Defining the Different Types of E-Commerce Businesses
The Products, Markets, and Models Involved in Online Sales
Classifying e-commerce businesses isn't always straightforward, but it can be a helpful way to better understand the various business models involved. By segregating the businesses into different categories, it becomes easier to compare similar companies and business models.
The two parameters that provide the clearest distinctions are the types of goods the e-commerce business sells and the nature of the participants.
Types of Goods Sold
The goods that e-commerce businesses sell can be broken down into three basic categories:
- Physical goods such as books, gadgets, furniture, and appliances
- Digital goods such as software, e-books, music, text, images, and video
- Services such as tickets and insurance
This type of classification is important because it gives the analyst insight into the business model and the financial model of the enterprise. Businesses selling physical goods face the logistical challenges of delivering those goods, a problem that sellers of digital goods don't have to deal with. When it comes to selling tickets, many parameters must be evaluated in real time. With airline tickets, for example, issues such as availability, the location of seats, meal preferences, and refundable vs. nonrefundable options come into play.
Purveyors of digital goods can operate online only, whereas those who sell physical goods must also have a physical delivery system in place to transfer their products to their buyers. These are close relatives of the mail-order businesses of old.
Nature of the Participants
The three most common participants in e-commerce are businesses, administrations, and consumers. The various combinations of these participants create significantly different business models and challenges. The six primary e-commerce types are as follows:
- Business-to-Business (B2B): Both participants are businesses, which can result in a high-volume, high-value relationship. A common example would be a manufacturer of gadgets that sources components online to manufacturers that use them to create their own products.
- Business-to-Consumer (B2C): Thanks to companies like Amazon, when most people hear "e-commerce," they think of B2C. Eliminating the need for physical stores is the biggest rationale for business-to-consumer types, but the complexity and cost of logistics can be a barrier to B2C growth.
- Consumer-to-Business (C2B): C2B e-commerce sounds backward, but online commerce has empowered consumers to originate the requirements that businesses fulfill. An example would be a job board where consumers place their project requirements, and multiple companies bid to win the project. Another example might be a vacationer posting desired parameters for a holiday package, allowing various tour operators to make offers.
- Consumer-to-Consumer (C2C): Think eBay, the most popular platform for enabling consumers to sell to other consumers. Because eBay is a business, this form of e-commerce could also be called C2B2C—consumer-to-business to-consumer e-commerce. Still, the primary function of eBay is to connect consumers directly.
- Business-to-Administration (B2A): The term "administration" relates to public administration or government entities. Countless branches of government depend on or use e-services or products in one form or another, particularly in the areas of document management and human resources. Online businesses can supply these services electronically.
- Consumer-to-Administration (C2A): Consumers can be involved in this equation as well. Although the government rarely buys products or services from individuals, people frequently use electronic means to transmit payments or file tax returns.
Employees can be regarded as a special type of consumer. This has given rise to a new and growing form of e-commerce—B2E or Business-to-Employee—in which companies focus on the digital goods and services they deliver to employees via their internal network.
Types of E-Commerce Business Models
Beyond those basic structures, there are many additional elements of e-commerce that any company might include in its online platform. Setting up shop on Facebook is a fast-growing e-commerce segment, so it's been awarded its own bit of jargon: f-commerce. Likewise, m-commerce stands for mobile e-Commerce.
"Bricks and clicks" refers to sellers with brick-and-mortar stores or a chain of stores, as well as e-commerce websites. Multichannel purveyors often include physically mailed catalogs along with their brick-and-mortar stores and their websites. Victoria's Secret and Dell are major examples of this approach.
C2C e-commerce is sometimes referred to as "piggybacking" because of the use of a major, well-known site to expedite and attract traffic. "Drop shipping" involves a seller acting as a sort of liaison between its customers and a supplier by setting up a storefront, such as those that are available on Shopify, and shipping the customer's orders directly from the supplier.
Then there are a few models with less than colorful terms, but they're no less integral to a thriving e-commerce economy. Wholesaling and warehousing are a bit more complex. They involve managing inventory and stock, much like a brick-and-mortar storefront, but usually in greater bulk.
The Value of Knowing
There's a lot of value in clearly understanding the different types of e-commerce business. It allows for like-to-like comparisons across companies, and helps any business owner make decisions about what market they wish to serve, and how. At the same time, it helps everyone better understand the business model of different e-commerce players.