What is eCommerce & How it Works? [Complete Guide for Beginners]
By definition, whenever someone sells or buys something on the Internet, we can call it eCommerce. The buyer gets the product or service, while the seller gets the money through any of the money transfer options, as simple as that.
It all started back in 1994, when a guy called Phil Brandenberger turned on his PC, found the famous album Ten Summoner’s Tales by Sting and transferred $12.48 via his credit card to buy it, shipping included. Nowadays, people buy all kinds of stuff on the Internet and it results in millions and millions of transactions.
The reason why that purchase made history is that it was the first online transaction with an encryption applied to the process. People witnessed the first eCommerce transaction in its true form. As many other new technologies, this also started an avalanche and the latest statistics show that eCommerce is growing by 23% each year. Also, people are expected to spend $27 trillion on retail eCommerce websites in 2020 worldwide.
Now you can see that there is a lot of potential in running online businesses with such a high demand. However, if you want to start selling online, you will definitely need to research a bit and see how it works. If you came here as a beginner in the subject, you will hugely benefit from our guide.
We will show you the various merchants that are selling on the Web and the platforms you should use on your website. Also, there are plenty of different ways to start an eCommerce shop depending on your business goals and the products or services you want to sell. We will help you understand each of them by the end of this guide.
Ways to Categorize eCommerce Websites
There are all kinds of different eCommerce websites on the Internet and you can break them down into many different parts to categorize them. There are many CMS platforms, plugins, payment methods that work well for eCommerce websites. On the other hand, these sites can differ in their target audience, the products or services they sell and whether they are affiliates with another company or not.
These can all distinguish them from each other. But now we are going to take a look at the three aspects that we consider the most important when it comes to eCommerce sites: the products they are selling, the parties involved in the transaction and the platforms they use.
What do eCommerce Stores Sell?
There are quite a few types of products and services that are commonly sold via online shops. Now we are going to categorize eCommerce shops in terms of what they are selling, just to make it easier for you to distinguish them. This can be done easily, as every online shop fits into at least one of the following 3 categories.
1. eCommerce merchants that sell physical products
Selling physical products is the first type of business that comes into mind when people think about eCommerce. This is also what most online stores do. They sell clothing, gifts, books, computer accessories and so on.
On these eCommerce websites, people can view the products, read descriptions and user reviews, add ratings and add every product they want to buy into a virtual shopping cart. The point is to provide all the information necessary in a nice online environment where they can smoothly browse through the categories they are interested in.
Once they filled in the details and the money transfer is complete, the customer either gets the product via shipping or picks it up in the closest local store. You can check out the most popular online retailers just by entering something like ‘sports shoes for men’, ‘sunglasses for women’, ‘PC monitors’ or anything you want at the moment into Google Search. There are always some highly popular online stores on the first page where you can find and order the particular product.
2. E-tailers that provide services
As people realized that they can effectively sell physical goods online, they also started to provide online services. This is how online education, consulting, web hosting services, freelancer jobs started to evolve. There are huge websites providing online classes, top-notch web hosting packages and offering virtual assistants for businesses.
There are a wide range of services available on these eCommerce sites and there are different ways to buy them. Some sites might ask their customers to pay beforehand, while others will let them pay after they received the service. Also, there are merchants who only ask for the money if the customers are satisfied with the service.
When people are about to buy a more serious service, the provider might also schedule a consultation for them. There they discuss all the specific needs of the customer and explain everything in detail before the price is set. If you want a new website, for example, then you need to talk about the specifics before the web design team starts working on it, and the prices might also vary.
3. Shops that sell digital products
The eCommerce sites that fall into this category provide digital goods on their websites. This includes everything that you can download and can be stored on your machine, such as graphic design, translations, plugins, video games, educational content, audiobooks and so on.
Those times are long gone when you had to go to a bookshop to get a book you needed or get the physical copy of a new PC game from the store. Today this problem is fixed with encrypted payment methods, serial numbers and the ability to use your Internet connection and just download the content.
These shops are the same as any other type of eCommerce site, providing some info about the digital products and a well-designed site where you can browse through them. Knowledge, design, helpful software, entertainment, all this stuff can be bought and downloaded in no time.
Which Parties are Involved in the Transaction?
When it comes to eCommerce websites, it doesn’t always mean that a business is selling to consumers. There are many different types of sites if you take a look at who is selling to whom when the transaction happens. From this point of view, we can further divide eCommerce stores into the following 7 categories:
- Business sells to consumer – The most typical model where an individual customer pays to a business for a product or service. The business is responsible for securing the transaction and sending the product, while the consumer needs to make sure the money is successfully transferred.
- Business sells to business – Often times, businesses also need services or products that other businesses provide. This type of transaction is quite common, as there are plenty of eCommerce sites that prefer other businesses as their target audience.
For example, eCommerce businesses that need a reliable web hosting provider choose a business plan on one of the web hosting sites. Another typical example is when an online shop wants to add a payment solution to the site and picks PayPal. Their services guarantee secure payment processing for businesses from all around the World.
- Consumer sells to business – This is based on the idea that businesses can extract a lot of value from consumers. People that have blogs or YouTube channels can either review the business or provide a space for advertisements on their blog for money. Consumers can also provide useful content to businesses like stock photos.
Asking a website to review the business or advertising there if it has big traffic can be a great benefit from a marketing standpoint. Or maybe a business is doing a research and people just need to fill out a form for money or a discount. But there are many other ways for consumers to sell their services to businesses.
- Consumer sells to consumer – There are online marketplaces that provide the opportunity for individuals to sell their own, either new or second-hand products. In this case, the consumer sells to another consumer and the transaction happens between them.
There might be a company that provides the platform to the two parties where they can execute the transaction between each other. Today, these platforms are available for everyone with the sole purpose to facilitate the transaction between individuals.
- Government sells to business – Businesses can buy certain services or useful information from government websites. Today it’s pretty easy to pay all the taxes online, and businesses need to do that as well. Since it can be done within a couple of minutes, it saves a lot of time.
When someone runs a business, there are also different permissions and forms that need to be submitted. This can be done on the website of the particular office where it needs to be processed, and then all the fees can be paid online.
- Business sells to government – If any kind of government institution buys products or services online from an eCommerce shop, the transaction falls into this category. There are various institutions in each city and nowadays most of them need to be present online.
They need a website for this, for which they ask a web design team and make a deal. Another example is when a government entity already has a website but needs certain updates. In this case, they might also need to pay a company to do the job.
- Government sells to consumer – Individuals can pay for products or services on the websites of government institutions. There are various fees, taxes and tickets that can be paid online through these websites. It’s a huge simplification and saves a lot of time, as people can pay for car registration, parking, government fines, traffic tickets and such with a single transaction.
On Which Platform is the eCommerce Site Built On?
Many platforms have evolved for eCommerce in the past decade and there are some really good ones that we want to present you. We will divide them into 3 different categories, as there are various ways to sell online and you should pick one that mostly suits your business goals.
Each option serves different purposes and we are going to explain them in great detail. We are also going to review some big names in each category, just to provide some help in case you want to pick a platform right away and start your own eCommerce site. Keep reading!
1. Building an Online Storefront
One of the most popular ways to sell products online is to open your own online storefront. Today it’s easier than ever to set up an eCommerce website. There’s plenty of online software that makes you able to set up your own without any experience in programming or web design whatsoever.
There is a wide selection of eCommerce plugins, website templates, payment processing options, graphic design programs and web hosting providers that can come in handy. The most important thing is to choose the perfect eCommerce platform for your online shop. This, of course, depends on your business goals and the products or services you want to sell.
We reviewed the 4 best eCommerce platforms in our opinion in case you need some help in choosing the right one:
Magento – This is definitely one of the most popular and most versatile eCommerce platforms out there. It gets overwhelmingly positive feedback, mainly because of the wide range of features that Magento provides. The platform is completely user-friendly, while you can change anything you want on your site.
The appearance, layout, and all the different functionalities on your website can be modified easily. You not only get a flexible website, but the support of the team of experts working at Magento. By using the platform, you also join a huge community that is ready to provide help at any time.
Magento users can also pick from a wide range of add-ons that might be useful if anyone wants to add extra functionalities to their eCommerce shop.
Shopify – This is the platform that most SMB companies choose when they want to sell online. It not only allows you to open an online shop, but you can also choose to sell products and services both in-person and on social media.
Shopify is also highly flexible. Their straightforward interface and templates let you quickly set up the website you want. A huge number of customization options are available, making sure that you create something unique and appealing to your customers. One of the features that stand out is their integrated inventory management software that saves people a lot of time.
The platform allows you to connect your site to your Facebook and Pinterest accounts and sell products on social media. Since Shopify hosts the website for you, there is no need to get a web hosting provider or worry about the uptime.
BigCommerce – Both big and small businesses use it for their websites. On BigCommerce, you can use their site builder and build up your own online shop from scratch. The platform provides useful features such as various shipping options, eCommerce site and product migration, reporting, templates and more.
BigCommerce is one of the platforms that allow selling on Amazon, Square, eBay, Google Shopping and Facebook. If you want to send emails to your potential customers or sell products on your blog, you can do it effectively by adding the Buy Button provided by BigCommerce.
These are marketing practices that can greatly increase the conversion of your online store and with the Buy Button, it is way easier to prepare them. If you are only interested in wholesale or simply selling to other businesses, BigCommerce has its own B2B software which is highly competitive right now in the market.
This platform is also ready to host your eCommerce site, so you don’t need to subscribe to any web hosting provider.
WooCommerce – WordPress is a platform that is initially created for blogs. As more and more plugins were developed, a huge number of businesses started using it including online shops. The most popular plugin for eCommerce is definitely WooCommerce with the huge number of features it offers.
It allows you to easily analyze the statistics of your website over certain time periods, providing deep insight into your own business. WooCommerce also has plenty of options that can help you to turn your website mobile-friendly.
If you already have some experience with WordPress as an editor or webmaster, we highly recommend you to start with WooCommerce right away. It’s a user-friendly plugin that neatly merges with WordPress. The plugin is open-source with extensive documentation that supports its extensions as well.
Some WordPress themes might need a few changes to be applied to become fully compatible with WooCommerce. However, you can always choose a theme that is specifically created for the plugin; there is a wide selection in the market.
2. A Bigger Plan: Online Marketplaces
Another type of eCommerce sites are online marketplaces. These sites basically provide a platform where small businesses can sell their products to customers. Some of the online marketplaces have their own products besides allowing other businesses to sell theirs, making money in two different ways.
However, most of them just want to facilitate the transaction between two parties that want to trade, without the intention to sell anything themselves. Just to show you some examples, we are going to talk about 4 of the most popular online marketplaces today:
Amazon – This brand is so widespread that you can hardly find someone who hasn’t heard about it. You can find pretty much any kind of product you want on Amazon, divided into a wide range of categories. The products are provided by famous brands from all around the World.
Starting from 2016, third-party sellers generated more than half of the annual revenue on the platform. This percentage steadily grows on Amazon since then, as more small businesses realize the potential in online marketplaces.
eBay – Another well-known name among the online marketplace brands. eBay not only makes it easier for businesses to sell products online, but allows them to sell to other businesses as well. On a smaller level, individuals can also sell products to other consumers.
You can find a huge number of categories on eBay such as clothing, jewelry, antiques, home décor, motorcycles and much more. On this online marketplace, bidding is also allowed. This is a great option for those who prefer this selling method and want to sell their products for more money than its actual value.
Etsy – People who look for something special can definitely find it on Etsy. It is a huge online shop that allows creative people to sell home or office décor, shoes, clothing, jewelry, art and much more. There are tons of subcategories on an engaging landing page where visitors can smoothly browse through all the eye-candy products.
This is basically Etsy in a nutshell. A well-designed website that makes sure everyone can get something unique and handmade from other creative people. One of the reasons why people enjoy buying products on this eCommerce site is that it’s partly a community where people can share the things they created.
The site always welcomes creative individuals who want to show their creations in an online store and get their business going.
Fiverr – This online marketplace provides a great opportunity to freelance workers to kickstart their career. Thousands of service providers are available on the platform. These are mostly specialized in virtual assistance, copywriting, creative writing, translation and graphic design. Fiverr is a great place for entrepreneurs who need a helping hand in finishing a task.
Small businesses might also find it useful, as there are numerous marketing assistants that can help in popularizing their brand through ads, blogs and social media. The reason it got the name Fiverr is because $5 is the minimum amount you can pay for a service. However, freelancers can set a much higher price based on their experience and the particular task.
3.The Benefits of Social Media
Without social media, it would have been much harder to attract potential customers to your eCommerce site. It is not always enough to invest time and money into improving the SEO of your website and rely on organic traffic.
Posting regularly on Facebook, Pinterest or Instagram can make it easier to reach your target audience, but some of the social media sites also allow you to sell products right on their platform. Let’s see how eCommerce works on social media in more detail.
eCommerce is Easier with Social Media
Online businesses mostly use social media sites to popularize their brand and reach a wider audience. If you take a look at the most successful eCommerce shops, you will see that most of them add buttons with their social media accounts to their landing page. They also post regularly on each platform, either providing useful content or posting the latest discounts or brand new products on their list.
This is a great way to increase conversion and get a higher rank on Google Search. In these posts, eCommerce sites include links that lead straight to the product on their web page, so that potential customers can instantly add it to their shopping cart.
Social Sites that Support eCommerce Transactions
Nowadays, social sites are trying to figure out the best ways to let customers get the product they want without the need to visit the particular eCommerce site. If they find a product and want to buy it, they can complete the transaction on social media and continue browsing.
A great example of this is Pinterest. The platform lets you add Buyable Pins where you can show your products among the other content that links to your website. These pins have a price tag that shows the price of the product. If the number is blue, it means that the product is currently available and ready for shipping.
Once they visit your Pinterest profile, they can see the buyable pins and they can also find it through Search. Shopify is another popular eCommerce platform that allows customers to buy products on Facebook. After a customer ordered the product, the Shopify Messenger Support is ready to provide updates about shipping and all the orders that have been made so far.
Now that we showed you the most popular forms of eCommerce and the platforms that merchants use, you can rely on the information and set up the online shop that mostly suits your business ideas. These thoughts can be useful not only for beginners, but also for those who are more experienced in eCommerce and want to learn more about its variety.
In this guide, we talked about the various eCommerce platforms and the three main types of ecommerce shops on the Internet. However, this is only the tip of the iceberg because today it’s rather easy for everyone to set up an eCommerce shop and start selling. You should prepare your marketing ideas and some essential practices that will help you generate traffic to your website.
Our social media marketing guide can give you an idea why it’s such a good practice to post and advertise on social media. All in all, you have everything that a beginner eCommerce merchant needs, summed up in this article. The next step is to take action.