If you are excited to join the e-commerce market, then you are not alone: it is as competitive as it is profitable. Nevertheless, with the right product and the right business model you can turn your idea into a success story.
What is e-commerce?
The simplest definition of e-commerce is that it is the act of buying or selling products or services online. There are several different types of e-commerce business models which involve any two of consumers, businesses, and governments.
A brief history of e-commerce
You would be forgiven for assuming that e-commerce was not a thing before the 90s, but e-commerce was in fact conceived twenty years earlier. In the early 70s the first online sale took place, but the first proper e-commerce system had to wait until 1979 when Michael Aldrich demonstrated the first pilot version.
E-commerce was primarily a business-to-business (B2B) venture until the mid 90s. It was not until personal computers and the internet became widespread that any large-scale e-commerce involving individual consumers became financially viable and here convenience is the key to success.
“66% of shoppers say they prefer online shopping to find items they’re looking for,” Google study says, making convenience a more important factor than even the price tag.
As technology has improved and spread so too has e-commerce in its many forms.
E-commerce business models
Business-to-business involves one business selling its product or services to another. These e-commerce businesses are primarily service providers, such as software companies, but they can also provide products such as electronic devices or office furniture. Indeed, complex products such as motorcycles will require multiple pieces produced by different companies before they are put together and sold to the end user.
Startup costs for B2B can be high, but the market tends to be predictable and stable which reduces the risks involved. Unfortunately, this goes hand in hand with a limited customer pool. Additionally, decisions are not made by single individuals and because B2B usually involves large figures the purchasing process can be long. You can take comfort in the fact that once you have won a company over, customer loyalty tends to be high.
Business-to-consumer has become the most common business model. It follows the traditional retail model where businesses sell their products directly to their end-user. B2C can provide services that range from the purely digital, such as PayPal and Telic Minds, to ordering physical products, such as Gymgrossisten or Amazon.
B2C involves smaller sums than B2B, both in terms of startup and in individual sales. The purchasing process is shorter and purchasing decisions are frequently made based on emotion, allowing for spontaneous purchases. The downside of this is that customer loyalty is low. People frequently buy one product and never return, even if they are satisfied with the purchase.
The consumer-to-consumer business model means that individuals are selling directly to each other, usually through a third-party website. These sites often charge a small commission for facilitating the exchange. Well known C2C e-commerce examples include eBay and Craigslist. C2C businesses frequently also operate as B2C.
In the C2C model the sale of used items is flourishing, which certainly is good for the environment, but this involves a great deal of uncertainty concerning product quality and often no option for a refund. Should the third-party website charge too steep a commission it will also eat into the seller’s profit margin.
Consumer-to-business includes photographers selling their photos to stock image websites and bloggers featuring a company’s products in exchange for a fee. It can also function as a reverse auction, where the customer, often via a third-party website such as Offerta, names the service that they wish to buy and lets businesses bid for the opportunity to provide it.
While there is an inherent insecurity in freelancing it also comes with flexible hours and access to global job opportunities. This model requires better communication skills than most in order to ensure that everything runs smoothly.
Business-to-government is a variant of the B2B model, but these businesses usually only have long-term contracts with the government or public administration. The services provided may include providing a secure website where the public can submit application forms to the government or designing databases for government offices.
The consumer-to-government e-commerce business model is where the public interacts with the government online. C2G includes official informational websites and electronic tax filing portals.
G2C and G2B
Government-to-consumer is when a government through official websites provide non-commercial services, ranging from applying for a passport to paying late library fees. Government-to-business is much the same as G2C, except it involves businesses rather than individual consumers.
The future of e-commerce
It is true that e-commerce is growing, and fast. B2C is huge but it is dwarfed by B2B, which is expected to be twice that of B2C by 2020. By 2022 global digital sales are expected to reach $5.8 trillion and B2B e-commerce is expected to account for 17% of all US B2B sales come 2023. However, it is also true that e-commerce in the west is not growing as rapidly as it once did.
Once the US had the largest share of the e-commerce market, but today China is king. The Asia Pacific region is projected to have a greater e-commerce retail market than the rest of the world combined by 2023, to say nothing of the B2B e-commerce market. However, there are many hurdles to breaking into the Chinese market, the Great Firewall not the least among them, and many will be better off just changing tactics in the west.
Since B2B involves a long research process its foreseeable future will be determined by millennials. While they are still a minority among C-suites they nevertheless have significant influence in B2B sales. A study from 2014 found that 81% of non-C-suite employees influence purchase decisions and nearly half of all B2B researchers are millennials, and that number has only increased since. What’s more, these digital natives expect a website to be informative and convenient.
“Almost 60% would stop doing business with a B2B vendor based solely on a mobile experience that’s difficult to use.”
That alone should be enough to make you want to give your own website a critical once-over.