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.
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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.
This 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 24/7, 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.
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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