Introduction to E-commerce

What is E-commerce

Ecommerce, or electronic commerce, refers to the buying and selling of goods and services over the internet. It encompasses a wide range of online activities, including retail sales, digital downloads, online banking, and auctions. The concept has evolved significantly since its inception in the mid-1990s, marked by the first secure online sale of a CD in 1994, which laid the groundwork for modern online shopping practices.

E-commerce (electronic commerce) is the activity of electronically buying or selling products and services on online platforms or over the Internet. E-commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. E-commerce is the largest sector of the electronics industry and is in turn driven by the technological advances of the semiconductor industry.

The term was coined and first employed by Robert Jacobson, Principal Consultant to the California State Assembly's Utilities & Commerce Committee, in the title and text of California's Electronic Commerce Act, carried by the late Committee Chairwoman Gwen Moore (D-L.A.) and enacted in 1984.

Electronic Data Interchange (EDI)

Electronic data interchange (EDI) is the computer-to-computer exchange of business documents and information. Fundamentally, EDI is a methodology. It’s a set of best practices, standards, processes and technology that enables the free flow of information between different businesses — specifically, different businesses within a single supply chain.

For example, a car manufacturer (e.g. BMW) buys parts from a load of different companies. It then needs to distribute manufactured cars to auto-dealers — only some of which are under the direct control of BMW. Each of those purchase orders and invoices could be done manually (printing out orders, manually re-entering data, email or mailing invoice etc.). Or it could just be done electronically and automatically using EDI.

However, to automatically exchange information between different companies, the different systems need to be able to understand each other. That means they need to use standardised formatting and compatible technology. EDI is all of the components and processes required to deliver this electronic and automated outcome.

The major EDI standards

Original EDI implementations were entirely dependent on trading partners sharing the same standard format software, the four most common of which are still:

UN/EDIFACT (United Nations/Electronic Data Interchange for Administration, Commerce and Transport): widely used international standards developed by the UN in 1987.
ASC X12 (Accredited Standards Committee X12): Introduced by the American National Standards Institute in 1979 and predominantly used in North America
GS1 EDI: A popular modern development of EDIFACT used in many global supply chains.
VDA: A newer EDI standard, VDA has experienced rapid adoption and is widely used within the automotive industry, particularly in Germany.

How EDI works:

Document creation: A business creates a document, such as a purchase order, in its own system.
Translation: The document is translated into a standardized EDI format using specific software.
Transmission: The EDI document is transmitted electronically to the trading partner's system.
Reception: The trading partner's system receives the EDI document and translates it into a format that their system can understand.
Processing: The trading partner's system processes the document, such as creating a sales order or shipping the goods.
Acknowledgment: An acknowledgment is sent back to the original sender to confirm receipt and processing of the document.

Benefits of EDI

Cost Savings: By reducing the need for paper, printing, and manual processing, EDI helps organizations lower operational costs.
Increased Efficiency: Automated processes lead to faster transactions and reduced cycle times for order fulfillment and invoicing.
Improved Accuracy: Standardized data formats minimize errors associated with manual entry and interpretation of documents.
Enhanced Relationships: Faster processing times and improved accuracy foster better relationships between trading partners

Timeline of eCommerce

1960s

1960-1968: The development of Electronic Data Interchange (EDI) allows for the digital transfer of documents between businesses, laying the groundwork for future ecommerce activities.
1969: CompuServe is founded, becoming one of the first significant online service providers, offering computer sharing services.

1970s

1979: Michael Aldrich invents electronic shopping by connecting a modified television to a transaction processing computer via telephone lines, enabling secure data transmission.

1980s

1982: The launch of Boston Computer Exchange, one of the first online marketplaces for buying and selling used computers.

1990s

1992: Book Stacks Unlimited, an online bookstore, is launched by Charles M. Stack, marking one of the first true ecommerce platforms.
1994: The first secure online transaction takes place involving a Sting CD sold through NetMarket. The same year, Netscape Navigator, a web browser, is released.
1995: The launch of Amazon by Jeff Bezos and eBay by Pierre Omidyar revolutionizes online shopping.
1998: PayPal is introduced as a secure payment system for online transactions.
1999: Alibaba.com is launched, quickly becoming a major player in global ecommerce.

2000s

2000: Google introduces Google AdWords, allowing businesses to advertise their products online through pay-per-click advertising.
2005: Amazon Prime is launched, offering members free two-day shipping. Other platforms like Etsy and BigCommerce also emerge during this period.

2010s

2011: Google launches its online wallet payment app, and Facebook begins introducing sponsored stories for advertisements.
2014: Apple launches Apple Pay, enhancing mobile payment options for consumers.
2015: Google introduces Android Pay, further expanding mobile payment solutions.

Recent Developments

In recent years, ecommerce has continued to grow rapidly, with significant advancements in technology and consumer behavior. Major events include record sales on platforms like Alibaba during shopping festivals and the rise of social media commerce.
Large retailers are pushed to sell online.
Small businesses have seen a rise, with local sellers now operating from social media platforms.
Operational costs have lowered in the B2B sector.
Parcel delivery costs have seen a significant increase with the growing eCommerce industry.
Several eCommerce marketplaces have emerged, enabling more sellers to sell online.
Logistics has evolved with the introduction of automation tools and artificial intelligence.
Social media has become a tool to increase sales and market brands. Sellers also use social media to sell via channels like Facebook and Instagram.
The buying habits of customers have significantly changed.
The COVID-19 pandemic has impacted purchase decisions, and most users are moving to eCommerce for their purchases.
Sellers are adopting an omnichannel selling approach where they want to provide users with a consistent shopping experience across different media and channels.

Comparison between eCommerce and traditional commerce

Benefits of E-commerce

E-commerce has transformed the retail landscape, offering numerous benefits for both consumers and businesses. Here’s a detailed overview of its advantages.

Benefits for Consumers

1. Convenience

E-commerce allows customers to shop anytime and anywhere, eliminating the constraints of traditional store hours and locations. This 24/7 availability means consumers can browse and purchase products at their convenience, whether at home or on the go.

2. Wide Selection of Products

Online stores typically offer a broader range of products compared to physical stores. Consumers can access various brands and items that may not be available locally, enabling them to find exactly what they need.

3. Price Comparisons

E-commerce platforms facilitate easy price comparisons across different retailers, allowing consumers to find the best deals without needing to visit multiple stores. This transparency helps shoppers make informed purchasing decisions.

4. Access to Customer Reviews

Online shopping provides access to customer reviews and ratings, which can guide consumers in their purchasing decisions. These insights help buyers assess product quality and seller reliability before making a purchase.

Benefits for Businesses

1. Reduced Overhead Costs

Operating an e-commerce business typically incurs lower costs than running a physical store. Businesses save on rent, utilities, and staffing, allowing for more budget allocation towards marketing and product development.

2. Broader Market Reach

E-commerce enables businesses to reach a global audience, transcending geographical limitations. This expanded market access allows companies to tap into new customer bases and niche markets that may have been previously unreachable.

3. Enhanced Customer Insights

Through e-commerce analytics tools, businesses can gather valuable data about customer preferences and behaviors. This information helps tailor marketing strategies and product offerings to better meet consumer needs.

4. Improved Inventory Management

E-commerce platforms often come with integrated inventory management systems that provide real-time tracking of stock levels. This efficiency helps businesses manage their inventory more effectively, reducing the risk of overstocking or stockouts.

5. Flexibility and Agility

Businesses can quickly adapt their online offerings based on market trends or consumer demands. Changes to product listings, pricing strategies, or promotional campaigns can be implemented swiftly without the logistical challenges associated with physical stores.

Conclusion

The rise of e-commerce has reshaped how consumers shop and how businesses operate, providing significant advantages in convenience, cost-efficiency, market reach, and customer engagement. As online shopping continues to grow in popularity, these benefits underscore the importance of integrating e-commerce into modern business strategies.

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