Career Development

What Is E-commerce? Definition, Types and Importance

February 22, 2021

E-commerce plays a significant role in the marketplace, both nationally and internationally. With more people making purchases online rather than at traditional retail stores, it is becoming a fast-growing area of business and one to strongly consider as you plan your own career. In this article, we discuss what e-commerce is and why it's important, as well as the various types of e-commerce, advantages and frequently asked questions.

What is e-commerce?

E-commerce, also known as electronic commerce, is the buying and selling of goods (or services) electronically on the internet. It can also refer to other online activities like online auctions, ticketing and banking. E-commerce is an essential part of many businesses that rely on the sale of physical products or services online.

In addition to retail, e-commerce also includes wholesale transactions, where someone buys a large amount of product and then resells it, as well as drop-shipping, where the product is sold by one company, shipped to a second company and then assembled and sent to the consumer. Some e-commerce transactions also include subscriptions, where a consumer agrees to buy a product on a set schedule. Crowdfunding is another example of e-commerce, where the money is collected from consumers in advance of a product being available to raise the startup money needed to create the product and bring it to market.

Why is e-commerce important?

Ecommerce is a huge part of the economy and is vital to businesses that sell their products or services online. Ecommerce gives businesses the ability to reach more customers than traditional retail reaches. With so many people making their purchases online, It is the fastest-growing retail market. Statistics show that 96% of Americans with access to the internet have made a purchase online. Ecommerce offers consumers a more convenient way to shop for the products or services they need without having to visit a retailer's physical location to make a purchase.

What are the different types of e-commerce?

There are six different kinds of e-commerce. These include:

  • Business-to-consumer (B2C). This is the most common kind of e-commerce. When shoppers get online and buy something from an online store, they are involved in business-to-consumer e-commerce.
  • Business-to-business (B2B). Many businesses sell raw goods or parts through e-commerce to other companies that will then use those materials to create their products.
  • Consumer-to-consumer (C2C). This kind of e-commerce refers to when consumers sell to other consumers. Sites like eBay and Craigslist are examples of this kind of e-commerce.
  • Consumer-to-business (C2B). This type of e-commerce is when consumers sell their products or services to businesses.
  • Business-to-administration (B2A) This category of e-commerce refers to transactions between businesses and public administration, which includes areas such as social security, employment and legal.
  • Consumer-to-administration (C2A). This includes transactions between consumers and public administration, where consumers pay for services like taxes and legal document preparation.

Related: Q&A: What Does B2B Mean? Definition and Popular Business-to-Business Roles

Advantages of e-commerce

There are many advantages of e-commerce. Some of these advantages are:

  • Increasing reach. E-commerce allows small businesses to reach a broad range of consumers. It allows all sellers to be a part of a global marketplace.
  • More jobs. As these small e-commerce businesses grow, they employ more people.
  • Lower operational costs. E-commerce also helps small businesses to grow because it can have fewer operational costs. Without having to pay rent on a shop, many small business owners can afford to run their e-commerce shops.
  • Easier and more convenient shopping. One of the major advantages of e-commerce is that it allows customers to quickly find and get what they're looking to buy. It also offers consumers the convenience of not needing to leave their homes to get what they need, which saves time.
  • Allows comparison shopping. Consumers also gain power through the experience of online shopping. They can research and compare products and companies easily. Websites can offer things like detailed product descriptions and consumer reviews that can help consumers make decisions wisely.

Related: 7 Ways To Market a Small Busines

Disadvantages of e-commerce

While there are plenty of advantages to the growth of ecommerce, there are some disadvantages. Here are some of the challenges of e-commerce:

Limited face-to-face interaction with customers

One of the disadvantages of e-commerce is that business owners have more limited relationships with their clients. Since their clients are typically on the other end of a computer, it can be more difficult to build meaningful relationships, something that is important to many business owners and customers.

Bandwidth challenges

Bandwidth and reliability can vary from country to country, so it can be challenging if you are targeting or wanting to work in a particular region.

Shifting retail jobs

Another disadvantage of e-commerce is that it can cause a shift in retail jobs. While the employers of small businesses that sell on the internet may be hiring as a result of their success with e-commerce, traditional department stores may experience some job loss as a result. Retailers have to sell online to stay competitive, but some have been more successful at that than others.

Rapidly changing trends

This field is changing remarkably quickly. It can be challenging to keep up with trends and technology in such a rapidly changing field.

Related: 15 Retail Jobs That Pay Well

Frequently asked questions about ecommerce

Here are some frequently asked questions to help you better understand ecommerce:

What security is needed to protect consumer information when making purchases online?

When it comes to e-commerce, there are many different areas of concern in regards to online security. These issues include:

  1. Confidentiality
  2. Encryption
  3. Integrity (ensuring that the information is transmitted without being changed)
  4. Availability (that users can access the information when they need to)
  5. Authenticity (confirming that a user is who they claim to be)
  6. Non-repudiation (confirming that a sender cannot deny sending information once it has been sent)
  7. Auditability (ensuring that data can be audited).

E-commerce businesses can ensure this information is protected by securing their networks and implementing policies to protect their customers' private information when making purchases.

What impact can the legal system have on online security?

The first record of a legislative body holding a hearing about e-commerce was in California in 1984. California was the first state to enact an Electronic Commerce Act to define consumer rights online. Today, many kinds of ecommerce activities are regulated by the Federal Trade Commission (FTC).

Can e-commerce be combined with other kinds of retail?

Yes, in the form of omni-channel retailing. Omni-channel retailing refers to strategies that merchants implement that combine online shopping and shopping at a traditional retail store to provide customers with a seamless experience. More and more consumers are doing much of their shopping online but still like to have access to brick-and-mortar stores. This trend allows consumers to transition between these two models easily.


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