Ecommerce 101: All you need to know about it
Nowadays, running an ecommerce operation is a must for premium retailers and brands selling any product or service. The digitalization of other services in the last decades, the growing access to technology and events such as the COVID-19 pandemic accelerated ecommerce in nearly every retail category, research shows. In this article, we’ll go through an Ecommerce 101 recap, showcasing the main highlights of ecommerce from the beginning of this business model to its evolution in the last years and the recent trends.
Ecommerce 101 – from the basics
What can be considered ecommerce?
By looking at the actual word, ecommerce stands for “electronic commerce” — which basically means to buy or sell something online. It can also refer to the sales channel of any other business that trades online; from using an app to make an order to paying online, everything counts as ecommerce.
It is, indeed, a broad definition, which opens up space for several different models of ecommerce and its growth to become the definitive way of making transactions.
History of ecommerce
The first-ever appearance or introduction of ecommerce happened in 1979, when English entrepreneur Michael Aldrich came up with a model that connected a TV to a transaction-processing computer via a telephone line, therefore connecting companies and people and enabling an online transaction. Some may still attribute this transaction to what’s called teleshopping, where people can buy through phone calls, but it is generally considered the birth of ecommerce.
Not much later, in 1982, the first ecommerce company, Boston Computer Exchange, was founded. It basically worked as an online market where people could sell their used computers.
Two main highlights in the history of ecommerce are from the 1990s and curiously from the same industry: books. In 1992, Book Stacks Unlimited, the first online book marketplace, was founded. Three years later, it was time for Amazon to be in the spotlight as the newest ecommerce platform for books — it hasn’t always been the commerce giant with its own grocery chain.
From that on, digital payments became a real thing with PayPal and when Alibaba was founded it paved the way for new opportunities and different ecommerce models: from the traditional one to marketplaces.
It is nice to highlight that ecommerce only became popular with the introduction of the internet and globalization. Before that, very few businesses were involved and betting on a digital operation and it was for a simple reason: it was not profitable. And, of course, the shift in consumer behavior played a huge role in this popularization: initially buying only collectors’ and used items online and later on using the internet as a tool for comparing prices and items.
The evolution of ecommerce
The ecommerce market has tremendously evolved in different verticals: general statistics, business models and technology. We’ll look at them all.
Talking about numbers, it is a notable development: from 2014 to 2021 the annual global ecommerce sales in retail grew from $1.3 billion USD to $4.8 billion USD. The prediction for 2024 is $6.3 billion USD, amounting to a growth of 31%. The COVID-19 pandemic plays a huge role in this growth: in the US alone, there was a growth as high as 61% in online shopping from 2020 to 2021, while physical stores saw a decrease in sales.
Several other regions and countries went through the same process, forcing companies to digitize in order to fulfil customers’ needs and stay competitive. This phenomenon did not apply to one specific industry — from fashion to grocery, they were all impacted.
In terms of business models and technology, there are many new experiences and ways of operating/shopping. Below are some of them.
The marketplace model
Over time, it became easier and easier to sell or to build an online marketplace, which explains why in 2021 43% of purchases made in the US were from marketplaces — not including Amazon. There are plenty of advantages to the seller and the businesses who choose to either sell on a marketplace or have third-party sellers operating on their digital premises, such as adding one more sales channel and increasing product assortment.
Throughout the years, to keep up with consumers’ preferences, a fully-connected shopping experience came up, allowing them to buy from anywhere, choose between delivery or pick-up and even facilitating returns and exchanges.
By December 2019, online sales accounted for 63% of omnichannel growth during the same period. As of 2021, according to Google, omnichannel strategies drive an 80% higher rate of incremental store visits.
Ecommerce was initially a business of its own, but statistics and the changes in recent years forecast each time that omnichannel is the way to go.
Ecommerce business models
An ecommerce store can operate in different business models. We can define them by looking from the following perspectives: who is selling to whom, how it is selling and where it is selling.
When it comes to who sells to whom, the models are the same as for every other business operation:
- B2C: Business to Consumer. It is basically companies selling products or services to the end-customer. That’s the same model for usual shopping center stores, for example.
- B2B: Business to Business. Companies that are selling products or services to other companies operate in this model — it is how automotive companies operate in Brazil: selling exclusively to distributors, who will later on sell to the final consumer.
- C2C: Consumer to Consumer. It’s the case of websites such as eBay or Etsy, where people can sell used or handmade products to others.
- C2B: Consumer to Business. Imagine a freelancer selling its work to companies through the web — that’s exactly it.
On the other hand, looking at how the product or service is sold, independently of the business model, we consider the following approaches:
- DTC: It stands for Direct to Consumer and, as it suggests, includes companies that do not have any intermediaries to make its products or services get to the end-customer — they sell directly to them.
- White label products: It applies to companies that sell only products brought from distributors; they do not have an exclusive product of their own, but instead just apply their brand and tag to it.
- Dropshipping: This is an order fulfillment method that uses a third-party seller as a shipping agent so that businesses don’t need to keep products in stock. In this model, the business is only responsible for selling the product; packing, last-mile delivery and all other logistics involved are the responsibility of the seller.
- Wholesale: Includes companies that sell products (not applicable to services, in this case) in bulks, for a smaller price, instead of individual pieces. Though most common in B2B companies, there are plenty of B2C companies choosing this one.
- Subscription retail: As companies and newspapers have been doing for a long time, other businesses have started selling their products and services through subscription plans — this is the case for giants like Netflix and Spotify and even for grocers, which identified this opportunity in recent years.
The future of ecommerce – what to expect?
The future holds a lot for ecommerce, and while opinions on what it will look like may differ (i.e. some may say it’ll be exclusively online, while others believe in the return of brick-and-mortar stores), it’s a consensus that customer experience will be more important than ever, such as personalization and integrated channels. Here are some of the trends we believe will not only surge, but stick around for the years to come.
Imagine combining the physical store experience and customer service with online shopping — this is what live shopping is all about: connecting an online livestream broadcast to a digital store, therefore allowing participants to buy the products presented live, or even having someone from the shop available to solve any questions or help find the best product. It has come to stay and the successful case of Brazilian luxury chocolate brand Dengo is an example of that.
More than 50% of Americans spend most of their days on mobile devices, points out a study from Statista. During the COVID-19 pandemic, the usage of social media grew by 21%, indicating that each time more and more users are spending their time on platforms such as Instagram, TikTok and Facebook. Companies found a way of taking advantage of those numbers: selling products through social media. This is what we call social selling, a growing model of ecommerce.
Conversational commerce stands for real-time conversations between brands and customers in messaging apps with the goal to sell or shop. From the brand’s side, it can happen through chatbots, artificial intelligence or real people, all with the goal of closing a deal and, why not, offering a more accurate and personalized customer experience.
Besides the trends mentioned above, one thing to agree with is that ecommerce has become a fundamental part of the shopping process, with a 13% share of total US retail sales and quarterly revenue surpassing $222 billion USD in 2021. Digitalization is the way to go!