No one knows exactly when people first started trading with one
another—or how. We do know that metal coins have been used to buy and
sell things for at least 2500 years.
[1]
From horses and handcarts to
ships, trucks, and airplanes, the need to trade goods has spurred on innovations in transportation for just as long. Today, though, it's all
change: many of us are now buying and selling with a new form of
commerce that involves neither money nor transportation—at least not in
the traditional sense. You just sit in your armchair, click your mouse
a few times, enter your credit card number, and wait for the goods to
show up on your doorstep. E-commerce, as this is known, has grown
enormously in the last two decades, making life more
convenient for consumers and opening up all kinds of new opportunities
for businesses. Let's take a closer look at what it is and how it works!
Artwork: Shopping by computer is the basic concept of e-commerce, but it's a bit more subtle than that. Key parts of a retail transaction that once happened in a store (such as inspecting and comparing products and validating
a payment card) now have to happen in your home, and fast, affordable, efficient delivery also plays a crucial part in the process. As this illustration shows, you can even buy a new computer with a computer!
Whether you're buying in a store or buying online, everything you do
is geared around a transaction: the basic
exchange of money for
goods or services. In a real-world store, you simply take your new
jeans to the checkout, hand over some cash, and leave the store with
your purchase in a bag—that's a transaction. It works in a similar way
if you're buying online, but there's one important difference: you
never actually get to handle (or even see) the goods until they arrive
at your home sometime later.
If this makes buying online slightly problematic for the purchaser,
it also introduces two extra problems for the retailer (or e-tailer,
as online retailers are sometimes known). Apart from having some means
of processing transactions online, it means they also need a way of
checking that the goods you've ordered are actually in stock, and a
means of dispatching and delivering the goods to your address.
In short, then, e-commerce is about combining 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 a check of
the items the store has in stock (constantly updating as people make
orders and ideally making new orders with suppliers when stocks run
low), and a dispatch system linked to a
warehouse where the
goods can be instantly located and sent to the buyer as quickly as
possible.
Only the first of these three systems is strictly necessary for
e-commerce. Many people successfully run small-scale online stores
without either complicated databases or dispatch systems: they simply
have a website to publicize their business and take orders and then
they manage the stock control and dispatch in more traditional ways.
Small traders who sell items on the auction website eBay often work in
this way, for example. Their "databases" are in their head; their
"dispatch system" is simply a walk to the local post office.
How e-commerce works
Here's one example of how a sophisticated, fully computerized
e-commerce system might work. Not all e-commerce systems work in
exactly this way:
Sitting at her computer, a customer tries to order a book
online. Her Web browser communicates back-and-forth over the Internet
with a Web server that manages the store's website.
The Web server sends her order to the order manager. This
is a central computer that sees orders through every stage of
processing from submission to dispatch.
The order manager queries a database to find out whether
what the customer wants is actually in stock.
If the item is not in stock, the stock database system
can order new supplies from the wholesalers or manufacturers. This
might involve communicating with order systems at the manufacturer's HQ
to find out estimated supply times while the customer is still sitting
at her computer (in other words, in "real time").
The stock database confirms whether the item is in stock or
suggests an estimated delivery date when supplies will be received from
the manufacturer.
Assuming the item is in stock, the order manager continues to
process it. Next it communicates with a merchant system (run by
a credit-card processing firm or linked to a bank) to take payment
using the customer's credit or debit card number.
The merchant system might make extra checks with the customer's
own bank computer.
The bank computer confirms whether the customer has
enough funds.
The merchant system authorizes the transaction to go ahead,
though funds will not be completely transferred until several days
later.
The order manager confirms that the transaction has been
successfully processed and notifies the Web server.
The Web server shows the customer a Web page confirming that her
order has been processed and the transaction is complete.
The order manager sends a request to the warehouse to dispatch
the goods to the customer.
A truck from a dispatch firm collects the goods from the
warehouse and delivers them.
Once the goods have been dispatched, the warehouse computer
e-mails the customer to confirm that her goods are on their way.
The goods are delivered to the customer
All of these things are invisible—"virtual"—to the customer except the
computer she sits at and the dispatch truck that arrives at her door.
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How do you design an e-commerce website?
The design of virtual stores is often the most
important factor in the success or failure of online businesses. That
doesn't simply mean that e-commerce web sites have to look attractive
(though they do): they have to be usable (quick and easy to
navigate around without irritating or confusing people), reliable
(customers expect sites to be online 24 hours a day, seven days a week,
and for pages to load without delay), and secure (because no
one is prepared to type their credit card details into a website that
isn't safe).
Setting up an online store used to be quite an undertaking. Not only
did you have to build a dedicated website from scratch, you also had to
develop your own merchant system that could
securely process credit card details and ship transactions to and from bank computers.
These days, anyone can set up an online store in minutes. Websites like
PayPal make it possible to build a store very quickly and, since they
have built-in credit card processing features, handling transactions
couldn't be simpler. Many people set up virtual storefronts on the
auction site eBay and then use PayPal (now a part of eBay too) to
process their transactions. Some websites (notably Amazon) allow
you to incorporate mini versions of their store inside your own
website—so you make a small commission selling their products within
your own site. For businesses with lots of products that need
to combine an easy-to-use website (for users to order from), secure ordering,
and a reliable database "back-end" (to manage stock), there are
sophisticated content-management systems like Shopify®, Magento®,
and WooCommerce® (built on WordPress) that do most of the work for you.
Photo: Amazon.com: the world's most successful e-shop. Originally just a bookstore, now it sells almost anything you can imagine. It even allows third-party vendors to sell products alongside its own offerings
with something called Amazon Marketplace. Amazon has consistently set the standard for online retailers with
pioneering features like one-click shopping. Like every good e-commerce site, it's designed to work
equally well on a smartphone (top left), tablet (top right), or desktop/laptop (bottom).
It used to be said that the right domain name
was an essential requirement for a successful online business but some of the
most memorably named web sites (including pets.com, etoys.com
and garden.com) were early
casualties of the 2000/2001 dot.com
boom and bust. As successful Web businesses such
as eBay and Amazon have proved, there doesn't necessarily have to be an
obvious connection between the name of a website and things it actually
does or sells: all that matters is that, over time, people will
come to know, love, and trust the brand and visit the site
instinctively when they want to buy something.
Managing how you get your products to your customers is crucially important
too: you've only to look at review comments on sites like eBay to
see that customers love rapid delivery. That doesn't mean you need your
own warehouse and a fleet of delivery trucks, however. Companies like Amazon
have built complex and highly efficient warehouse and dispatch systems
for their own purposes, which they now allow other people to use as well.
Getting someone else to store your products, pick them, and ship them off to
your customers, worldwide, is called fulfilment—and it means even tiny companies
(or one person running a business from their spare bedroom) can manage deliveries
as efficiently and professionally as a much bigger outfit.
Using e-commerce to sell information
There's lots of money to be made online, but not all of this
involves selling goods in the traditional way. Many online businesses
try to make money by offering a mixture of free and premium services.
Yahoo! (which originally
stood for Yet Another Hierarchical Officious Oracle), is probably the
best-known example of a website like this. Created as a comprehensive
directory of other websites, it
mutated into a search engine and then a portal, offering a gateway to
all kinds
of other premium services. For example, you
can get free e-mail through
Yahoo!, but you can also pay extra for a more sophisticated e-mail
system; you can store your photographs for free on Yahoo's Flickr site, but you can
pay an extra sum to have them printed out or processed in various ways.
(Yahoo has recently sold Flickr, but that's another story.)
Newspapers, magazines, and book publishers also try to make money
through a mixture of free and premium services. While most of them
offer their basic content (the horrible,
unappealing name that
online businesses give to the words and pictures they publish) for
free, using advertising to make money, some also offer a proportion of
their articles for a one-off fixed fee or subscription). Buying an
article involves a transaction similar to the ones you'd make on Amazon
or eBay, so this kind of online publishing is also clearly a variety of
e-commerce.
Advantages and disadvantages of e-commerce
Although early reactions to online shopping websites were often
mixed ("It takes too long to find what you want", "I'm not sure they're
secure", "The things I want are never in stock", "You can't see what
you're buying"), things have improved greatly over the last decade and
online businesses have found ways round most of the drawbacks. (For
example,
some online clothing stores sensibly offer free returns if you don't
like the clothes you've bought or if they turn out not to fit.) Many
people now swear by online shopping and wouldn't dream of setting foot
in a real-world store where prices are often higher, waiting lines are longer,
and the doors open only during normal business hours.
“Ten large retailers accounted for 68 percent of all U.S. e-commerce sales last year — and Amazon alone represented more than half of all online sales.”
For businesses too, e-commerce has opened up all kinds of new
opportunities. Not many can compete with huge businesses like Amazon or
eBay, but anyone can open an online store and start trading within a
matter of minutes. Small local stores, long threatened by the growth of
giant retailers like Wal-Mart and Tesco, have found a new lease of life
by trading online and selling their products mail order.
E-commerce has also threatened many traditional ways of doing
business. When people flock to online shopping sites for the Christmas
rush, they naturally spend less in real-world stores. Savvy existing
businesses such as Wal-Mart have tried to offset the threat by seizing
the opportunity: "bricks and clicks" (having real world stores and a seamlessly
integrated
website) is now generally seen as the way to go. Shoppers have become
equally savvy and are adept at inspecting products in real-world stores
before buying online, or using websites to locate local branches of
stores where they can inspect and purchase exactly the goods they want.
It's important to bear in mind that e-commerce
still represents only a fraction of all the trade that we do.
For the first quarter of 2022, the US Department of Commerce reported
e-commerce representing about 14.3 percent of total retail sales, as shown in
the chart below, but that figure has remained the same since 2020.
The steady growth of e-commerce: this chart shows how online shopping currently represents about
14 percent of all retail sales—three times as much as a decade ago. More formally, it shows "Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales: 1st quarter 2013 to 1st
Quarter 2022". By courtesy of US Census Bureau.
As ever, customers call the shots and will continue to do so. While
some traders (notably car dealers, opticians, and realtors) have tried
to resist the threat from online shopping, protectionist tactics are
bound to fail in the long term. It's all too easy
now for customers to take their money and their spending power
somewhere else—even to retailers in another country. The customer, and
their mouse, is always right. And always will be.
The mobile future of e-commerce
If you're running a long-established retail business, chances are you now have a website
gathering orders from your customers and processing them through e-commerce.
But just as you've got used to the rules of the online game, along
comes something new that shifts the goalposts: mobile commerce, also
known as m-commerce. You can't help but notice that more and more people are going online through
cellphones, iPads, and other handheld devices. Once we hunched over desktop PCs clicking
mice; now we're increasingly likely to poke at touchscreen tablets
while we slouch on the sofa and simultaneously watch TV.
Photo: Amazon.com's mobile app running on an iPod Touch.
If you've any doubt about whether m-commerce is the future, you've only to look at
the giants of the online world and see how seriously they're taking it. Amazon, Google,
and Facebook all see mobile computing as a decisive battleground in the next few years.
Google has been highlighting the importance of running a mobile-friendly site for years;
way back in a 2012 survey, Google reported that 74 percent of users were more likely to return to mobile-friendly sites and 67 percent were more likely to buy from mobile-friendly sites. However, a massive 96 percent reported that they'd encountered incompatible websites while going online with their mobile.
In 2018, market research firm eMarketer made a bullish prediction that retail mobile commerce would rise to $3.556 trillion dollars by 2021, making up almost three quarters of all e-commerce.
One very interesting trend is that mobile site traffic routinely equals or exceeds desktop traffic on weekends
(when people aren't sitting at their desks wasting time on their work computers). If you value weekend
custom, mobile is where you need to be; if you only have a desktop site, you're potentially losing a lot of custom.
Now business customers buying from business sites (so-called B2B ecommerce) might be happy on desktop-only websites.
But personal customers, teens with smartphones, and adults browsing at home with smartphones on the sofa fully
expect to find themselves using mobile-friendly sites. The ever-increasing importance of mobile explains why Google has now shifted its entire index of the Web to a mobile-first view, in which the mobile version of each website is indexed primarily instead of its desktop version.
What can you do to go mobile?
The first step is to check out how your existing site works on a mobile
device (preferably one connected to a cellphone network, and not via Wi-Fi, so you can get a sense
of speed as well as usability). There are emulators and testers you can use that simulate mobile devices on a PC
(including a great one built into Google's Chrome browser and the open-source Chromium equivalent), but it's much better to get yourself a modern cellphone with a browser or a tablet computer and see how your website works for real. If you've never seen it working on a tiny screen, you might be amazed by how it looks. If your site has been designed to work for a typical widescreen laptop, you'll probably find it looks terrible: columns probably wrap and overlap, the text may be too
small to read, links may be too small to click, and so on. Don't worry! once you've assessed the scale of the problem, you
can start to do something about it.
There are essentially four options if you want to "go mobile":
Responsive design: Redesign your existing site so that the same HTML code works equally well on both desktop and mobile, using a common stylesheet that has conditional rules in it that apply to devices of different screen width. You can tell when a site is responsive by browsing it on a desktop; if you narrow the width of your browser, the site will suddenly reformat from the desktop to the mobile version. Responsive sites are easy to maintain and search-engine friendly, but they don't always give the best experience for users, because they present essentially the same pages for all users (just formatted differently).
Dynamic serving: Build your pages slightly differently for desktop and mobile devices without changing their URLs (either with a common stylesheet or by "including" an appropriate stylesheet for each device). Typically, you would use PHP or ASP to test for a mobile device and then build a desktop or mobile optimized page, perhaps using a desktop or mobile stylesheet that reformats your common HTML code accordingly. (Or you could use a responsive stylesheet as well.) Dynamic serving is search-engine friendly (providing you signal that the content of your pages varies according to user-agent) and gives a good user experience (because you can optimize pages for desktop and mobile much more than with responsive design), but it can be complex to implement.
Separate mobile site: Detect whether users are on a desktop PC or a handheld device and then redirect to a completely separate mobile version of your site. This means you can optimize your site for mobile users without compromising usability for people on the desktop, but the drawback is having to maintain a second, duplicate version of your site—and the risk of different versions of your pages getting out of step. Remember that search engines such as Google dislike duplicate content, so use techniques like canonical URLs to help them understand where to find the definitive version of each page. If you want, you can set a cookie to remember which version of the site to serve as users hop from page to page. It's a good idea to give mobile users the option to view your desktop site, if they prefer. Separate-URL sites tend to be search-engine unfriendly, but they can give a really good user experience (because the mobile site can be highly optimized for mobile users). One thing to remember: now Google has gone "mobile-first," make
sure that a separate-URL mobile site contains all as much content as your desktop site.
Separate mobile app: Develop a free app for mobile devices that effectively bypasses your website altogether. There's an upfront expense in having apps developed, but they generally give a much better user experience than mobile websites. Not only that, but they prevent users getting distracted, clicking other links, and going off to competitor sites. In other words, mobile apps are a great way to "capture" mobile users and keep them.
On top of these, there are evolving methods like AMP (Accelerated Mobile Pages), which allow you to develop a much faster mobile site using a stripped-down subset of HTML (but potentially sacrificing some of your website's features in the process).
Further reading
Google Mobile Guidelines: Google's easy-to-follow introduction to making a mobile version of your website using separate URLs, dynamic serving, or responsive design.
A brief history of e-commerce
1887: US statistician Herman Hollerith
(1860–1929) sets
up the forerunner of IBM (International
Business Machines), a
company that will pioneer electronic forms of doing business in the
decades that follow.
1950s–1960s: IBM pioneers online transaction
processing (OLTP): a way of handling money transactions instantly (in "real-time") using
sophisticated computerized systems. With American
Airlines, IBM develops an OLTP system called SABRE (Semi-Automatic Business Research
Environment) that revolutionizes airline reservations. In 1969, IBM's transaction-processing
software evolves into CICS (Customer Information Control System),
one of its least-known but most successful products.
1970: US company Docutel invents the
ATM (automated
teller machine, also known as the "cashpoint"), which works using
online transactions made through bank computers. The popularity of ATMs
leads to even more sophisticated forms of transaction processing.
1980s: CompuServe, Prodigy,
and AOL
(America Online) let people shop from home using their computers and
telephone lines.
1989: Tim Berners-Lee (1955–) invents
the World Wide Web,
unwittingly laying the foundations for an explosive growth of
e-commerce in the years that follow.
1994: Jeff Bezos (1964–) founds
Amazon.com, the iconic e-store.
1994: Marc Andreessen (1971–) develops
the Netscape Navigator web browser, which ships with a feature called SSL (Secure Sockets
Layer): built-in encryption that allows credit card transactions to be
carried out securely online. There is a huge explosion in online
shopping and business and the dot.com phenomenon begins.
2000/2001: The dot.com bubble bursts and over 750 online
businesses go to the wall. At one point, Amazon.com's share price
plunges to less than 10 percent of its original value.
2008: E-commerce represents about 3.4 percent of total sales.
2017: Google begins to switch to a mobile-first index, a move that reflects the growing importance
of mobile devices and also helps to accelerate that trend.
2022: The US Census Bureau reports that US e-commerce retail sales for the first quarter of 2022 are
$250 billion (about 5 times the $51.2 billion for the third quarter of 2012, adjusted for seasonal variation). In 1Q 2022, e-commerce represents about 14.3 percent of total sales (more than three times the 4.7 percent in 2012 but
no increase on the period 3Q 2020).
Starting an Online Business All-in-One For Dummies by Shannon Belew, Joel Elad. Wiley, 2020. A simple, comprehensive introduction covering everything from startup costs and legalities to the practicalities of creating a user-friendly website.
E-Commerce: Business, Technology, and Society by Kenneth C. Laudon, Carol Guercio Traver. Pearson Education, 2019. A detailed guide to all aspects of e-commerce and written from an international perspective.
Popular accounts of dot.com successes and failures
Walmart Rewrites Its E-Commerce Strategy With $3.3 Billion Deal for Jet.com by Leslie Picker and Rachel Abrams. The New York Times, August 8, 2016. Walmart's acquisition of Jet is the biggest e-commerce deal so far, and the latest attempt by the real-world giant to take on its virtual counterpart, Amazon.com.
The future of e-commerce: bricks and mortar by Mark Walsh. The Guardian, January 30, 2015. Why are virtual stores like Amazon suddenly showing an interest in opening real-world shopfronts?
Who Invented E-Commerce? by Steven M. Cherry. IEEE Spectrum, March 1, 2003. Does a lone inventor deserve credit for inventing secure online transactions?
Sabre: The First Online Reservation System: An interesting history of the Sabre airline reservation software that pioneered transaction processing and e-commerce in 1953, long before those terms were coined.
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