Electronic commerce or e-commerce (sometimes written as eCommerce) is a business model that lets firms and individuals buy and sell things over the internet. E-commerce, which can be conducted over computers, tablets, or smartphones may be thought of like a digital version of mail-order catalog shopping. Nearly every imaginable product and service is available through e-commerce transactions, including books, music, plane tickets, and financial services such as stock investing and online banking. As such, it is considered a very disruptive technology
Investing In the Impending E-Commerce Future
Online shopping has become the new normal. From what was once a small afterthought for retailers to the predominant method of consumption, ecommerce has grown into a multi trillion dollar market that’s slated to keep growing.
The rise of e-commerce has been a long time coming, but the market’s progressive size and impact has caught many by surprise. Tied initially to the advent of the internet and the Dot-com boom, online shopping saw companies like Amazon and eBay become well-known billion-dollar names. Digital commerce was a big market, but only for a few players.
Fast forward to today, and more companies than ever are launching their own marketplaces or embracing online retail. The shift was happening before COVID-19, but the pandemic has speed things up dramatically.
The Digital Marketplace Footprint
How big is modern e-commerce? While multiple sectors are experiencing their own online revolutions, retail is leading the way. Total global retail e-commerce sales already numbered $3 trillion in 2018, and are expected to more than double to $6.5 trillion in 2023.
The increasing ease and security of online payments have encouraged many businesses to embrace B2C sales, especially in light of a pandemic that forced many brick and mortar stores to close. But less documented is the boom of digital marketplaces, which accounted for 57% of global online retail sales in 2019.
The biggest marketplaces are well-known leaders like Amazon and China’s Taobao and Tmall, but more and more companies are capturing a slice of the online distribution market. Walmart and Best Buy have both launched marketplaces for third-party product sales, with Walmart recently seeing a 79% increase of e-commerce sales alone.
The E-commerce Transformation
The growth of e-commerce in retail by itself is staggering, but its growing availability in other sectors is the bigger story. Groceries and restaurants are a key marker, with home-delivery of takeout, groceries, and ready-to-prepare meal-kits all ordered digitally. Companies like Doordash, Just Eat, and Uber Eats have experienced massive growth, while grocery retailers including Walmart and Safeway are embracing delivery sales.
Online services are likewise rising in popularity, including everything from streaming services to virtual meetings, healthcare and assistance. Just as with the retail sector, e-commerce is making its way into sectors previously thought to be “un-digitizable.”
That type of transformation is usually slow, but the result of COVID-19 restrictions forcing thousands of businesses to go digital sped up the schedule. U.S. e-commerce penetration experienced 10 years of growth in the first quarter of 2020 alone.
A Widening Landscape for Future Growth
It might be hard to believe, but even with the headway made by e-commerce over the past year, the industry is slated for massive future growth. One big reason is the rising demand for digital goods and services. As the global pandemic has reimagined virtual business, many companies have also come face-to-face with the decreased costs of operating remotely, while retailers are seeing higher margins by cutting out the distributor (or the lease).
At the same time, another massive shift is the increase in technological capabilities. Alongside the rollout of 5G, blockchain, and improved AI, companies are looking for tech to streamline their processes and keep customers online where possible. That includes the use of drones for delivery by Amazon, augmented and virtual reality for product testing by Ikea and Wayfair, and improved payment platforms by Shopify.
While 100% online shopping is still a ways away from becoming a reality, the wave of e-commerce is set to continue rising.
Here’s Why You Should Be Investing in E-Commerce
What do some of the largest eCommerce brands and online retailers have in common? They’ve all been backed by venture capitalists. Recently, more and more VCs have been investing in eCommerce, putting their dollars behind retailers who offer a variety of products to global markets.
Investing in eCommerce might seem like a departure from more traditional investments, like technology startups. But the eCommerce industry is booming. As small, private retailers grow, so do their sales numbers. Eventually, these private companies move to become publicly traded or are acquired by larger companies, making your investment worthwhile in the long run.
Venture capital firms invested over $1 billion dollars in the retail and distribution sector last year. That’s five times greater than investments made in 2013.
Consumer demand for online goods continues to grow. Online shopping is extremely popular among today’s consumers. Customers are more likely to research and buy products from eCommerce sites than they are to visit physical store locations to look for them. Constantly increasing product demand opens the door for more online retailers to emerge and capture their share of a growing market.
Online retail costs are low compared to investing in brick-and-mortar stores. The upfront overhead costs associated with opening physical store locations are lofty. There’s the retail space, lighting, fixtures, signage and more. If you’re looking for a safe, low-cost and profitable investment, eCommerce is the right option. Since there is no need for a brick-and-mortar location, the most expensive elements are quickly eliminated.
Investing in eCommerce results in more expansion opportunities. As an investor, you’re looking for companies that are positioned for growth and expansion. While it can take years before retailers are able to open a second physical store location, eCommerce brands successful in their initial years have more opportunities to grow and expand into international and multichannel markets faster than traditional retail stores.
Now Is the Time to Make the Leap into E-Commerce Investing
Because of this moment in history, when people around the globe are staying home because of the coronavirus pandemic, e-commerce has become that much more important to economic and individual prosperity. People are already doing more of their shopping online, so why not do their investing online, too?