What is E-commerce?
1.1 An introduction to E-commerce
The definition of e-commerce is the act of buying or selling goods and services over the internet. As internet access grows over time, so does the popularity of buying and selling to businesses and consumers online. Today, electronic commerce is one of the most popular ways for consumers to buy goods and services and it has been predicted that e-commerce will account for $6.7 Trillion by 2020. To put that in perspective, that’s nearly 3 times the size of the UK economy.
1.2 Technology used
As industries evolve and the internet continues to drive innovation, what was once an expensive and impractical business endeavour has now been commoditised and is available to anybody at a small price. The rise of smartphones and easy access to the internet (regardless of location) has been an important foundation for the growth of e-commerce websites and subsequently, mobile commerce has become its own market. Social media sites such as Facebook and Twitter have captured the attention of generations. This switch in attention from television and radio to mobile devices has called for a major shift in the way marketers engage with their audience.
1.3 Costs associated with E-commerce
Initial high costs of starting an e-commerce website in the 1990s stagnated e-commerce growth, however, this was short lived after innovators started to offer cloud-based solutions for a low monthly cost. This was the birth of what we know today as ‘Software as a Service’ (SaaS) and was shortly followed by the rise of social media and globalised connectivity which has become a strong driver of online shopping. With the rise of software being accessed via web browsers, the popularity of e-commerce websites and platforms have skyrocketed and the business owner has a huge number of choice when it comes to getting started selling online.
History of E-commerce
|1960s:||Development of the Electronic Data Interchange(EDI) replaced traditional mailing and faxing of documents with a digital transfer of data from one computer to another|
|1979:||Michael Aldrich [UK] demonstrates the first online shopping system. Connecting a television set to a transaction processing computer with a telephone line, created what he coined, “teleshopping”|
|1981:||Thomson Holidays [UK] is the first business-to-business online shopping system to be installed|
|1982:||Minitel was introduced nationwide in France by France Télécom and used for online ordering|
|1984:||Gateshead[UK] SIS/Tesco is first B2C online shopping system and Mrs Snowball, 72, is the first online home shopper|
|1984:||In April 1984, CompuServe launches the Electronic Mall in the USA and Canada. It is the first comprehensive electronic commerce service|
|1990:||Tim Berners-Lee [UK] writes the first web browser, WorldWideWeb, using a NeXT computer|
|1991:||The US National Science Foundation lifts its former strict prohibition of commercial enterprise on the Internet|
|1994:||“Ten Summoner’s Tales” by Sting becomes the first secure online purchase through NetMarket|
|1995:||Jeff Bezos launches Amazon.com and makes its first sale|
|1995:||eBay launches (as AuctionWeb) and sells the first item, a broken laser pointer|
|1998:||The launch of PayPal, which was eventually sold to eBay in 2002 for 1.5billion|
|1998:||The launch of Google as a search engine|
|1999:||The first online only store (Zappos) opens, bought by Amazon for $928mil in 2009|
|2002:||EKM launches as the UK’s first cloud-based E-commerce provider|
|2002:||eBay acquires PayPal for $1.5 billion|
|2004:||The Payment Card Industry Security Standards Council (PCI) was formed to ensure businesses were meeting compliance with various security requirements|
|2005:||The early beginnings of social commerce thanks to social networks|
|2008:||Groupon launch, the company was valued at over $1 billion after just 16 months in business, the fastest company ever to reach this milestone|
|2015:||Amazon.com accounts for more than half of all E-commerce growth, selling almost 500 Million SKU’s (Stock Keeping Units) in the US|
|2016:||Alibaba announces it will be acquiring a controlling stake in Lazada Group for around $1 billion|
You can download our infographic for the history of e-commerce here
Examples of Popular E-Commerce Website
Amazon is the poster boy for e-commerce website success stories and has often been coined ‘the cornerstone of e-commerce as we know it’. After leaving his job on Wall Street in 1994, Jeff Bezos founded an online book store and named it ‘Cadabra’. Bezos soon renamed the store to ‘Amazon’ as he felt this represented a place that was “exotic and different”. He also noted that beginning the company name with the letter ‘A’ would have an alphabetical advantage when people were searching for the business.
After their initial e-commerce success, Bezos saw the potential of other products through the website so he decided to diversify their listings. Diversity and innovation is still a fundamental pillar of the success of Amazon which is ever so apparent today. Amazon is now the largest internet retailer in the world and in 2016 surpassed Walmart as the most valuable retailer in the United States, placing it 9th largest globally.
The story of UK based kitchen appliance retailer ‘AO.com’ has unorthodox beginnings. It is said that CEO, John Roberts was in a pub when his friend bet him £1 that he could not sell appliances online. Roberts took up the bet and started ‘Appliances Online’ in 2001 selling white goods. ‘AO’ has always had a strong focus on its employees and company culture and was voted #4 on ‘Times best mid-sized companies to work for in the UK’. AO floated on the stock market in 2014 to raise growth capital and in 2015 turned over a reported £476.7 million.
ASOS (originally ‘www.AsSeenOnScreen.com’) started in 2000 with the idea of ‘starting an internet business where people could find clothes or accessories they had seen celebrities wear on TV’. The company soon changed the name in 2002 after diversifying its product range to more than celebrity clothes. ASOS is now a global online fashion and beauty retailer shipping to 140 countries from fulfilment centres in the UK, US, Europe and China.
The founders of B&Q saw in the 1960s that DIY was the hobby of a select few, and getting your hands on professional building supplies could be quite intimidating for the average “DIY’er”. B&Q wanted to appeal to the casual audience and opened up their first store in Southampton, UK. DIY became increasingly popular over the following decades. B&Q grew from strength to strength, when in 2001, they launched their e-commerce website, ‘www.DIY.com’, providing “24/7 access to B&Q products, expert advice and inspirational room ideas”. A notable development in recent years is B&Q’s decision to invest £60million in new website design to make sure it is responsive to cater for the ever-growing mobile audience.
eBay was founded in 1995 under the name ‘AuctionWeb’ before renaming to eBay. The online marketplace was originally built as a side project by founder Pierre Omidyar who was astonished when somebody bought a broken laser pen of the website. eBay continued as a side project for Omidyar until he had to hire his first employee, Chris Agarpao, to handle all the cheques coming through for fees.
In 1997, the company received $6.7million in venture capital funding from Benchmark Capital. The company went on to expand their category listings and the business grew rapidly.
Jack Ma grew up amidst a cultural revolution in China with a passion for expanding his horizons. After failing his university entrance exam twice, Ma began applying for jobs and famously recalls being turned down for a job at KFC. He went on to teach English for $12 a month and in his time teaching found himself dumbfounded when he searched the word “Beer” on Yahoo.com and was met with no relevant search results. Jack saw the opportunity and built “China Pages” coined as “China’s yellow pages”, eventually profiting what would have been around $800,000 at the time.
Ma then had the idea for Alibaba.com and gathered 17 of his closest friends for investment. He proposed that they should build the Chinese equivalent of ebay and will compete through a strong company culture and customer focus. With little competition in an unsaturated Chinese market, Alibaba was the first of it’s kind and grew rapidly until it’s IPO (Initial Product Offering) of $25 Billion in 2014.
What do all of these stories share in common?
Despite unique differences, all of the stories above demonstrate the power of electronic commerce and it potential to grow rapidly in often short spaces of time with little initial capital. Whether a business is a ‘pure-play’ e-commerce business or one that started offline and is now expanding online, e-commerce is a hugely scalable environment that any business can thrive in, regardless of industry.
Different types of E-Commerce (sectors)
B2B (Business to Business) means both the seller and buyer are businesses. An example of a B2B e-commerce transaction would be a clothing retailer sourcing materials to then customise and sell on to their own customers. Due to the nature and volume of B2B operations, these transactions tend to be a lot larger than one would find in a B2C environment.
B2C (Business to Consumer) e-commerce is when a business sells directly to a consumer. An example of B2C e-commerce would be an electronics company selling mobile phone accessories over the internet. In recent years, the rise of popularity of e-commerce has often eliminated the need for ‘bricks and mortar’ physical stores leading to what has been often coined ‘the death of the high-street’.
The internet has increased the choice of a consumer thereby placing more power in his/her hands. Before the internet, you would often have one large monopoly who owned a segment of the market and you would have to pay whatever price they set. Now consumers can set their own standards and specifications of what they want and companies can bid for that sale. An example of this would be a customer places a requirement on a job board where companies would then have to bid for the winning project.
The internet infrastructure now allows customers to sell directly to other customers. A popular example of C2C would be eBay, were a consumer can list their unwanted items on an online marketplace and sell directly to other consumers. This has often been referred to as ‘consumer to business to consumer e-commerce’.
Different types of E-Commerce (models)
Often referred to as ‘pure-play’ E-commerce businesses, products can only be purchased from these businesses by visiting their website. They do not have a physical premise that you can shop from and will often have warehouses to manage their stock and fulfilment. Popular examples of ‘online only’ businesses are ‘asos.com’, ‘lookfantastic.com’ and ‘made.com’.
Mail order businesses have a transactional website plus a printed catalogue and sometimes a physical store. Examples of mail order businesses include ‘Boden’, ‘House of Bath’ and ‘Lands End’.
A dropshipper is a company that will often manufacturer, store and distribute products for other businesses for a set fee. If an e-commerce business decided to use a dropshipper, they would not touch their inventory, they would simply sell their products online and send the orders through to the dropshipper would deal with the fulfilment of the goods.
Big bricks and clicks
These are large scale businesses that often have a strong physical presence and brand recognition and have built a transactional website on top of the platform. Popular examples of these businesses would be ‘Argos’, ‘Boots’ and ‘Topshop’.
Boutique bricks and clicks
These businesses often have just one or two physical locations with an e-commerce website to accompany them. Examples these businesses would be ‘Boswells’, ‘Burford Needlecraft’ and ‘Brownsfashion.com’.
This business group see no need in investing and building a website of their own, but instead market and sell their product through online marketplaces such as eBay and Amazon.
Businesses that operate in very specific niche industries are not always suited to selling on mainstream online marketplaces such as eBay or Amazon. Instead, they tend to use websites such as ‘Etsy.com’ (arts and crafts), ‘Hotels.com’ (hotels and accommodation). This way, they know the customers searching these sites will be more ‘qualified leads’ as they are operating within their specific niche.
Full multi-channel business is by far the most complex operations in the market and is using all of the channels available to them to reach their target audience. These businesses will have bricks and mortar stores, a transactional website and catalogues. With this increased logistics and complexity also comes huge potential and brand exposure. Popular ‘full multichannel’ businesses include ‘Next’, ‘Crew Clothing’ and ‘Bravissimo’.
Advantages and disadvantages of E-Commerce for businesses
Increased customer base
Being online offers a huge opportunity for businesses to reach a wider audience without the locational constraints of a physical store. e-commerce gives businesses an opportunity to connect with new customers all over the globe and sell directly to them. Most websites allow transactions 24/7 so a customer can purchase products from you regardless of your opening or closing times.
The lower cost of e-commerce when compared to a brick and mortar store often means an e-commerce operation is much more profitable than its physical counterpart. This also offers the business a great opportunity to grow as newly found profits can be reinvested into business operations.
Open 24/7 365 days
E-commerce businesses aren’t affected by whether or location-specific difficulties and are usually open 24 hours a day, 7 days a week, 365 days a year. As the ‘doors never close’, the business continues to be profitable when others are closed for business.
The lower cost associated with setting up and running an e-commerce website means that money saved can be reinvested into the operation. Be it reinvesting into the operational infrastructure or lowering your prices, these lower costs are a competitive advantage for your business.
Service-based businesses such as accountants can offer more information to their prospects without the need for direct consultation. If it would still be useful for the business to offer an ‘in-person’ consultation, a web-to-lead form can be placed on the website which will gather information about the customers who can then be contacted by telephone or email.
In a fast-moving market where time is the main asset, e-commerce gives both the business and consumer their time back. Transactions are processed and approved instantly and the money will have cleared the customer’s bank account within 3 working days.
Subscription / Recurring payments
A subscription-based model, offering a recurring payment method is easy to set up inline with an e-commerce operation and allows customers to set up their payment method once and receive products on a weekly or monthly basis.
Customers now have more choice over who to purchase products from which means businesses need to have a clearly defined competitive advantage for the market to choose them over another.
Although it is easy to set up an e-commerce business, consumers may be hesitant to buy from a company they have never heard of. In a physical retail location, a business has the opportunity to welcome customers and build trust with them, it is much harder to build trust through your website.
If there are already well-established market leaders in an industry, a business may find it hard to gain market share online as search results are dominated by established competitors. With no online experience, it could be an expensive task to get the market’s attention.
It doesn’t take much to find somebody who has been ripped off online. In a world where online scams are rife, it’s hard for businesses to gain the trust of new customers. It is important for online businesses to take measures to ensure their customer’s contact and financial details are stored safely using web fraud detection.
Credit card and fraud issues
It is in the interest of credit companies to take the side of the consumer when they have been scammed online. This means that businesses are often putting up more risk and are delivering goods before proper payment has been made. If the payment fails and the credit company favours the consumer, the business is left with no product and no payment.
Constant upkeep and management
Internet retail is still a relatively young market and there are often updates and procedures that need to be maintained to stay competitive in an ever-changing market. An example of these changing overheads would ensure the website is mobile friendly. We now live in a world where the majority of shoppers use mobile phones to purchase items, if a business’s website is not ‘mobile optimised’ they will be penalised in the search engine rankings.
Needs internet access
If a business is to move online, it is essential that they have access to a strong internet connection. Without this, they won’t be able to tend to their business in real-time and will develop a bad reputation.
Logistics and delivery
The reduction in physical customer interaction often leads to a higher number of lost orders and orders being shipped to the wrong place at the wrong time. It is important that a business develops a strong order handling infrastructure that can automate this process with as little mistakes made as possible.
Advantages and disadvantages of E-Commerce for customers
Customers now have the world at their fingertips. They can find anything they want online with minimal searching, saving money and more importantly time.
Consumers now have a much greater choice available to them. Where a physical shop may lack the storage capacity to keep different variations of products, an online catalogue has no space restrictions and products can be made to order if necessary.
More choice pushes the market into a more competitive environment. Unless a business has a distinct commercial advantage, they will be forced to compete on price. This is great for the consumer as it means they will be getting their products cheaper than if in physical retail outlets who could charge higher prices for exclusivity.
Online product descriptions can offer a wealth of contextual information that an in-store employee would not have the capacity to remember for each product. This could be things like where the product was made, materials used and how the product should be used etc.
Online reviews offer customers a ‘point-of-call’ if they are unsure about a business. By simply searching for ‘Company X reviews’ they will have a catalogue of customer experiences to take reference from.
We now live in a market where everything is convenient and ‘to-hand’. Time is a consumer’s main asset and online shopping allows them to buy their goods without leaving their home. There is a huge value placed in this convenience which now reflects badly on purely physical retail outlets that force customers to come to their store to shop.
It is now easier for consumers to see through the veil of marketing waffle and compare like for like products, side by side. This also gives the customer a better idea of what they should be paying for a product and leaves little room to be overcharged for a product.
Coupons and deals
With multiple businesses fighting for your attention and custom, each is trying to get a competitive advantage over the other. One way online businesses tend to do this is by offering coupons and discounts for shopping on their website. This is great for consumers as it doesn’t take much searching to find a bargain.
No human interaction
“The challenge of e-commerce is building effective relationships in the absence of any human interaction” – Christopher Bones & James Hammersley, ‘Leading Digital Strategy’.
Repeat business is based on building long-term relationships with customers. If a customer feels they are treated well and valued at a business, they will be more inclined to return to that business, even if they charge slightly more than competitors. The trouble with e-commerce, however, is there is no physical human interaction which makes it hard to build real human relationships and make your customers feel valued.
Businesses can’t get it right every time and returns are just part of the business. However, without a physical retail store and little customer interaction, it can often be an expensive and time-consuming task for a consumer to arrange returns if a product is not as expected.
In some exceptions, when you’re buying something online from a business you’re not familiar with, you’re taking a leap of faith. Again, without human interaction, a customer cannot be certain of who they are dealing with and whether they are a legitimate business.
If a customer buys a product on your website that is actually out of stock, they may receive the wrong product or indeed no product at all. This problem would not exist at a physical retail store.
Privacy and security
Giving away personal or financial details to an online business can often have privacy and security implications. You may be subject to financial fraud, or at the very least have your details exploited for marketing purposes.
Without being able to test products prior to purchase, a customer cannot know for certain that the product that arrives will meet their initial expectations. It is important for consumers to review a business return policy as a provision for expectations not being met when the product is delivered.
It is easy for an online business to hide something in the small print and include little hidden costs upon online checkout. Extra fees may include things like ‘extra handling fee’ or an ‘administration fee’.
Need internet access
E-commerce relies on customers having a reliable internet connection at all times. If a customer tries to access free WiFi to buy online, they may have their information may be at risk on an insecure site.
There are plenty of options available to an entrepreneur or business owner who wants to start an online business or take their existing business online. Each option has its own unique pros and cons and the decision should be based on the size and objectives of the business. Below are a few examples of how an e-commerce website can be achieved:
A bespoke development would involve going to an agency or other figures, outlining your needs and paying them for these needs. These agencies are professionals and will have many years experience in building websites and will be able to offer deep insight into what works best for your industry and what you tools you will need to achieve your desired goals.
|Experienced, will deliver a high-quality product. The consultative process if you have any questions||Costly. A bespoke development will often be a very costly process. If you’re inexperienced in e-commerce and website development, an agency may use this vulnerability to upsell you features that are unnecessary for your objectives. A bespoke development can often be quite a time consuming|
Self-hosted, often referred to as ‘open-source’ systems are developed as a public collaboration. These systems are usually very robust and scalable where the business owner has sole responsibility for the building, running and maintaining of the shop.
|Robust, scalable, full control (no external dependencies).||Expensive, requires expertise. No support.|
SaaS platform (ekm.com)
‘Software as a Service’ platforms are ‘all-in-one’ cloud-based solutions, usually based on a low priced, monthly subscription. These platforms are great for new potentially inexperienced business owners who want everything they need to build an online business in one place.
|Low cost. Easy to use, perfect for beginners. Quick setup||Don’t own the software, if the server provider goes down, so will your business. Sometimes limits or caps set e.g. the number of products. Often less robust than its dedicated counterparts|