# E-commerce: how the industry works Canonical: https://industrywiki.org/industry/ecommerce/ Published: 2026-10-26 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 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. ## classification ## segments ### name Inventory-owning retail ### description The merchant buys or produces merchandise and sells it to the customer, carrying inventory and pricing risk. ### name Marketplace ### description Independent sellers transact through a platform. The platform may earn commissions, advertising or fulfillment fees without owning each product. ### name Direct-to-consumer brands ### description A brand controls its storefront and customer relationship but must acquire demand and organize delivery itself or through partners. ## flow ### name Attract and inform ### description Search, referrals, advertising and repeat visits bring shoppers to an offer. Product information must make condition, price and delivery expectations clear. ### name Convert and authorize ### description Checkout collects a usable order and payment authorization while screening for fraud. An order is a demand signal, not yet a successfully delivered sale. ### name Fulfill and deliver ### description Inventory is allocated, picked, packed and handed to a carrier. Promising fast delivery is useful only if stock location and operating capacity support it. ### name Resolve and retain ### description Customer support handles delivery failures, returns and refunds. Returned merchandise must be inspected before resale, repair, liquidation or disposal. ## economics ### revenue 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. ### payers Shoppers pay merchants; sellers and advertisers may also pay a marketplace for access, services and visibility. ### costs #### name Product and fulfillment #### explanation Merchandise, picking, packaging and delivery determine how much product margin survives to pay other costs. #### name Customer acquisition #### explanation Advertising and promotional expense buy visits or customers, but repeat purchase and organic demand determine whether acquisition spending can be recovered. #### name Payment and exceptions #### explanation Payment fees, fraud, support, refunds and return processing can make a completed order less valuable than its headline price. ### capital Retailers may finance inventory and warehouses. A platform can avoid merchandise ownership yet still require large investment in software, trust systems or fulfillment infrastructure. ### working Capital 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. ### 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. ## operations ### activities - Manage catalog and availability - Coordinate fulfillment promises - Detect fraud and resolve refunds ### assets - Storefront and product data - Inventory and fulfillment access - Customer and seller relationships ### roles - Merchandising and growth teams - Fulfillment and support operators - Payments, trust and engineering teams ### records - Orders, shipments and payments - Returns and refund reasons - Seller verification and consent records ### software - Commerce and order management systems - Payment and fraud services - Analytics, customer support and warehouse integrations ### metrics #### name Contribution per order #### definition Net order revenue less explicitly defined variable product, fulfillment, payment, return and acquisition costs. #### why Shows whether additional orders help pay fixed costs; the included costs must be stated. #### name Repeat purchase rate #### definition The share of a defined customer cohort purchasing again within a stated period. #### why Tests retention without confusing older and newer customers. #### name Return rate #### definition Returned units or orders divided by eligible shipped units or orders over a suitable observation period. #### why Late returns can make recent sales appear more profitable than mature cohorts. ## structure - 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. ## risks ### risk Unprofitable acquisition ### mechanism Advertising prices or conversion rates can move before inventory commitments unwind, leaving expensive stock and inadequate customer contribution. ### risk Returns and fraud ### mechanism A booked sale can reverse while shipping and handling costs remain. Chargebacks and counterfeit goods can also damage trust. ### risk Platform and compliance dependence ### mechanism 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. ## dependencies ### upstream #### slug warehousing #### label Warehousing #### relationship Fulfillment operators store, pick and pack merchandise. #### slug payments #### label Payments #### relationship Payment providers authorize, settle and dispute transactions. #### slug trucking #### label Trucking #### relationship Merchants buy delivery capacity to move parcels and replenish fulfillment locations. ### downstream ### substitutes #### label Physical stores #### relationship Immediate product inspection and collection can replace remote ordering for some purchases. ## worked Example ### title From basket revenue to order contribution ### 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. ### takeaway 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. ## scenario ### change A store offers free delivery without increasing its basket size. ### effects - 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. ### watch - Contribution by basket size - Conversion by customer cohort - Repeat purchases after promotion ## misconceptions ### claim Marketplace transaction value is the platform’s revenue. ### correction A platform acting as an intermediary usually earns its contracted fees; accounting depends on whether it controls the goods or service. ## sources ### id ons-ecommerce ### title E-commerce and ICT activity QMI ### organization Office for National Statistics ### url https://www.ons.gov.uk/businessindustryandtrade/itandinternetindustry/methodologies/ecommerceandictactivityqmi ### supports E-commerce is defined around electronic ordering; payment and delivery need not occur online. ### id amazon-2025 ### title Amazon.com, Inc. 2025 Form 10-K ### organization Amazon.com ### url https://www.sec.gov/Archives/edgar/data/1018724/000101872426000004/amzn-20251231.htm ### supports Company example distinguishing product sales, third-party seller services and fulfillment activities. ### id ftc-inform ### title Informing Businesses about the INFORM Consumers Act ### organization Federal Trade Commission ### url https://www.ftc.gov/business-guidance/resources/INFORMAct ### supports U.S. marketplace duties concerning covered high-volume third-party sellers, verification and disclosure. ## evidence ### scope - ons-ecommerce ### flow - amazon-2025 ### economics - amazon-2025 ### operations - amazon-2025 - ftc-inform ### structure - amazon-2025 ### risks - amazon-2025 - ftc-inform ## related Concepts - unit-economics - network-effects - working-capital ## editorial Note 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. ## companies ### selection Note 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. ### verified On 2026-10-26 ### entries #### name Alibaba Group #### kind Group #### segment Consumer and business marketplaces #### description Operates commerce platforms including Taobao, Tmall, AliExpress and Alibaba.com, connecting merchants with consumer and business buyers across domestic and international online markets. #### url https://www.alibabagroup.com/en-US/document-1796329702713982976 #### name Amazon #### kind Company #### segment Online retail and seller services #### description Combines its own retail sales with a marketplace for independent sellers, adding fulfillment services that can handle inventory storage, distribution and delivery for merchants. #### url https://cdn-sellingpartners.aboutamazon.com/7f/a0/7c0de2dc48c1b769d9a8eddf7396/small-business-empowerment-report-2024.pdf #### name Coupang #### kind Company #### segment Integrated commerce and delivery #### description Connects online shopping with its own fulfillment and delivery infrastructure, making logistics execution and customer delivery promises central parts of the commerce offering. #### url https://www.aboutcoupang.com/aboutus/ #### name eBay #### kind Company #### segment Third-party online marketplace #### description 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. #### url https://www.ebayinc.com/company/ebay-sellers/ #### name Etsy #### kind Company #### segment Creative-goods marketplace #### description 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. #### url https://investors.etsy.com/company-information #### name JD.com #### kind Company #### segment Retail and supply-chain services #### description 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. #### url https://ir.jd.com/about-JD #### name Mercado Libre #### kind Company #### segment Latin American commerce ecosystem #### description Connects marketplace commerce with payments, logistics and advertising services across Latin America, bringing several stages of an online transaction into one operating ecosystem. #### url https://investor.mercadolibre.com/about-meli #### name PDD Holdings #### kind Group #### segment Domestic and international marketplaces #### description Operates commerce platforms including Pinduoduo and Temu, connecting consumers with merchants and manufacturers through distinct domestic and international shopping services within the group. #### url https://investor.pddholdings.com/static-files/e15edea4-5e6d-4740-808a-63a3dd1b2ce4 #### name Rakuten Group #### kind Group #### segment Merchant marketplace and related services #### description Operates Rakuten Ichiba and related commerce services, providing merchants with an online sales channel supported by additional distribution, fulfillment and wider group capabilities. #### url https://global.rakuten.com/corp/careers/organizations/ #### name Wayfair #### kind Company #### segment Home furnishings retail #### description Sells furniture and other home products through specialized retail brands and shopping channels, focusing its assortment and customer experience on furnishing and improving homes. #### url https://www.aboutwayfair.com/who-we-are Examples are illustrative, not benchmarks. Editorial method: https://industrywiki.org/methodology/