Debitoor's accounting dictionary

E-commerce - What is e-commerce?

E-commerce (electronic commerce) refers to business transactions that take place in an electronic, primarily online, setting

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E-commerce essentially means business activities that take place online. The process covers a full range of activities online that are part of a sale - from browsing to shopping, purchase to payment. E-commerce activities can occur from any device (computer, tablet, mobile), and includes retail as well as any online transactions.

The history of e-commerce

The very first instance of an e-commerce transaction occurred on August 11th, 1994. A man purchased a Sting CD using his credit card details. The transaction was completed online, marking the start of a new era in sales.

Online retailers boomed and today, online shopping and sales activities are a major source (if not the only source) of income for many businesses. An article by eMarketer states that worldwide e-commerce sales are expected to reach USD $4 trillion by 2020.

Types of e-commerce

When considering e-commerce, the first thought is direct to consumer sales - sales from online stores like Amazon or Etsy. However, there are a number of different activities that fall under the concept of e-commerce.

1. B2C

B2C or Business-to-consumer sales involve online retail selling products/services directly to the consumer. When you make purchases from an online shop and the products are shipped to you, this is a B2C sale.

2. B2B

However, B2B (Business-to-business) sales are also a major part of e-commerce. B2B e-commerce involves business that sell products or services such as web-hosting, web design, accounting & invoicing software, etc. that are used by other businesses.

3. C2C

Consumer-to-consumer sales are also becoming popular online. An example of C2C online would be Kickstarter - where individuals can provide money to businesses or projects.

4. C2B

Consumer-to-business sales occur when an individual consumer sells their products or services to a business online. A good example of this is the rise of the ‘Influencer’: an individual with a large social media following who will accept money for exposure on their profile.

The benefits of e-commerce

There are some clear advantages of running an e-commerce business (as compared to a brick and mortar-only business, for example). The main ones include:

No opening/closing hours. You can literally make sales in your sleep. Because online stores are open 24 hours a day, there are no time limitations to when sales can be made.

Large selection. There is no limitation on square footage of a physical space to prevent an expanded selection of products. Think of how big an Amazon store would need to be...

Low overhead costs. Compared to a brick and mortar (physical store), the costs of running an online store are considerably lower.

However, while that may all seem like e-commerce is the best way to go, the path of the future for businesses (and in many ways it is), there are some cons to e-commerce.

Downsides to e-commerce

The downsides to e-commerce are experienced primarily by the customer, however this can have an impact on the business and provides some ideas about how to ensure a positive online shopping experience. Generally, customers find that by buying online they:

Are not able to see/touch the products. It can be difficult for a consumer to make the decision to purchase if they’re uncertain about quality, for example. Genuine, positive reviews from other customers can be helpful in resolving doubts in these situations.

Do not receive any customer support. Or have very limited access to support in the event that they have questions about a particular product. Some companies don’t even offer an FAQ, while others provide fast replies to emails, or even a chat option on the website.

Have to wait to receive the product. This removes the instant gratification aspect of shopping. This can dissuade some users from purchasing online - they may instead do research online and purchase in person. Fast delivery times can help mitigate this downside.

By understanding the needs of your customers and the potential downsides of an e-commerce business, you can take steps to reduce the barriers to purchase.

The future of e-commerce

As mentioned, the forecast for e-commerce looks highly positive. However, as the online market grows, competition will likely increase as well. Having a plan for scaling your business and also an exit strategy will help businesses stay prepared.

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