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How Does E-Commerce Work?

How Does E-Commerce Work?

No one knows the exact date or method by which people began exchanging goods. We do know that metal coins have been used for commerce for at least 4000 years. From horses and handcarts to ships, trucks, and aeroplanes, the desire to trade products has always prompted advances in transportation. Today, however, everything has changed: many of us engage in a new sort of commerce that does not require money or transportation, at least in the conventional sense. You simply sit in your armchair, click the mouse a few times, input your credit card number, and wait for the things to be delivered to your door. E-commerce, as it is commonly known, has expanded tremendously over the past two decades, making customers’ lives more easy and providing businesses with countless new opportunities. Let’s examine what it is and how it operates in greater detail!

The fundamental premise of e-commerce is computer-based shopping, but it is a bit more nuanced than that. Key aspects of a retail transaction that formerly took place in a store, such as viewing and comparing products and authenticating a payment card, must now take place in the customer’s house. Additionally, rapid, economical, and efficient delivery is vital to the process. As this example demonstrates, you may even purchase a new computer with an existing PC!


E-commerce system’s fundamental components

Whether you shop in-store or online, everything you do revolves around a transaction: the exchange of money for goods or services. In a physical store, you take your new pants to the pay register, hand over cash, and depart with your purchase in a bag; this is a transaction. When you shop online, the process is identical, but there is one significant difference: you never get to touch or even view the things until they arrive at your home some time later.

If this makes online shopping significantly more difficult for the buyer, it also presents the seller with two additional challenges (or e-tailer, as online retailers are sometimes known). In addition to having a method for processing online transactions, this necessitates a method for verifying that the items you requested are in stock, as well as a method for shipping and delivering the items to your address.

In conclusion, e-commerce is the combination of three different systems: a Web server that can manage an online storefront and process transactions (making appropriate links to bank computers to check out people’s credit card details), a database system that can keep track of the items the store has in stock (constantly updating as customers place orders and ideally placing new orders with suppliers), and a dispatch system linked to a warehouse where the goods are stored.

Only the first of these three systems is necessarily required for electronic commerce. They merely have a website to advertise their business and accept orders, and they manage stock control and shipment in more conventional methods. For example, this is a common mode of operation for small sellers on the auction website eBay. Their “databases” are stored in their heads, and their “dispatch system” consists of a trip to the local post office.

How should an e-commerce website be created?

Frequently, the design of virtual stores is the most crucial element in determining the success or failure of online businesses. Not only must e-commerce websites be visually appealing, but they must also be usable, reliable, and secure. is the most successful online retailer in the world. Originally a bookstore, it now sells nearly every imaginable product. Amazon Marketplace even permits third-party sellers to sell things alongside its own. With innovative features such as one-click shopping, Amazon has continuously set the bar for online businesses. It is meant to perform equally well on a smartphone (top left), a tablet (top right), or a desktop/laptop computer, as is the case with every good e-commerce website (bottom).

Once upon a time, establishing an online store was an arduous task. You had to construct your own merchant system that could securely process credit card information and transmit transactions to bank computers. Anyone can create an internet store in minutes nowadays. As a result of their built-in credit card processing capabilities, websites such as PayPal make it incredibly simple to accept transactions. Many people set up virtual stores on the auction website eBay and then use PayPal (now a subsidiary of eBay) to handle transactions. Some websites (most notably Amazon) permit you to embed miniature copies of their stores on your own site, allowing you to earn a commission by selling their things. There are sophisticated content-management systems like Shopify®, Magento®, and WooCommerce® (built on WordPress) that do the majority of the work for businesses with a large number of products that require an easy-to-use website (for users to order from), secure ordering, and a reliable database “back-end” (to manage stock).

Some of the most memorable domain names, such as,, and, were among the earliest victims of the 2000-2001 dot-com boom and bust. Successful Web businesses such as eBay and Amazon have demonstrated that a website’s name does not necessarily need to be directly related to the products or services it offers. Rather, what matters is that, over time, people will come to recognise, adore, and trust the brand and visit it automatically when they want to make a purchase.

Managing how you distribute your products to your clients is also extremely important: you need just peruse the review comments on websites like eBay to understand that people value quick delivery. That does not imply, however, that you require your own warehouse and fleet of delivery vehicles. Companies such as Amazon have developed complicated and extremely effective storage and distribution systems for their own use, which they now make available to others. Having someone else store your products, select them, and ship them to customers worldwide is known as fulfilment, and it enables even the smallest companies (or a single person operating a business out of a spare bedroom) to handle deliveries with the same efficiency and professionalism as much larger businesses.

Selling information via e-commerce

There’s a great deal of money to be made online, but not all of it comes from the traditional sale of items. Numerous online firms attempt to generate income by providing a combination of free and paid services. Yahoo! (which originally stood for Yet Another Hierarchical Officious Oracle) is likely the most well-known website of this type. Created as a thorough directory of other websites, it morphed into a search engine and eventually a portal that provides access to a variety of premium services. You can obtain free e-mail through Yahoo!, but you can also pay extra for a more advanced e-mail system; you can save your images for free on Yahoo’s Flickr site, but you can pay extra to have them printed or processed in a variety of ways. Yahoo recently sold Flickr, but that’s another tale.

Publishers of newspapers, magazines, and books attempt to generate revenue using a combination of free and paid offerings. Some sell a portion of their articles for a one-time flat price or subscription, while the majority offer their basic content (the awful, unpleasant name online businesses give to the words and images they publish) for free and rely on advertising to generate revenue. Purchasing an article entails a transaction comparable to those on Amazon or eBay; hence, this form of online publishing is also a type of e-commerce.

E-positives commerce’s and negatives

Early responses to online shopping websites were frequently negative (“It takes too long to find what you want,” “I’m not sure they’re secure,” “The things I want are never in stock,” and “You can’t see what you’re buying”), but things have vastly improved over the past decade, and online businesses have found ways to circumvent the majority of the drawbacks. Some online clothing retailers provide free returns if you don’t like the goods or they don’t fit. Many consumers now solely purchase online and would never enter a physical store, where prices are frequently higher, lineups are longer, and doors are only open during normal business hours.

E-commerce has created a variety of new options for businesses as well. However, anyone can launch an online store and begin dealing within minutes. Online trade and mail-order sales have given small local establishments a new lease on life, as they are no longer endangered by the expansion of large merchants such as Wal-Mart and Tesco.

Additionally, e-commerce has posed a threat to numerous conventional business practises. During the Christmas shopping season, when individuals flock to internet shopping sites, they spend less in physical stores. Existing businesses with foresight, such as Wal-Mart, have attempted to counter the threat by grasping the opportunity: “bricks and clicks” (having real-world storefronts and a fully-integrated online) is now widely regarded as the optimal strategy. Equally sophisticated, shoppers are now adept at evaluating products in physical stores before purchasing them online, or using websites to discover local branches of retailers where they may inspect and acquire the exact products they desire. The US Department of Commerce revealed that e-commerce accounted for 14.3 percent of total retail sales in the third quarter of 2020, as shown in the graph below. However, this percentage has been continuously increasing, and will continue to do so.

Customers will continue to be in charge, as they always have been. Some merchants (particularly automobile dealers, opticians, and real estate agents) have attempted to combat the danger posed by internet shopping, but protectionist strategies are doomed to fail in the long run. It is now far too simple for consumers to shift their money and purchasing power elsewhere, even to foreign businesses. The client and their mouse always have the final say. And forever more.

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