What is E-Commerce?

E-Commerce is the use of the Internet and the Web to transact business. Main focus in e-commerce is on digitally enabled commercial transactions between and among organizations and individuals. Digitally enabled transactions include all transactions mediated by digital technology. This means transactions that occur over the Internet and the Web. Commercial transactions involve the exchange of value (e.g., money) across organizational or individual boundaries in return for products and services. Exchange of value is important for understanding the limits of e-commerce. Without an exchange of value, no commerce occurs.

Prior to the development of e-commerce, the process of marketing and selling goods was a mass-marketing and sales force-driven process. Consumers were viewed as passive targets of advertising “campaigns” and branding blitzes intended to influence their long-term product perceptions and immediate purchasing behavior. Selling was conducted in well-insulated “channels.” Consumers were considered to be trapped by geographical and social boundaries, unable to search widely for the best price and quality. Information about prices, costs, and fees could be hidden from the consumer, creating profitable “information asymmetries” for the selling firm. Information asymmetry refers to any disparity in relevant market information among parties in a transaction. It was so expensive to change national or regional prices in traditional retailing (what are called menu costs) that “one national price” was the norm, and dynamic pricing to the marketplace—changing prices in real time—was unheard of.

In fact, in the wake of digitization, The Economist Intelligent Unit (2010) conducted a very interesting study, to establish the Nation specific readiness among all the countries to move towards a digital era. The outcome may be interesting, as an eye opener.


E-commerce has challenged much of this traditional business thinking. Listed below are seven unique features of e-commerce technology that both challenge traditional business thinking and explain why there’s so much interest in e-commerce.


Ubiquity: E-Commerce is characterized by its Ubiquity. It is available just aboiut everywhere. It liberates the market from being restricted to a physical space and makes it possible to shop from your desktop, at home, at work, or even from your car, using mobile commerce. The result is called market-space. From a consumer point of view, ubiquity reduces transaction costs- the costs of participating in a market. To transact, it is no longer necessary that you spend time and money travelling to a market. At a broader level, the ubiquity of e-commerce lowers the cognitive energy required to transact in a market-space.

Global Reach: E-commerce technology permits commercial transactions to cross cultural and national boundaries far more conveniently and cost-effectively than is true in traditional commerce. As a result, the potential market size for e-commerce merchants is roughly equal to the size of the world’s online population.

Universal Standards: One strikingly unusual feature of e-commerce technologies is that the technical standards of the Internet, and therefore the technical standards for conducting e-commerce, are universal standards—they are shared by all nations around the world. In contrast, most traditional commerce technologies differ from one nation to the next. For instance, television and radio standards differ around the world, as does cell telephone technology. The universal technical standards of the Internet and e-commerce greatly lower market entry costs—the cost merchants must pay just to bring their goods to market. At the same time, for consumers, universal standards reduce search costs—the effort required to find suitable products. And by creating a single, one-world marketspace, where prices and product descriptions can be inexpensively displayed for all to see, price discovery becomes simpler, faster, and more accurate.

Richness: Information richness refers to the complexity and content of a message. Traditional markets, national sales forces, and small retail stores have great richness: they are able to provide personal, face-to-face service using aural and visual cues when making a sale. The richness of traditional markets makes them a powerful selling or commercial environment. Prior to the development of the Web, there was a trade-off between richness and reach: the larger the audience reached, the less rich the message.

Interactivity: Unlike any of the commercial technologies of the twentieth century, with the possible exception of the telephone, e-commerce technologies allow for interactivity, meaning they enable two-way communication between merchant and consumer. Television, for instance, cannot ask viewers any questions or enter into conversations with them, and it cannot request that customer information be entered into a form. In contrast, all of these activities are possible on an e-commerce Web site. Interactivity allows an online merchant to engage a consumer in ways similar to a face-to-face experience, but on a much more massive, global scale.

Information Density: The Internet and the Web vastly increase information density—the total amount and quality of information available to all market participants, consumers, and merchants alike. E-commerce technologies reduce information collection, storage, processing, and communication costs. At the same time, these technologies increase greatly the currency, accuracy, and timeliness of information—making information more useful and important than ever. As a result, information becomes more plentiful, less expensive, and of higher quality.

Personalization/Customization: E-commerce technologies permit personalization: merchants can target their marketing messages to specific individuals by adjusting the message to a person’s name, interests, and past purchases. The technology also permits customization—changing the delivered product or service based on a user’s preferences or prior behavior. Given the interactive nature of e-commerce technology, much information about the consumer can be gathered in the marketplace at the moment of purchase. With the increase in information density, a great deal of information about the consumer’s past purchases and behavior can be stored and used by online merchants. The result is a level of personalization and customization unthinkable with existing commerce technologies. For instance, you may be able to shape what you see on television by selecting a channel, but you cannot change the contents of the channel you have chosen. In contrast, the online verson of the Wall Street Journal allows you to select the type of news stories you want to see first, and gives you the opportunity to be alerted when certain events happen.