E-commerce

What is e-commerce?

E-commerce (electronic commerce) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet. These e-commerce transactions typically fall within four types: business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer or consumer-to-business.

The terms e-commerce and e-business are often used interchangeably. The term e-tail is also sometimes used in reference to the transactional processes that make up online retail shopping.

In the last two decades, e-commerce platforms — such as Amazon and eBay — have contributed to substantial growth in online retail. In 2011, e-commerce accounted for 5% of total retail sales according to the U.S. Census Bureau. By Q2 2020, after the start of the COVID-19 pandemic, e-commerce accounted for 16.5% of retail sales. Since then, it has fallen slightly to about 15% as physical stores reopened.

How does e-commerce work?

E-commerce is powered by the internet. Customers use their own devices to access online stores. They can browse products and services those stores offer and place orders.

As an order is placed, the customer’s web browser communicates back and forth with the server hosting the e-commerce website. Data pertaining to the order is relayed to a central computer known as the order manager. The data is then forwarded to databases that manage inventory levels; a merchant system that manages payment information using payment processing applications, such as PayPal; and a bank computer. Finally, it circles back to the order manager. This ensures store inventory and customer funds are sufficient for the order to be processed.

After the order is validated, the order manager notifies the store’s web server. It displays a message notifying the customer that their order has been processed. The order manager then sends order data to the warehouse or fulfillment department, letting it know the product or service can be dispatched to the customer. At this point, tangible and digital products are sent to the customer, or access to a service is granted.

Platforms that host e-commerce transactions include online marketplaces that sellers sign up for, such as Amazon; software as a service (SaaS) tools that let customers rent online store infrastructures; and open source tools that companies manage using their in-house developers.