What Is E-Commerce? (Definitions and Why It's Important)

By Indeed Editorial Team

Published 4 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

E-commerce refers to a business model that allows businesses and consumers to make online transactions. There are typically several e-commerce models determined by the parties involved in the transaction. Understanding how these online transactions work can help you implement effective e-commerce models. In this article, we discuss the answer to the question ‘What is e-commerce?', detail the different e-commerce models and explain why they're important.

What is e-commerce?

The answer to the question, ‘What is e-commerce?' is that it's an online technology that allows individuals and organisations to make purchasable transactions on the internet. Many professionals may consider e-commerce to be one of the primary disruptive technologies because it heavily changed the way consumers and businesses interact with each other. Anyone with access to the internet can technically purchase any product or service available online.

Some businesses may operate entirely online and utilise an e-commerce website as a digital storefront. E-commerce isn't necessarily a single piece of technology, but rather a combination of various technologies. These technologies may include mobile commerce, electronic funds transfer, internet marketing, electronic data interchange, data collection and supply chain management. These technological processes help make e-commerce reliable, secure and convenient for internet users.

Types of e-commerce models

Below, you can find details on the different e-commerce models along with example transactions:

Business to consumer (B2C)

This model is typically the most common type of e-commerce transaction. B2C e-commerce is when a business sells a product or service directly to a customer online.

Example: An individual is searching online for a new pair of shoes. They enter a business's website and discover many products and services available for purchase. The individual identifies a pair of shoes they want and makes a purchase from the online website. This is an e-commerce B2C transaction because the business sells a pair of shoes to the customer through its website.

Business to business(B2B)

Business to business e-commerce usually refers to the distribution of supplies. A business may purchase supplies from another business to make products or provide services.

Example: A manufacturing company requires a specific amount of aluminium to create window frames. Their previous supplier is a non-viable option, so the manufacturer seeks a new supply partnership online. The manufacturing business identifies an aluminium processing plant that provides quality materials. They then purchase a large quantity of aluminium from the processing plant. This is an e-commerce B2B transaction because the parties involved are businesses.

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Consumer to consumer (C2C)

This type of e-commerce refers to individuals trading or purchasing goods and services with each other. They typically use online platforms designed for C2C transactions.

Example: An individual is moving interstate and they have an extensive collection of items and products they want to sell. They decide to utilise an online e-commerce platform to list their items for a fixed price. Another user of the same e-commerce platform agrees to purchase some of the individual's items. This is a C2C transaction because both parties involved are consumers.

Consumer to business (C2B)

Consumer to business is essentially a consumer providing a service to a business. A C2B model usually benefits both the consumer and the business.

Example: A freelance writer is trying to gain employment, so they decide to list their services on an online service sharing platform. The freelance writer is the consumer because they're using the services of the online platform, but they also provide value to the business. Without the help of consumers, the business that operates the online platform would be unsuccessful. The business is technically making transactions with the consumer to the benefit of both parties.

Business to administration (B2A)

This type of e-commerce transaction usually refers to businesses paying for government services or fees. These fees typically relate to taxes or legalities

Example: A business conducts a bank reconciliation and discovers the financial department made an incorrect calculation on the financial statements. Because of the mistake, the business is in tax debt, rather than a tax surplus. The tax agency requires the business to transfer the debt. The business completes the transfer using the government's e-commerce platform. This is B2A e-commerce because a business is making a transaction online with a government organisation.

Consumer to administration (C2A)

C2A means a consumer makes a transaction with public administration agencies. These transactions can include taxes and legal fees.

Example: An individual requires advice from a medical expert and books an appointment using the government's online medical services. The type of appointment and ailment the customer has warrants public health coverage. The consumer makes a transaction with the government through the online booking system and the government subsidises part of the medical fee. This is a C2A transaction because the consumer makes a transaction online with a government agency.

Why is e-commerce important?

E-commerce is potentially one of the most disruptive technologies in the world. This means the introduction of e-commerce changed the way many businesses operate and, in some situations, developed entirely new markets. There is an abundance of benefits that consumers and businesses alike can experience. Below, you can find the typical reasons e-commerce is important:

Provides convenient shopping

One of the major benefits of e-commerce is the convenience of purchasing and selling products. Online shopping can give businesses and consumers a much larger selection of products and services compared to shopping in physical stores. E-commerce allows people to make transactions without visiting the store in person. Businesses experience convenient shopping when identifying potential suppliers. Managers can locate supplies overseas or interstate, rather than having limited selections from local stores. It may take longer for the products to arrive, but with effective management, the products can arrive on time.

Allows for 24/7 service

A benefit of e-commerce is the potential for digital storefronts to be available 24/7, regardless of different time zones. Before e-commerce, businesses could only make transactions within standard working hours, unless the business and consumer made a special exception. With e-commerce, a consumer or business can view and purchase products in any country, regardless of time zones and working hours. This typically benefits businesses by improving their sales rate because consumers have instant and readily available access to products.

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Expands product information

Businesses that utilise an e-commerce website can provide an abundance of information about their products and services. Business websites typically involve marketing content that serves as an informative guide and advertisement for the product. When marketing teams publish product details online, a customer can gather their own information without contacting the business. This can reduce the number of resources that departments, such as customer service, may spend.

Improves market reach

E-commerce makes interstate and overseas purchases conveniently available. Sales teams that publish products and services online can reach a wide target audience. E-commerce means that businesses don't rely on walk-in customers to make transactions. The ability to purchase goods and services online essentially removes the geographical limitations of owning a storefront or local business.

Helps advertise niche products

Some products may have a small target audience regarding local demographics, but nationally, there may be a large enough market to earn a profit. E-commerce can allow businesses to sell their products to consumers overseas and interstate. This can help small businesses with niche products to expand their operations.

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Lowering costs

E-commerce can lower costs for consumers and businesses in several ways. Consumers have a wider range of products to choose from and may identify discounts and bargains that include free delivery. Businesses can reduce costs by implementing an e-commerce website, rather than a physical storefront. An e-commerce website typically requires fewer employees to operate compared to a storefront.

Gathers more customer data

Customers who visit websites may accept hypertext transfer protocol (HTTP) cookies. When customers accept these cookies, they essentially agree to the website tracking their online activity. A marketing department can collect an abundance of statistics from the data tracking, such as how many people viewed a specific product and what other websites its customers typically visit. This can be important information for marketing teams to gain because it can help them identify advertising success and the demographics of their target audience. From the gathered data, they can create more accurate marketing strategies.

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Reduces imitations on business growth

If a business operates a physical storefront, there may be several limitations that slow the rate of business growth. The major limitation is usually physical space. If the business wants to expand its operation, the storefront may require renovations or additional buildings. When businesses operate online through e-commerce models, they significantly reduce the limitations of physical space. This can help e-commerce businesses expand their operations efficiently.

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