E-commerce Investment – The Complete Guide

14 minutes

Introduction

E-commerce investment may not be the priority for many people compared to other markets such as Artificial Intelligence, virtual reality, and autonomous vehicles. But e-commerce investment can prove to be a long-term profit for you. Over the past 20 years, e-commerce is being evolved. The customer-seller relationship in this business environment is improved day-by-day. This market is growing more and faster.

What is E-commerce?

The simple definition of e-commerce is selling and buying goods by using the internet. No doubt, e-commerce was a slow business initially, but it gained popularity and success with the advancement of technology by the time. Companies like Amazon made the business much easier as the customers are getting fast delivery of their products.

The retail sale of the U.S. retail sale stores is $5 Trillion per year. The number increases to $6 Trillion per year if we count the sales of restaurants. The U.S. e-commerce market is worth around $500 Billion because of the rise in Amazon and the increase in online sales. The e-commerce market is gradually increasing since the early days. The retail shares have been increased to 10% from less than 4% in the last ten years. The sales are increasing every year by 15%. These numbers are just for the U.S. market, and the growth maybe even more in other countries like India and China.

Ecommerce efficiency

E-commerce is being improved day-by-day. Some people may think that shopping from physical stores is much convenient than online shopping.  But it has already seen that online stores have been improved a lot over time, and the market is growing fast. With the advancement in technology, it is possible that online shopping will grow more and will be a more convenient option for most people. The market has the potential to boost its growth in the future. The technology has already helped this market to grow a lot. For instance, driverless cars and drones for delivery purposes have made the process easier and faster. Virtual Reality helped the buyers to have a detailed view of their products like furniture. Artificial intelligence has been useful in warehouses for the picking and packing process.

All these new technologies have helped the e-commerce business in the best way possible, and more improvements can be made in online shopping with the introduction of new technologies.

E-commerce Potential

Online shopping business is an ever-growing market but let’s see some more facts about the potential of this market in future:

  • The estimated e-commerce sale around the world is $4.8 Trillion by the end of 2021.
  • An estimated 162.8 million people in the U.S. are shopping from their mobile phones in the year 2019. This means that online store owners should make their services mobile-optimized.
  • Women are doing more online shopping than men. For every $10 spent on online shopping, $6 is being spent by women.
  • People of the age between 18-34 are shopping more online than other age groups. Approximately $2000 is spent by each of the people in this category every year.

E-commerce Business Models

E-commerce may seem simple, but there are several ways through which investors can gain an advantage. Following are the four business models of E-commerce:

Direct Sellers

Direct Seller

It is the simplest of the e-commerce business models. Direct Sellers perform every task of the online shopping from the seller side by themselves. They are responsible for handling shares, stock inventory, customer service, shipping, delivery, and returns. They sell their products directly through the website instead of using a third-party store. Becoming a direct seller may seem easier, but it has its challenges too.

Many investors invested in many direct sellers when they were convinced that there would be a large profit in it, but soon, they realized the difficulties in this business. The challenges like shipping costs and processing returns have been the problem for direct sellers. For instance, pet.com started as direct sellers, but they started facing high shipping costs for pet foods and pet accessories. The market is still considered easier for the direct sellers, but the risks of high shipping charges and process return remain the same.

There are several advantages and disadvantages of becoming a Direct Seller:

Pros

  • You can generate high revenue and have more market shares.
  • All of the business is under your control.
  • It can give you multiple features.

Cons

  • The profit margin is very low or even negative in some cases.
  • You can’t have benefited from a third party as there is none involved.
  • You won’t be having any competitive advantage.

Despite all this, there are many success stories of direct selling. One example is Amazon, which started from selling books, and now they are the world’s leading online stores from selling products to video streaming services. They have overcome all the disadvantages of direct selling through the proper use of the advantages. Amazon introduced their customer loyalty program through which the company gains an advantage over its competitors. Other direct sellers have also proven to be successful in the market, like Wayfair and JD.com.

Marketplaces

The most common and probably the most efficient form of e-commerce business is Marketplaces. There are some crossovers of Marketplace and Direct sellers, but both business models are different from each other. The marketplace doesn’t sell any goods on its own but rather works as a platform for connecting sellers with buyers. It takes a commission from the seller to use the platform. It also charges some additional fees for several services it offers, like processing transactions and handling shipping.

Following are some advantages and disadvantages of Marketplace:

Pros

  • The risk is very low because the company doesn’t manage any stock inventory.
  • Uses switching costs and network effects to make competitive benefits.
  • Increases the profit easily.

Cons

  • The market share is lower than direct selling.
  • Difficult to stand in the market.
  • Dependent on the third-part. This means the platform can go down if the third-party is not fulfilling the customer’s requirements.

One of the examples of Marketplace is eBay. It is one of the initial marketplaces set-ups since the dawn of the internet. Moreover, it grew its popularity throughout the years, but there hasn’t been much of them thrive in the company in recent years. It has failed in adapting to modern techniques and the latest requirements of the customers. That’s why it didn’t grow as much as the other e-commerce businesses did. There are other notable marketplaces to invest in in the U.S., such as Grubhub and Etsy.

Outside of the U.S., there are not many marketplaces to invest in apart from Alibaba. It is a marketplace with headquarters in China. It’s appeared as one of the leading marketplaces in the e=commerce business.

 Software Providers

Software Providers

Nowadays, every company relies on software to run the business more effectively. Two cloud-based companies provide cloud-based software for e-commerce businesses. Shopify is one of them which provides its services in America. The other one is Baozun, which provides companies in China to have cloud-based software. These two software providers have been a good investment for many investors.

Let’s see the advantages and disadvantages of this e-commerce model:

Pros

  • You can have broad exposure to e-commerce.
  • Potential to grow.
  • You can have competitive benefits through switching costs.

Cons

  • Lack of direct connection with the customer.
  • It costs you to have the customers.
  • The profit-making process is slow.

Shopify is based in Canada and has managed companies like Nestle, Unilever, Red Bull. It is one of the fastest-growing companies in the world. The shares have increased by 73% last year. The main aim of the company is to gain more profits. That’s why it has proved to be a profitable platform for investors.

Baozun’s success story is similar to Shopify. It has managed the big giants like Nike, Microsoft, and Starbucks. It is also known as the Shopify of China because it offers similar services in China’s region.

Logistics

logistics

It may not be as big as the other e-commerce models. But it deserves to be on the list.

Let’s see the advantages and disadvantages of Logistics:

Pros

  • Uses ‘pick and shovel’ approach to having more benefits.
  • High Barriers to entry.

Cons

  • The cost of infrastructure is high.
  • It generates the profit slower than the other models.

The only logistic company that comes to mind when we think about logistics is XPO logistics. The company showed phenomenal growth over the years. In the last ten years, the shares of the company have risen to 2000%. It is a partner with big companies like Amazon, IKEA, and Home Depot. Home Depot even tried to buy the company. This makes XPO a preferable option for investors to invest in.

Check out our other industries coverage

What Drive E-Commerce Growth?

E-Commerce is growing since its introduction. The average sales across the world through online shopping is around $3 Trillion. Yet, it is just 15% of the total retail sales. There is no doubt, the potential of this industry to grow is very high.

Let’s see the factors that assisted e-commerce in growing throughout the time:

Access to the Internet

As the internet is becoming more and more accessible for various regions in the world. It is also increasing the number of users who are shopping online.

Smart Phones

Online shopping trends is also increased as the number of users of smartphones has increased. The global shares of smartphones have been increased to 44.9% by the end of 2020, and it is expected to cross the 50% mark in 2021.

Demographics

Many users who are shopping online now are the people who didn’t know about this around 30 years ago. But in the future, this will change as today’s generation is growing up in the era of e-commerce, so it will be normal for them to shop online.

Increase in the number of online retailers

As the trend of online shopping is also growing, the number of online retailers is increasing. This is also the key factor that some major and good products are just available online, so people are more attracted to them.

Social Media

Social Media has played an important role in the growth of e-commerce. More and more people are using Social Media platforms to advertise their products, and hence more people are getting to know about online shopping.

Improvement in Payment Methods

Companies like PayPal has increased the security of online payments. This also made the transaction process easier, and it is one of the major factors for the growth of e-commerce.

How To Invest in E-Commerce?

There are many ways to invest in e-commerce, but we are going to focus on the following:

E-commerce stock investment

You can invest in any model of e-commerce through stock investment. It means that you can buy shares of a particular company that you think has the potential to grow in the future. In this way, you will be making a profit from the company as the company grows. You will also become a shareholder or partner of the company after you invest in one. You can explore all the most relevant e-commerce stocks via eToro e-commerce stocks breakdown 

E-commerce Pre-IPO: e-commerce startups

Pre- IPO (Initial Public Offering) is investing in a company by  units of stocks. The companies offer this selling of the stocks before the stocks are made public. Because you will be buying huge blocks of stocks, it means more risk is involved in this. That’s why companies offer a discount for the buyers in Pre-IPO placement.

You can Invest through trusted online pre-platforms such as Equitybee, Sharespost, Raison.ai and EquityZen

If you want to learn more about IPO investment, you read more about it in our IPO Guide.

Investing in pre IPO companies is risky yet beneficial. If you choose wisely and make the right investment, you can make huge money through pre IPO investment.

Ecommerce Copyportfolio Investment: e-commerce funds

Interested in CopyPorfolios?

67% of retail CFD accounts lose money

Copyportfolio is one of the premium services by eToro. This is an advanced version of copy trading. The Shopping Cart Copyportfolio by eToro is specifically designed for investing in e-commerce. The main aim of this is to reduce the risk and benefit the current market. The Copyportfolio is rebalanced every quarter to adapt to the best investing strategies. Each instrument in Copyportfolio is counted as a single trader, and each trade depends on the percentage of funds you have. It is similar to copying another trader. 

The minimum investment starts from $2000, invest in eToro ecommerce funds today.

ecommerce investment

E-commerce investment Returns

By the end of 2020, investing in eToro Shopping Cart generated a gain of 138.68%. This is an impressive number, when compared to an average gain of 55% between 2017-2020. 

 This number is expected to be increased in 2021 according to analysis.

Summary

E-commerce investment is a growing business globally. Since the introduction of the internet, e-commerce is growing gradually. This is one of the best industries to invest in. As technology is improving day-by-day, e-commerce is also improving with the technologies. The industry also generated huge profits in previous years, and potentially, it will generate more in the future. There are several models in e-commerce businesses; each has its pros and cons. You can invest in this industry through several ways, especially Stock Investment, Pre-IPO placement, and Copyportfolio investment.

You can also check out our e-commerce platforms complete guide

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Cryptostec
DISCLAIMER The information contained on this website is provided for informational purposes only and is not intended to substitute for professional financial, legal or tax advice. You should consult a professional before acting on any information you find here. This website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. Any references to third party products, rates, or websites are subject to change without notice. Please do the appropriate research before participating in any third party offers. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage © Copyright 2021 Cryptostec