E-commerce: What It Is, How It Works, Types of E-commerce, and Examples
E-commerce, or electronic commerce, is the buying and selling of goods and services online through various platforms and services.
It originated in the United States and later expanded to Europe, with the rise of digitalization and the shift of businesses to online platforms.
Today, e-commerce encompasses not only financial transactions and trade but also various processes such as marketing and advertising campaigns. Technically, it involves a database for collecting information about products, customers, and payments, servers for storing and processing data, and product delivery systems.
How e-commerce works
In addition to a server, client database, and delivery service, there are several components required for e-commerce:
Online platform: An online platform serves as a store where customers can make purchases. Formats can vary, ranging from dedicated websites to social media pages.
Advertising: Various advertising methods are used to attract customers to the online platform. Examples include email marketing, targeted advertising, search engine marketing, and more.
Automation Systems: Automation systems such as CRM (Customer Relationship Management), document management software, online point-of-sale systems, and chatbots are utilized to streamline operations.
Customer Service: Human support services are required for tasks that cannot be fully automated. For example, personnel are necessary for warehouse operations and product shipping.
To understand the process of e-commerce, let's go through the stages of online trading:
The customer becomes aware of the products through advertisements, visits the website, browses the assortment, and decides to make a purchase. If the decision is positive, they place an order.
The placed order is transferred to the server and then routed to a specialist through a dedicated program.
The specialist reviews the request and checks if the product is available in the inventory. If the required item is in stock, the order is confirmed, and the customer proceeds to make the payment.
An automatic request is sent to the financial system to process the payment.
The manager confirms the payment, and the customer receives an automated message stating that the payment has been accepted, and the order is being processed.
The order is forwarded to the warehouse, where the staff prepares the items for shipment.
The delivery service dispatches the order to the customer.
If the product is digital rather than physical, the steps related to delivery are skipped.
Types of e-commerce
Types of e-commerce can be divided into:
B2B (Business-to-Business): Involves interactions between businesses, such as making deals and establishing partnerships. Dedicated internet platforms are used for B2B negotiations.
B2C (Business-to-Consumer): Involves providing goods and services to individual consumers for personal use. This is done through online stores and services. A significant advantage is that companies save on the rent of retail and warehouse spaces.
B2G (Business-to-Government): Involves the interaction between businesses and government entities. For example, government procurement portals. In the B2G model, organizations comply with specific conditions set by governmental institutions. It can be a complex but profitable business since the government is a major and reliable client.
C2C (Consumer-to-Consumer): Involves transactions between individual consumers. Well-known platforms for C2C e-commerce include "Avito," BlaBlaCar, eBay, and others.
G2C (Government-to-Citizen): Involves the relationship between the government and citizens through online resources. This can include citizen information services and is not always related to commercial transactions. Examples include tax payments, project registration, and acquisition of permits.
C2B (Consumer-to-Business): Unusual type of e-commerce where consumers determine the price of a product. Buyers vote for a specific price, and the final decision is made by the company. C2B involves online platforms acting as intermediaries to find sellers based on the price proposed by customers.
G2G (Government-to-Government): Occurs through internet resources and involves document exchange within governmental authorities.
B2E (Business-to-Employee): Involves various systems of intra-corporate e-business or commercial relationships with employees. Online intranet platforms function as corporate websites for implementation.
B2B2C (Business-to-Business-to-Consumer): Represents the combination of two popular types of e-commerce. For example, an online pizzeria that relies on a delivery service. The following chain is formed: pizza manufacturer (B2B) – delivery service (B2B) – consumer (B2C).
D2C (Direct-to-Consumer): A modern and emerging type of e-commerce gaining popularity among companies. It involves attracting customers directly to the brand through social media, applications, and other channels. An example is Nike, which withdrew from the Amazon platform and created its own mobile application.
In the current context, the most common types are B2B and B2C.
Advantages and disadvantages of e-commerce:
Cost reduction: Moving a business online reduces company expenses. For example, opening an online store eliminates the need for renting physical space and hiring staff.
Expansion of customer base: Internet resources provide the opportunity to sell globally without significant costs (for physical goods, consideration should be given to the feasibility and organization of worldwide shipping). In the case of trading information and digital products, the market is unlimited.
Fewer intermediaries: Companies can interact directly with customers without intermediaries through e-commerce. This leads to resource savings, improved service quality, and potential changes in product pricing.
Precise sales analysis: Analytics systems track sales, organizational development, and other processes accurately.
Dependency on the internet: Not all regions have unrestricted high-speed internet access, which can significantly impede the progress of e-commerce.
Legal and taxation issues: The absence of comprehensive legal regulations often hinders successful transactions in e-commerce.
Security concerns: Online businesses must be highly protected against fraudsters and hackers as they deal with confidential customer information, as well as sensitive data of the organization and its employees.
Copyright infringement: This remains one of the most relevant issues, as unique information can be released to the public domain without the owner's permission.
Examples of e-commerce
Online auctions are special internet platforms where unique products are sold. In this format, the prices of the items are determined by the buyers themselves. The item goes to the highest bidder. Many platforms operate on this principle where users place their maximum bid on the item. Online auctions generate revenue through automated sales.
Marketplaces are platforms where customers and service providers interact. Customers post the tasks they need to be done, and service providers offer their price for completing the work. Marketplaces cover a wide range of topics and industries. For example, eTXT copywriting marketplace allows customers to find skilled writers for creating high-quality texts in various formats.
Marketplaces generate revenue by charging a commission when customers transfer money to service providers.
Online directories are websites that list links to other internet resources or online stores. Customers use directories to search for specific products or services online, such as cosmetic services. The revenue from directories comes from providing space for online stores to feature links to their products or from commissions earned on purchases made by customers.
Group Buying Services
Group buying services are platforms where a group of people collectively purchases a large quantity of a product from a seller at wholesale prices. This benefits both the sellers, who can expand their customer base and offer discounts, and the service itself, which earns revenue from selling the rights to access these discounts.
Regulation by government
The regulation of e-commerce by the government varies across countries, but the underlying goal is to establish a legal framework that ensures fair and secure online business practices. In the United States, e-commerce is primarily regulated by federal laws, such as the Federal Trade Commission Act, which prohibits deceptive and unfair trade practices. Additionally, specific regulations exist for areas like consumer protection, data privacy, and electronic signatures.
In Europe, e-commerce is regulated by a combination of European Union (EU) directives and national laws implemented by individual member states. The EU has introduced directives such as the E-commerce Directive, which harmonizes rules for online services across member states, and the General Data Protection Regulation (GDPR), which governs the protection of personal data.
Regulations in both the US and Europe cover various aspects of e-commerce, including consumer rights, online advertising, electronic contracts, data protection, intellectual property rights, and competition. These regulations aim to safeguard consumers, foster trust in online transactions, and ensure a level playing field for businesses.
Governments enforce these regulations through legal measures, regulatory agencies, and enforcement actions against non-compliant businesses. It is important for businesses engaged in e-commerce to stay informed about the applicable regulations and comply with them to maintain ethical and legal business practices.
E-commerce refers to the process of conducting sales over the Internet. To operate in the e-commerce model, organizations require:
- customer database;
- delivery service;
- internet platform;
- advertising sources;
- CRM system;
- customer service.
Examples of this type of commerce include not only traditional online stores but also marketplaces, auctions, catalogs, and group buying platforms.
The main advantages of online sales include the absence of expenses for renting premises and necessary equipment, and reduction in staffing costs. It also allows for global business expansion and selling products/services worldwide. However, there are also drawbacks, such as unreliable protection of personal and company data, high competition, and the presence of plagiarism.