E-commerce: how the industry works
E-commerce connects online demand to payment, delivery and returns. A merchant earns on products; a marketplace earns on transactions and services. Their revenue, inventory exposure and unit economics differ.
Scope and segments
Online retail of physical goods, including inventory-owning merchants and third-party marketplaces. E-commerce is a sales channel across industries, not a universally separate industry classification. Digital subscriptions and business procurement have related but distinct economics.
- Inventory-owning retail
- The merchant buys or produces merchandise and sells it to the customer, carrying inventory and pricing risk.
- Marketplace
- Independent sellers transact through a platform. The platform may earn commissions, advertising or fulfillment fees without owning each product.
- Direct-to-consumer brands
- A brand controls its storefront and customer relationship but must acquire demand and organize delivery itself or through partners.
Sources: [1]. See source scope below.
10 companies to know
Illustrative examples span inventory-owning retailers, third-party marketplaces and integrated commerce networks across several regions. This is not a ranking by revenue, transaction value or customer numbers.
Listed alphabetically. Names link to official sources. Checked . How we select examples.
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Operates commerce platforms including Taobao, Tmall, AliExpress and Alibaba.com, connecting merchants with consumer and business buyers across domestic and international online markets.
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Amazon
Online retail and seller services
Combines its own retail sales with a marketplace for independent sellers, adding fulfillment services that can handle inventory storage, distribution and delivery for merchants.
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Coupang
Integrated commerce and delivery
Connects online shopping with its own fulfillment and delivery infrastructure, making logistics execution and customer delivery promises central parts of the commerce offering.
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eBay
Third-party online marketplace
Connects independent sellers with buyers through an online marketplace, supporting listings, transactions and cross-border selling without being the retailer that owns every listed item.
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Etsy
Creative-goods marketplace
Runs a marketplace connecting creative entrepreneurs with buyers of original, personalized and other qualifying goods; shoppers generally purchase from the individual seller rather than Etsy.
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JD.com
Retail and supply-chain services
Combines e-commerce retail with logistics and supply-chain infrastructure, offering technology and operational capabilities to partners and brands alongside its own consumer shopping business.
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Mercado Libre
Latin American commerce ecosystem
Connects marketplace commerce with payments, logistics and advertising services across Latin America, bringing several stages of an online transaction into one operating ecosystem.
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Operates commerce platforms including Pinduoduo and Temu, connecting consumers with merchants and manufacturers through distinct domestic and international shopping services within the group.
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Operates Rakuten Ichiba and related commerce services, providing merchants with an online sales channel supported by additional distribution, fulfillment and wider group capabilities.
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Wayfair
Home furnishings retail
Sells furniture and other home products through specialized retail brands and shopping channels, focusing its assortment and customer experience on furnishing and improving homes.
How it works
Follow the main sequence. Actual operating models may combine or outsource individual stages.
- 1
Attract and inform
Search, referrals, advertising and repeat visits bring shoppers to an offer. Product information must make condition, price and delivery expectations clear.
- 2
Convert and authorize
Checkout collects a usable order and payment authorization while screening for fraud. An order is a demand signal, not yet a successfully delivered sale.
- 3
Fulfill and deliver
Inventory is allocated, picked, packed and handed to a carrier. Promising fast delivery is useful only if stock location and operating capacity support it.
- 4
Resolve and retain
Customer support handles delivery failures, returns and refunds. Returned merchandise must be inspected before resale, repair, liquidation or disposal.
Sources: [2]. See source scope below.
How money moves
- Revenue or funding unit
- For a merchant, a recognized product sale; for a marketplace, commissions and service fees under its contracts. Gross merchandise value is transaction volume, not automatically platform revenue.
- Who pays
- Shoppers pay merchants; sellers and advertisers may also pay a marketplace for access, services and visibility.
Main costs
- Product and fulfillment
- Merchandise, picking, packaging and delivery determine how much product margin survives to pay other costs.
- Customer acquisition
- Advertising and promotional expense buy visits or customers, but repeat purchase and organic demand determine whether acquisition spending can be recovered.
- Payment and exceptions
- Payment fees, fraud, support, refunds and return processing can make a completed order less valuable than its headline price.
Assets and investment
Retailers may finance inventory and warehouses. A platform can avoid merchandise ownership yet still require large investment in software, trust systems or fulfillment infrastructure.
The cash cycle
Customers may pay before suppliers are due, but inventory bought ahead of demand absorbs cash. Marketplace settlement obligations and customer refunds are not free cash available for unrelated spending.
The economic mechanism
Editorially, an order should be evaluated after the expected cost of returns and the acquisition channel that produced it. Revenue growth bought with discounts and expensive traffic can destroy contribution. Conversely, a repeat customer may require less acquisition spending, but that advantage must be measured rather than assumed.
Sources: [2]. See source scope below.
Inside the operation
Measures that matter
| Measure | What it measures | Why it matters |
|---|---|---|
| Contribution per order | Net order revenue less explicitly defined variable product, fulfillment, payment, return and acquisition costs. | Shows whether additional orders help pay fixed costs; the included costs must be stated. |
| Repeat purchase rate | The share of a defined customer cohort purchasing again within a stated period. | Tests retention without confusing older and newer customers. |
| Return rate | Returned units or orders divided by eligible shipped units or orders over a suitable observation period. | Late returns can make recent sales appear more profitable than mature cohorts. |
What shapes the industry
Online distribution removes some geographic constraints but creates new competition for attention and delivery convenience. Product differentiation, trusted information and reliable service can matter more than a polished checkout. A storefront alone does not supply demand.
Marketplaces can benefit when more relevant sellers attract buyers and more buyers attract sellers. That effect weakens if search becomes crowded, products disappoint or fraud undermines trust. Operators must balance seller participation, buyer experience and the fees used to fund the platform.
Sources: [2]. See source scope below.
Who it connects to
These relationships describe typical flows. They are not a list of every supplier or customer.
Buys from / depends on
- Warehousing
Fulfillment operators store, pick and pack merchandise.
- Payments
Payment providers authorize, settle and dispute transactions.
- Trucking
Merchants buy delivery capacity to move parcels and replenish fulfillment locations.
Supplies / serves
Substitutes and alternatives
- Physical stores
Immediate product inspection and collection can replace remote ordering for some purchases.
From basket revenue to order contribution
Illustrative calculation
The inputs below are hypothetical. They explain a mechanism and are not industry benchmarks or a forecast.
Assumptions
- Illustrative order has $80 net merchandise revenue after discounts, before tax.
- Assume product cost $40, outbound delivery $8, picking and packaging $5, payment cost $2, acquisition $10 and expected net return loss $5.
Calculation
- Defined variable costs total $40 + $8 + $5 + $2 + $10 + $5 = $70.
- Contribution = $80 − $70 = $10 per order.
- If acquisition rises to $18 with everything else unchanged, contribution falls to $2.
An order can remain revenue-positive while barely covering variable costs. This example excludes fixed staff, software, facilities and tax; the return allowance is an assumption, not an observed benchmark.
What changes when…
A store offers free delivery without increasing its basket size.
- More shoppers may complete checkout.
- Delivery cost previously recovered from customers moves onto the merchant.
- The policy pays only if additional contribution, repeat purchases or operating efficiencies outweigh that cost.
What to watch
- Contribution by basket size
- Conversion by customer cohort
- Repeat purchases after promotion
A qualitative scenario based on the operating model, not a quantitative prediction.
Risks and misconceptions
- Unprofitable acquisition
- Advertising prices or conversion rates can move before inventory commitments unwind, leaving expensive stock and inadequate customer contribution.
- Returns and fraud
- A booked sale can reverse while shipping and handling costs remain. Chargebacks and counterfeit goods can also damage trust.
- Platform and compliance dependence
- Search rankings, marketplace terms and payment access can change. In the U.S., the INFORM Consumers Act imposes specified duties on covered marketplaces and high-volume sellers.
Sources: [2] [3]. See source scope below.
Common misconceptions
- Marketplace transaction value is the platform’s revenue.
- A platform acting as an intermediary usually earns its contracted fees; accounting depends on whether it controls the goods or service.
Sources and scope
Primary references anchor the factual mechanisms below. Operating models, relationship choices, and worked examples are editorial synthesis. Linked sources do not constitute endorsement.
- E-commerce and ICT activity QMIOffice for National Statistics
E-commerce is defined around electronic ordering; payment and delivery need not occur online.
- Amazon.com, Inc. 2025 Form 10-KAmazon.com
Company example distinguishing product sales, third-party seller services and fulfillment activities.
- Informing Businesses about the INFORM Consumers ActFederal Trade Commission
U.S. marketplace duties concerning covered high-volume third-party sellers, verification and disclosure.
Unit economics and causal interpretation are editorial synthesis. The legal example is U.S.-specific; marketplace obligations and revenue recognition depend on jurisdiction and contract.
From understanding to operating
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Bring online orders into a shared fulfillment workflow, allocate available stock, manage backorders and split shipments, and route returns through controlled refund handoffs.
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Get the desktop agent, then return to the app page to continue setup.