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What is e-Commerce

With more consumers shopping online than ever before, businesses that want to boost their bottom lines must get in on the action.

Whether it’s running an online-only store, or adding online shopping to an already established business, Web sales are necessary. Those who don’t find a way to sell their goods via the Internet will quickly see their customers take their money elsewhere.

Definition: Electronic Commerce or EC (also written as E-commerce, eCommerce or similar variants); is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the Internet. These business transactions occur either business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business.

Categories of e-Commerce

As with traditional commerce, there are four principal categories of e-Commerce:

  • B2B (Business to Business): This involves companies doing business with each other companies. One example is manufacturers selling to distributors and wholesalers selling to retailers;
  • B2C (Business to Consumer): B2C consists of businesses selling to the general public through shopping cart software, without needing any human interaction. This is what most people think of when they hear e-Commerce. An example of this would be Amazon;
  • C2B (Consumer to Business): In C2B e-Commerce, consumers post a project with a set budget online, and companies bid on the project. The consumer reviews the bids and selects the company. Elance is an example of this;
  • C2C (Consumer to Consumer): This takes place within online classified ads, forums or marketplaces where individuals can buy and sell their goods. Examples of this include Craigslist, eBay and Etsy.

Examples of e-Commerce

Online Shopping: Buying and selling goods on the Internet is one of the most popular examples of e-Commerce. Sellers create storefronts that are the online equivalents of retail outlets. Buyers browse and purchase products with mouse clicks. Though Amazon.com is not the pioneer of online shopping, it is arguably the most famous online shopping destination.

Electronic Payments: When you are buying goods online, there needs to be a mechanism to pay online too. That is where payment processors and payment gateways come into the picture.
Electronic payments reduce the inefficiency associated with writing and mailing checks. It also does away with many of the safety issues that arise due to payment made in currency notes.

Online Auctions: When you think online auction, you think eBay. Physical auctions predate online auctions, but the Internet made auctions accessible to a large number of buyers and sellers. Online auctions are an efficient mechanism for price discovery. Many buyers find the auction shopping mechanism much interesting than regular storefront shopping.

Internet Banking: Today it is possible for you to perform the entire gamut of banking operations without visiting a physical bank branch. Interfacing of websites with bank accounts, and by extension credit cards, was the biggest driver of e-Commerce.

Online Ticketing: Air tickets, movie tickets, train tickets, play tickets, tickets to sporting events, and just about any kind of tickets can be booked online. Online ticketing does away with the need to queue up at ticket counters.

How does e-Commerce work?

Because there are hundreds of different products and services for consumers and the multitude of different ways these products and services can be delivered, e-Commerce by its nature is varied in the way it works. In its most basic form e-Commerce works as follows:

  • Consumers choose a product or service on a website;
  • Consumers pay electronically on the website (online credit card transactions) or using a third party payment provider such as PayPal;
  • The business owner or merchant receives the order and payment and the order is fulfilled (delivered by post, booked in for services etc).

Note: Making payments online is completed via a secure connection to ensure that sensitive data such as credit card details and personal information are kept private.

What are the benefits of e-Commerce to the consumer?

Quick, easy and convenient: e-Commerce has enabled the consumer to complete transactions from the comfort of their own home, transactions that would usually happen within the walls of a store. Transactions now take only minutes, rather than the hours included in physically getting to the stores.

Product comparisons: Not only are consumers finding it quick and more convenient to shop online but they are also making more comparisons than ever. Comparing the price, delivery time and product specifications have never been simpler. Quickly browsing multi websites that stock products that suite your criteria is as simple as a Google search – consumers can now compare multiple products in minutes.

Lower prices: Many consumers are turning to e-Commerce for their needs due to the lower price for many everyday items. Different factors on the merchant’s side of the equation allow them to sell products at a lower price compared to a standard store and these cost savings are often passed to the end consumer.

What are the benefits of e-Commerce to the merchant?

Reduced costs: End consumers are treated to lower prices and this is all due to reduced costs for the merchant. Online retailing requires no sales staff, hence a reduced labour cost. Electronic payments which are often automatically tracked and linked to accounting software results in reduced paper work and reduced errors in data entry. Costs involved the maintenance of a physical storefront are also removed, with the major cost of e-Commerce going to warehousing and product storage.

Quick, easy and convenient: e-Commerce has enabled the consumer to complete transactions from the comfort of their own home, transactions that would usually happen within the walls of a store. Transactions now take only minutes, rather than the hours included in physically getting to the stores.

Product comparisons: Not only are consumers finding it quick and more convenient to shop online but they are also making more comparisons than ever. Comparing the price, delivery time and product specifications have never been simpler. Quickly browsing multi websites that stock products that suite your criteria is as simple as a Google search – consumers can now compare multiple products in minutes.

Shorter time frames: e-Commerce allows for highly reduces lead times, as well as the more efficient delivery of products.

Increased consumer reach: e-Commerce allows online merchants to stock a larger product range than a traditional store. This larger product range means more products are suited to a larger consumer base and hence greater possible reach. e-Commerce stores are also available from anywhere, interstate and international customers are no longer a missed segment – this results in a massively increase possible consumer base.

Benefits of e-Commerce

e-Commerce can provide the following benefits over non-electronic commerce:

  • Eliminates limitations of time and geographical distance: In the process, e-Commerce usually streamlines operations and lowers costs;
  • Reduced costs by reducing labour: reduced paper work, reduced errors in keying in data, reduce post costs;
  • Reduced time: Shorter lead times for payment and return on investment in advertising, faster delivery of product;
  • Flexibility with efficiency: The ability to handle complex situations, product ranges and customer profiles without the situation becoming unmanageable;
  • Improve relationships with trading partners: Improved communication between trading partners leads to enhanced long-term relationships;
  • Lock in Customers: The closer you are to your customer and the more you work with them to change from normal business practices to best practice e-Commerce the harder it is for a competitor to upset your customer relationship;
  • New Markets: The Internet has the potential to expand your business into wider geographical locations.

The Rise and Rise of Auction Sites

Auction sites such as Ebay and TradeMe have done an enormous amount to get ordinary people involved in online trading. Today many Ebay merchants are establishing their own web sites to avoid Ebay and Pay Pal fees. They have learnt about how to present their product in their Ebay store and what issues are important to their customers in purchasing their product and now they are ready to start their own web site.

e-Commerce Software

Woocommerce: is a plugin to the popular (world’s most installed) WordPress content management system. WordPress is open source, so no license fee is required.

Shopify: is a complete e-Commerce solution that allows you to set up an online store to sell your goods. It lets you organize your products, customize your storefront, accept credit card payments, track and respond to orders.

Magento: is an open-source content management system for e-Commerce web sites developed with assistance from volunteers.

Volusion: is a complete online store builder based on content management system Drupal. Start selling quickly with our e-Commerce software including website, shopping cart and secure hosting.

EPages: is a fully integrated e-Commerce software package that gives the web site owner control of ALL aspect of the web site, not just a product catalogue. It is however proprietory software and therefore monthly license fee is required. It integrates with Ebay and Google’s shopping portal, Froogle.

OScommerce: is an open source e-Commerce software solution. It covers most of the basics and is free, but there is no support other than documentation and forums.

Eway: is a real time payments from your web site to your bank account. Let’s say you have a web site that can take secure orders over SSL, you get the credit card number and put through a manual debit. Eway takes away the manual debit part of the circle.

Mals-e.com: is a free shopping cart with customisable freight and payment options.

Security

On the Internet, security is handled by passing keys between Internet server and client browser. When entering a secure site your browser is passed a public key by which transactions between you and the web server are encrypted. The servers key is always kept private.

On your web site security can be handled two ways – depending on your budget. You can piggyback on someone else’s key or you can register and pay for your own key or SSL certificate such as  Thwate or Verisign. Generally today businesses who host web sites offer access to a secure server and you can use their server and secure certificate for less than if you registered and paid for your own key.

However the person browsing your site will notice the URL change to one they do not recognise – or trust. This may put your customers off (although there is no evidence of this). Therefore one of the advantages of buying your own key would be to have a URL for your secure pages that is consistent with the rest of your site.

Credit Card Security

The credit card companies are constantly evolving more secure credit card purchasing on the Internet.

  • Often you will be asked to give a three digit verification code on the reverse of your card. This is to prove you have the card in your hand at the time you made the purchase;
  • Card companies also monitor your card activity to check for suspicious or out of ordinary purchases. They will contact you to verify it is you creating the usually break in the purchasing pattern;
  • A range of biometric security measure have been proposed for credit cards. None are in widespread use at this time;
  • Smartcards house a chip that has extra data in it about the card holder or carry an public key.

To give customers confidence in purchasing on the Internet however card companies generally stand by customers who have had their card or card number stolen. This is not exactly the case for merchants though. The card company will alert the merchant to stolen cards and fraudulent transaction but do not indemnify the merchant from losses.

Finding an e-Commerce Provider/Partner

Generally your web developer will advise you on the various security options. Their recommendation will consider things like:

  • volume of sales;
  • amount of data that needs to be captured per sale;
  • number of products in your store;
  • how often you need to change the product prices or other details;
  • your special freight requirements;
  • whether ordering has to interface with your banking/accounting system and so on.

Smaller businesses generally only required a secure form that returns results to the business owner, while a larger company with multiple products and locations will require a solution that takes the order, banks the money and sends a message to outwards goods to dispatch the goods. Who you choose as an e-Commerce provider is therefore very much dependent on the size of your business and the range of your products.

Banks

Banks were slow at first to embrace Internet technologies citing security fears. More recently though in the drive for higher profits and greater shareholder return they have been moving more and more of their business online.

Mostly this transition has gone smoothly. The only real difficulty is phishing scams where people are tricked into logging into a web site designed to look like their bank, but instead traps their login details. Banks have warned people not to click links in their email to login into the bank’s web site, but to type the URL into their browser window every time.

Integration

Imagine a web site that would allow your customers to place an order for your goods and when they sent their order to you, your stock or inventory database was updated immediately, outwards goods were notified and the customer was sent an advice from packing staff when the goods were shipped.

Many businesses do each of these things but few join them together or “integrate” them. As businesses become familiar with the Internet, it won’t take long for business people to see that their order-taking, stock control and delivery systems should be merged into one seamless function.

Indeed Microsoft Retail Manager offers precisely this function. Maintain one database in your store and synchronise it in real time with your online database… meaning your web site is constantly up to date.

So what’s needed for an e-Commerce business?

While opening an e-Commerce business can be relatively easy, you need a number of things to get started. Here is the list of everything an entrepreneur must have to open an e-Commerce business:

Product to sell: First of all, you obviously need a product or service to sell. This can be hard goods (physical) or soft goods (downloadable).

Domain name: Before your business can start building an e-Commerce website, it needs a domain name. This is the online address at which shoppers can find the business’s website. Most online business domain names end in either .com or .net extensions. The domain name selected should match, to some extent, the business’s name.

Hosting Service: After the domain name, you need a place to host your website, called a hosting server. These services store the data files that make up websites, and then upload those files to the Web for viewing by those who visit the site through its official domain name. There are many hosting companies you can use, but you need to make sure your shopping cart software is compatible with the hosting server.

Website: Then you need a website. This can be an existing website to which you can add e-Commerce capabilities or you can build the site from scratch. The website, which can be created with the help of either Web hosting services, e-Commerce software or design professionals, must feature the products the business wants to sell, and must offer a way to sell those items directly to consumers. The website’s design should encourage shoppers to stay and make purchases. It should also include links to the business’ social media pages, ways to subscribe to electronic newsletters and deals, and offer places to learn about other news going on in the company.

Shopping Cart: The shopping cart is one of the most important parts to having an e-Commerce transition. This program give shoppers the chance to search the business’ inventory to see what’s available, select items they want to purchase and eventually buy them. In addition to assisting with transactions, many shopping cart software options include additional features for controlling inventory, setting up shipping and calculating taxes.

Debit/Credit Card Payments: Next you need some way of accepting online payments. This normally means debit or credit cards. There are also other types of payments that the shopping cart should handle, checks, E-checks, cod, phone orders and person-to-person.

Merchant Account: Since online businesses can’t accept cash payments via the website, they need a merchant services provider to handle their debit or credit card needs. These accounts allow a business to accept credit cards as payment for goods and services. This service acts as a link among the business, customer and credit card company. It processes the payments and actually takes the money from a credit card account and places it into the business’s account, also known as a merchant account. Most merchant service providers offer this type of bank account, which acts as a holding location for the debit and credit card payments an e-Commerce business collects. Once the funds have been approved, the merchant services provider transfers the money, minus a commission, to the business owner’s bank account. Without a merchant services provider, a small business has no way of collecting money from customers.

Payment Gateway: A customer enters credit card information to purchase your product or service. This data is passed to the merchant web server and a payment gateway through a secure socket layer (SSL)*. Once the payment gateway receives the transaction data, their software verifies all of the credit card information and then accepts or declines the credit card. The payment gateway sends an email receipt to the merchant web server and to the customer. Along with the email receipt, the payment gateway sends the order to the merchant bank. The money is subtracted from the purchaser’s credit card account and placed in a 30-day holding merchant account owned by your business.

Marketing: Last, but most important, you need to have a strategy for marketing your site and attracting customers. The old saying, build it and they will come, does not apply to websites. You need to have a good marketing strategy. All successful e-Commerce businesses have a strategy for attracting customers to their sites. Without a carefully thought-out plan, turning a profit becomes much more difficult. Various marketing options online businesses have at their disposal, should include search engine optimization (SEO), pay-per-click advertising, pop-up or pop-under, banner ads and affiliates and email and social media campaigns.

I hope that this article helped you to understand what is e-Commerce. Feel free to share your thoughts about this article using the comments section below or catch us on Twitter.

Nik

Experienced IT Consultant working and living in the UK. In early years he was born and raised up in Greece and been to the UK since studies. He is passionate with technology, gadgets and computers, he really likes the internet and IT in general.

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