How Does eCommerce Work? Explained In Layman Terms

eCommerce has already revamped the way we commerce. It has become more of a necessity, not just a choice. Moreover, it has leaps and bounds ahead of the curve in leaps and bounds, beating brick-and-mortar offerings. By 2026, the global e-commerce sales will likely grow by $8.1 trillion. There are almost 26+ million e-commerce stores online. So, the scope is broad and expected to expand with time. 

E-commerce arrives with numerous benefits not only for customers but also for business owners. You can also step ahead and try your luck. Before that, you should know about e-commerce and its relevant aspects. This post will do the same for you. 

Let’s explore in depth!

What is eCommerce?

Any commercial transactions taking place over the internet comes under e-commerce or electronic commerce. The popularity of these transactions can be estimated from the fact that more than 93.5% of global internet users have purchased a product or service online at least once. Let us start our journey of understanding the detailed workings of e-commerce with a quick look at its background.

History of eCommerce

A quick look at the e-commerce chronology reveals that:

• 1887: IBM or International Business Machines was set up this year that became a harbinger of the electronic business in the coming decades. US statistician Herman Hollerith set it up.
• 1950-1960: It was a decade of IBM as it introduced OLTP or Online Transaction Processing to manage monetary transactions in real-time using advanced computerized systems. IBM created the SABRE or Semi-Automatic Business Research Environment for American Airlines that revolutionized airline reservations. Towards the end of the next decade, i.e., in 1969, its transaction processing software was converted to CICS or Customer Information Control System, which later became one of its highly successful products. Dr. John R Goltz created the CompuServe technology, and Jeffery Wilkins in 1969 served initial emails and internet connectivity by the 1980s.
• 1970: ATM or Automatic Teller Machine was invented by Docutel that relied on bank computers for online transactions. It opened the gates of highly sophisticated transaction processing forms.
• 1979: English inventor Michael Aldrich introduced the first form of electronic shopping by connecting a modified TV to a transaction-processing computer using a telephone line.
• 1980: Shopping from home using computers and telephone lines started with the giants like America Online (AOL), Prodigy, and CompuServe.
• 1982: Boston Computer Exchange was launched, the world’s first e-commerce company.
• 1989: The explosive growth of e-commerce started with the invention of the World Wide Web by Time Berners-Lee.
• 1992: An online bookstore named Book Stacks Unlimited was introduced by Charles M Stack that further changed to the books.com domain.
• 1994: Amazon.com was founded by Jeff Bezos. In the same year, the Netscape Navigator web browser was created by Marc Andreessen that introduced the Secure Sockets Layer (SSL). SSL introduced built-in encryption for carrying credit card transactions securely. It gave birth to the dot.com phenomenon.
• 1998: PayPal was launched as the first e-commerce payment system that later merged with Elon Musk’s online banking company in 2000.
• 1999: An online marketplace named Alibaba Online was launched with more than 25 million USD funding.
• 2000-2001: More than 750 businesses went on the wall as the dot.com bubble burst. At this point, Amazon.com’s share came less than 10% of its original value. During the same time, Google AdWords was launched as an online advertising tool for different businesses.
• 2008: E-commerce had established a 3.4% of the total global sales with leading companies like Facebook, Apple, Instagram, Jet.com, BigCommerce, Stripe, Etsy, and Google Wallet entering e-commerce operations.
• 2017: Technical giant Google started to row its journey for expert mobile experience as many internet users were using mobile devices only.
• 2020: E-commerce started to boom as the US Census Bureau reported that the US e-commerce retail sales of the third quarter of the year 2020 are 209.5 billion USD.

What Are the Essential Components of An Ecommerce System?

After having a look at e-commerce history, it is essential to know all about the critical components of this system, include:

• Transaction: The exchange of goods and services with money is handled online only. The customer never sees the good in real until it reaches their place. In contrast, the modes of payment to businesses can be prepaid or cash on delivery accordingly.
• E-tailer: The different online retailers are the sources that offer different products or services to customers. These sources check the stocks, goods, dispatch availability, and good delivery accordingly.
• Webserver: It manages the online storefront and transaction processes. Hence, links with the bank’s computers for customers’ credit card details.
• Database system: It helps check items by constantly updating data according to the incoming orders and making contacts with suppliers when stocks are on the lower side.
  The dispatch system instantly locates and sends products to buyers while remaining linked to the warehouse.

How Does E-Commerce Work?

The working of e-commerce is similar to that of any offline or retail business. The main three functions in e-commerce are receiving orders, processing order information, and shipping. Let us look at the detailed understanding of the virtual process that takes place from computer surfing to dispatch. These steps are:

• A customer uses a smart device like a computer or mobile to search for products on e-commerce. The customer’s web browser communicates simultaneously with a web server that handles the ecommerce website.
• The web server receives the customer’s order and processes it to the order manager. The central computers have a birds-eye over the entire order process.
• The order manager runs queries in the database to check the stock availability of the customer’s order.
• The stock database system takes charge of a customer order confirmation from existing stocks. Once it is confirmed in stock, the system offers an estimated delivery date according to the supplies. If it is not present, the stock database system orders new supplies from manufacturers or wholesalers.
• The following charge line goes to the merchant system that takes details of the customer’s credit card or debit card. This system may take multiple checks on customers’ bank computers.
• The bank computer confirms sufficient funds in the customer’s account.
• The merchant system, at this point, confirms the transaction authorization. However, the funds are not deducted entirely until a few days.
• The order manager shares the information of successful transactions with the webserver.
• The web server then communicates the same to the customer using a web page that indicates order confirmation and transaction processing details.
• The order management system requests the warehouse system to initiate the dispatch of goods to the customers.
• The fleet system or trucks collects the goods and deliver them to the customers.
• The warehouse computer system emails the customer about en-route delivery upon the dispatch of goods.
• The goods are finally delivered to the customer’s address.

What Features Should an E-Commerce Site Have?

Around 12-24 million e-commerce sites are operating globally, while only less than one million of these sites sell more than 1,000 USD yearly. Hence, it is essential to have an e-commerce site equipped with essential features valid for customers. Some of these features include:

• A detailed list of different option in products or goods on different marketplaces or ecommerce sites.
• The interface to the customer, i.e., the web page, should be aesthetically appealing, user-friendly, and easy to navigate.
• It is essential to optimize the e-commerce webpage or site according to the mobile devices.
• Businesses can offer seasonal or occasional discounts to different customers. It is excellent to go for customized offers to attract customers.
• The payment processing system should be secured that protect the customer data from unauthorized access.
• It should be ensured that the checkout process on your e-commerce site should be clutter-free and easy. It further reduces the cart abandonment rates.
• The platform should offer options to add reviews, photos, and ratings for every purchase.

How Do You Design an E-Commerce Website?

An e-commerce website needs a user-friendly and attractive design that quickly gains customers’ attention. The quick steps for designing an e-commerce website include:

• Purchase a domain name
• Select the website builder
• Decide on an e-commerce platform integration
• Select an online payment gateway provider
• Select a website hosting provider
• Start website design with wireframes followed by prototypes
• Establish a style guide for e-commerce website
• Outline the site’s architecture
• Follow a consistent layout
• Compress all site images for maximizing page speed
• Optimizing every page for SEO
• Launching the e-commerce website

Types of E-Commerce Business Models

• Business to consumer: It is called B2C and counts for the transactions between businesses and end customers.
• Business to business: It is called B2B and counts for the transactions between manufacturers- wholesalers or manufacturers- retailers.
• Marketplaces: These online websites allow third-party merchants to sell their products and services over their platforms.

Examples of eCommerce Businesses

• Online retail: Amazon is one of the popular options, and businesses can benefit from Amazon partnerships.
• Wholesale: Alibaba is a popular wholesale e-commerce business that attracts businesses from different corners of the world.
• Dropshipping: Shopify is the main dropshipping e-commerce business that handles products of different businesses.
• Subscription: Netflix is a leading subscription-based e-commerce business that offers premium services to customers.
• Digital products: Microsoft offers a variety of digital products to global businesses.
• Physical products: Etsy makes it easy for customers to order and buy different physical products.
• Services: Different services like legal services, healthcare, accounting, tax, etc., are offered by many e-commerce businesses.

Should I Use a Marketplace or A Website for My E-Commerce Store?

One common question that comes to mind is the selection from the marketplace or website for your e-commerce store. While website and marketplace both have their set of benefits for any e-commerce, it comes down to the business start date. The startups can go for the established marketplaces that help them gain popularity, while the established ones can confidently invest in their websites.

How to Use E-Commerce to Sell Information?

E-commerce is here to stay as it can do a lot more than increase your business’ revenue. Many companies are already using e-commerce to sell information using different free and subscription model services. The trending online publishing involves transactions that further sell information and add to the total revenue. The best benefits include book publishers, magazines, newspapers, etc.

Advantages and Disadvantages of E-Commerce

Some of the critical advantages of e-commerce include:

• It offers a quick buying experience for the customers and from being located in any corner of the world.
• It becomes easy for businesses to reach global customers and email marketing and social media advertising.
• There is no need to spend on the physical store or sales executives when businesses can go for a virtual or e-commerce site.
• Businesses can offer highly customized user experiences using e-commerce sites.
• E-commerce can significantly add to the total business revenue.

Some of the points of concern while dealing with e-commerce are:

• The interaction with customers is limited that breaks the human touch in decision making.
• The customers never get the option of trying and testing like that in a physical store. Any issues in technology can disrupt the entire e-commerce cycle.

What Is the Mobile Future of E-Commerce?

Mobile commerce or m-commerce has a golden future in evolving markets. According to a survey conducted in 2012 by Google, 74% of users return to a mobile-friendly site. Mobile-friendly e-commerce sites are popular due to the increase in mobile traffic. Further, the mobile traffic exceeds or at least equals the desktop traffic on weekends. Further, Google has already shifted to the “mobile-first” version. Hence, e-commerce has a promising future with a mobile audience.

Essentially four options if you want to go for mobile e-commerce:

It is time to look at the must-to-have in any e-commerce website set to target the audience using mobile devices. These are:

• Responsive design: It is essential to redesign the e-commerce website to meet mobile requirements. It can be achieved using a common stylesheet with conditional rules for different screen widths.
• Dynamic serving: It is all about building e-commerce sites slightly different for desktop and mobile users. It offers an extended user experience as ASP/ PHP testing creates optimized web pages.
• Separate mobile site: Many businesses prefer a separate mobile version of an e-commerce site. This is the ideal choice when the leading search engine Google has turned mobile-first and preference to mobile-friendly websites.
• Separate mobile app: Go for a free e-commerce app for your customers. It ensures zero distractions due to different ads, competitor promotions, etc.

How to Promote E-commerce Websites?

There are different ways to promote an e-commerce website to attract customers. Some of these include:

• Search Engine Optimization or SEO: It uses the power of keywords to increase the e-commerce website’s ability on different search engines.
• Social media: When it comes to e-commerce website promotion, nothing matches the power of social media. Social media traffic can help derive traffic to e-commerce sites. The leading social media platforms that can be used according to the business needs include Google My Business, Instagram, Pinterest, LinkedIn, Twitter, Facebook, etc.
• Sales or promotions: Businesses can go for the coupon codes, promotions, special sales, etc., to promote their e-commerce website. These discounted rates can make customers give your e-commerce site a try at least once.
• PPC or paid advertising: The paid traffic can be contacted through different social media outlets, websites, search engines, etc. The most popular form of PPC is Google Ads which drives traffic to an e-commerce site.
• Referrals: Organic or paid referrals can increase the traffic on e-commerce sites. Businesses can further go for the referral codes shared between different groups.

Understanding Conversion Rate for E-Commerce Websites

Do you know that more than 68% of small businesses don’t have a documented or well-defined conversion rate optimization (CRO) strategy? So, what is this conversion rate all about? It is the simple calculation of the total number of conversions divided by the total number of visitors. Hence, it is a quick estimate of the visitor percentage converted into paying customers. This conversion depends on the business type and can be monitored using Google Analytics.

The simple concept of selling something or the other to every physical visitor at your store or retail is interpreted as a conversion rate for e-commerce websites. It is essential to look at this value to predict future sales, test changes, compare performance, and monitor accordingly.

Hence, the conversion rates are an insight into the e-commerce site, the customer’s behavior, etc., using different A/B testing techniques. It becomes easy for businesses to introduce necessary modifications according to the conversion rates.

How to Measure E-Commerce Success?

Do you know that more than 58% of customers stop taking the products or services of a business based on poor customer experience only? Hence, it is crucial, like never before, to consistently measure the success of your e-commerce platform. Some of the trusted web analytics software for tracking e-commerce success includes:

• Google Analytics
• Kissmetrics
• Piwik
• Mixpanel
• SE Ranking
• Foxmetrics
• Gauges
• Clicky

While the tools mentioned above are perfect for measuring e-commerce success, it is crucial to look at the main KPIs for any business. You can choose from these metrics according to your business niche and targeted customers:

• Transactions quantity
• Organic, referral, social, and direct traffic
• Audience engagement, including bounce rate on organic landing pages, email blasts, etc.
• Organic, referral, paid traffic gains
• Organic, referral, social, paid, and direct revenue
• Average order value
• Cart abandonment rate
• Conversion rate
• Bounce rate

Conclusion

With more than 95% of all purchases going online by 2040, understanding the working of e-commerce is beneficial for many budding entrepreneurs and existing businesses. The commercial transactions over the internet date back to 1887, when IBM was established. It is easy to understand the different components of e-commerce and then go for a deep understanding of this popular business model. A quick list of the must-to-have features in an e-commerce website and related steps to design one for your needs helps businesses enter this challenging market confidently.

The B2C, B2B, and marketplace e-commerce models are not to miss, followed by some of the leading examples in e-commerce domains. It is essential to decide from the marketplace or website for your e-commerce after going through the key advantages and disadvantages of e-commerce. With more than 93% of Millennials comparing different e-commerce deals using mobile devices only, it becomes essential to look at the mobile e-commerce must-haves. A quick look at the promotion, conversion rate, and measuring e-commerce success towards the end makes it easy for anyone to understand all about the working of e-commerce.

So, if you have an e-commerce project then get in touch with Emizentech a leading e-commerce development company offering services globally.