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E-Commerce Industry: Overview, Features, and Challenges

Industry Overview

E-commerce (electronic commerce) is defined as transactions, be it buying or selling, being made through the Internet. It involves the sale of goods and services, the exchange of data, and the transfer of funds. Some of the most influential e-commerce players in the world are the US-based Amazon, Inc. and the China-based Alibaba Group Holding Ltd., and eBay Inc. In the last couple of decades, the e-commerce industry has been on the rise. It is estimated that this year, 25% of the world’s population, or 2.02 billion people, will be shopping online. This projection is almost a 50% increase from 2014 when less than 1.5 billion people were making purchases on the Internet.

Statistics clearly demonstrate that e-commerce is expanding and becoming a part of the consumer experience across the globe. Today, online shopping has grown to be not merely an alternative but a serious contender to traditional retail. According to Law (2019), this year, 15.5% of all purchases will be made online, which shows a 100% growth from 2015. What is interesting, even when doing traditional shopping, two-thirds of customers still check prices and offers online to make sure that they are making the right choice (Law, 2019). Among the top reasons to switch to online shopping, as told by customers themselves, is the ability to shop at any time of the day (Law, 2019). Apart from that, consumers enjoy the ability to compare prices to pick the best offer as well as a wider variety of goods and services (Law, 2019). Lastly, online shoppers appreciate that they no longer need to spend grudging hours at a mall and stand in lines.

Industry Features and Challenges

The first distinct advantage that the growing popularity of e-commerce presents is the convenience of online services for customers. Mandel (2017) estimates that American households save up as many as 64 million hours a week of shopping time because now they can do this from the comfort of their own house. Mandel (2017) projects that better time management enabled by the accessibility of online shopping will mean a better quality of life as well as improved work productivity. Apart from that, the report by Mandel (2017) demonstrates how the rise of e-commerce revives and transforms the job market. Between December 2007 and June 2017, in the United States, e-commerce companies created 400,000 new jobs, which exceeds a 140,000 decline in the number of brick-and-mortar retail jobs. As per Mandel’s (2017) estimation, fulfillment centers at e-commerce companies pay 32% more than brick-and-mortar retail jobs in the same area. Apparently, the shift to e-commerce jobs has the potential of bridging the income gap and providing better opportunities for the working class.

For all its advantages, doing e-commerce comes with its own set of challenges. Taking business online means exposing it to the possibility of fraud. Rana and Baria (2015) describe fraud types such as hacking into users’ accounts and stealing their information. Some other types include cloning a merchant website to deceive consumers and generating valid credit card numbers. For online security issues, Rana and Baria (2015) describe the existing methods that are based on machine learning (ML) and artificial intelligence (AI). ML and AI algorithms detect fraud based on a user’s typical behavior and notify the system in case they notice an activity outside the norm.

As one may imagine, there is still a certain amount of distrust of online businesses, especially when it comes to older consumers. Partly, this distrust can be explained by the real possibility of fraud explained above. However, a negative attitude also stems from digital illiteracy and the lack of understanding of how the Internet works. In the United States, a developed country, only 81% of adults use computers and smart devices in their daily life (Mamedova, Pawlowski & Hudson, 2018). Even fewer – 73% – have the level of digital literacy that allows them to use computers professionally (Mamedova et al., 2018). Mamedova et al. (2018) report that it is mostly older people and minorities (Black and Hispanic) who lack digital skills. At the same time, 78% of consumers report appreciating human interaction over purely digital, humanless transactions.

These statistics show that even if a company is mainly online-based, customers may still contact it through any number of touch-points. They may visit the online platform, call the company’s agent, leave a message on social media, shop at a physical store, or start a live chat. The difficulty of maintaining and processing communication in a variety of forms should be rather seen as an opportunity. An omnichannel supply chain approach might be the answer to e-commerce companies’ troubles (Christopher, 2016). The key idea is to merge warehouse space or fulfillment operations so that they are able to enable and facilitate both in-store and e-commerce business units.

Further, it is imperative that e-commerce companies single out the key communication channels to allocate more resources to their development and maintenance. Lastly, the ideal but not easily attainable solution would be to customize the shopping experience by offering clients the type of communication that they prefer. The latter is in line with one of the best approaches toward supply chain management: supply chain segmentation (Christopher, 2016). Within this approach, it is recommended to avoid seeking one-size-fits-all solutions for the entire system but rather allocate resources in a more precise way.

However, the problems that e-commerce companies encounter are not limited to the world of online. Offline, e-commerce often faces the challenge that is safe and timely delivery. Customers’ needs, preferences, and expectations have changed significantly since they were presented with the convenience of web services. Now they require flexibility, speed, and complexity; they order large quantities of goods of different sizes from across the globe, which complicates customs clearance and storing. E-commerce companies have to deal with varying legislation and other legal hurdles to continue their business operations.

This issue can be tackled with some of the best practices from supply chain management. Firstly, it is crucial to analyze the potential vulnerabilities and risks in the supply chain (Christopher, 2016). Secondly, increasing transportation management efficiency is possible through keeping track of just-in-time delivery metrics as well as shipping schedules. The latter might require cutting-edge technological solutions, potentially based on ML or AI. Supply chain management already takes advantage of big data and analytics by making predictions and using them to make better decisions. Big data helps supply chains monitor the performance of their specific units and reduce costs. For e-commerce, these solutions might be exactly the key to reducing transportation time and increasing customer satisfaction.

References

Christopher, M. (2016). Logistics & supply chain management. Pearson UK.

Law, T.J. (2019). 19 powerful ecommerce statistics that will guide your strategy in 2020. Web.

Mamedova, S., Pawlowski, E., & Hudson, L. (2018). A description of US adults who are not digitally literate. Web.

Mandel, M. (2017). How ecommerce creates jobs and reduces income inequality. Progressive Policy Institute, 1-28.

Rana, P. J., & Baria, J. (2015). A survey on fraud detection techniques in ecommerce. International Journal of Computer Applications, 113(14).

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Essay4Business. (2022) 'E-Commerce Industry: Overview, Features, and Challenges'. 14 April.

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