Our today’s article will be a source of attraction for many people since we’ll be discussing the emerging industry of eCommerce today.
The eCommerce industry is a relatively new phenomenon in the market, making people curious to get insight into it.
For those of you who have little knowledge about the eCommerce industry, don’t worry. This article will provide a complete insight into what this industry is and how it works.
The eCommerce industry provides a platform to buy and sell products and services online. These online transactions are made possible through big eCommerce companies such as Amazon, Alibaba, eBay, etc.
The eCommerce industry affects the lives of billions of people. It generates economic activity worth billions of dollars each year. It has challenged the basic definition of a “Market” since it makes buying and selling goods possible without the physical interaction between buyers and sellers.
Since the eCommerce industry is on the rise and is continuously growing, we have decided to conduct an eCommerce Industry Analysis so that we can educate our readers regarding this new industry.
The internet hit the world in 1983, and after almost a decade, the eCommerce industry emerged.
The eCommerce industry is relatively new in the market. According to its history, the first successful online transaction was made in 1994 between two friends when one sold a CD to the other.
After that, the eCommerce industry began to grow. By the middle of the 1990s, several eCommerce companies were established. Amazon was also one of the eCommerce companies established in 1995 and is now considered the biggest eCommerce company, generating annual revenue worth $386 billion.
The eCommerce industry is responsible for generating significant economic activity across the globe. It is expected that in 2022, the eCommerce industry will generate around $5 trillion through retail sales. This number will increase by 2025 to $7 trillion.
Many of the world’s population use eCommerce to buy products and services worldwide. In 2021, it was recorded that around 2.14 billion people were buying digitally through eCommerce.
The eCommerce industry plays a significant role in facilitating around 20% of retail sales across the globe.
It is estimated that around 12 million to 24 million eCommerce sites are operating in the eCommerce industry. The industry has managed to employ millions of people worldwide. Alone in the US, employment in the eCommerce industry is predicted to reach 450,000 by 2026.
Looking at eCommerce sales by country, we can clearly see that China dominates the eCommerce industry. China was responsible for 54.1% of the sales worth $2.78 trillion in 2021.
Now that we have discussed the history and the current situation of the eCommerce industry, It is about time that we proceed to carry out the eCommerce industry analysis.
An industry analysis has three stages. In the very first stage, the life cycle of an industry is constructed. After that, the level of competitiveness is measured in the industry, and in the end, the industry’s environment is analyzed.
Let’s begin the eCommerce industry analysis by constructing the life cycle of the eCommerce industry.
eCommerce Industry Life Cycle
Any industry’s life cycle consists of five stages. The first stage of the life cycle is always the startup stage. The second stage is the growth stage. After that, the industry enters the shakeout stage. Moreover, the last two stages of the life cycle are the maturity and the decline stage.
Now that you guys know what an industry life cycle is let’s construct an eCommerce industry life cycle to see at what stage the eCommerce industry stands currently.
In the first stage of the industry life cycle, only a few companies are present in the industry, due to which almost no competition exists in the industry. At this stage, consumers are unaware of the product, and companies are trying to make people aware of their product.
The eCommerce industry entered the startup stage after the internet was made accessible worldwide. In 1995, the world’s first eCommerce company, Amazon, was established.
Initially, it started as an online book store. However, its customer base increased as the customers became aware of its products.
After the startup stage, the industry moves to the growth stage. In this stage, several companies enter the industry since now consumers know the products and profits are being made in the industry. Therefore, increasing the number of companies causes competition to increase.
The eCommerce industry experienced growth by the end of the 1990s when companies like Alibaba and eBay were founded. During this time, many companies entered the industry. Hence the competition increased in the industry.
The eCommerce industry is at the growth stage since it is currently experiencing growth. In 2020, it had a growth rate of 26.4%. However, it is predicted that the growth rate will decline to 9.2% by 2025.
The shakeout stage arrives right after the growth stage. In this stage, the weak companies are forced out of the market by larger companies. To survive the shakeout stage, companies have to innovate their products.
The eCommerce industry hasn’t seen the shakeout stage yet. However, It is possible that in a few years, huge companies like Amazon and Alibaba may push the small companies out of the industry or decrease the competition with the help of mergers and acquisitions.
After the shakeout stage, an industry has to go through the maturity stage. At this stage, the industry tries hard to grow since it is already operating at its full potential. At this stage, the companies are already making maximum profits.
The eCommerce industry has yet to see the maturity stage. However, it is predicted that the growth of the eCommerce industry will decline by 9.2% by 2025, so it might reach the maturity stage in a few decades.
In this last stage of the industry life cycle, the industry begins to lose its market share since the demand for the industry starts to decline due to a substitute or change in preferences. Therefore, in this stage, companies begin to exit the industry to avoid losses.
The eCommerce industry is an emerging market, and its decline is yet to come in the future.
Assessing the Competition: Porter’s Five Forces Model
The second step of the industry analysis is assessing the competition through Porter’s five forces model. This model consists of five factors that analyze the competition within the industry. So let’s proceed further to analyze the competition in the eCommerce industry.
The first factor of Porter’s model analyses the industry’s competition level. This factor considers the competition that companies in the industry have to face.
The competitiveness is high in the eCommerce industry since millions of companies are present, including some of the biggest eCommerce companies such as Amazon, Alibaba, eBay, etc.
This model factor represents suppliers’ power to alter the market price. The supplier power depends upon the number of suppliers present in the industry.
The supplier power in the eCommerce industry is low despite having a high number of eCommerce companies in the industry because companies are the ones who set the rules for the suppliers giving them limited power to influence the prices.
Like supplier power, Porter’s model’s third factor represents buyers’ power to manipulate prices.
The buying power in the industry is relatively high since there is no switching cost for the customers. This makes customers switch eCommerce companies if they are not providing quality products. Moreover, buyers have a wide range of options due to the large number of companies in the industry.
Threat of Substitution
This factor takes into account the threat of substitution companies face. Substitution occurs if there are low switching costs and plenty of substitutes available.
The substitution threat is high in the eCommerce industry since many substitutes are available in the industry, and the switching costs for the consumer are low. As a result, consumers can easily switch to companies that are providing better quality products.
Threats of New Entry
The last factor of Porter’s model highlights the threats faced by companies of new entrants. This depends upon the cost of investment and the barriers to entry present in the industry.
Threats of new entry are low in the eCommerce industry due to high barriers to entry and tough competition. A newly entering company will have to compete with billion-dollar companies like Amazon, which is quite impractical.
To complete our industry analysis, we will conduct an environmental analysis of the eCommerce industry. The environmental analysis will highlight the industry’s environment with the help of SWOT and PESTLE analysis.
PESTLE analysis assesses the external factors that impact the companies working in the industry. PESTLE analysis individually highlights political, economic, social, technological, legal, and environmental factors that influence companies in the industry.
Operating worldwide can be a problem for eCommerce companies since governments across the globe have set different rules regarding the operations of the eCommerce industry.
For example, the European Union has strict regulations regarding the eCommerce industry. Hence, eCommerce companies avoid spreading their operations to the EU.
The world is moving forward toward a global recession. If the recession hits, the living standards of the people will decline. As a result, consumption of people will decrease. This will cause a drop in the sales of eCommerce companies, and losses will be observed.
People don’t trust online retail in some countries. Instead, they prefer buying products and services from physical stores. In such countries, the demand for eCommerce companies will be low due to their social norms and beliefs.
The eCommerce industry uses the latest technology to make the user experience more friendly. Moreover, as access to the internet is increasing day by day, the consumer base of the eCommerce industry is also increasing.
Similar to physical retailers, eCommerce companies must also be careful in dealing with customers and workers. Any unlawful practice can result in heavy fines and a bad reputation. Moreover, companies must abide by every country’s laws to operate in that region.
Environmentalists keep a close eye on the practices of eCommerce industries. For example, plastic packaging companies pollute the environment, and laws limiting plastic packaging vary from country to country. Neglecting these laws can put eCommerce industries into trouble and cause financial losses in the form of lawsuits.
Besides PESTLE analysis, SWOT analysis is also a business tool that analyses the internal and external factors impacting companies’ operations in the eCommerce industries.
The eCommerce industry offers good quality products at low prices since it cuts off the middleman and provides products directly to the consumers. Hence, consumers get products at lower prices compared to physical markets.
The eCommerce industry is industry-specific. For example, certain products like books and electronics can be easily bought from eCommerce platforms. In contrast, products like clothes and shoes are difficult to purchase online since you need to try them before buying.
The eCommerce industry is currently in the growth phase and is still growing. In 2020, the industry grew at a rate of 26.4%, and it is expected to have a reasonable growth rate in the future as well. This provides the opportunity for eCommerce companies to maximize their market share since the company is currently in the growth phase.
Competition is very high in the eCommerce industry since millions of companies are present in the industry. Moreover, some big companies, such as Amazon and Alibaba, hold a significant market share, making it hard for smaller companies to compete.
eCommerce Industry Analysis: Final Word
Finally, we reached the end of this article after constructing the industry life cycle, assessing the competition through Porter’s five-factor model, and conducting an environmental analysis.
I am sure this article has provided insight into the eCommerce industry. However, if any of you got inspired by the eCommerce industry and want to become a part of the industry, do know three to-do things before launching an eCommerce startup and ten blunders to avoid in eCommerce marketing. After reading this article, we are sure that besides getting information about the eCommerce industry, you now know what industry analysis is and how to conduct an industry analysis.