What Is E-commerce? E-commerce Basics Explained

TL:DR;

At its core, e-commerce is simply the buying and selling of goods and services using the internet. However, the term is often used to describe all of a seller’s efforts throughout the buying process. It starts when a potential customer learns about a product and continues through purchase, use, and, ideally, ongoing customer loyalty. Data powers the most successful e-commerce operations, which take advantage of best practices such as targeted email marketing, audience segmentation, and marketing automation. For example, following up with a customer after they have placed an item in an online shopping cart but didn’t complete the transaction can significantly increase your likelihood of making the sale.


In the 1990s, retailers discovered a new way to conduct business—the internet. E-commerce is a $2.3 trillion industry that's growing each year, so anyone who wants to make money in retail or online needs to understand its fundamentals. Let’s dive in.

What is e-commerce?

Most people think of e-commerce as selling or purchasing a physical product online. But e-commerce also includes the sale and purchase of non-physical goods, such as services and digital products.

Some e-commerce retailers sell exclusively online. For example, let’s say an entrepreneur sets up a company selling high-end pet products. In the pre-internet days, they would have had 2 choices: retail their merchandise through their own boutique pet shop, or sell it wholesale to national pet goods stores. Today, that business founder has a third option: e-commerce. They can sell their products through their own website, a third-party site, or both.

The lines between e-commerce and traditional retail overlap sometimes. When a customer comparison shops with her smartphone while standing in a brick-and-mortar store browsing its physical products, it’s hard to classify the experience as one or the other.

What are e-commerce business models?

An e-commerce business can operate as the digital arm of a retail giant. It can also be a single person selling crafts out of their home on a platform.

Of course, there's a whole range between those extremes. E-commerce models vary widely and include many sales types.

Business-to-Business (B2B)

B2B e-commerce refers to when a company purchases goods or services online from another enterprise. Some examples include a restaurant buying an ice machine or a law firm purchasing accounting software. Business software like customer relationship management (CRM) platforms and payment processing companies are considered to be B2B, too. B2B online sales tend to be more complicated than other forms of e-commerce because they rely on large catalogs of complex products.

Business-to-Consumer (B2C)

B2C online retail happens when a consumer purchases an item over the internet for their own use. Although B2C e-commerce seems more prominent, it’s only about half the size of the worldwide B2B e-commerce market.

Consumer-to-Consumer (C2C)

C2C operates like a digital yard sale or an internet auction in which individual people sell goods to each other. These might be products they make, such as handcrafts or art, or secondhand items they own and want to sell.

Consumer-to-Business (C2B)

When a consumer creates value for a business, that's C2B commerce. Creating value can take many forms. For instance, C2B can be as simple as a customer leaving a positive review for a business or a stock photography website purchasing images from freelancers. In addition, businesses that sell secondhand products sometimes purchase merchandise from private citizens online.

Business-to-Government (B2G)

These are sometimes called business-to-administration (B2A) sales. They happen when a private firm exchanges goods or services with a public agency. Usually a business contracts with a public organization to carry out a mandated service. For instance, a custodial firm might bid online for a contract to clean the county courthouse, or an IT firm might reply to a proposal to manage a city's computer hardware.

Consumer-to-Government (C2G)

Ever paid a parking ticket online? Then you've experienced C2G. This model also includes paying taxes online and purchasing goods from a government agency's e-auction. Any time you turn money over to a public agency using the internet, you engage in C2G e-commerce.

Tips for getting started in e-commerce

Do you have a great idea for an e-commerce enterprise? Whether you want to get into online wholesale, subscriptions, crowdfunding, digital products, or software as a service, there's a spot open for your wares in the e-commerce marketplace.

Here are some tips to help you begin:

Do your homework beforehand.

Whether you’ll be starting a brick-and-mortar or selling solely online, you need to write a business plan. But before you put pen to paper or fingers to keyboard, you’ll have to do some research.

There are 2 major parts to research: studying your competitors and studying your target customers.

Find out what products other online stores offer, what social media channels they use, what their business models are, and so on. This research can help you do everything from selecting a memorable name to determining what products or services to sell.

As for studying your audience, reach out to people in your personal network. If your budget allows for it, you can also conduct surveys and focus groups to identify any e-commerce gaps you can fill.

Start with a user-friendly platform like Magento.

You'll have a lot to do and learn in your first few months, which will eat up a lot of your time.

That’s why in the beginning, Magento or a similarly flexible e-commerce platform is a good option. Once you’ve established your business and gotten some e-commerce experience, you’ll have a clearer idea of what you need and have plenty of time to shop around for another solution if necessary.

Test everything.

Your system, your ads, your products—everything. You may even want to consider hiring an e-commerce testing firm to set up tests for you. Once those are established, you can conduct your evaluations, study the results, make any necessary changes, and repeat.

Diversify your advertising.

Start with—and stick with—the nuts and bolts of inbound marketing, which is a strategy that encourages people to actively seek out and engage with your brand. These include email, Facebook, and Google ads.

But you can expand to other marketing channels, too. When you conduct your research, be sure to identify the specific channels that your target audience uses the most. Incorporate these into your marketing strategy to reach more customers.

It also helps to mirror what other e-commerce brands in your niche are doing. Your competitors have likely done their own legwork in researching customers, and as long as you’re not copying their every move, it’s fine to look to them for strategic inspiration. Just remember to always cross-reference your competitor research with your own customer research as well.

Here, again, you may want to consider getting some professional help. There are a number of firms that would be happy to help you make the most out of your digital marketing efforts.

The takeaways

E-commerce is accessible to every entrepreneur with an internet connection. Experts project that by 2025, the global e-commerce market will be worth more than $24 trillion. If you’ve been holding onto the idea of starting an online business, now is a good time.

Do some market research, come up with a solid business plan, stay focused on driving traffic to your site, and you’ll be off to a great start.

Take your business to the next level