Quick primer to E-commerce

What is E-commerce?

E-commerce is the buying and selling of goods and services over the Internet. In most cases, payments are also fulfilled electronically.

Types of E-commerce models

There are a few types of E-commerce models, namely:

• Business-to-Business (B2B)
• Business-to-Consumer (B2C)
• Consumer-to-Consumer (C2C)

Business-to-Business (B2B) involves transactions between businesses and businesses and is meant to improve buying efficiency due to the large orders involved. Examples of B2B E-commerce are Alibaba and eWorldTrade, etc.

Business-to-Consumer (B2C) involves transactions between businesses and consumers. This is the eCommerce that we are all familiar with as consumers. Examples include Amazon, Flipkart, Lazada, Shopee, etc.

Consumer-to-Consumer (C2C) involves transactions between consumers and consumers. Usually, the products sold are pre-loved and payment could either be made on the platform or in-person. Examples include craigslist and Carousell, etc.

Marketplace or Retail model?

There are 2 main types of E-commerce platforms – Marketplace and Retail.

A Marketplace is a platform where multiple sellers can sell on the platform. Sellers can be manufacturers, distributors, or re-sellers and products sold can be similar to others.

Pros:

• A Marketplace platform does not hold any inventory as all goods are managed by the sellers directly and this reduces the risk of goods not selling.
• Easier to scale assortment size and sellers as there is no physical limitation, e.g. warehouse space, money to procure goods.
• Higher traffic and choice of selection for customers as they can decide to purchase the same product from multiple sellers.

Cons:

• Difficult to ensure that quality customer experience. Sellers might not be able to meet proposed delivery timelines or items may not be packed properly.
• Quality of products cannot be ensured as there are no checks from the platform and there might be a chance for defects or fake products on the site.
• Information on the platform might not match the seller due to a lack of sync between systems. For example, the product might be out of stock but still displayed as available for sale on the platform.

A Retail model is a platform where the platform is the seller. The platform can either be the manufacturer, distributor, or re-seller.

Pros:

• Easier to ensure quality customer experience. Items can be shipped in boxes with the brand’s logo and marketing collateral, and shipping times can be ensured.
• Quality of products can be ensured as there can be more stringent checks to ensure that there are no defects or fake products.
• Information on the platform is more timely as stock and product information is directly managed by the seller.

Cons:

• As all inventory is managed by the sellers directly, any goods that cannot be sold will impact the cash flow of the seller. Thus, it is very important for the retailer to purchase relevant products.
• Harder to scale assortment size as warehouse space is limited, and there is a longer lead time to build/rent new warehouses.
• Higher cost of operations as the end-to-end has to be managed by the platform, e.g. marketing or products, designing product pages, designing store pages, customer service, packing, delivery, etc.

A third type of model is a hybrid of both Retail and Marketplace. Examples include Amazon, Lazada, and Shopee.

The retail model ensures that this platforms can remain competitive with the best prices and assortment, while the marketplace portion is able to pull in more customers with the larger assortment available.

In addition, with the large troves of data available, these players are able to identify popular and upcoming products to procure them on the retail model or to build their own in-house brand to compete against the other sellers on their platform, e.g. Amazon Basics from Amazon and Ezra from Zalora.

Moving forward

The E-commerce space is constantly evolving with new business models being developed. For example, in China, the concept of group buying has emerged whereby a group of consumers can choose to buy the same products together in order to get significantly reduced prices.

It remains to be seen what new innovative business models and opportunities that will emerge from the E-commerce scene.