what is ecommerce

When you purchase something from Amazon or eBay, that’s ecommerce at work. You may also have monthly subscription fees for services that are delivered online, like Netflix or Hulu. Those two services are also examples of ecommerce. Ecommerce is really defined as any type of business transaction that is performed online.

Ecommerce doesn’t end there either. It encompasses other activities like online ticketing, internet banking, and payment gateways. Purchasing goods or services online has become increasingly popular. In fact, it’s expected that global online retail sales will reach $5.4 trillion in 2022.

In this post, we’ll take a look at the basics of ecommerce:

  • Types of online merchants
  • Where they sell their products and services
  • What multichannel and omnichannel selling are
  • Different ecommerce business models
  • How to get started with your own ecommerce business


Types of Ecommerce Products

You’ll find various types of merchants selling products online. Here are the three major categories of online goods:

  1. Physical Goods – These merchants are your typical online retailers. They sell actual physical goods that customers order and pay for online, and then send the goods in the mail or by delivery service. Examples of this type of merchant include the online shoe store Zappos and eyeglasses retailer Warby Parker.
  2. Digital Products – These are merchants that sell e-goods, or digital goods, online. Products in this category include ebooks, software, online training courses, and virtual goods. Examples of this type of merchant include Udemy (provides online courses) and Shutterstock (provides digital stock photos).
  3. Services – This type of merchant provides online customers with a service. Merchants in this category are commonly consultants and freelancers. Examples of this are the freelancing site, Upwork, and the online counseling service, Better Help.


Where Can You Sell Products Online

Ecommerce businesses can also be categorized according to where the products are sold online. There are  a few different options:

  • Ecommerce Marketplaces – Ecommerce marketplaces are the online equivalent of renting space for a store in a mall. So, you can think of marketplaces like Amazon and eBay as massive malls with hundreds and thousands of merchants. An ecommerce marketplace drives website traffic by managing the overall marketing program for the website. This is a huge advantage for the online seller who doesn’t have to invest a large amount of time or money to get shoppers to find their products. However, they do have to abide by the marketplace’s rules and there isn’t much room for branding.
  • Branded Stores – Online sellers can also create their own ecommerce website that solely focuses on their own products. They own and operate the storefront as they want to. This provides more autonomy, room for branding, and overall control of the design and user experience. On the flip side, it also requires more time and money spent on marketing. Branded store owners often use shopping cart platforms like BigCommerce and Shopify to build their stores.
  • Social Commerce – Social selling involves selling products and services through social media platforms. Facebook, Instagram, and Snapchat all allow customers to cash out right on the platform.


Multichannel and Omnichannel Selling

As you learn more about ecommerce, you’ll undoubtedly come across terms like multichannel and omnichannel. At first glance, you may assume that they’re interchangeable, but they actually refer to two different approaches to ecommerce. As we consider these two, keep in mind that multi refers to “many,” while omni refers to “all.”

A multichannel retail strategy is centered on your product. It allows customers to engage and buy the same product from many different places such as Amazon, eBay, and your own branded website.

An omnichannel retail strategy is centered on your customers’ shopping experience with online and offline shopping. It allows customers to have consistent experiences across your brand, whether they shop in your brick-and-mortar store or through your branded website. With omnichannel strategies, sales and marketing are unified and channels are considered to be parts of a whole, not separate. The omnichannel approach assumes that customers will engage with multiple platforms before making their first purchase, and as a result, the business should provide a unified customer experience no matter which place they use to find your product.


Popular Ecommerce Business Models

The traditional way online sellers source products follows the path from manufacturer to wholesaler to distributor to retailer, and finally, to the customer. Some ecommerce business owners use that method, but more often these days, online sellers use the direct-to-consumer (D2C) method. D2C ecommerce cuts out the middleman. It involves the manufacturer selling products directly to consumers. D2C allows sellers to offer individual items to customers instead of buying products in bulk, increasing stock, to sell at a profit.

There are various ecommerce business models out there. Deciding which one is best for you will depend on what you want out of the business. Everything from where you want to see your products, the type of products you want to sell, your personal preferences, and the budget that’s available to work with will affect your decision. Here are some of the most popular business models for online sellers:

  • Dropshipping – With a dropshipping business model, you don’t actually have any products. Think of yourself as a middle-man. Typically, you partner with a dropship supplier that has a catalog of products. You choose the products you want to sell and list those across your various ecommerce platforms. When a product sells, you send the order details to the supplier and they ship the product to your customer. This method has low start-up costs, so many new ecommerce businesses start with it.
  • Wholesale – This model involves buying products in bulk from a wholesaler at a discounted price. From there, you store the products in a warehouse or maybe your house. When you sell a product, you’ll actually package the product and ship it to your customer.  One concern with this method is having enough storage space for your inventory. There are alternatives to storing your own inventory such as a 3PL, but we can get into that another day.
  • Retail Arbitrage – This model involves buying stock from other retailers (both online and in physical stores) and then selling it at a higher price. Retail arbitrage can be time-consuming and you don’t have control over your product catalog because you’re relying on what you can find on sale.
  • Artisan – Home and hand-crafted products can be a great niche for artists and makers, but you have to enjoy both making and selling for this model to be successful.
  • Subscription Box – Currently, the subscription box model is a hot trend in ecommerce. A customer pays a monthly subscription fee for a personally curated box full of goods you choose. This model is great for building a brand and a unique buying experience.
  • White Label/Private Label – If you’ve ever seen an identical product being sold by two or more different bands, those business owners may be using the white label business model. This model lets sellers buy generic products and then sell them under their own brand. The private label business model is similar but is exclusive to only one seller instead of anyone who wants to sell it.

Read more about these and other ecommerce business models, along with how to source products based on which business model you choose.


Getting Started with an Ecommerce Business

Opening an online store is fairly easy. All you really need is one afternoon with a laptop and wi-fi and you can have a storefront up and running. The harder part comes before and after launching your website or marketplace account.

To get an ecommerce business started, consider what we’ve covered above to narrow down options for the type of business model you want. It may help to break down tasks into three categories:

  • Business-related
  • Product-related
  • Platform-related

Business-related tasks include choosing a name for your business, deciding on a business structure, obtaining an EIN (employer identification number), and securing a domain name if you’re going to have your own website.

Product-related tasks start with research. It’s essential to look into market and product trends before deciding which products you want to sell. You don’t want to decide on a product only to find out that it isn’t popular. This process is easier if you choose the dropshipping business model because it doesn’t require a large upfront purchase of products. The next task is sourcing products. Which suppliers will you use? Is there footwork that needs to be done to source items, like finding products at brick-and-mortar stores to resell? This is also where you decide how to price your products and market them.

Platform-related tasks start with choosing the platform or marketplace you want to sell on. This may also be the time that you decide what other software solutions are needed to run the business – advertising, repricing, inventory management, order fulfillment, and listing software solutions will make daily operations much easier.


Final Thoughts about Ecommerce

We’ve thrown a lot of information your way in this post, but knowledge is power, right?

We’ve presented the options available to you in various areas of ecommerce and how to set up an online business. But if you need additional advice or insights, we’re happy to help. Contact us and let us know how we can help you take your ecommerce business to the next level.

If you’re in that final platform-related task and looking for an inventory, order, and listing software, we can help. Our ecommerce management platform can handle all that and more!


Editor’s Note: This blog post was originally published May 2020 and was updated in May 2021 to reflect more accurate and relevant information.


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