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What Is E-Commerce?

Posted by zdumlao to on January 7th, 2013

Though browsing the Internet and shopping online may seem to our technology-driven world like a phenomenon that is familiar and comfortable, as if it has always been this way, e-commerce actually has a very recent history. Even those who can still remember the days before simply clicking “Checkout” on a web browser may marvel at the fact that e-commerce as we know it today is only a little over twenty years old. Since 1991, what is now well known as e-commerce has greatly improved the ease of buying and selling products through the fantastic connectivity of the Internet.

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Though the technology to allow for online shopping only became available to the public in the 1990s, the idea of online shopping was actually invented by an IT expert and entrepreneur named Michael Aldrich in 1979. Much ahead of his time, he successfully connected a television through a telephone line to a processing computer and called it tele-shopping. More than 40 years later, his original idea has come to fruition – even smart TVs now allow for shopping online! Aldrich is credited with the invention of online shopping, though it has changed a great deal since his original vision.

The basic idea of e-commerce, buying and selling products or services electronically without any paper documents, was named as such when the Internet was opened to commercial use in 1991. These transactions began with the use of technology like Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). This technology allowed commercial enterprises to exchange payments and documentation electronically through the web with each other. E-commerce between businesses is still the largest source of e-commerce today.

It was almost a decade later, however, when the popularity of e-commerce really caught on with the general public. Some of the consumer populace started becoming acquainted with e-commerce in 1994, but it took four more years for proper security protocol (for example, HTTP) to be developed to ensure safe online transactions, and for DSL to become more widespread, allowing greater Internet access. Then, in the late 1990s and early 2000s, e-commerce began being defined as the process of purchasing goods and services over the Internet using secure payment services and electronic checkout, more like what we know today.

The dot-com collapse in 2000 created a bit of an obstacle for e-commerce, as many online companies were forced out of the marketplace. Yet, the bust was actually a silver lining in disguise because at that time, brick and mortar businesses had an opening to incorporate online sales with their current business model. Some of the biggest companies, like grocers Albertson’s and Safeway, saw their chance to “go virtual,” adding shopping cart capabilities to their web presence. By 2001, the Business-to-Business model, which is the largest form of e-commerce, was reaping in $700 billion in transactions per year.

As you can see from the infographic above, Business-to-Business (B2B) e-commerce, or commerce between companies, accounts for 80% of all e-commerce sales. Also known colloquially as e-biz, B2B works well for companies who sell products that other companies need. The reason why these sales are so much greater than consumer e-commerce is because they are often raw commodities that are sold in high volume. For example, one company may sell a ton of rubber tires, glass windows and plastic to another company that will then use those materials to build a car. Through the rise of e-commerce, these bulky orders can be completed easily, efficiently and securely online.

Business-to-Consumer (B2C) e-commerce is probably the most familiar type of e-commerce to the average consumer. This is the equivalent of browsing through shoes, clothes or books online, finding the product, adding it to a virtual shopping cart, and then providing account information to finalize the sale. Many consumers appreciate the wide variety of options the Internet provides for finding exactly the right product, the ease and convenience of shopping from home, and the no-hassle availability of having it shipped straight to their home. Furthermore, it’s fun! Unlike a brick and mortar retailer, e-commerce provides the advantage of leisurely browsing, holding an item for a few days for consideration, making wishlists for the future, and cataloging products by interest or availability. The most popular items sold online to consumers are books, music, computer and offices supplies, and consumer electronics.

The two lesser known forms of e-commerce are still extremely unique and provide innovative new ways of doing business. Consumer-to-Consumer e-commerce (C2C) includes websites like Craigslist and eBay, where people can list their personal items online for another consumer to buy through personal rather than commercial transactions. These can occur online, like through a personal profile page on eBay, or through face-to-face transactions that have been facilitated online, like through Craigslist. This type of e-commerce gives consumers even more options to find the right buyer or seller in the wide pool of the Internet, and to set their own price.

Both C2C e-commerce and Consumer-to-Business (C2B) e-commerce give consumers the liberty to set their own prices. C2B is perhaps the least common type of e-commerce, in which websites like priceline.com give consumers the option to name a price they want for a service, and then shop through a list of businesses bidding for their business. This is sometimes known as an inverted business model, much like a virtual auction.

E-commerce sales as a whole have been on the rise since at least 1999, growing 14.7% in the last five years. Every holiday season, e-commerce sales increase as more people recognize the convenience of online shopping and free shipping, and more businesses jump in the pool to offer special deals and discounts. According to the U.S. Department of Commerce, online holiday sales increased 12.3% in 2012 from the previous year, reaping in $69 billion during the holiday season. Furthermore, market research firm Forrester Research estimates that U.S. online shopping will reach $327 billion by 2016, an increase of 62% since 2011. More online shoppers, more sales per online shopper and improved websites and services on the part of businesses are all expected to account for this increase.

Projections for the future of e-commerce are very positive, and with the growth in use of smartphones, tablets, smart TVs and other portable electronics with Internet capabilities, there will only be more and more ways to shop online. Since Aldrich’s visionary idea in 1979, e-commerce has proven to be a truly marvelous reality. Every year, new and interesting gadgets are invented to increase mobility and connectivity between people, so e-commerce will surely continue to adapt and improve with the current of the times. Who knows where we’ll be in another 40 years!

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