayPal for online shoppers. It allows users to pay for products and services using an Apple device.
2014: Jet.com launches
Jet was launched in 2014 by Marc Lore (who sold his previous company Diapers.com to Amazon) as a marketplace for bulk purchases of goods at the lowest prices anywhere. The company raised $820 million and was acquired by Walmart in 2016 for $3.3B.
2017: Shoppable Instagram is introduced
Instagram launched an integration with BigCommerce that allowed users to click on an image of a product and immediately go to the product page of that online store. It has marked a new way for brands to advertise on social media and made Instagram the leading social media platform to promote eCommerce goods.
2017: Cyber Monday sales exceed $6.5B
Cyber Monday sets a new record of eCommerce sales exceeding $6.5B, double what they were just 2 years prior in 2015.
2020: COVID-19 drives a 77% increase in eCommerce transactions
The COVID-19 pandemic pushed more consumers to shop online than ever. Studies show that by May 2020, eCommerce transactions reached $82.5B which is a 77% increase year-over-year.
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Growth of Ecommerce
Ecommerce has grown at an unprecedented rate in the last few years. The arrival of platforms like Shopify and BigCommerce made it easier for brands to set up their online shops. Online payment gateways like PayPal, Google Pay, and Apple Pay plus payment processing tools like Stripe made it even easier to accept payments.
Experts even announced that the US lept 10 years forward in terms of eCommerce sales in the first 90 days when the epidemic hit.
What’s interesting is that eCommerce sales were actually $57M more than what experts were predicting. The latest data suggests that by 2025 sales are going to be double what they were in 2017.
- US sales on Amazon increased by 19.1% in 2019 and amounted to over $222.6B
- Global retail eCommerce sales predicted to double to $7 trillion by 2024.
- Uber Eats revenue from online orders was up 224% in Q4 2020.
- The international shipping platform eShopWorld saw cross-border eCommerce sales increase by 82% in 2020 as more brands are starting to sell internationally.
The advantages of eCommerce
Ecommerce is so popular because it has several key advantages that make it more desirable than the traditional brick and mortar model. Here are some of the most important ones.
Greater access to customers
First and foremost, eCommerce cuts out the middle man (supplier, distributor) and allows brands to have direct access to their customers. There is an entirely new customer journey that’s created and the brand can communicate directly with the customer at every touchpoint. This spans email marketing, SMS, chat messages, packaging inserts, social media, retargeting, referral programs, and much more.
DTC model improves the ROI and margins to 40-50%
When you cut out the middle man you also increase the margins. So eCommerce brands get to make more money by going DTC. This is why Adidas recently announced that they will be aiming for 50% of sales to be direct-to-consumer by 2025. This will help them hit their revenue targets.
Brands are able to provide a true omnichannel experience
The way to grow your sales like Adidas is by creating an integrated ecosystem of marketing channels. And with eCommerce, you’re really able to create that omnichannel experience of attracting new leads and delighting customers through using multiple channels. And you can do that strategically and very effectively.
Flexibility and better customer service for customers
Why did Amazon take off? Largely because they were able to provide greater flexibility and an improved service to their customers. Amazon Prime offered free 2-day shipping to select items and set a new standard for eCommerce brands.
Amazon is also known for having some of the best return policies on the web and a recent study showed that Americans trust Amazon more than the government, media, the police, or even Oprah.
Faster response to buyer/market demands
When you sell directly to the customer you are able to be much more flexible and agile with their product offering, features and can change things rapidly to better fit with market demands. They’re not as reliant on long-term contracts with distributors and retailers that freeze up large amounts of inventory. So they can innovate at a much higher scale and rate.
Personalized online experience
One of the greatest advantages of running an eCommerce operation is the availability to personalize every aspect of the user experience. When a brand sells something on an online marketplace they don’t have any control over the design, layout, return policies, checkout process. While on their own site they have full control over every step of the customer’s journey, every design element, wording, and interaction with the customer.
Easy to retarget your customers
Bringing traffic to your site, instead of an online marketplace or another distributor, has another advantage. You can use the Facebook pixel to retarget everyone that comes to your site. You can run Facebook advertising campaigns, native advertising on Google’s Display Network, or send email campaigns if you have their email.
Brands can scale quickly
All of these advantages of having greater access to customers, providing a more personalized service, and retargeting customers through an omnichannel experience can really help a brand scale much faster than using a traditional commerce model.
And this is true for brands that are already large. For example, L’Oreal’s eCommerce division is growing two times faster than the rest of the business.
Another example is the Canadian clothing brand Canada Goose. They set their eyes on growing their DTC efforts and were able to be 50% direct-to-consumer by 2019 with a 75.3% DTC gross margin.
The Disadvantages of eCommerce
However, there are a few disadvantages to using the eCommerce model. Here are the main ones:
Customers can’t try before they buy
A major disadvantage in online shopping is that customers can’t try the product before they buy. So some eCommerce brands are seeing increased return rates and this hurts industries like fashion and shoe retailers the most. The beauty industry has created a lot of augmented reality (AR) apps that scan the user’s face and display different makeup products.
eCommerce is very competitive
The lower the barriers of entry the more competition there is and this is certainly true of eCommerce. It’s easier than ever to launch an online store and sell your product on online marketplaces so there’s a lot more competition. It’s difficult to differentiate your product from the rest, to really build your store the right way to sustain long-term growth.
Customers can get impatient
Online customers can sometimes expect a better service and faster delivery times in the eCommerce industry. This can get challenging for brands as even one bad review can seriously impact sales. So the key here is to set the right expectations, to communicate the brand story really well, and to invest in a top-notch customer service team early on.
Also, make sure that you display reviews on your site and use plugins that display them on Google’s search results, Google Shopping, and all your online marketplaces.
Unforeseen shipping delays
Online brands have a higher chance of something going wrong with a shipment. It could be the shipment to the customer or a bulk shipment to a warehouse. When something is missing from a physical store it’s less noticeable than when a specific product is missing from an online store because of all the various marketing campaigns that are geared around that product.
Shipping delays occurred much more frequently during the COVID-19 pandemic and a lot of brands were incredibly affected by that.
Ecommerce Trends for 2021 and Beyond
The biggest trend in eCommerce today is DTC. A lot more brands are focusing on developing that one-to-one relationship with their customers and really owning their brand narrative online versus focusing on manufacturing. These brands don’t have to own their own manufacturing or distribution, they care more about perfecting the digital personalized experience of each customer.
Physical retail is still a huge driver for brands
Ecommerce is growing at an 8.69X faster rate than retail and yet medium-large eCommerce brands still keep a strong retail presence. That could be through their own brick-and-mortar stores or through retail partnerships. Very few brands can continue to sell only online as stats show that in-store retail is here to stay.
Facebook continues to be the top acquisition channel
Although there are new channels that brands use as part of their omnichannel strategy, Facebook advertising remains the top acquisition channel. What makes Facebook ads particularly powerful is the data tracking features through the Facebook Pixel, creating lookalike audiences, and the wide variety of ad types available.
Increased focus on CLV
CLV stands for Customer Lifetime Value, and it’s a measure of how much value a customer brings to the business. As brands focus on long-term growth they strive to decrease their customer acquisition cost and increase referral revenue.
Influencers + UGC used as reviews and ads
Brands increasingly use influencers and user-generated content as reviews for social proof and as advertising creatives. As soon as an influencer grants permission the brand can then reuse the images as ads on Facebook’s advertising.
Another big trend is brands using video content from influencers as advertising. Longer form video (1-3 minutes) is used for social media ads where influencers explain the benefits of the product and show it in action.
Increased growth of eCommerce marketplaces
Last but not least, one of the biggest trends is the growth of online marketplaces. We’re talking places like AliBaba, AliExpress, Wish, Rakuten, Etsy, Houzz, and others. Marketplaces provide brands with access to engaged audiences that are eager to explore new products. The most successful brands diversify their channels to include retail partnerships, DTC, online marketplaces, and distributors.
We’ve covered eCommerce from every angle and there is a lot more to talk about. If you want to learn about specific marketing strategies for eCommerce brands please check out our Ultimate Guide to eCommerce Marketing.