What is Ecommerce? Types and How It Works (2026)

Ecommerce, short for “electronic commerce,” is the buying and selling of goods and services over the internet. It involves a transaction between two parties, usually a business and a consumer, where the payment and delivery of products or services are conducted online.

The US Census Bureau found that ecommerce accounted for 16.4% of total US retail sales in the second quarter of 2026. The ecommerce industry is powered by a worldwide system of technologies and platforms, from AI website builders to payment gateways to social media.

Ahead, explore the ins and outs of ecommerce: how it works, the main ecommerce models, and the benefits of selling products online versus in person. Plus, learn how to create an ecommerce website and launch your big idea.

What is ecommerce?

Ecommerce is when individuals and companies buy or sell goods and services online. Ecommerce can happen through a website, smartphone app, social media platform, online marketplace, or other sales platform. The goal of ecommerce for a seller is to drive sales using digital platforms and online marketing strategies.

Common examples of ecommerce include online shopping and online auctions. Electronic payments and internet banking also support ecommerce but aren’t ecommerce transactions on their own.

Ecommerce is also known as e-commerce or electronic commerce, and is often used to refer to the wide range of tasks involved in selling online, from running digital ads to transferring payment data over a network. You can participate in ecommerce anywhere with an internet connection.

Ecommerce website vs. ecommerce business vs. e-business

An ecommerce website is a website where customers can browse products or services, add items to a cart, and complete a purchase online.

An ecommerce business is a company that sells through digital channels. It may sell through its own website, online marketplaces, social media, mobile apps, or a mix of channels.

E-business is a broad term. It can include ecommerce, but it also covers other online business activities, such as digital marketing, customer support, inventory management, and supplier communication.

When did ecommerce start?

What counts as the first ecommerce transaction is up for debate, with some ecommerce technologies developed as early as the 1970s.

The first secure online transaction was apparently the sale of a Sting album in 1994, when one friend sold the CD to another over the internet, facilitating a sale between two people 300 miles apart, according to The New York Times. From there, ecommerce exploded, with Amazon and eBay launching the following year, followed by PayPal in 1998.

Technology has moved fast to meet the demands of shoppers. Ecommerce platforms like Shopify democratized the industry, allowing businesses to sell directly to consumers anywhere in the world.

Social commerce, mobile wallets, and AI round out today’s ecommerce tools and platforms.

How does ecommerce work?

Ecommerce works through a series of platforms, tools, and tasks:

• Ecommerce platforms. Sellers list products on an online sales platform, such as a website, marketplace, or social media storefront, so customers can browse and place orders. Shopify, for example, lets ecommerce brands manage inventory and order fulfillment. It also has detailed ecommerce analytics to see how people behave on your website.
• Payment processors. Customers pay using methods like credit cards or digital wallets at checkout. Transactions are secured by online payment gateways, such as Shopify Payments.
• Fulfillment and delivery. Sellers prepare, package, and ship products to customers. They may fulfill orders themselves or partner with a fulfillment service that manages shipping. For digital products like ebooks or online courses, the product is provided via a portal or download link.
• Supporting services. Various services and industries support ecommerce, including product suppliers, advertising platforms, and ecommerce apps that help sellers enhance the shopping experience.

How an ecommerce transaction works

Many ecommerce transactions follow the same process:

1. A business lists products or services through an online sales channel.
2. A customer chooses an item and adds it to their cart.
3. The customer enters shipping, billing, and payment information at checkout.
4. The payment processor verifies and authorizes the payment.
5. The business receives the order and sends a confirmation to the customer.
6. The order is fulfilled through shipping, local pickup, or digital delivery.

Where does ecommerce happen?

Ecommerce happens across a variety of digital spaces, each offering advantages for sellers and buyers. Many online sellers use multiple sales channels to reach more customers. A 2026 DHL report found most ecommerce businesses sell on three platforms, on average.

Here are the main channels where ecommerce takes place:

Ecommerce websites

Ecommerce websites are online stores created by brands or individuals to sell products and services directly to consumers. They’re the most popular type of sales channel amongst ecommerce businesses, DHL’s report found.

Ecommerce platforms like Shopify provide tools to build and manage ecommerce websites, from designing the storefront to processing payments.

Key characteristics include:

• Seller control. Sellers have control over website design, the customer experience, and site data.
• Marketing requirements. Ecommerce websites don’t come with an audience of potential customers. Sellers need to drive customers to their stores through search engine optimization (SEO), social media, and other types of marketing.

Online marketplaces

Amazon, Temu, and eBay are examples of online marketplaces where sellers can list their products. These marketplaces are visited by large volumes of shoppers, and were ranked among DHL’s top marketplaces that shoppers are buying from and businesses are selling on in 2026.

Key characteristics include:

• Built-in traffic. Marketplaces attract vast audiences, providing sellers access to a stream of consumers, typically in return for a fee. Etsy, for example, charges a listing fee of 20¢ to reach the 86.5 million active buyers on their platform.
• Accessibility. Marketplaces handle many technical parts of ecommerce, such as website design, hosting, and payment processing. This can also include shipping services, such as Fulfillment by Amazon.
• Lack of branding. Selling on marketplaces means giving up some control of how your brand appears to consumers. Customer and sales data may not be shared with sellers.

“Amazon is a huge sales channel simply because that’s where so many people shop,” says Lindsay Windham, cofounder of Distil Union, in a Shopify Masters interview. “I think, for us, we just realized, ’That’s where I’m getting my toilet paper, that’s where I’m getting a lot of stuff. Maybe we should sell on Amazon.’”

Social selling channels

Social media platforms like Facebook, Instagram, and YouTube include features that allow ecommerce brands to sell. Checkout can happen on the social selling platform or the seller’s website depending on the platform and setup. Social commerce sales are expected to represent 19.1% of all ecommerce sales by 2030, according to Statista.

Key characteristics include:

• Audience engagement. Social platforms can have large audiences segmented by deep data insights, lowering the cost of finding relevant customers.
• Seamless integration. Selling can be integrated into social media management, making it a natural extension of social media marketing strategies.
• Algorithm dependence. Social sales are often dictated by a seller’s social presence, with platform rules and algorithms determining their reach and success.

“I think most brands still don’t understand the opportunity that’s on TikTok Shop right now and the brand halo that funnels over to retail and every other channel of the business,” Kevin Gould, cofounder of Glamnetic, tells Shopify Masters.

Ecommerce payment methods

Consumers can make online purchases in several ways. Payment methods for ecommerce stores include:

• Credit and debit cards through a payment processor like Shopify Payments
• Third-party payment platforms, like PayPal
• Mobile wallets such as Apple Pay, Google Pay, and Shop Pay
• Buy now, pay later (BNPL) services
• Recurring billing for subscription products and services
• Pay in-store after ordering online with a point-of-sale system like Shopify POS

Ecommerce sellers regularly give consumers multiple ways to pay by integrating several of these payment methods into their website or sales channel.

Children’s clothing brand MORI, for example, activated Shopify Payments, allowing them to accept a wide range of payment methods on their ecommerce website. Over half of customers ended up using Shop Pay, with those customers spending 13% more, on average.

Ecommerce business types

Ecommerce business types describe the relationship between buyers and sellers. These include direct-to-consumer (DTC), business-to-consumer (B2C), business-to-business (B2B), and consumer-to-consumer (C2C) models.

Business to consumer (B2C)

Business-to-consumer (B2C) brands sell their products to the end user rather than through a retailer or distributor. This can happen through an ecommerce website or retail store. Grand View Research estimates the B2C ecommerce market will be worth $8.5 trillion in 2026.

Splash Wines is an example of a B2C business. They sell curated wine subscription boxes to online shoppers through their ecommerce website.

Direct to consumer (DTC)

The direct-to-consumer model is a subset of B2C that happens when businesses sell their own goods or services directly to customers. Mintel’s 2026 report found that 63% of shoppers have bought from a DTC brand.

Some DTC sellers are digital native businesses that operate solely online (sometimes referred to as digitally native vertical brands, or DNVBs). For example, an online footwear brand might design, sell, and ship sneakers directly to customers.

“We’re prioritizing DTC because it actually puts capital back into our bank accounts faster,” says Michelle Razavi, cofounder of Elavi, in a Shopify Masters interview. “It’s a fast conversion cycle. It allows us to gather data to remarket and to understand our consumer at a much deeper level than we would in a retail channel.”

Business-to-business (B2B)

A business-to-business (B2B) model involves one business selling goods or services to another. For instance, a software company might sell technology licenses to a small business, or a bed linen brand could supply sheets to a hotel. Statista estimates B2B ecommerce sales to reach $48.1 trillion by 2030.

Ecommerce lets businesses rethink the B2B model, incorporating strategies normally used in DTC, even combining B2B and DTC sales in a single online store.

For example, lighting company Hollis + Morris serves its business customers through a consumer-style website with transparent pricing, making its products accessible to all. B2B on Shopify lets them create a blended store with catalogs unique to each ecommerce market.

Consumer-to-consumer (C2C)

A consumer-to-consumer model is when one individual sells goods or services directly to another. Global C2C ecommerce sales are expected to reach $3.2 trillion in 2026, according to Grand View Research.

The C2C ecommerce model thrives on platforms that enable peer-to-peer exchanges, like Facebook Marketplace, eBay, and Etsy. For example, someone might sell a used sofa to another person through an online marketplace or selling site.

People who regularly source and sell products online may become resellers and shift toward a B2C model. Drew Scott is an example—he sells vintage pieces through his ecommerce company Lone Fox.

“I’m looking everywhere, anywhere for a good deal on a vintage item,” Drew says on Shopify Masters.

Other types of ecommerce

These models are less common for retail businesses, but they can help explain how online transactions work across different buyers and sellers:

• Consumer-to-business. An individual sells products or services to a business. For example, a photographer may license images to a company.
• Business-to-government. A business sells products or services to a government agency through an online procurement process.
• Consumer-to-government. An individual makes a payment or submits information to a government agency online, such as paying a fee or filing a form.
• Government-to-business. A government agency provides online services to businesses, such as license renewals or business registration.
• Government-to-consumer. A government agency provides online services to individuals, such as online applications, payments, or document renewals.

Ecommerce revenue models

Ecommerce businesses can earn money through various methods. Here are five common revenue models:

• Sales. This involves selling products or services for profit. It’s the most widely used method by online brands.
• Subscriptions. Subscription businesses offer products or services on a recurring basis, creating a steady income stream for DTC and B2B businesses.
• Advertising. Often seen with online creators and influencers, this model involves earning money through promotional deals.
• Affiliate. Affiliate marketers earn a commission by providing leads for another company. Individuals and businesses can earn through this model by joining affiliate programs.
• Dropshipping. Dropshipping suppliers pick, pack, and ship orders to your customers after they buy through your ecommerce site.
• Marketplaces. Access a marketplace platform’s existing customers. Shopify’s Marketplace Connect app connects your DTC website with Etsy, Amazon, Walmart, and Target.
• Transaction fee. Some ecommerce companies earn revenue by charging a fee for financial services such as processing payments.

How to start an ecommerce business

If you’ve decided to start an online business, begin by choosing an ecommerce platform to help execute your idea.

Follow these basic steps to launch an ecommerce venture:

1. Conduct market research. Explore product opportunities, untapped audiences, or market gaps to find your niche and establish your target market.
2. Write a business plan. It’s essential if you’re seeking funding to craft a solid business plan. This free business plan template covers the basics.
3. Choose an ecommerce platform. Choose between hosted, open-source, and headless platforms. Find one that has access to the features you need to sell online, including payments, checkout, and inventory management.
4. Register your business. Determine the legal structure and register your business with your local government agency. Now’s also a good time to contact a legal professional to clarify your tax and legal obligations as a business owner.
5. Develop a brand. Choose a logo and business name to begin building your brand. Jamil Bhuya, cofounder and head of growth at Otherhalf Studio, likens branding to the soul of your business. “It’s essentially a way to create something that’s very emotional and intimate that someone can understand,” Jamil tells Shopify Masters.
6. Create an online store. Choose a theme, customize your site, and add your product listings. Shopify’s AI website builder lets you do this with Sidekick. Three-quarters of store owners use AI tools, according to a 2025 Shopify survey.*
7. Configure a payment and shipping strategy. Select a payment processor, such as Shopify Payments, and consider how you will deliver products to customers. You could fulfill orders with shipping software, or outsource it to a third-party logistics partner.
8. Choose sales channels. Shopify’s unified commerce platform syncs product, inventory, and order data across multiple channels. This includes marketplaces, social storefronts, and in-person sales using Shopify POS.
9. Develop a marketing plan. In a 2025 Shopify survey of store owners, marketing (37%) and finding customers (36%) topped the list of Year 1 challenges.* Set sales and marketing goals and choose your advertising channels, including email marketing with Shopify Messaging.
10. Launch and test. Monitor Shopify Analytics to see what drives customers to your store, what they’re buying, and how often they engage with you. Sidekick helps make sense of this data; SNOCKS uses Sidekick to cut report-building time by up to 98%.

Legal and compliance considerations for ecommerce sellers

Ecommerce businesses have several laws and regulations they must follow when selling online. These vary by jurisdiction, so get professional legal advice to clarify which apply to your business.

Here’s what needs consideration:

• Personal data. Collecting and protecting customer data responsibly matters for any business using personalization, targeted marketing, or loyalty programs tied to an online store. Configure this in your ecommerce platform under customer privacy settings.
• Financial data. Secure payment gateways and free TLS/SSL certificates protect customer financial data during checkout and are a baseline requirement for any online store. Shopify Payments is also PCI DSS compliant.
• Advertising. The US Federal Trade Commission (FTC) prohibits ecommerce brands from sourcing illegitimate reviews or run deceptive ads. It’s also prohibited to block customers from leaving a review if they want to.
• Order fulfillment. The FTC has a Mail, Internet, or Telephone Order Merchandise Rule that states online sellers should ship all orders within the advertised timeframe. This defaults to 30 days if no shipping time is specified.
• Taxes. Shopify shows your US tax liability insights in states that require you to pay sales tax. Check this with a qualified accountant or bookkeeper to ensure you’re paying the right sales tax depending on where you have nexus.

Ecommerce benefits

Running an ecommerce store allows you to launch a business quickly and access a global customer base looking for a convenient way to buy your product and interact with your brand.

Here are four benefits of ecommerce:

Convenient shopping

Ecommerce allows customers to shop from anywhere, on any device, at any time, without the need to physically visit a store. Customers can discover your brand and compare products, features, and prices from home. DHL’s 2026 report said the majority of consumers identify as convenience shoppers with 92% prioritizing fast, free delivery and hassle-free returns.

Increased reach and access

Ecommerce businesses can reach a wider audience than a brick-and-mortar store, selling to global customers without the need for a physical international presence.

Fulfillment companies and services help move those online orders across the globe.

“We’ve gone from one fulfillment center to having centers all across the country,” says Noah Chaimberg, founder of Heatonist, who uses a fulfillment service to guarantee three-day shipping for online customers. “That’s a big change for us.”

Personalization and data

Online stores can capture a wealth of customer data that can be used for marketing personalization. These personalized shopping experiences can help businesses build stronger relationships with their customers. Attentive’s 2026 personalization study found that 93% of online shoppers say they’re more likely to continue shopping with a brand that has personalized experiences.

Shopify unifies this inside a unique profile for each customer. Native segmentation tools use these unified profiles, which can personalize product recommendations through the Search & Discovery app, email marketing campaigns through Shopify Messaging, and loyalty programs.

Lower startup and operating costs

Ecommerce businesses often have lower overhead costs than traditional stores. Certain ecommerce business models such as dropshipping or print on demand don’t require inventory space and can be inexpensive to set up and run.

“You can go out there and try to start a brand right now. You have to buy inventory upfront, you have to get pallets of inventory, spend all this money on trying to understand the product market, you have to do all this R&D to understand who your customer is. You’re looking at $20,000 to $30,000 upfront to start a brand that you don’t even know if the product can sell,” says AC Hampton, creator of dropshipping education and software company Supreme Ecom, in a Shopify Masters interview. “Or you can start dropshipping, do it with low risk, build it up, and then understand how to transfer that from a dropshipping store into a brand.”

Ecommerce challenges

While running an online business has its benefits, there are security concerns, shipping challenges, returns, and website issues that could impact sales.

If you’re looking to start an ecommerce business, plan for these potential pitfalls of online selling:

Security concerns

Consumers need to feel confident that their personal and financial information is protected when they shop online. In Deloitte’s 2025 Connected Consumer survey, 70% of US consumers said they worry about data privacy and security when using digital services.

Invest in secure payment gateways and SSL certificates to safeguard customer data. All Shopify plans include these ecommerce security features.

Increased competition

Ecommerce is a highly competitive space, with many businesses vying for the same customers. Successful online businesses need to differentiate themselves from their competitors by offering unique products, competitive prices, and exceptional customer experiences.

Coop Sleep Goods did this by nailing one product: a pillow.

“We took the approach of going an inch wide and a mile deep versus an inch deep and a mile wide with a bunch of products that don’t really mean anything,” says Cofounder Kevin Chon in a Shopify Masters interview. “We wanted to be the Kleenex of pillows.”

Shipping challenges

Shipping impacts customer satisfaction. Use reliable shipping services to ensure timely and safe delivery of products, and minimize lost orders. EasyStandard turned to Shopify Fulfillment Network for this. They achieved a 93% on-time delivery rate with SFN’s distributed inventory model.

Customer service and returns

Returns are a part of selling online. The National Retail Federation estimated 19.3% of online sales in the US would be returned in 2025. Clothing and shoes are the most-returned online purchases in the US, Statista reported in 2025, with 25% of online shoppers saying they returned clothing bought online in the past year, and 17% had returned shoes.

A clear return policy helps customers understand timelines, refund options, and return shipping steps. Shopify lets store owners set up return and cancellation rules for their customers.

If customers do need to reach out, implement ecommerce customer service strategies to address any issues efficiently. Shopify Inbox can help answer customer questions in real time.

Customers can’t see products in person

Online shoppers can’t touch, try on, or inspect products before buying. This inability to assess product quality can pose a challenge to online shoppers.

Product pages need clear photos, sizing details, and customer reviews to help shoppers make purchasing decisions. Gunner Kennels also built 3D models of their dog crates to help online customers check for size, which reduced return rates by 5%.

Website issues can interrupt sales

An ecommerce store needs to stay accessible during traffic spikes, product launches, and sales events. Slow pages or site outages can stop customers from completing orders.

Muscle Nation experienced this first-hand when their ecommerce website crashed after launching a new product.

“We worked till 3 a.m. the night before our launch to get everything ready, and then just five minutes later our website crashed,” says Co-owner Nathan Anthony.

The brand migrated to Shopify, and over Black Friday in 2019 sold more than 154,000 units and processed $4 million in orders with no downtime.

Cart abandonment and low conversion rates

An abandoned online purchase can mean an unrealized sale. In a 2026 Baymard Institute survey, 40% of US online shoppers said they recently abandoned a card due to extra costs such as shipping, taxes, and fees, while 20% had left a cart due to slow delivery and 17% cited a long or complicated checkout process.

Shopify Messaging has an abandoned checkout automation to recoup those lost shoppers. It displays the exact products each customer had in their cart, with a personalized checkout link to complete their purchase.

Ecommerce trends and stats

Ecommerce trends impact everything from how websites look and function to the most popular product types. Staying on top of them can help your business remain competitive and meet changing customer needs.

Here are four long-standing ecommerce trends to watch:

Social commerce is on the rise

Social interactions increasingly influence buying behavior, making social media platforms critical to ecommerce sales:

• Sales through social commerce in the US are projected to surpass $117 billion in 2027, according to eMarketer.
• Social media platforms like Instagram and TikTok are among the most popular discovery channels for new brands and products, according to Salsify’s 2026 Consumer Research report.
• Social media interaction can strengthen customer engagement and help customers feel more connected to a brand, a study published in 2026 suggests.

Mobile shopping is popular

The shift toward mobile devices is reshaping how consumers shop online, underlining the need for mobile-optimized shopping experiences:

• A median 28% of adults across 24 countries say they’re online “almost constantly,” according to Pew Research Center
• Smartphones accounted for 71% of all online shopping orders in the second quarter of 2026, according to Statista.
• In a 2026 PYMNTS study, 27% of consumers’ most recent purchase was made online using a mobile device.

Sellers are using AI

Ecommerce is always evolving, driven by innovative ecommerce brands using technologies such as AI. According to Shopify’s 2025 merchant survey*:

• Three-quarters of business owners use AI tools
• Content generation is the most common use case at 69%, followed by marketing initiatives (38%) and data analysis (33%)
• The primary benefits of AI are saving time on repetitive tasks and brainstorming new ideas—both are ranked at 55%

Shopify’s AI features help sellers:

• Automate customer support with Shopify Inbox AI agents
• Write product descriptions and conduct Shopify admin tasks with Sidekick
• Sell in AI chats on ChatGPT, Google Gemini, and Microsoft Copilot with agentic storefronts

“At Monos, we’re excited about agentic shopping because it enables us to meet customers where they already are,” says Victor Tam, CEO and cofounder of Monos. “It’s a new way for our story and product details to show up at the exact moment someone is asking real questions with real intent, in a format that feels helpful, not intrusive. For a brand built on thoughtful design, it’s a natural next channel for discovery and trust.”

Consumers like personalization

Personalized shopping experiences and communication impact customer retention and satisfaction:

• Attentive’s 2026 report found 64% of consumers think marketing messages are too generic and want them to be more personalized.
• Qualtrics reported in 2025 that 64% of shoppers show a genuine appetite for tailored experiences, but only 41% said the benefits justify the privacy costs.
• In a 2025 Twilio survey, 26% of consumers indicated they would walk away from a brand that fails to personalize their experience.

*Based on a 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.