On August 11, 1994, a compact disc exchanged hands during the first ever online sale. This transaction would mark an important shift in the way we shop and do business. It was the birth of ecommerce, the buying and selling of goods and services online.
Today, ecommerce is powered by a massive ecosystem of technologies and digital platforms from website builders to payment gateways to social media sales channels. It continues to grow, with global ecommerce sales projected to reach $8 trillion and account for 23.6% of all retail activity by 2026. It’s no wonder that new technology emerges every day, enabling businesses and creators to more easily sell products to customers online.
Ahead, explore the ins and outs of ecommerce: how it works, types of ecommerce models, online shopping trends, and the benefits of selling online. Plus, learn how to start an ecommerce business and launch your own big idea.
What is ecommerce?
Ecommerce refers to when individuals or companies buy and sell goods or services online. Ecommerce can be carried out on a smartphone app or online store, on a social media platform, or through an online marketplace. You can participate in ecommerce anywhere you can establish an internet connection. Common examples of ecommerce include online shopping, electronic payments, online auctions, and internet banking. The goal of ecommerce for the seller is to drive online sales using digital marketing strategies.
The history of ecommerce
What counts as the first ecommerce transaction is up for debate, with some activity observed as early as the 1970s. But the first legal transaction that occurred entirely online was conducted in 1994, when one friend sold a CD to another, 300 miles away. From there, ecommerce exploded, with Amazon and eBay launching just a year later, and PayPal following in 1998.
Since then, technology moved fast to meet the demands of this new type of shopper. Ecommerce platforms like Shopify democratized the industry, allowing a small business to sell directly to consumers anywhere in the world. Social commerce, mobile wallets, and AI tools round out the ecommerce we know today.
How does ecommerce work?
After a customer makes a purchase, the online retailer delivers the order via shipping, store pickup, or local delivery (in the case of physical products), or digitally (for digital products like PDFs, virtual courses, or online consultations).
Ecommerce transactions happen across a variety of devices and platforms, using a number of different payment methods. Other applications and businesses support this ecosystem, from ad platforms like Google Ads to third-party logistics companies to ecommerce store apps. Let’s explore a few of the technologies powering online sales.
Types of ecommerce platforms and online sales channels
There are many ways to reach and sell to consumers online, including owned channels like an online store and through third-party platforms. There are pros and cons to each and many online sellers choose an omnichannel approach, selling through multiple channels.
Ecommerce platforms
An ecommerce platform is a service that allows you to make money online through your own website. Shopify is an example of an ecommerce company that enables individuals, creators, and businesses of all sizes to sell online and in person through a brick-and-mortar store.
Benefits: These ecommerce companies generally offer everything you need to build a website, create product listings, and accept payments online, making them an easy way to build a brand and start selling.
Challenges: Selling on your own website requires active marketing efforts to drive traffic and make sales.
Online marketplaces
Online marketplaces are ecommerce sales channels that allow you to sell products and services to an active audience. Online selling sites like Amazon or Etsy are also powerful search engines, as they are often the first point of discovery for consumers looking for products.
Benefits: You can sell on marketplaces in tandem with your Shopify online store using integrations to sync sales. Marketplaces often have discovery built in, meaning you benefit from traffic with less active marketing.
Challenges: Marketplaces make it difficult to build a brand versus a standalone ecommerce store. You often don’t own your customer lists and you have limited control over the look and feel of your store or brand.
Social selling channels
Many social media platforms offer in-platform buying and selling features, enabling small businesses or personal brands to sell directly to audiences without an online storefront. Facebook and Instagram both offer native shopping features. You can also sell to social audiences with a Shopify Starter plan, an economical alternative to a full ecommerce website.
Benefits: You can easily sell to existing audiences on channels you already manage without building an ecommerce website.
Challenges: The audiences you build on social media sites areoften not owned. If you lose your account or the platform shuts down, you will need to rebuild from scratch.
Payment methods for ecommerce
Consumers can make online purchases in a number of ways from digital wallets to credit cards processed through a payment gateway in an online store. Ecommerce platforms usually include integrations with payment processing services and sometimes offer their own digital payment platforms. These services are the liaison for online transactions between a merchant and a customer’s bank. Payment options are often bundled in the checkout to offer the customer choice.
A few types of payment methods for ecommerce stores include:
- Accepting credit cards and other popular payment methods through a payment processor like Shopify Payments
- Redirects through a payment platform (e.g., PayPal)
- Mobile wallets such as Apple Pay and Google Pay (includes accelerated checkout options like Shop Pay)
- Buy now, pay later (BNPL) services
- Recurring billing (as in the example of subscription models)
- Order online, pay in-store on pickup with a point-of-sale system like Shopify POS
Types of ecommerce businesses explained
There are many ecommerce types, defined by who you are and who you’re selling to. Some helpful ecommerce terms to know are as follows.
Business to consumer (B2C)
A business that sells goods or services to an individual consumer (e.g., An ecommerce footwear store sells individual pairs of shoes directly to its customers).
Business to business (B2B)
A B2B business that sells goods or services to another business (e.g., A software company sells licenses for its technology to a small business).
Consumer to consumer (C2C)
An individual who sells goods or services to another individual (e.g., A person sells a single used sofa to another person on a buy-and-sell marketplace). Note: Once a person begins selling multiple items in this way (a vintage reseller using channels like Depop), their business model could be considered B2C.
Consumer to business (C2B)
An individual sells their own products or services to a business or organization (e.g., A business pays an independent influencer to promote the brand on social media).
You may also encounter a few other terms to describe types of ecommerce businesses. Direct-to-consumer (DTC or D2C) brands are those that primarily sell directly to their customers, either online or in person, without a middleman (a retailer or distributor). A digitally native vertical brand (DNVB) refers to a DTC business that started entirely online. Popular examples of these ecommerce business models include mattress brand Casper and men’s grooming brand Harry’s.
5 ecommerce revenue models
In addition to deciding what type of ecommerce business you want to run, it’s important to decide how that business will make money. There are at least five different revenue models used by businesses selling online. They are:
- Sales model. This is the most common model used by online brands and physical stores alike. It involves selling products and services for profit.
- Subscription model. Growing in popularity among consumers and ecommerce DTC brands, this model relies on recurring revenue from subscriptions to products or services.
- Advertising model. This model is common among online creators and influencers who grow personal brands thanks to advertising deals (promoted content) with other businesses.
- Affiliate model. Affiliate programs are also popular among creators who have large followings and may or may not sell their own products. They earn commission when a customer buys a product using an affiliate link.
- Transaction fee model. This model applies to ecommerce companies that process financial transactions. They earn revenue by charging a fee on each sale.
The benefits of ecommerce businesses
Running an ecommerce business has its perks. Not only does this business model allow you to launch a business quickly, it also offers access to a global pool of potential customers looking for a convenient way to buy your product and interact with your brand.
1. A convenient way for consumers to shop
Ecommerce allows customers to shop from anywhere, on any device, at any time, without the need to physically visit a store. Potential customers can more easily discover your brand—even from another country—and compare products, features, and prices in minutes. With a multitude of payment options offered by ecommerce, shopping online is even more convenient.
2. Increased reach and access to new markets
An ecommerce business can reach a wider audience than a physical store alone. With an ecommerce store, businesses can sell their products to customers all over the world, without the need for a physical presence in every location. Shipping partners and logistics companies connect the dots, moving online orders across the globe.
3. Personalization and data
While it’s difficult to replace the one-to-one touch of a retail experience, online stores have a leg up on personalization. Customer data can be used for ecommerce marketing personalization, with customized experiences tailored to each individual. This can include personalized product recommendations, targeted marketing campaigns, fit finder quizzes, and loyalty programs.
Online stores usually have the ability to offer more choices, like color variants or product customization. Personalized shopping experiences can help businesses build stronger relationships with their customers and increase customer loyalty.
4. Lower startup and operating costs
Ecommerce businesses often have lower overhead costs than traditional brick-and-mortar stores. An ecommerce business can be run from anywhere, including a home office. While new business owners are still on the hook for inventory and costs to set up a website and domain, they often don’t need to worry about rent, utilities, and other high startup costs. Certain ecommerce business models such as dropshipping or print on demand don’t require inventory, and can be fairly inexpensive to set up and run.
The challenges of ecommerce businesses
While running an online business has its benefits, it also comes with a few challenges. If you’re looking to start an ecommerce business, plan for these potential pitfalls before you proceed.
Security concerns in ecommerce
One of the biggest challenges of ecommerce is security. Customers need to trust that their personal and financial information is safe when they make purchases online. Ecommerce businesses should invest in secure payment gateways, SSL certificates, and other security measures to protect their customers’ data. Note: Plans on Shopify come with security features like SSL and a secure payment gateway.
Clearly outline these security measures for customers in your terms and conditions and on the checkout page.
Increased competition
Ecommerce is a highly competitive space, with many businesses vying for the same customers. Online businesses need to differentiate themselves from their competitors by offering unique products, competitive prices, and exceptional customer experiences.
Shipping and logistics challenges
Every successful ecommerce business owner knows that a customer’s experience with shipping can make or break a brand. Online stores need to have efficient and reliable shipping and logistics systems in place to ensure that products are delivered to customers on time and in good condition.
Returns and customer service demands
In order to be competitive, ecommerce brands need to have robust return policies and customer service systems in place to handle customer inquiries and complaints. This can be challenging, especially for businesses that sell complex or technical products, or for small businesses with little or no staff.
Top ecommerce trends and statistics
Staying on top of ecommerce shopping trends will help your business remain competitive and meet ever-changing customer needs. While trends are constantly evolving, there are a few that signal a more permanent shift in the way consumers discover, buy, and support businesses.
1. Social ecommerce is on the rise
Social commerce sales in the US are expected to exceed $56 billion in 2023. Effective social selling means engaging in actual conversations with potential customers online. As you build trust and establish relationships, you can eventually move the customer through the marketing funnel toward a successful sale.
Learn more about this trend and how to sell on social platforms with these selling guides:
- How to sell on Facebook
- How to sell on Instagram
- How to sell on TikTok
- How to sell on Pinterest
- Top 10 Social Selling Platforms To Utilize This Year
2. Social platforms are the new search engines
More and more, product discovery is happening in places you might not expect. Alongside Google, consumers look to YouTube and Amazon to find brands and products. Google reported that Gen Z is using social media platforms like TikTok to research brands more often than they use search engines.
3. Online shopping goes mobile
M-commerce, or mobile commerce, refers to ecommerce transactions that occur via mobile phone. M-commerce sales were expected to account for 43% of the total ecommerce sales in the US in 2023. This number has been on a steady climb for years, and doesn’t show signs of slowing. Brands should therefore pay attention to the user experience on mobile devices, focusing on an optimized and streamlined mobile commerce UI that converts, with special attention to mobile payments.
The future of ecommerce
In one 2023 study, 56% of consumers surveyed said they would become repeat customers after purchasing with a personalized experience, which is up from 49% in 2022. With the recent surge in interest in AI technology, ecommerce brands are taking advantage of new tools to personalize customer experience. They can learn more about their customers, deliver personalized recommendations, and send targeted advertising messages.
AI is also used by ecommerce brands to create efficiencies and automate processes. Several AI apps in the Shopify App Store can help businesses automate tasks like customer service chat, syncing between sales channels, and inventory management. And adoption of AI tools is growing in the general population, with the number of users expected to double by 2029.
Augmented reality-enhanced shopping experiences are an example of another technology-based evolution of ecommerce, while additional consumer trends shaping the near future include buy now, pay later (BNPL) adoption among sellers and consumers, demand for privacy and security features, and sustainable business practices.
Starting an ecommerce business: 8 steps to launching an online store
If you’ve decided to start a business, congratulations, you’ve already completed the first step! Once you have an idea and the desire to get started, you’re well on your way to launching your own ecommerce store. Once you’ve decided on the details, you can sign up with an ecommerce platform like Shopify to help you execute your vision. Let’s do this!
- Find an idea: Look for product opportunities, untapped audiences, or a gap in the market.
- Do market research: Thoroughly research your competition.
- Write a business plan: If you plan to seek funding, this will come in handy.
- Develop a brand: Choose a logo and business name and create a set of brand guidelines including mission, values, and brand voice.
- Set up your online store: Choose an ecommerce platform and a plan that fits your business size. Customize your ecommerce site with your branding and add products.
- Choose your shipping strategy.
- Develop a marketing plan: Set sales and marketing goals and prioritize advertising channels
- Launch your ecommerce business!
💡 Learn more: Take an in-depth look at each of these steps with our complete guide on how to start an ecommerce business. Or sign up for Shopify’s free course, including video modules, templates, and playbooks to get you on your way to starting a business online.
Make the leap to ecommerce today
The ecommerce industry has lots of room for newcomers looking to bring innovative ideas to the global market. Retail ecommerce sales continue to grow, making this business model an ideal first business for aspiring entrepreneurs.
If you’re ready to start an ecommerce business, bookmark this guide as a handy resource to revisit on your way to launching your dream job.
