An Introduction to E-Commerce
Published in Getting Started
Are you thinking of starting an e-commerce website? Do you want to e-commerce enable your current website? Should you take your product or service to the web? Merchant accounts, shopping carts, and payment gateways… what do they all mean?
E-commerce can often be confusing, or even scary to the average web developer. If you're not careful you can spend tens of thousands, or even hundreds of thousands of dollars on an e-commerce system and not have what you need. This article will give you a crash course on e-commerce, so you'll have the knowledge you need to go on to the next step.
Should I even bother with e-commerce?
Now, I don't want to discourage you from starting an online store but not everyone should take the leap. Why not, you ask? If your product or service is best described in person, is difficult to ship, or needs to be tried on you need to really consider whether e-commerce is right for you. Food, furniture, collectibles and clothes are just some products that are more difficult to sell online.
This doesn't mean you can't sell them online. I personally know of at least one successful store in each of the categories listed above (one of which I own). There are exceptions to every rule. Of course, just as there are reasons you might not want to start an e-commerce site, there are instances where you might be better suited with an e-commerce site than a brick and mortar store.
If your product is really easy to ship, or better yet, is a service – you might be better suited for an online store. Think of Amazon… books, music and movies are small and easy to describe with a few pictures and a paragraph description. Services such as web hosting or software are better suited for online selling. Instant delivery and reduced customer service costs are just some of the reasons why they excel online.
Does your product or service fill a niche? If so, you're in luck. Niche markets are best suited for online or catalog sales simply because there are usually not enough customers in any one particular area. With the Internet, however, you can reach the entire world.
The Tech of E-Commerce
So what is a merchant account? A payment gateway? Do you need a shopping cart or e-commerce system and what's the difference? The tech behind e-commerce can baffle the most skilled programmer or designer. It's not as complicated as it seems, though. Take a look at the following diagram:
So what's going on here? Well, your customer only sees your website and shopping cart, but you can't function all by yourself. You need the payment gateway and merchant bank to make sure the customer's credit card information is valid and there are the funds available to purchase the items on your site.
A merchant bank account is just that, a bank account. It allows you to accept credit cards such as Visa, MasterCard and American Express. The merchant bank does all the work, verifying the card information with the credit card company and crediting your account. A payment gateway is a company that specializes in interfacing with merchant banks. Most banks have different proprietary computer systems; a payment gateway can communicate with all of them.
The shopping cart or e-commerce system on your website will contact the payment gateway and transfer the customer's information securely (see SSL later). The payment gateway then contacts your merchant bank on your behalf who verifies all the information, processes the transaction and credits your account when the transaction is complete.
One important thing to note is that many merchant accounts now include the payment gateway, so you can get a one-stop solution for your credit card processing. Companies like Authorize.NET (the payment gateway) partner with merchant banks (like Wells Fargo) to provide you with an all-in-one solution and save you money on monthly fees and charges.
Merchant accounts can be expensive though, and are only really worth the money if your revenues are over $2000 per month. If you are planning on selling a lot less, you may want to consider a third party payment processor such as Paysystems, 2Checkout or WorldPay. They use their merchant account, host the payment forms on their secure server and process all transactions for you. They have higher per transaction and percentage charges but usually have no monthly fees and low setup fees. If you are expecting low revenues while you get started this may be an alternative to an expensive merchant account.
Some third party payment processors also include a shopping cart. Paysystems, 2Checkout, WorldPay and Paypal are all third party processors that offer shopping cart services. If you choose to go with a third party processor, be sure to get an online demo first. Some let you customize the look and feel to match your own site while others force you to use their proprietary look. Make sure it has the features you need before signing up.
What to look for...
Now that you understand the basics of e-commerce, what should you do? Well, get out a pen and paper (or computer) and get ready to take some notes. What features do you need in a shopping cart or e-commerce system? Don't know? That's okay; we'll go over some features so you have a better idea. When you read about a feature you think you need… jot it down. Then when you're looking at e-commerce systems or talking to a developer you'll be able to tell them exactly what you need.
Database or Flat File – Some shopping carts use databases, such as MySQL, Microsoft SQL and Oracle. Others use flat files or rely on static HTML pages. If you have a lot of products you'll definitely want some form of a database for quicker access and updating of information.
Catalog – Some shopping carts or e-commerce systems will have catalog functionality. They will automatically generate pages of products and information based on departments and categories. This is really helpful if you have hundreds or thousands of products.
Shipping Calculation – Do you need automatic shipping calculation or integration with UPS, FedEx or USPS? If you don't ship any products this won't be necessary.
Customer Login – Some e-commerce systems will allow your customers to create an account that will store their personal information, past orders, billing and shipping addresses, payment information, etc. This is a really good feature for stores that have customers that order frequently.
Customer and Order Management – Most shopping carts only have limited functionality in this area. They just process the information and dump it into a flat file or database for your online/offline processing. E-Commerce systems, however, tend to be complete solutions with comprehensive backend for management of your store.
Payment Processor / Merchant Account Integration – This is a really important feature. If you've already selected or signed up for a merchant account and payment processor you'll have to make sure your system supports it. This works both ways… if you've already signed up for a shopping cart, be sure to sign up for a merchant account & payment processor they support.
Template / Website Design – Some e-commerce systems include basic templates or allow you to input your header/footer, minimizing the need to customize the system to fit your needs or style and saving valuable time in the development process.
Inventory Tracking – This can be really important if you need to track quantity on hand or reorder limits. Some systems can even email your supplier a reorder request.
Store Search – If you have a lot of products a store search is critical to help your customers find the products they need.
Currency Support – If you expect a lot of international orders multi-currency support is a must.
There are literally thousands of features in e-commerce systems today. These are just a few to get your creative juices flowing. Think of as many features as you can. Some might not be possible, but you should be able to find most in an affordable e-commerce system to fit your needs.
Who do I get to help?
If you're a little overwhelmed (I sure was when I started), there's no shame in asking for help. Before you look for a developer to help you, think about what you can do yourself. Can you design the front-end? Are you a good programmer, can you possibly install the system and configure it to your server? To save money, you may want to do as much as possible yourself as outside vendors can be expensive.
When choosing a developer or firm, be sure to ask a lot of questions. Look at their portfolio, talk to some of their customers, and did I mention ask a lot of questions? Ensure you get a contract that clearly states the amount you'll have to pay, the features that will be included and the timeframe for completion. Make sure it also describes what you're entitled to if they don't meet their end of the bargain.
The vendor you choose may not actually develop a totally custom solution; they may just customize an off-the-shelf solution to fit your needs. This can save a lot of time and money, but make sure they are familiar with the system they are using. Also be sure they aren't overcharging you for the system. Granted they need to make a profit, but they should make it in development, not by marking up a system they just bought and resold.
In conclusion...
There are many books written about e-commerce. While this article is a good start, it is in no way all you need to build your e-commerce site. Hopefully you have a general understanding of e-commerce and the technology behind it. If you're ready for further reading, check out some of the resources I've compiled below. If you need some advice or suggestions, feel free to contact me at .(JavaScript must be enabled to view this email address).
Resources
Websites
Webmaster Resources – www.websitepublisher.net
SitePoint – www.sitepoint.com
Books
Selling Online – How to Become a Successful E-Commerce Merchant
By Jim Carroll & Rick Broadhead
ISBN 0-7931-4517-1
List of E-Commerce Systems
I have compiled a comprehensive list of e-commerce systems and shopping carts. You can find them in the Resources section of this website.About Brandon Eley
I am an Internet entrepreneur and own several e-commerce companies. I started 2BigFeet.com in 1999 and have shipped big shoes to all 50 states, most provinces and over 40 countries all over the world. We have a warehouse and retail store in LaGrange, GA.
I also work as the Interactive Director for Kelsey Advertising & Design. I am responsible for enterprise level web applications for Fortune 100 companies as well as e-commerce websites and other client projects.
I also run several content websites and write for several publications, including SitePoint where I am also a Community Advisor, The Apple Blog and others.
