What is E-commerce?
E-commerce, or electronic commerce, refers to the purchase and sale of goods and services using internet technologies. Also known as digital commerce, this form of retail using internet technologies includes both the business-to-business (B2B) and business-to-consumer (B2C) segments. The medium used is not relevant to this definition: An offer via email is considered e-commerce just as much as an order via an online shop or marketplace (e.g., Amazon or eBay).
History of E-commerce
According to the Guardian, the first electronic transaction was a drug deal. In 1971/1972, students at Stanford University bought marihuana from colleagues at the Massachusetts Institute of Technology. The sale was made on the internet precursor Arpanet.
Seven years later, British inventor Michael Aldrich developed ‘online transaction processing’. This was a television device (Videotex) that was able to communicate with a transaction service via a telephone line. Teletext served as a frontend at the time. The first official transaction was completed by Jane Snowball in 1984. She used the remote control of her television to order margarine, cornflakes and eggs.
With the increasing commercialisation of the internet, online retail became more and more established. The first online sale, which even included an encrypted credit card payment, was completed in 1994. The US marketplace Netmarket sold the CD ‘Ten Summoner’s Tales’ by Sting.
Types of E-commerce
There are different types of e-commerce, depending on the contracting partners.
In business-to-business (B2B), both business partners are companies. Here, we differentiate between human interaction (via an online shop) and interaction via a technical interface (EDI). EDI stands for electronic data exchange between application systems of participating companies and makes up the lion’s share of B2B sales.
Business-to-consumer (B2C), on the other hand, describes conventional purchases in online shops and marketplaces. The vendor is a company and the purchaser is a private person.
Transactions between companies as vendors and governments or official bodies are called business-to-administration (B2A). These transactions are special because they usually involve public tenders. Vendors or service providers have to submit a quotation to the tendering body. There are some exceptions, for instance, in Switzerland: Below a threshold value, bids may also be submitted without a public tender. “Mandates from CHF 230,000 for supplies of goods and services and from CHF 2 million for constructions require a public tendering process”, according to the Swiss Confederation. “Mandates for supplies of goods and services below a value of CHF 150,000 can be awarded without a public tendering process (for constructions below CHF 300,000).”
Another form of electronic retail is consumer-to-consumer (C2C). Both contracting parties act as private persons, selling and buying things in online classified ads (e.g., eBay) or via other internet auctions. A difference here is that, unlike commercial sellers, private sellers have no legal warranty obligation.
Advantages and Disadvantages of E-commerce
Advantages for Customers
24/7 availability of the shop and products
Customers can order/shop comfortably from their couch – using a laptop, tablet or smartphone
Customers can compare prices and offers during the purchasing process
Services such as cloud computing, infrastructure, online storage and applications are available straight away without implementation
Digital products such as streaming services (music) and e-books are available immediately
Delivery is usually fast (from a few hours to three days)
Return option
Vast range of products
Advantages for Vendors
Reduced personnel cost
Access to international markets, regardless of location
Flexible pricing
Disadvantages for Customers
No face-to-face interaction with sales staff, only via chat/email
No tactile experience online – however, there are initial attempts to recreate this with virtual reality tools.
Disadvantages for Vendors
Implementation is usually complex
Requires significant marketing/advertising
Technical challenges/surrounding systems (shop, PIM, ERP, DAM)
Significant competition
Price pressure due to easy comparison
Returns (effort/cost)
Warehouse and warehousing costs
E-Commerce Figures
E-commerce has seen steady growth for years, and the Covid-19 pandemic further accelerated this development. According to eMarketer, the growth rate was close to 52.1 per cent in 2021, whereas it was only 44.8 per cent in 2020.
If you look at the most important e-commerce markets, these were the revenue figures for individual countries in 2021:
China: USD 2,779 billion
USA: USD 843 billion
United Kingdom: USD 169 billion
Japan: USD 144 billion
South Korea: USD 121 billion
Germany: USD 102 billion
France: USD 80 billion
India: USD 68 billion
Canada: USD 44 billion
Spain: USD 37 billion
The numbers match those published by Statista. They estimate the total revenue to be 2,696 billion. Another interesting figure: “The average revenue per user, ARPU, is estimated to be € 780.” The e-commerce revenue in 2022 is forecast to be around € 3.2 trillion. As soon as more recent numbers become available, we will update them above.
Internet Pure Player
The term ‘internet pure player’ or IPP describes online retailers who only offer their goods in the digital realm. They usually have a centralised warehouse management for the delivery of purchases. The most well-known pure players in this part of the world are probably Amazon, Zalando and Otto. The opposite model to an IPP is a local retailer who runs an online shop in addition to their brick-and-mortar store. However, goods offered online are often part of an online-only product portfolio. The local stock is only included when necessary.
E-commerce is Changing
There can be no doubt that retail in general is undergoing significant change. City centres are becoming increasingly deserted and more and more businesses are giving up in the face of digitalisation. Online retailers, on the other hand, are pushing into local shopping arcades with innovative concepts.
Internet pure player Amazon, for example, is known to have created an entire ecosystem. The powerful product search helps users find Amazon’s own products and browse the product portfolio of other retailers on digital marketplaces. Add to that microservices such as Prime delivery (within 24 hours), Prime Video, Prime Music and Prime Books. Now, after the successful introduction in the USA (Amazon Go), the company is opening its first local supermarkets in Europe/London. Under the Amazon Fresh brand, so far known for delivering groceries to your door, the online retailer is entering the brick-and-mortar grocery business (BBC video). What’s different about this store is that customers log into the smartphone app before entering, take whatever they want to buy off the shelves and leave again – without a physical check-out or payment process in the store. The invoice is automatically connected to and deducted from their Prime account. This purchasing process without check-out is possible thanks to high-resolution cameras and sensors that register even the smallest movements of customers and goods.
Information and Digital Commerce
In digital commerce, nothing works without information and structured data. These days, countless surrounding systems are linked to online shops and different touchpoints access this data, so standardised product data management is a must. Not only does consistent information automatically ensure a consistent brand identity, but a standardised data structure and single source of information (PIM/content hub) also facilitate communication between employees and customers (consulting).
Another bonus is that structured information increases the visibility of products and services offered online. The shop can provide needs-based search results. There is a good reason why the content-based optimisation of shop pages, also known as search engine optimisation or SEO, plays a key role in online retail.
Summary
Change is not just about a large pure player adding several touchpoints in the grocery market to their portfolio. Most customers these days are demanding and expect omnichannel services – or at least multichannel services. Retailers benefit from offering individual services such as product and styling advice with a personal appointment and unlocking additional potential on Instagram, Facebook and YouTube (i.e., social sales and social marketing). Online retailers such as Zalando or notebooksbilliger.de now even offer personalised advice via WhatsApp. The lines between the online and offline worlds are blurring and both sides benefit. Along the customer journey, services need to be flexible and relevant for the customer.
To be successful in e-commerce today, you need to have good answers to the three key expectations of customers: Quality, availability and price. This includes goods and services offered, but also the platform (shop system) and the surrounding systems (PIM, ERP and DAM). On the one hand, vendors need to put in an enormous effort to meet their customers’ expectations. On the other, it takes high-performance technology to ensure systems stay stable even under peak loads (Black Friday = high order volumes). This is one reason why smaller vendors rely on established marketplaces: less technological effort and greater reach. The disadvantages are lower margins and pressure from the marketplace provider.
Contact for your Digital Solution with Unic
Book an appointmentAre you keen too discuss your digital tasks with us? We would be happy to exchange ideas with you.
Contact for your Digital Solution
Book an appointmentAre you keen to talk about your next project? We will be happy exchange ideas with you.
