What Is E-Commerce? Definition, Types, and How It Works

E-commerce is the buying and selling of goods and services over the internet. It covers everything from a one-person shop selling handmade jewelry on Etsy to a multinational retailer processing millions of orders a day through its own website. If money changes hands through a digital transaction, that’s e-commerce. The global e-commerce market now runs through a mix of dedicated online stores, massive marketplaces like Amazon, and increasingly, social media platforms where users browse, compare, and buy without ever leaving the app.

How an E-Commerce Transaction Works

From the buyer’s perspective, e-commerce looks simple: find a product, click “buy,” and wait for a package. Behind that click, several steps happen in rapid sequence. The payment system verifies the customer’s payment information and checks that enough funds are available. Then the order goes through a fraud check, where the system flags anything suspicious, like a shipping address that doesn’t match the billing address or an unusually large order from a new account.

Once verified, the system checks inventory to confirm the item is actually in stock. Warehouse staff then pick the item from shelves and pack it for shipment. From there, a carrier picks up the package and delivers it to the address you provided. Most of this happens within hours of placing the order, which is why next-day and even same-day delivery have become standard offerings from large retailers.

Four Main Business Models

E-commerce isn’t one-size-fits-all. The transactions break into four categories based on who’s selling to whom.

  • Business-to-consumer (B2C): A company sells directly to individual shoppers. This is what most people picture when they think of online shopping. Think clothing brands, grocery delivery services, or streaming subscriptions. B2C businesses benefit from broad reach and shorter sales cycles, but competition is fierce and the cost of acquiring each new customer keeps rising.
  • Business-to-business (B2B): One business sells products or services to another business. A manufacturer selling raw materials to a factory, or a software company licensing its tools to a corporate client, both fall here. Orders tend to be larger and relationships longer-term, but sales cycles can stretch for weeks or months because multiple decision-makers are involved.
  • Consumer-to-consumer (C2C): Individual sellers connect with individual buyers through a marketplace platform. eBay, Facebook Marketplace, and Etsy all operate on this model. The barrier to entry is low, since the platform handles payment processing and provides a built-in audience, but it’s harder to build a recognizable brand when you’re one listing among millions.
  • Consumer-to-business (C2B): Individuals sell their skills or products to companies. Freelance platforms like Upwork and Fiverr are the clearest examples: a graphic designer sets their rates, and businesses come to them for project work. This model gives individuals flexibility but comes with unpredictable income.

Where People Buy Online

A handful of platforms dominate online commerce. Amazon remains the largest U.S. marketplace, with an estimated $300 billion in third-party sales alone, meaning sales by independent sellers using Amazon’s platform rather than Amazon selling its own inventory. eBay holds the second spot at roughly $39 billion, having carved out a niche in collectibles, enthusiast goods, and secondhand fashion rather than trying to compete head-to-head with Amazon on everyday products.

Newer players have grown fast. Temu reached about $22 billion in sales through a model that blends marketplace listings with more hands-on control over pricing and inventory. TikTok Shop hit $15 billion by letting users discover and purchase products directly inside short videos. Walmart’s third-party marketplace, which accounts for roughly 10% of its total online sales, crossed 200,000 sellers and benefits from integration with Walmart’s massive network of physical stores.

Beyond these marketplaces, many businesses run their own standalone online stores using platforms like Shopify, WooCommerce, or BigCommerce. These tools let a business set up a fully functional storefront without building a website from scratch, handling everything from product listings to checkout to shipping label generation.

Social Commerce and Mobile Shopping

The line between scrolling social media and shopping has nearly disappeared. Seven in ten global shoppers now buy directly through platforms like TikTok and Instagram, browsing products in their feeds and completing purchases without ever opening a separate browser tab. Social commerce revenue is projected to reach $6.2 trillion by 2030, growing at about 32% per year.

This shift changes how products get discovered. Instead of searching for “running shoes” on a retailer’s website, a shopper might see a short video review in their feed, tap the tagged product, and check out in under a minute. Platform algorithms surface products based on a user’s viewing habits, making personalized recommendations that function like a salesperson who already knows your taste. For businesses, this means short, engaging video content that demonstrates a product or answers a question tends to drive more sales than traditional advertising.

How E-Commerce Businesses Handle Legal Requirements

Selling online comes with real legal obligations. If you collect any personal information from customers, including names, email addresses, payment details, or browsing behavior, you need a clear privacy policy that explains what data you collect and how you use it. The Federal Trade Commission holds businesses accountable for honoring the promises in those policies, so vague or misleading language can lead to enforcement action.

Data security matters just as much. If your business experiences a breach involving personal health records, the FTC’s Health Breach Notification Rule requires you to notify every affected person, report the breach to the FTC, and in many cases alert the media. Even outside health data, businesses are expected to minimize the data they collect, limit who can access it, and build security into their systems from the start.

Sales tax adds another layer. Most states require online sellers to collect sales tax from buyers in states where the seller has a physical presence or meets a certain threshold of sales into that state. The specific thresholds and rates vary, but ignoring sales tax obligations can result in back taxes, penalties, and interest.

What You Need to Start Selling Online

Getting into e-commerce can be surprisingly lean. At the simplest level, you need a product or service, a way to list it (your own website or a marketplace like Amazon or Etsy), and a way to accept payments. Most platforms include built-in payment processing, so you don’t need to set up a separate merchant account.

Beyond that, the operational pieces scale with your business. A solo seller might pack orders from a spare bedroom. A growing business might use a third-party fulfillment service that stores inventory, picks and packs orders, and ships them on your behalf, in exchange for per-order fees. The key costs to plan for include platform fees or monthly subscriptions, payment processing fees (typically around 2.9% plus a flat per-transaction charge), shipping costs, and marketing spend to drive traffic to your listings.

One advantage of e-commerce over a brick-and-mortar store is that you can test a product idea with minimal upfront investment. List a small batch, see if it sells, and scale up only after you have real demand. That low barrier to entry is a big reason why millions of small businesses now operate primarily or exclusively online.