What is ecommerce

What is ecommerce?

Find out what ecommerce is, along with the advantages and disadvantages for different ways of conducting business online.
lo-fi illustration of various amazon brand storefronts

What is ecommerce?

Ecommerce or "electronic commerce" is the trading of goods and services online. The internet allows individuals and businesses to buy and sell an increasing amount of physical goods, digital goods, and services electronically.

Some businesses sell exclusively online or use ecommerce to expand the reach of their other distribution channels. Either way, ecommerce is thriving and can be a profitable venture. Let’s dive into the details of how ecommerce works and find out if it’s right for you.

Did you know?

The numbers show ecommerce growth trends

In 2023, brand owners’ sales grew more than 22% in the Amazon store compared to the previous year. US-based sellers also sold more than 4.5 billion items to customers and averaged more than $250,000 in annual sales.

How does ecommerce work?

Ecommerce works by connecting sellers with customers and allowing exchanges to take place online. It can work in many different ways and take many forms. Here’s a general overview of how the process can look:
  1. The seller chooses online selling channels, like a website or social media, and promotes products or services for sale.
  2. Customers find the products or services and place orders.
  3. A payment processor enables the exchange of the goods or services electronically via payment options like credit cards or digital currencies.
  4. The customer receives a confirmation email or SMS along with a printable receipt.
  5. If the transaction is for goods, the seller ships the products and sends the customer a tracking number via email or SMS. If the transaction is for a service, the service provider can reach out to schedule and complete the service.
Along the way, many ecommerce tools and technologies work together to help make online purchases possible. On the technical side, the transaction can depend on data, logistics, warehousing, supply chains, and other systems and processes.

Did you know?

You can offer customers fast, free shipping through Amazon Prime

Shipping times and costs can be a major obstacle for customers as they make purchasing decisions. To help sellers spend less and get orders to customers as quickly as possible, Amazon provides free, two-day shipping through Prime.

To offer this, you can enroll products in Fulfillment by Amazon (FBA) to send inventory into Amazon’s global fulfillment network and make use of a fully automated set of services we call Supply Chain by Amazon.

Where and how does ecommerce take place?

Ecommerce offers people the convenience of shopping from their computers, phones, tablets, and other devices. They visit websites, social media pages, and other virtual channels to find what they’re looking for. Entrepreneurs, startups, small and medium-sized businesses, and large retailers can all use ecommerce to reach customers across the globe. Selling online might be a business’s sole revenue source, or it might be part of a multi-channel selling strategy. For example, a large brick-and-mortar retailer might adopt an online sales channel, or an entrepreneur might sell a small number of specialty handcrafted goods through a social media site like Facebook, Instagram, or Pinterest.

Another ecommerce example is social media commerce. Some websites like Facebook support online purchases. A business that generates revenue solely through its presence on social media, or entrepreneurs who supplement their income using social media marketing techniques, are also engaging in social media commerce.

Other ways you can participate in ecommerce include building standalone websites, or setting up shop on an established selling website. For example, you can create a storefront to represent your brand in the Amazon store.

Learn the lingo:

M-commerce; enterprise ecommerce

Online transactions that take place on mobile devices are known as mobile commerce or m-commerce. Enterprise ecommerce is the buying and selling of products to large companies or organizations. M-commerce and enterprise ecommerce are two ecommerce examples.
Amazon trucks get ready for delivery outside of a fulfillment center

What types of ecommerce are there?

Ecommerce takes as many different forms as there are various ways to interact with online channels. For example, sellers and buyers exchange goods and services through m-commerce, enterprise commerce, and social selling destinations like Amazon Live.

A few common business models are:
  • B2C: Businesses sell to individual consumers, sometimes called the “end customer.”
  • B2B: Businesses sell to other businesses. Often the buyer resells products to the consumer.
  • C2B: Consumers sell to businesses. C2B businesses allow customers to sell to other companies.
  • C2C: Consumers sell to other consumers. Businesses create online shopping destinations to connect customers.
  • B2G: Businesses sell to governments or government agencies.
  • C2G: Consumers sell to governments or government agencies.
  • G2B: Governments or government agencies sell to businesses.
  • G2C: Governments or government agencies sell to consumers.
Business models can also vary. You might make direct sales, offer customer subscriptions, or earn money through affiliate marketing and other methods.
Customer shopping online stores from the couch

What is an ecommerce website?

An ecommerce website is an online store where customers can find products, browse offerings, and place purchases online. It facilitates the transaction between a buyer and seller.

A digital storefront can serve as the virtual equivalent of the product shelves, sales staff, and cash register of a physical shop. Other components of an online store might include product listings, product categories, and customer reviews.

What is an ecommerce business?

An ecommerce business is a company that generates revenue from selling products or services online, or uses the internet to pursue sales leads. For example, an ecommerce company might sell software, apparel, housewares, or web design services. You can run an ecommerce business from a single website or through multiple online channels like social media and email.
Seller building his store webpage on Amazon

Steps to starting an ecommerce business

The steps to starting an ecommerce business can vary depending on factors like what you want to sell. For example, if you're selling services, then there’s no need to manage inventory or fulfillment. However, if you want to sell products online, then inventory and fulfillment will likely play a critical part in your operations.

Here are some steps you can follow to get started:
  1. Research business ideas.
  2. Make sure there’s demand for the products you want to sell.
  3. Determine how you'll sell and ship products to customers.
  4. Find suppliers and manufacturers.
  5. Choose which online channels you'll sell through.
  6. Create a website or online storefront and list products.
  7. Create a plan for your fulfillment strategy.
  8. Begin attracting customers with promotions.
Check out our guide to starting an ecommerce business for more details.
Kanda Chocolates

“I was like, ‘I can’t do chocolate because of the big brands, that would be crazy. But [I was told], ‘You’re not crazy, we can’t keep chocolate on the shelf. There’s always room for someone else.’ It was one of those lessons I learned early: There could be 50 brands of something, but it’s how you market it—and what your story is—that makes it a little bit different, that people might connect with.”

Headshot of Karen Blackwell
Karen Blackwell
Ecommerce retail seller celebrates an online sale

What are the advantages and disadvantages of ecommerce?

Like any sales method, ecommerce can have upsides and downsides. Is ecommerce right for you? It’ll depend on your business goals, your intended audience, and other factors. Here are some considerations.

Benefits of ecommerce

Accessibility and convenience

Ecommerce owes its rapid growth in part to the ease of access to products and speed of placing purchases. Once set up, an online store is open 24 hours a day without the need to be monitored or staffed like a physical store. Customers can browse a broad selection of offers from around the world, from anywhere with an internet connection, and place purchases with just a few clicks.

Direct access to customers

The internet gives businesses direct-to-consumer access along with the ability to build relationships with specific audiences and earn customer loyalty. You can tailor your brand image and marketing to fit customer wants and needs right down to special offers and personalized product recommendations.

Global marketing reach

In the past, a business’s reach was limited by the number of people able to physically enter through a store’s front doors. Today, the internet allows you to reach customers across the world. Make use of a wide variety of digital marketing and advertising options like cost-per-click (CPC) ads and virtual bundles to reach a diverse new mix of customers.

Did you know?

You can reach more customers with Sponsored Products

Sponsored Products is a CPC advertising option available to Amazon sellers. These product listing ads can help customers find your offers online.

Relatively low operating costs

Creating and maintaining a website can be less expensive than running a brick-and-mortar store. You can start an online business channel without leasing retail space, hiring a team of employees, or having a large warehouse. Benefit from low overhead when you don’t need to pay rent or worry about building maintenance.

Advances in technology

A wide range of specialists and businesses, including Software as a Service (SaaS) providers, are continually innovating and finding new ways to improve the online shopping experience. Emerging technologies like artificial intelligence (AI) increasingly play a role in helping with tasks from managing stock levels and storage to delivery and returns. Customers can also make voice-assisted purchases, enjoy personalized shopping experiences, try out products with augmented reality, and more.

Did you know?

Interactive shopping experiences can increase engagement

Amazon’s augmented reality (AR) and 3D shopping experiences bring products to life, allowing customers to realistically evaluate products available for purchase online. From trying on shoes to visualizing products in their own homes, customers can use AR and 3D models to see products in detail from any angle.

Challenges of ecommerce

High competition

A low barrier to entry can translate to high competition. It’s important to select products with care and conduct thorough competitor research to zero in on profitable product ideas.

Once you find success in a niche, be on the lookout for counterfeiters and other forms of infringement. Look into ways of dealing with bad actors like Amazon’s Report a Violation tool. Available to brands registered in Amazon Brand Registry, a free resource to help you build and protect your brand, this tool lets you search the Amazon catalog for potential violations of your active trademarks, copyrights, and patents.

Limited interaction with customers and products

If your business relies on interacting with customers in person, it could be a challenge to expand into ecommerce. Alternatively, if you prefer communicating with customers via email or phone, this drawback might be a huge plus. But keep in mind customers could be deterred by a limited ability to test out or try on products. You’ll also need a system for handling returns or exchanges.

A related challenge? If you work with a third-party fulfillment provider like a dropshipper, you might not have the ability to inspect products and assess their quality.

Shipping and fulfillment at scale

In contrast to visiting a brick-and-mortar store, online customers can’t instantly take home the products they pick out. Sellers need to find a way to get products to customers. This might involve working with delivery options and third-party providers of other fulfillment services, from storage and packing to returns and customer service. Learn more about logistics in our guide to fulfillment.

Reliance on technology

While technology can be a major benefit, technical difficulties can negatively impact sales. Just as a hiccup in your supply chain can prevent timely delivery of products, internet issues or a hard drive failure could cost you time and money. Remember, for every technical issue you might encounter, there’s probably a solution or a preventative measure you can take, like backing up your data regularly. You can also lean on the reliable infrastructure of an established store like Amazon.

Data security concerns

Placing a purchase online and sharing payment details and other sensitive information can be a big barrier for customers. To earn customer trust and convert shoppers to buyers, transparently share details on your privacy policy and security precautions, like secure payment processing and how you safeguard personally identifiable information. You can communicate this via your web presence and in your terms and conditions.

Did you know?

In 2022, Amazon was ranked the most trusted brand by US consumers

As an Amazon seller, you can support Amazon’s commitment to customer trust, which can help attract more customers.
Ecommerce retail seller planning his next move

5 tips for how to succeed in ecommerce

1. Select great products

High-quality products and services are at the heart of successful online brands. Your product should solve an unmet customer need or challenge at a compelling price point. Product quality and pricing can make or break your business. Do some market research to get a sense of what types of products your competitors are selling, as well as the value of similar products. You can also use ecommerce tools like Amazon’s Automate Pricing.

2. Convey a compelling story

Unique businesses stand out, but it can take more than a great product to captivate audiences. To catch a customer’s attention, convey your business’s purpose and vision.

Ask yourself, why does your business need to exist? How will the products make the lives of customers better? Your branding should convey the answers to these questions.

Spend time thinking about the look and feel of your brand. Dig deep and find a simple, powerful way to convey the origin and mission of your business

Did you know?

You can create a unique shopping experience with A+ Content

Brands registered with Brand Registry can use A+ Content—an advanced option for adding rich text, imagery, videos, and more to Amazon product detail pages. Create a multi-media experience for your audience with A+ Content, which can help increase sales by up to 20%.

3. Focus on the customer

Define your ideal audience to help attract loyal and enthusiastic customers. Who do you want to serve with the products? How can you alleviate their pain points? Instead of chasing after customers who don’t need what you’re selling, focus your marketing efforts with a targeted range of digital advertising techniques like CPC ads, search engine optimization, and customer loyalty programs.

4. Provide a smooth online experience

Online stores should be user friendly so making a purchase feels effortless. High-performing stores keep the spotlight on products by streamlining the checkout process. Remove any unnecessary steps to make sure the shopping journey is intuitive and straightforward.

Pro tip

Measure key metrics for your business with Amazon Brand Analytics

Brand Analytics is a collection of dashboards that allow registered brands to explore aggregate customer search and purchase data with insights into top search terms, audience demographics, conversion rates, and more.

To get started with Brand Analytics, enroll your brand in Brand Registry.

5. Have a system for inventory and fulfillment

How will you get the right orders to the right customers? Fulfillment needs to be efficient and cost-effective for products to arrive on time and in the condition customers expect. Be sure to invest in the right packaging materials and inventory management.

You might want to look into working with a wholesaler, a dropshipper, or another provider of third-party logistics.
Jambalaya Girl

“I was limited at the time because I was just starting to sell in local grocery stores. And I was reaching so many roadblocks with expansion beyond that—it was challenging to get in front of a buyer. So I looked at Amazon and thought, ’Hey, this is where you go to find customers from all over the world.’ And that allowed me to start that conversation with those customers.”

Headshot of Kristen Preau
Kristen Preau

Launch in ecommerce and grow your online business

Have an idea for the next breakthrough product? You can make it a reality by launching your business in the Amazon store. We have selling programs, tools, and other forms of support so you can establish your brand and thrive.

New sellers can qualify for over $50,000 in incentives.

Helpful resources

Whether you’re looking to start a new brand, expand an existing brick-and-mortar business, or increase ecommerce sales, here are some resources to help support your path to success.

Ecommerce FAQs

What is ecommerce?
Ecommerce is the electronic buying and selling of goods and services, usually via the internet. Businesses can build their own ecommerce website, set up an ecommerce storefront on an established selling site like Amazon, or do it all for a multi-channel approach.
Is ecommerce still growing?
Yes, in 2023, brand owners’ sales grew more than 22% in the Amazon store compared to the previous year. Over the course of the two-day shopping event in July 2023, Prime members purchased more than 375 million items worldwide, making 2023 the biggest Prime Day event ever.
Is ecommerce profitable?
Ecommerce can be very profitable. In 2023, US-based sellers in the Amazon store sold more than 4.5 billion items to customers worldwide and averaged more than $250,000 in annual sales. Increase your chances of success and boost sales with the right strategy, tools, and resources.

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