Electronic Commerce (E-Commerce)

What Is Electronic Commerce?

Electronic commerce, usually shortened to e-commerce, refers to any business activity in which products or services are bought and sold through computer networks, most often the internet. A customer can browse a website or app, select items, pay online, and have goods shipped or services delivered without visiting a physical store. Businesses use e-commerce to reach customers in other cities or countries, and many companies operate only online.

How It Works

A typical online sale involves several parts working together. A storefront displays products and prices. A shopping cart holds the customer's selections. A payment gateway securely passes card or account details between the customer, the seller, and the bank that processes the payment. Once paid, the seller arranges order fulfillment, meaning picking, packing, and shipping, or in the case of digital goods, delivering the file or access directly.

E-commerce is often grouped by who is trading. Business-to-consumer (B2C) sales are the familiar retail model. Business-to-business (B2B) e-commerce involves companies buying from other companies, often through negotiated pricing and bulk orders. Consumer-to-consumer marketplaces let individuals sell to one another through an intermediary platform.

Advantages and Risks

For buyers, e-commerce offers convenience, wider selection, and easy price comparison. For sellers, it can lower the cost of maintaining a physical location and allow sales to scale beyond a local area. However, it also brings challenges. Sellers must protect customer data and payment information from theft, handle returns and shipping logistics, and compete with many other online options. Buyers face risks such as fraudulent websites, unclear return policies, and delays in delivery, so checking a seller's reputation and policies is a common precaution.

Why It Matters to Investors

E-commerce is a major area of activity for many publicly traded companies, from retailers and payment processors to logistics firms and software providers. Investors often examine metrics such as conversion rate and customer acquisition cost to judge how efficiently an online business turns visitors into paying customers. Because online sales can grow quickly or slow sharply, e-commerce companies can show large swings in revenue and profitability over time.