What Is E-commerce?

In a little more than a generation, e-commerce has become one of the biggest industries in the world, showing the power of the internet and the appeal of convenience, fast delivery, and the ability to shop from the comfort of your home. While you have likely shopped online, you might not know the whole story behind e-commerce or how you can take advantage of online retail platforms to make money for yourself. Keep reading to learn more.

What is e-commerce?

What is e-commerce?

E-commerce is shorthand for electronic commerce. Essentially, it’s the buying and selling of goods online and the related businesses that facilitate it, such as those that provide supply chain management, fulfillment, payment processing, and software.

E-commerce emerged shortly after the widespread adoption of the world wide web, which opened up a brand-new selling channel. Instead of having to visit a store or order from a catalog, consumers were now able to shop through the internet, and businesses had a convenient new selling channel.

The best-known e-commerce company in the U.S. is Amazon (AMZN -1.65%), an industry pioneer in the U.S. and much of the world.

Amazon has set expectations among consumers, using a model built around a wide selection, fast and free delivery with its Prime loyalty program, competitive prices, and convenience.

Brick-and-mortar retailers, like Walmart (WMT 0.57%), have imitated components of Amazon’s e-commerce business model, while others have paved their own way.

Etsy (ETSY 0.49%), for example, operates a marketplace for handmade and other unique items, which has given the company its own niche in e-commerce that attracts artisans and buyers who want items they can’t find anywhere else.

Shopify (SHOP -2.37%) is another example of a different kind of e-commerce company. It sells software to run e-commerce websites and businesses. Shopify has more than 1 million subscribers who use its products to run their own e-commerce businesses.

Making money in e-commerce?

How do you make money in e-commerce?

You don’t have to be Amazon to make money in e-commerce. In fact, one of the things that are appealing about the industry is that even individual sellers can start e-commerce businesses, making online retail more accessible than traditional physical retail.

If you want to sell online, you simply need a product. From there, you can partner with any one of a number of e-commerce platforms, such as Amazon, Etsy, and Shopify, depending on your target audience and how much control you want to have over your e-commerce business.

If you sell on Amazon, for example, your brand will be subsumed within the broader Amazon platform, making it harder to draw traffic to your website. If that’s your goal, a website like Shopify would be a better fit since Shopify gives you the tools you need to sell online from your own website.

One way to run a successful e-commerce business is by selling a niche product that isn’t widely available or that consumers are often looking for.

Another idea is retail arbitrage. Retail arbitrageurs find cheap goods by going to closeout sales, thrift stores, and other such discount opportunities and then selling those products online for more money. The resale market through sites like eBay (EBAY 0.31%) offers a good platform for arbitrage.

Individual sellers can also take advantage of features like dropshipping, which means that they don’t even need to hold inventory. They can arrange for the product to be shipped directly to the customer’s address once it’s ordered.

Investing in e-commerce

Investing in e-commerce

E-commerce isn’t just a good business for online sellers. It’s also been highly lucrative for investors as stocks like Amazon and Shopify have soared over their histories.

More recently, e-commerce stocks have struggled as they faced difficult comparisons with the pandemic boom, and consumer shopping habits have shifted back to stores and services like travel and restaurants. However, the online retail channel should recover since there’s still a lot of market share to be gained from brick-and-mortar retailers.

No one knows when the next bull market will start, but based on their long-term success and discount stock prices, it’s a good bet that e-commerce stocks will outperform when the stock market bounces back.