As the great migration of businesses online continues, it's wise to recognise the increasing importance of eCommerce.
Indeed, as businesses, consumers, and governments head online (especially given the current COVID-19 climate) for delivery of products and services, eCommerce is only going to gain increased relevance.
Therefore, it's worth considering how you might position your business within this context. The good news is that, with more than a decade of explosive growth behind it, eCommerce has steadily matured into a well-developed economic activity, which means there are established business models on which to base your organisation.
To illustrate this further, we've taken a look at some of the more prominent eCommerce models that you might want to follow.
The Major Business Models in eCommerce
Electronic commerce involves the transaction of goods on any form of online platform or marketplace where buyers and sellers are present. The commodity exchanged may be a product or a service, but it has to take place indirectly, online.
As a result, eCommerce business models are classified based on the type of actors involved in the transaction. They can be individual consumers, other businesses, or even governments in some instances and, based on these various possible combinations, are generally grouped into the following categories:
- Business to Consumer (B2C)
- Business to Business (B2B)
- Consumer to Consumer (C2C)
- Consumer to Business (C2B)
- Business/Consumer to Government (B2G, C2G)
Of these, the first three are traditional forms of commerce that predate the arrival of the internet. C2B, as we will explain in detail, was made possible by the rise of online technologies and how they have subsequently impacted traditional business-consumer relations.
Let's explore these concepts in more detail:
1. Business to Consumer eCommerce (B2C)
B2C is what most people think about when they hear the term 'eCommerce'. It is also the most common and most developed business model in this sphere; B2C is where companies of all sizes sell products and services to individual consumers.
Amazon, eBay, and Walmart are all examples of online marketplaces where millions of B2C transactions take place daily. Online retail is the biggest subsector, with other services such as travel, media, and food delivery also increasing in popularity and sales volume across the world.
The Advantages of B2C
This model has numerous advantages for both consumers and businesses. Individuals can often find cheaper deals on products online (since eCommerce organisations have lower overhead costs), while businesses have an unprecedented reach to new markets, suggesting faster growth potential.
The Disadvantages of B2C
Online retail requires well-developed infrastructure (such as warehousing and transportation) for growth. As it is perceived as a threat to traditional offline businesses, online businesses and marketplaces are often targeted by governments with increased regulations. It is also harder for businesses to earn the trust of consumers; this may require deep discounts and other unsustainable marketing tactics.
2. Business to Business eCommerce (B2B)
B2C may be more visible and widespread, but the most significant model in terms of volume involves businesses as both the buyer and seller. The involved companies are usually either manufacturers, wholesalers or retailers.
B2B is bigger than B2C because of one simple reason: end consumers get the final product in B2C, involving just one transaction. But the manufacture of that final product consists of the sale of raw materials, components, and parts involving multiple supply chains. Since this means many transactions are taking place, B2B eCommerce is worth trillions of dollars globally.
Online marketplaces such as Alibaba, Amazon, and Lazada all have significant B2B segments, but these usually involve smaller and medium-sized businesses. Larger corporations can usually attract vendors and buyers directly at their own online addresses.
The Advantage of B2B
This model shares many of the same advantages as the B2C model, such as the ability to connect to buyers and sellers around the world. Improved efficiency and lower overhead costs are also possible due to better management of supply chains. Since everything is online, businesses get faster access to data that can be analysed for improved insights and forecasts, too.
The Disadvantages of B2B
Trust is essential in any B2B deal. Due diligence requires time, as businesses have to be cautious when dealing with a new vendor. This can result in delays, especially when compared to B2C transactions. Sellers and vendors have less power, too, as the wide-open market has given buyers more leeway in demanding discounts or customisations.
3. Consumer to Consumer eCommerce (C2C)
Also known as peer-to-peer (P2P), a C2C marketplace involves individuals and small businesses dealing directly with each other.
Craigslist, eBay, and even Amazon allow C2C transactions, with online auctions a good example of C2C eCommerce in action. Many entrepreneurs post their handicrafts and artwork on sites such as Etsy, too, with some crossover in the B2C model.
Social media platforms such as Facebook have also started online marketplaces where users can sell products and services. This indicates that the C2C market has significant potential, even if it is still far behind the other two models.
The Advantages of C2C
C2C encourages economic activity and can provide creative and enterprising individuals with a place to generate income. Handmade artisanal items and organic produce have a growing demand in the market and C2C can cater to this effectively. The sale of used or second-hand products – as is usually the case on Facebook Buy & Sell groups – can also reduce waste.
The Disadvantages of C2C
Quality assurance is a significant issue, as most C2C marketplaces cannot enforce standards or verify the products that are being sold. Consumers who are buyers can often get duped, which harms the reputation of the model as a whole.
4. Consumer to Business Ecommerce (C2B)
C2B is a model that inverts the traditional paradigm of organisations selling products or services to the individual. Emerging technologies have not only helped businesses in this regard but have also given more power and influence to consumers. For instance, a social media influencer with millions of followers can drastically alter the fortunes of an established brand with just a single post.
C2B models usually involve marketing in the modern context, with social media influencers and affiliate marketers prime examples. Freelancing through communities such as Upwork is also another example, as the gig economy finds more takers at the enterprise level.
The Advantages of C2B
For businesses, buying certain services or products from individuals is cheaper than getting the same thing from other traditional sources. For example, freelance services are cheaper than paying for staff positions. Individuals get new sources of income and revenue from this model, as well.
The Disadvantages of C2B
C2B is still an evolving business model with many unknowns and uncertainties; many businesses are still getting to terms with the disruption caused by the digital economy. Therefore, it remains to be seen whether or not it is a sustainable and efficient model in the long term.
5. Governments in eCommerce (B2G)
This is a smaller niche segment that, at times, does not fall within the strict definitions of commercial activity. However, many businesses and individuals deal with government departments, agencies, and other entities and, often, these online transactions involve the exchange of money.
Indeed, some businesses may deal only with governments, acting as contractors that provide certain components or services. Defence, energy, and healthcare are all sectors where B2G businesses have a lot of legroom for growth.
Many of these B2G transactions have also migrated online, thereby coming under the ambit of eCommerce. Government websites are often the platform where contracts are initiated, and transactions made.
The Advantages of B2G
Governments are usually reliable buyers and clients. Businesses who build working relationships with governments or government agencies often have a lot of stability.
The Disadvantages of B2G
B2G is still in its infancy, as many governments are still upgrading their online capabilities. Getting contracts can be difficult, as traditional informal networks still exist. Though going digital encourages transparency, corruption is still possible, too.
Was this article helpful? Let us know your thoughts in the comment section below!