What Is Ecommerce? A Comprehensive Guide (2023)

On August 11, 1994, a compact disc exchanged hands during the first ever online sale. This transaction would mark an important shift in the way we shop and do business. It was the birth of ecommerce, the buying and selling of goods and services online. 

Today, ecommerce is powered by a massive ecosystem of technologies and digital platforms from website builders to payment gateways to social media sales channels. It continues to grow, with global ecommerce sales projected to reach $8 billion and account for 23.6% of all retail activity by 2026. It’s no wonder that new technology emerges every day, enabling businesses and creators to more easily sell products to customers online. 

Ahead, explore the ins and outs of ecommerce: how it works, types of ecommerce models, online shopping trends, and the benefits of selling online. Plus, learn how to start an ecommerce business and launch your own big idea.

How does ecommerce work? 

Ecommerce (short for electronic commerce) is the process of buying and selling goods or services via the internet. Through websites, online marketplaces, and social media, individuals and businesses can sell goods and services using digital means to accept payment and collect customer data. 

Three examples of ecommerce websites
Ecommerce examples include B2C websites that sell goods and services to consumers.

After a customer makes a purchase, the online retailer delivers the order via shipping, store pickup, or local delivery (in the case of physical products), or digitally (for digital products like PDFs, virtual courses, or online consultations).

Ecommerce transactions happen across a variety of devices and platforms, using a number of different payment methods. Other applications and businesses support this ecosystem, from ad platforms like Google Ads to third-party logistics companies to ecommerce store apps. Let’s explore a few of the technologies powering online sales.

Types of ecommerce platforms and online sales channels

Example of a website builder and sample ecommerce websiteThere are many ways to reach and sell to consumers online, including owned channels like an online store and through third-party platforms. There are pros and cons to each and many online sellers choose an omnichannel approach, selling through multiple channels. 

Ecommerce platforms

An ecommerce platform is a service that allows you to make money online through your own website. Shopify is an example of an ecommerce company that enables individuals, creators, and businesses of all sizes to sell online and in person through a brick-and-mortar store. 

Benefits: These ecommerce companies generally offer everything you need to build a website, create product listings, and accept payments online, making them an easy way to build a brand and start selling.

Challenges: Selling on your own website requires active marketing efforts to drive traffic and make sales.

Online marketplaces

Online marketplaces are ecommerce sales channels that allow you to sell products and services to an active audience. Marketplaces like Amazon or Etsy are also powerful search engines, as they are often the first point of discovery for consumers looking for products.

Benefits: You can sell on marketplaces in tandem with your Shopify online store using integrations to sync sales. Marketplaces often have discovery built in, meaning you benefit from traffic with less active marketing.

Challenges: Marketplaces make it difficult to build a brand versus a standalone ecommerce store. You often don’t own your customer lists and you have limited control over the look and feel of your store or brand.

Social selling channels

Many social media platforms offer in-platform buying and selling features, enabling small businesses or personal brands to sell directly to audiences without an online storefront. Facebook and Instagram both offer native shopping features. You can also sell to social audiences with a Shopify Starter plan, an economical alternative to a full ecommerce website.

Benefits: You can easily sell to existing audiences on channels you already manage without building an ecommerce website.

Challenges: The audiences you build on social media sites areoften not owned. If you lose your account or the platform shuts down, you will need to rebuild from scratch.

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Shopify comes with powerful tools that help you promote and sell products on Facebook, Instagram, TikTok, Google, and YouTube from one back office. Make sales on multiple channels and manage everything from Shopify.

Explore Shopify’s sales channels

Payment methods for ecommerce

Demo of Shop Pay on a mobile phone
Shop Pay is an accelerated checkout option that consumers can use to buy products on Shopify ecommerce sites with a few clicks.

Consumers can make online purchases in a number of ways from digital wallets to credit cards processed through a payment gateway in an online store. Ecommerce platforms usually include integrations with payment processing services and sometimes offer their own digital payment platforms. These services are the liaison for online transactions between a merchant and a customer’s bank. Payment options are often bundled in the checkout to offer the customer choice.

A few types of payment methods for ecommerce stores include:

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Types of ecommerce businesses explained 

Two women pack a box for shippingThere are many ecommerce types, defined by who you are and who you’re selling to. Some helpful ecommerce terms to know are as follows.

Business to consumer (B2C)

A business that sells goods or services to an individual consumer (e.g., An ecommerce footwear store sells individual pairs of shoes directly to its customers).

Business to business (B2B)

A business that sells goods or services to another business (e.g., A software company sells licenses for its technology to a small business).

Consumer to consumer (C2C)

An individual who sells goods or services to another individual (e.g., A person sells a single used sofa to another person on a buy-and-sell marketplace). Note: Once a person begins selling multiple items in this way (a vintage reseller using channels like Depop), their business model could be considered B2C.

Consumer to business (C2B)

An individual sells their own products or services to a business or organization (e.g., A business pays an independent influencer to promote the brand on social media).

You may also encounter a few other terms to describe types of ecommerce businesses. Direct-to-consumer (DTC or D2C) brands are those that primarily sell directly to their customers, either online or in person, without a middleman (a retailer or distributor). A digitally native vertical brand (DNVB) refers to a DTC business that started entirely online. Popular examples of these ecommerce business models include mattress brand Casper and men’s grooming brand Harry’s.

5 ecommerce revenue models 

In addition to deciding what type of ecommerce business you want to run, it’s important to decide how that business will make money. There are at least five different revenue models used by businesses selling online. They are:

  1. Sales model. This is the most common model used by online brands and physical stores alike. It involves selling products and services for profit. 
  2. Subscription model. Growing in popularity among consumers and ecommerce DTC brands, this model relies on recurring revenue from subscriptions to products or services.
  3. Advertising model. This model is common among online creators and influencers who grow personal brands thanks to advertising deals (promoted content) with other businesses.
  4. Affiliate model. Affiliate programs are also popular among creators who have large followings and may or may not sell their own products. They earn commission when a customer buys a product using an affiliate link. 
  5. Transaction fee model. This model applies to ecommerce companies that process financial transactions. They earn revenue by charging a fee on each sale.

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In this episode of Shopify Masters, ButcherBox founder Mike Salguero explains how his meat and seafood business started as a side hustle and bloomed to a nine-figure brand using a subscription revenue model.

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The benefits of ecommerce businesses 

Person types on a laptopRunning an ecommerce business has its perks. Not only does this business model allow you to launch a business quickly, it also offers access to a global pool of potential customers looking for a convenient way to buy your product and interact with your brand. 

A convenient way for consumers to shop 

Ecommerce allows customers to shop from anywhere, on any device, at any time, without the need to physically visit a store. Potential customers can more easily discover your brand—even from another country—and compare products, features, and prices in minutes. With a multitude of payment options offered by ecommerce, shopping online is even more convenient.

Increased reach and access to new markets

An ecommerce business can reach a wider audience than a physical store alone. With an ecommerce store, businesses can sell their products to customers all over the world, without the need for a physical presence in every location. Shipping partners and logistics companies connect the dots, moving online orders across the globe.

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Personalization and data

While it’s difficult to replace the one-to-one touch of a retail experience, online stores have a leg up on personalization. Customer data can be used for ecommerce marketing personalization, with customized experiences tailored to each individual. This can include personalized product recommendations, targeted marketing campaigns, fit finder quizzes, and loyalty programs. 

Online stores usually have the ability to offer more choices, like color variants or product customization. Personalized shopping experiences can help businesses build stronger relationships with their customers and increase customer loyalty.

Lower startup and operating costs 

Ecommerce businesses often have lower overhead costs than traditional brick-and-mortar stores. An ecommerce business can be run from anywhere, including a home office. While new business owners are still on the hook for inventory and costs to set up a website and domain, they often don’t need to worry about rent, utilities, and other high startup costs. Certain ecommerce business models such as dropshipping or print on demand don’t require inventory, and can be fairly inexpensive to set up and run.

The challenges of ecommerce businesses

Woman sits among a pile of cardboard shipping boxesWhile running an online business has its benefits, it also comes with a few challenges. If you’re looking to start an ecommerce business, plan for these potential pitfalls before you proceed.

Security concerns in ecommerce

One of the biggest challenges of ecommerce is security. Customers need to trust that their personal and financial information is safe when they make purchases online. Ecommerce businesses should invest in secure payment gateways, SSL certificates, and other security measures to protect their customers’ data. Note: Plans on Shopify come with security features like SSL and a secure payment gateway.

Clearly outline these security measures for customers in your terms and conditions and on the checkout page.

Increased competition

Ecommerce is a highly competitive space, with many businesses vying for the same customers. Online businesses need to differentiate themselves from their competitors by offering unique products, competitive prices, and exceptional customer experiences.

Shipping and logistics challenges

Every successful ecommerce business owner knows that a customer’s experience with shipping can make or break a brand. Online stores need to have efficient and reliable shipping and logistics systems in place to ensure that products are delivered to customers on time and in good condition.

Returns and customer service demands

In order to be competitive, ecommerce brands need to have robust return policies and customer service systems in place to handle customer inquiries and complaints. This can be challenging, especially for businesses that sell complex or technical products, or for small businesses with little or no staff.

Top ecommerce trends and statistics 

Example of an ecommerce store theme
Ecommerce trends impact everything from how websites look and function to the most popular products types.

Staying on top of ecommerce shopping trends will help your business remain competitive and meet ever-changing customer needs. While trends are constantly evolving, there are a few that signal a more permanent shift in the way consumers discover, buy, and support businesses.

1. Social ecommerce is on the rise

Social commerce sales in the US are expected to exceed $56 billion in 2023. Effective social selling means engaging in actual conversations with potential customers online. As you build trust and establish relationships, you can eventually move the customer through the marketing funnel toward a successful sale.

Learn more about this trend and how to sell on social platforms with these selling guides:

2. Social platforms are the new search engines

More and more, product discovery is happening in places you might not expect. Alongside Google, consumers look to YouTube and Amazon to find brands and products. Google reported that Gen Z is using social media platforms like TikTok to research brands more often than they use search engines. 

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3. Online shopping goes mobile

M-commerce, or mobile commerce, refers to ecommerce transactions that occur via mobile phone. M-commerce sales were expected to account for 43% of the total ecommerce sales in the US in 2023. This number has been on a steady climb for years, and doesn’t show signs of slowing. Brands should therefore pay attention to the user experience on mobile devices, focusing on an optimized and streamlined mobile commerce UI that converts, with special attention to mobile payments. 

4. AI aids in ecommerce personalization

In one 2022 study, 62% of consumers surveyed said a brand would lose their loyalty if it did not deliver a personalized experience, up 45% over the previous year. With the recent surge in interest in AI technology like ChatGPT and Midjourney, ecommerce brands are taking advantage of new tools to personalize customer experience. They can learn more about their customers, deliver personalized recommendations, and send targeted advertising messages. 

AI is also used by ecommerce brands to create efficiencies and automate processes. Several AI apps in the Shopify App Store can help businesses automate tasks like customer service chat, syncing between sales channels, and inventory management.

Starting an ecommerce business: 8 steps to launching an online store

A person types on a laptopIf you’ve decided to start a business, congratulations, you’ve already completed the first step! Once you have an idea and the desire to get started, you’re well on your way to launching your own ecommerce store. Once you’ve decided on the details, you can sign up with an ecommerce platform like Shopify to help you execute your vision. Let’s do this! 

  1. Find an idea: Look for product opportunities, untapped audiences, or a gap in the market.
  2. Do market research: Thoroughly research your competition.
  3. Write a business plan: If you plan to seek funding, this will come in handy.
  4. Develop a brand: Choose a logo and business name and create a set of brand guidelines including mission, values, and brand voice.
  5. Set up your online store: Choose an ecommerce platform and a plan that fits your business size. Customize your ecommerce site with your branding and add products.
  6. Choose your shipping strategy.
  7. Develop a marketing plan: Set sales and marketing goals and prioritize advertising channels
  8. Launch your ecommerce business!

💡 Learn more: Take an in-depth look at each of these steps with our complete guide on how to start an ecommerce business. Or sign up for Shopify’s free course, including video modules, templates, and playbooks to get you on your way to starting a business online.

Make the leap to ecommerce today

The ecommerce industry has lots of room for newcomers looking to bring innovative ideas to the global market. Retail ecommerce sales continue to grow, making this business model an ideal first business for aspiring entrepreneurs.

If you’re ready to start an ecommerce business, bookmark this guide as a handy resource to revisit on your way to launching your dream job.

Ecommerce FAQ

What is ecommerce?

Ecommerce, short for electronic commerce, refers to the buying and selling of goods and services over the internet. It involves a transaction between two parties, usually a business and a consumer, where the payment and delivery of products or services are conducted online.

Ecommerce can take many forms, such as online shopping, digital downloads, online subscriptions, and online ticketing. It has revolutionized the way people do business and has become an increasingly popular way to shop due to its convenience and accessibility.

What are the 3 types of ecommerce?

There are three main types of ecommerce business:

  • Business-to-consumer (B2C) refers to a business selling goods directly to an end consumer using ecommerce. Some B2C ecommerce brands also operate a physical store.
  • Business-to-business (B2B) is a company that sells products or services to another business. For example, an accounting firm could sell services and online consultations to small businesses.
  • Consumer-to-consumer (C2C) refers to individuals selling items to each other, as in the example of local buy-and-sell marketplaces. This is a popular method for individual creator brands, too.

What is an example of ecommerce?

An example of ecommerce is online shopping, where consumers purchase products or services online through a B2C website or online marketplace. Ecommerce allows consumers to browse a vast range of products, select and compare prices and features, and make purchases securely using various payment methods. Mobile commerce is also an example of ecommerce—customers shop online using a mobile phone to find products and pay online.

Ecommerce can take on a variety of forms involving different transactional relationships including:

  • Online retail sales of physical or digital goods
  • Wholesale transactions 
  • Dropshipping
  • Crowdfunding
  • Subscription-based products and services
  • Services and software licencing
  • Transaction fees

What is an ecommerce website?

An ecommerce website is an online store that allows businesses to sell products or services over the internet to customers. Ecommerce websites can be designed to sell physical products, digital products, or services. They typically include features such as product catalogs, pricing information, customer reviews, order tracking, customer accounts, and payment processing systems. 

Those looking to start an ecommerce business don’t necessarily need an ecommerce website. Online marketplaces and social selling platforms are alternatives to standalone websites. These may be ideal options for first-time founders looking to attract customers to a new business online. A Shopify Starter Plan is a great way to enter ecommerce without building out a full online store.

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