E-commerce, or electronic commerce, is the buying and selling of goods and services over the internet, on websites, mobile apps, or social media. By optimizing e-commerce as part of a broader digital-commerce transformation, sellers stand to attract more customers and earn more profits.
In 30 short years, e-commerce has revolutionized the way we shop. Shopping no longer refers only to going to a store, picking out and paying for goods, then bringing them home. Shopping trips that used to take hours can now take seconds and can be done from anywhere with an internet signal. The thrill of the purchase is now stretched out, starting with the customer’s initial product comparisons and culminating with the “unboxing” (which has become an industry in itself) and, maybe, writing an online review.
Simply put, e-commerce is anything—goods or services—bought or sold on the internet (see sidebar, “What are the different types of e-commerce?” for a description of e-commerce categories). E-commerce has been growing consistently ever since the first online transaction in 1994, when someone sold his friend a Sting CD for $12.48, plus shipping. But when the COVID-19 pandemic hit, triggering lockdowns all over the world, customers went all in: Year-over-year growth of e-commerce as a share of total retail sales grew 1.6 times in China, 3.3 times in the United States, and 4.5 times in the United Kingdom. E-commerce sales penetration in the United States more than doubled to about 35 percent in 2020 from about 16 percent the previous year, roughly the equivalent of ten years of growth. Globally, 20 percent of total global sales are made from online purchases.
Large retailers were the primary beneficiaries of this massive collective pivot to online purchasing, particularly those that had been investing in e-commerce infrastructure and capabilities for years. But for businesses accustomed to operating offline, incorporating e-commerce into the customer experience can be fraught with challenges. According to McKinsey analysis, small and medium-size retailers (those with less than $5 billion in annual revenue) and brand manufacturers, such as consumer-packaged-goods (CPG) and apparel companies, realize a much smaller portion of revenue from e-commerce than large retailers with years of experience in the e-commerce realm. For those that rushed to launch e-commerce services, cracks are already beginning to appear. But we’ve also seen that the e-commerce opportunity, particularly for small and medium-size enterprises (SMEs), is tremendous—especially in the era of gen AI.
Read on for a deep dive into e-commerce. We’ll start with how e-commerce can drive value for small and large retailers, then move on to how other types of organizations, including brands, CPG companies, and B2B companies, can build value via e-commerce. We’ll then explore the next generation of e-commerce—one in which emerging technologies are powering a more comprehensive and interconnected ecosystem than existed before. Finally, we’ll turn to how organizations in emerging markets are embracing e-commerce.
