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What is eCommerce?

definition of ecommerce screenshot

As shown above, Google defines eCommerce as:

"Commercial transactions conducted electronically on the Internet."

Given the ambiguity of that definition, it should come as no surprise that "What is ecommerce" is searched on Google an estimated 10,000 times per month.

In this eCommerce & eCommerce websites guide, we hope to clear this matter up once and for good! Let's start with the origins of the term "ecommerce."

eCommerce Etymology

eCommerce is a blend word for "Electronic Commerce," which in and of itself seems oddly vague.

It seems the word eCommerce was always meant to be a broad term used to refer to virtually any commercial transactions that take place on the Internet.

eCommerce Business Models:

Most eCommerce takes place on an eCommerce website, which acts as a virtual storefront wherein transactions and commerce can take place. eCommerce can manifest in many different forms:

eCommerce websites:
What are they and how do they work?
how do ecommerce websites work?

We'll discuss what an eCommerce website is and what makes them tick!

By now, we hope you have a thorough understanding of the term "eCommerce". Now it's time to talk specifically about eCommerce websites, their role in eCommerce transactions, and further our understanding of how eCommerce websites function.

What is an eCommerce website?

eCommerce websites are the digital portals (i.e. virtual storefronts) that facilitate eCommerce. Remember, eCommerce is a blanket term that includes virtually any transaction that takes place on the internet.

Any website equipped with eCommerce functionality and allows customers to purchase a good or service is an eCommerce website.

Historically, the earliest eCommerce transactions took place via email and phone calls.

Even at the earliest stages of development, effective eCommerce websites must be designed to:

eCommerce websites range from template driven plug-and-play shopping carts to complex eCommerce websites that cost millions of dollars to develop and maintain.

How Do eCommerce websites work?

eCommerce websites work through a series of steps, utilizing website code, the database, and 3rd party applications such as a payment processor or payment gateway.

eCommerce websites use SSL certificates (read more about those here) to secure and encrypt all transferred data. Sensitive data, including credit card information, should never be stored within the website's database unless the website adheres to all mandated regulations, including PCI Compliance.

eCommerce Websites Typically Work Like This: 

  1. A potential customer navigates to an eCommerce website, whether via search engines, paid advertisements, referral traffic, etc. 
  2. The eCommerce website connects to its database, which contains tons of data about the website's categories, products, product dimensions and weight, articles and content, images, etc. The website requests this data to dynamically render any requested web pages.  
  3. After browsing the eCommerce website, a potential customer adds a product or service to their virtual shopping cart and decides to check out.
  4. The shopper completes the checkout process and finalizes the transaction.
  5. The shopper's credit card information is encrypted and sent to a Payment Gateway(Paypal, for example) to handle the credit card processing securely and remotely.
  6. Once the order is complete, and the payment has gone through, the website typically provides an estimated shipping time, a unique transaction number, postal tracking number, etc. Most of these processes are automated and part of a good eCommerce website's core functionality.
  7. As transactions take place, orders are stored in the website admin and sent to an order fulfillment team. Order fulfillment can be done in-house or by a third-party company/drop shipper. 

Overall, eCommerce websites offer advantages and disadvantages when compared to traditional brick-and-mortar storefronts.

Pros of eCommerce Websites:

Cons of eCommerce Websites:

The disadvantages of eCommerce websites are few and far between, and if you work with a reputable eCommerce website development company, are easily mitigated. Disadvantages of eCommerce sites include:

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Types of eCommerce

We'll explore the different types of eCommerce, cover the common Shopping Cart for eCommerce websites, and more!

how do ecommerce websites work?

eCommerce Websites Types and Common eCommerce Business Models

The majority of eCommerce websites on the internet are B2C retailers. However, there are many types of eCommerce websites:

eCommerce vs. Mobile Commerce:

Mobile commerce (mCommerce) refers to eCommerce that takes place on a mobile device. With the ubiquitous nature of smartphones and tablets, a perpetually-increasing share of ecommerce transactions will take place on a mobile device. Read more about mobile commerce statistics!

Popular eCommerce Platforms:

Most eCommerce websites, including some custom eCommerce websites, utilize a pre-existing shopping cart software platform and integrated content management system (CMS). There are dozens, if not hundreds of eCommerce website platforms available. The most commonly used platforms include:

Examples of Popular eCommerce Websites:

Promoting an eCommerce Website
Driving qualified traffic to your eCommerce store
how do ecommerce websites work?

How To Promote eCommerce Websites

If you already have an eCommerce website or plan to soon, you should have a plan to drive traffic to the website.

eCommerce CRO:
Maximize conversions and revenue on your site with conversion rate optimization
how do ecommerce websites work?

eCommerce Website Conversion Rates

Understanding Conversion Rate for eCommerce Websites

Your website's conversion rate is the total number of conversions on your website divided by the total number of visitors. For example, if an eCommerce site receives 2000 visitors in a month and has 500 conversions, the conversion rate would be 25%.

Most of the time, when discussing conversion rate on an eCommerce website, we are talking about the percentage of website visitors that convert into a paying customer. But don't overlook other equally important website goals!

It is up to the business to define what a conversion is. Website goals and conversions are easily identified and tracked in Google Analytics. Any desired action that visitors are encouraged to take is worth monitoring.

Why Conversion Rate Matters for eCommerce

The idea of converting as many of your shoppers into paying customers is not a new concept, nor is altering elements of the store's layout and design to facilitate conversions. Brick and mortar stores have worked to increase their conversion rates since the dawn of capitalism.

Tracking conversion and conversion rates on your website allows you to predict future sales, compare performance, test changes, and more.

Ideally, you would never make changes to your website that hurt your conversion rate, but you never know what changes will make an impact one way or another until you try!

Running AB Tests (aka Split Testing) is a common way to test changes on an eCommerce website to determine which changes improve your conversion rate. Google now even offers its own AB testing tool which seamlessly integrates with Google Analytics.

My Website Needs Conversion Rate Optimization

If you're interested in increasing your website's conversion rate, check out our 11 Tips to Convert Visitors into Customers. If you're ready to call in the pros, it's time to consider Conversion Rate Optimization Services with OuterBox.

Measuring Success
PI, Analytics, & Bottom Line Impact
how do ecommerce websites work?

How To Measure eCommerce Success

There are many ways to track the success of your eCommerce website.

Website Analytics & Behavior Data

Google Analytics is by far the most widely used analytics tracking software out there, and it's plenty robust for most applications. Here's a list of the most commonly used web analytics software:

Check out these 20 Google Analytics Alternatives for even more options.

KPI and Important Metrics for eCommerce

The following metrics are just a few of the most important for measuring eCommerce success, but ultimately what KPI matter most is unique to each business.

Check out our 7 Key eCommerce Site Metrics and Stats to Measure Success for more information!

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