What is e-commerce and how does it work?

A current trending topic is the e-commerce. Everyone these days is buying online. It is fast, simple, and reliable. We will explain here in detail about working of e-commerce. Electronic commerce or e-commerce is nothing but buying and selling of goods or services on the internet.


Furthermore, it also involves the exchange of data and money online via a web interface. In short, buying or selling goods by exchanging data and money over the internet.

Although it sounds simple, it is not that simple. It involves many processes that work together to get what you want in just a fraction of a second on your computer. Amazing, right? Yes, it is fantastic, no doubt about that. A few years back, no one thought of buying a product on a computer or mobile from the comfort of your home. It is now the reality, and it will be the future. It would be best if you accepted that e-commerce is the next big thing.


The e-commerce term has a straightforward meaning. Commerce that works electronically. Any commercial transaction that involves a computer and the internet comes under e-commerce. However, some people call it internet commerce. It is also a valid meaning as electronic commerce totally relies on the internet.

The first online sale occurred on August 11, 1994. A man sold a CD to his friend thru’ a website Net Market. It was the first-ever e-commerce carried out on the Internet. From that moment, e-commerce kept on getting bigger and bigger.

How does e-commerce work?

E-commerce works thru’ many different processes and involves many things that work together seamlessly. We will explain the working here by taking an example of an online purchase on an e-commerce portal.

First of all, anyone who wants to buy online needs a computing device and a working internet connection. So here is what happens, the users first search the product on a search engine or directly on the e-commerce portal. Then they will get a list of available products. Remember, this list is nothing but the products displayed by various sellers. Here, the e-commerce portal acts as a mediator.

Furthermore, this list involves various parameters of the product, including its price and availability. The seller also writes all this information. Then the buyer selects the product. After that, the portal asks you about the delivery speed, gift packing, discounts, etc. The user needs to type in the address. Then the portal searches the delivery company about the possibility of the delivery to the user’s address. If it is possible, the system will go to the next window where the user has to make the payment.

Then comes the payment gateway. These payment gateways are nothing but websites that facilitates payment between your bank and the e-commerce portal’s bank. Once successfully done, you will get the confirmation message. You will also get the details about packaging and shipping.

The Process

Ohh, these are a lot of processes. You might think it’s an end to it, but it’s the start. As soon as you confirm the order and the portal verifies the payment receipt, things start to work in the background. The portal sends your order details to the fulfillment center or directly to the seller.

The fulfillment center then identifies the product from the warehouse. Then it starts packing and labeling the package. Once done, it will hand over the parcel to the courier or delivery service. The delivery service then ships that product to the destination hub. The destination hub receives your parcel. The delivery person then searches the address and delivers your parcel at the mentioned address.

Hush.. lots of processes, right? But we have explained it here in concise terms. Every process above has many more sub-processes. The ultimate goal of every process is improving efficiency, speed and accuracy. That is why you get the same product you ordered at exact date committed by e-commerce portal.

The e-commerce models

E-commerce has four basic models based on the transaction between consumers and businesses. The first model is Business to Business or B2B. Here the transaction takes place between two businesses, and no direct consumer is involved. Most services come under this category. Say, for example, the business of enterprise resource planning (ERP) software selling its software to other businesses.

The second model is Business to Consumer or B2C. Here the business directly sells its product to the consumer/s. Say, for example, a laptop manufacturing business selling its laptops directly to consumers.

The third model is Consumer to Consumer or C2C. Here, consumers list their products for sale, and other consumers buy that product thru’ a web portal or mobile app. Here no business entity has its involvement; the transaction happens between two consumers directly.

The fourth model is Consumer to Business or C2B. Here, consumers sell their products to businesses. For example, a developer selling a piece of code that will run the software of a company. Transaction happens here between the consumer and business. Hence, it is precisely the opposite of the business-to-consumer model.

Advantages of e-commerce

The most important advantage of electronic commerce is that it doesn’t have boundaries. You can sell your product globally. Thus, you can scale your business in a much easier way.

The e-commerce business doesn’t have working hours. The website keeps running, and consumers keep buying without any time limits. Importantly, you don’t need to be present at a location like a traditional shop.

The third advantage is that you get what you want, wherever you are. You can order anything from the comfort of your home. It saves the time of both parties, be it the consumer or the business.

This commerce totally avoids intermediaries like a traditional business. Hence, it will add up the profit of the business owner, and you get the product at very less price than traditional shops. It simply lowers down the transaction cost.

Disadvantages of e-commerce

The most important disadvantage here is that you can’t see, touch and feel the product physically. It is one of the biggest disadvantages of e-commerce. You don’t have any personal touch in the buying process entirely.

The second one is fraudulent practices and identity thefts. You are risking your personal data here — for example, credit card details. Someone could steal that data and use it.

E-commerce looks lucrative, but it is highly competitive, and chances of failing are very high even when you are scaling up. It involves lots of processes and physical movement of goods, it’s a demanding industry. Customers may remain unhappy due to problems in shipping and delivery. Here, it is not the e-commerce portal’s fault, but the users will blame the portal. This is mainly because they purchased from the e-commerce portal and not the shipping company.

In conclusion, e-commerce is surely the next big thing. Those who join the wave will win the future and keep expanding their businesses.

Watch working of e-commerce