Ecommerce businesses are fast gaining grounds and changing the way of doing business. The main aspect of ecommerce involves doing business on the web and includes:
- Business to business (B2B) trading which involves a business such as a company trading with another business on the world wide web.
- Business to consumer (B2C) trading which involves a business such as a company directly dealing with consumers over the world wide web.
Ecommerce has affected businesses positively and negatively. On the one side, ecommerce makes it easier for businesses to reach a much wider audience at less expense than would be required if the traditional retail method was to be applied. With ecommerce, there is no requirement to acquire expensive shops in high streets. You can produce or store your goods at a remote upcountry location and still advertise and sell them worldwide. While the cost of developing a good website may be substantial, it is much cheaper than letting expensive high street storefronts. Additionally, once you have your website operational, you will reach a wide client base. The next thing is to ensure that you have access to appropriate means of transporting goods to customers who make orders.
On the other hand, established enterprises, most of which are vertically integrated are finding it harder than before to retain their market share. More flexible competitors are entering the market traditionally dominated by these established companies, making competition fiercer than ever. To remain relevant, old school companies are having to adjust to the new technologies and incur capital expenditure in developing new capabilities. Blockbuster, a leading video rental and franchise in the world had enjoyed many years of success. However, Netflix, an ecommerce based firm entered the market and took away a considerable market share from Blockbuster which was forced to readopt its business model to offer ecommerce services. Another good example of how ecommerce is changing the business landscape is Amazon.com which grabbed a substantial market share from traditional booksellers forcing them to start selling online as well.
Traditional companies that have spent significant amounts of money in the past in developing physical infrastructure are suddenly finding themselves being outsmarted by startups with much less physical infrastructure, usually based on ecommerce model. These ecommerce based startups ship goods from oversea suppliers who produce high-quality goods at less expense. This gives them an advantage over vertically integrated companies that have traditionally sought to do everything from production to supply. It should be noted that such integrated companies may not be the best in everything; a company may be good in one aspect and another in a different aspect. The traditional companies are therefore being forced to focus only on what they can do best and outsource the rest if they have to compete favourably.
Ecommerce has contradicted the classic economic theory of decreasing returns to scale which holds that a business cannot grow its profits infinitely. E-commerce based enterprises have been shown to sustain fast growth while increasing returns as well. The reason is that these startups have minimal infrastructure and inventory and rely heavily on information and communication. In fact, in information based product industries, distribution and sale via ecommerce may bring the cost per unit to almost zero. A perfect example here would be the online software vendors who allow customers to buy products and added licenses online.
The impact of ecommerce on businesses is immense and cannot be exhaustively elucidated in a short article like this. The impact is expected to increase as internet penetration in emerging markets increases.
See also how fintech is improving ecommerce businesses.