by Chris Woodford. Last updated: August 11, 2014.
No one knows exactly when people first started trading with one
another—or how. We do know that metal coins have been used to buy and
sell things for at least 4000 years. From horses and handcarts to
ships, trucks, and airplanes, the need to trade goods has spurred on innovations in transportation for just as long. Today, though, it's all
change: many of us are now buying and selling with a new form of
commerce that involves neither money nor transportation—at least not in
the traditional sense. You just sit in your armchair, click your mouse
a few times, enter your credit card number, and wait for the goods to
show up on your doorstep. E-commerce, as this is known, has grown
enormously in the last decade, making life more
convenient for consumers and opening up all kinds of new opportunities
for businesses. Let's take a closer look at what it is and how it works!
Photo: Amazon.com: the world's most successful e-shop. Originally just a bookstore, now it sells almost anything you can imagine. It even allows third-party vendors to sell products alongside its own offerings
with something called Amazon Marketplace. Amazon has consistently set the standard for online retailers with
pioneering features like one-click shopping.
The basic components of an e-commerce system
Whether you're buying in a store or buying online, everything you do
is geared around a transaction: the basic
exchange of money for
goods or services. In a real-world store, you simply take your new
jeans to the checkout, hand over some cash, and leave the store with
your purchase in a bag—that's a transaction. It works in a similar way
if you're buying online, but there's one important difference: you
never actually get to handle (or even see) the goods until they arrive
at your home sometime later.
If this makes buying online slightly problematic for the purchaser,
it also introduces two extra problems for the retailer (or e-tailer,
as online retailers are sometimes known). Apart from having some means
of processing transactions online, it means they also need a way of
checking that the goods you've ordered are actually in stock, and a
means of dispatching and delivering the goods to your address.
In short, then, e-commerce is about combining three different
systems: a Web server that can
manage an online storefront and process
appropriate links to bank computers
to check out people's credit card
details), a database system that
can keep a check of
the items the store has in stock (constantly updating as people make
orders and ideally making new orders with suppliers when stocks run
low), and a dispatch system linked to a
warehouse where the
goods can be instantly located and sent to the buyer as quickly as
Only the first of these three systems is strictly necessary for
e-commerce. Many people successfully run small-scale online stores
without either complicated databases or dispatch systems: they simply
have a website to publicize their business and take orders and then
they manage the stock control and dispatch in more traditional ways.
Small traders who sell items on the auction website eBay often work in
this way, for example. Their "databases" are in their head; their
"dispatch system" is simply a walk to the local post office.
How do you design an e-commerce website?
The design of virtual stores is often the most
important factor in the success or failure of online businesses. That
doesn't simply mean that e-commerce web sites have to look attractive
(though they do): they have to be usable (quick and easy to
navigate around without irritating or confusing people), reliable
(customers expect sites to be online 24 hours a day, seven days a week,
and for pages to load without delay), and secure (because no
one is prepared to type their credit card details into a website that
Setting up an online store used to be quite an undertaking. Not only
did you have to build a dedicated website from scratch, you also had to
develop your own merchant system that could
credit card details and ship transactions to and from bank computers.
These days, anyone can set up an online store in minutes. Websites like
PayPal make it possible to build a store very quickly and, since they
have built-in credit card processing features, handling transactions
couldn't be simpler. Many people set up virtual storefronts on the
auction site eBay and then use PayPal (now a part of eBay too) to
process their transactions. Some websites (notably Amazon) allow
you to incorporate mini versions of their store inside your own
website—so you make a small commission selling their products within
your own site.
It used to be said that the right domain name
essential requirement for a successful online business but some of the
most memorably named web sites (including pets.com, etoys.com
and garden.com) were early
casualties of the dot.com
boom and bust. As successful Web businesses such
as eBay and Amazon have proved, there doesn't necessarily have to be an
obvious connection between the name of a website and things it actually
does or sells: all that matters is that, over time, people will
come to know, love, and trust the brand and visit the site
they want to buy something.
Using e-commerce to sell information
There's lots of money to be made online, but not all of this
involves selling goods in the traditional way. Many online businesses
try to make money by offering a mixture of free and premium services.
Yahoo! (which originally
stood for Yet Another Hierarchical Officious Oracle), is probably the
best-known example of a website like this. Created as a comprehensive
directory of other websites, it
mutated into a search engine and then a portal, offering a gateway to
of other premium services. For example, you
can get free e-mail through
Yahoo!, but you can also pay extra for a more sophisticated e-mail
system; you can store your photographs for free on Yahoo's Flickr site, but you can
pay an extra sum to have them printed out or processed in various ways.
Newspapers, magazines, and book publishers also try to make money
through a mixture of free and premium services. While most of them
offer their basic content (the horrible,
unappealing name that
online businesses give to the words and pictures they publish) for
free, using advertising to make money, some also offer a proportion of
their articles for a one-off fixed fee or subscription). Buying an
article involves a transaction similar to the ones you'd make on Amazon
or eBay, so this kind of online publishing is also clearly a variety of
Advantages and disadvantages of e-commerce
Although early reactions to online shopping websites were often
mixed ("It takes too long to find what you want", "I'm not sure they're
secure", "The things I want are never in stock", "You can't see what
you're buying"), things have improved greatly over the last decade and
online businesses have found ways round most of the drawbacks. (For
some online clothing stores sensibly offer free returns if you don't
like the clothes you've bought or if they turn out not to fit.) Many
people now swear by online shopping and wouldn't dream of setting foot
in a real-world store where prices are often higher, waiting lines are longer,
and the doors open only during normal business hours.
For businesses too, e-commerce has opened up all kinds of new
opportunities. Not many can compete with huge businesses like Amazon or
eBay, but anyone can open an online store and start trading within a
matter of minutes. Small local stores, long threatened by the growth of
giant retailers like Wal-Mart and Tesco, have found a new lease of life
by trading online and selling their products mail order.
E-commerce has also threatened many traditional ways of doing
business. When people flock to online shopping sites for the Christmas
rush, they naturally spend less in real-world stores. Savvy existing
businesses such as Wal-Mart have tried to offset the threat by seizing
the opportunity: "bricks and clicks" (having real world stores and a seamlessly
website) is now generally seen as the way to go. Shoppers have become
equally savvy and are adept at inspecting products in real-world stores
before buying online, or using websites to locate local branches of
stores where they can inspect and purchase exactly the goods they want.
It's important to bear in mind that e-commerce
still represents only a small fraction of all the trade that we do
(for the 2nd quarter of 2012, the US Department of Commerce reported
that e-commerce made up less than 5 percent of total retail sales, as shown in
the chart below).
The steady growth of e-commerce: This chart shows
the percentage of total retail sales that e-commerce has represented since 2005. More
formally, it shows "Estimated Quarterly U.S. Retail E-commerce Sales as
a Percent of Total Quarterly Retail Sales: 1st quarter 2005 to 1st
Quarter 2014". By courtesy of US Census
As ever, customers call the shots and will continue to do so. While
some traders (notably car dealers, opticians, and realtors) have tried
to resist the threat from online shopping, protectionist tactics are
bound to fail in the long term. It's all too easy
now for customers to take their money and their spending power
somewhere else—even to retailers in another country. The customer, and
their mouse, is always right. And always will be.
The mobile future of e-commerce
If you're running a long-established retail business, chances are you now have a website
gathering orders from your customers and processing them through e-commerce.
But just as you've got used to the rules of the online game, along
comes something new that shifts the goalposts: mobile commerce, also
known as m-commerce. You can't help but notice that more and more people are going online through
cellphones, iPads, and other handheld devices. Once we hunched over desktop PCs clicking
mice; now we're increasingly likely to poke at touchscreen tablets
while we slouch on the sofa and simultaneously watch TV.
If you've any doubt about whether m-commerce is the future, you've only to look at
the giants of the online world and see how seriously they're taking it. Amazon, Google,
and Facebook all see mobile computing as a decisive battleground in the next few years.
Google has repeatedly highlighted the importance of running a mobile-friendly site;
in one recent Google survey, 74 percent of users said they were more likely to return to mobile-friendly sites and 67 percent said
they were more likely to buy from mobile-friendly sites. However, a massive 96 percent reported that they'd encountered
incompatible websites while going online with their mobile.
What can you do to go mobile?
The first step is to check out how your existing site works on a mobile
device. There are emulators and testers you can use that simulate mobile devices on a PC, but it's
much better to get yourself a modern cellphone with a browser or a tablet computer and see how
your website works for real. If you've never seen it working on a tiny screen, you might be
amazed by how it looks. If your site has been designed to work for a typical
widescreen laptop, you'll probably find it looks terrible: columns probably wrap and overlap, the text may be too
small to read, links may be too small to click, and so on. Don't worry! once you've assessed the scale of the problem, you
can start to do something about it.
There are essentially four options if you want to "go mobile":
- Redesign your existing site in such a way that it works on both desktop and mobile. This is called responsive design and explainthatstuff.com is currently designed (after a fashion) to work in this way. For example, the text is deliberately quite large so that when you view it on a mobile device, it remains fairly readable. The pages are designed to work at more or less any width and wherever possible I've avoided things like tables and frames, which cause problems on small screens.
- Detect whether users are on a desktop PC or a handheld device and then redirect to a completely separate mobile version of your site. This means you can optimize your site for mobile users without compromising usability for people on the desktop, but the drawback is having to maintain a second, duplicate version of your site—and the risk of different versions of your pages getting out of step. Remember that search engines such as Google dislike duplicate content, so use techniques like canonical URLs to help them understand where to find the definitive version of each page.
- Develop a free app for mobile devices that effectively bypasses your website altogether. There's an upfront expense in having apps developed, but they generally give a much better user experience that mobile websites. Not only that, but they prevent users getting distracted, clicking other links, going off to competitor sites, and so on!
Photo: Amazon.com's mobile app running on an iPod Touch.