The explosive growth of online businesses over the past decade has been nothing short of exponential. In just 10 years we’ve seen Amazon go from a small bookseller to one of the world’s largest retailers, while eBay has morphed into a multi-billion dollar marketplace. Then there are companies like Airbnb and Uber who have disrupted traditional industries by harnessing technology in new and innovative ways.
What exactly is driving the growth of online business?
A lot has changed in the past 10 years. Social media platforms have become powerful selling channels. Mobile commerce is now mainstream. And new technologies have made it easier than ever for entrepreneurs to start their own online businesses.
One of the biggest changes we’ve seen is the rise of dropshipping as a popular online business model. Dropshipping allows entrepreneurs to start their own online stores without any inventory risk or up-front investment.
In this article, we’ll share how distinct dropshipping vs ecommerce business models are, and which model might be the best match for your business. So let's get started.
What is ecommerce, and how does it work?
E-commerce, also known as electronic commerce or online shopping, is the process of buying and selling goods and services over the internet. The most common types of e-commerce transactions are -
- B2C (business to consumer), where a business sells products or services to an individual consumer, and
- B2B (business to business), where a business sells products or services to another business.
E-commerce has revolutionized the way we do business. It has made it easier for businesses to reach new markets and for customers to find the products they want. It has also made it easier for businesses to track sales and stock levels, and to manage their finances.
E-commerce businesses operate through an online storefront, which is a digital equivalent of a brick-and-mortar store. At the heart of it, your e-commerce website is the most important element that drives the performance of your business. This online storefront allows visitors to browse and purchase products or services while offering a seamless navigation experience.
A typical online storefront will have a site search feature that allows customers to find what they're looking for quickly and easily. E-commerce search engines allow users to search for products by keyword, category, or price range. They also provide filters to narrow down results and find the perfect product. Other common features of online storefronts include shopping carts, customer accounts, order histories, and wish lists.
What is dropshipping, and how does it work?
Dropshipping is a type of ecommerce business model in which online retailers sell products without having to carry any inventory. When a store owner receives an order from a customer, they simply contact the supplier, who will then ship the products directly to the customer’s door.
For stores that are just starting out, dropshipping is often the best option as it requires no inventory and allows you to test different products before committing to carrying them in your store. Even if you already have an established business, dropshipping can be a great way to add new products to your lineup without having to carry any additional inventory.
Here's how a typical dropshipping model operates -
- You own an e-commerce store and display products on the store front (without owning the inventory).
- You get a new order.
- You place a duplicate order with the dropshipper.
- The dropshippers pack, ship, and deliver the product to your customer's doorstep.
Dropshipping is different from third-party logistics (3PL) in that with 3PL, the seller owns the inventory while outsourcing the warehousing to a third party. On the other hand, dropshipping frees retailers from the burden of keeping inventory in the first place.
Products such as apparel, tools, car accessories, or impulse buys sell really well through the dropshipping model. Companies such as Amazon and Alibaba offer sophisticated and reliable ways for sellers to leverage dropshipping. Amazon has its FBA Service which allows sellers to only focus on their e-commerce marketing strategy, while letting Amazon take care of the entire fulfillment process.
Difference between Ecommerce and Dropshipping
When it comes to differentiating between e-commerce and dropshipping, a few things stand out. First things first, dropshipping is not an alternative for e-commerce. It is actually a type of e-commerce business model. Some dimensions along which ecommerce and dropshipping differ:
With the traditional e-commerce model, the seller owns and stores the inventory in either their own warehouse or through 3PL services. Either way, the costs and capital expenditure is much higher as compared to dropshipping. With no inventory to take care of, the dropshipping model allows sellers to sell quickly and focus on marketing and customer experience.
Taking care of the inventory, packaging, shipping, and delivery processes involves the work of multiple employees to ensure a streamlined e-commerce experience. With dropshipping, retailers don’t have to deal with these additional labor and transportation costs that the traditional e-commerce model requires.
Initial investment and risk
Dropshipping requires very little upfront investment. The biggest cost associated with dropshipping is usually the cost of acquiring customers through advertising. Additionally, running an e-commerce business in the traditional sense means there is always the risk that you will not be able to sell your inventory. And will therefore be stuck with unsold merchandise. This is not a concern with dropshipping since you only order products from your supplier after a customer has placed an order with you.
International shipping and services
When it comes to international shipping, ecommerce platforms typically offer a more comprehensive range of options and services than dropshippers. This is because ecommerce companies are focused on delivering goods to customers all over the world, whereas dropshippers generally only ship within their home country.
Further, ecommerce platforms tend to offer a wider range of value-added services than dropshippers. These can include things like product personalization, gift wrapping, and even concierge services. This is because ecommerce companies are focused on providing a complete shopping experience for their customers, rather than just fulfilling orders.
Product Quality Control
With ecommerce businesses, product quality control is typically done in-house. This means that the business owner or team has direct control over the quality of the products being sold. They can ensure that products are made to a high standard and meet all customer expectations.
Dropshipping businesses, on the other hand, often outsource production to third-party manufacturers. This can make it more difficult to control the quality of the products being sold. Dropshippers may have to rely on the manufacturer to provide quality products that meet customer expectations.
Dropshipping businesses generally have thinner profit margins as they rely on third-party suppliers. The manufacturers or wholesalers take a cut of the profits, which means less control on the pricing and profits.
Customer care and after sales service
E-commerce businesses typically have a dedicated customer service team that can provide around-the-clock support to shoppers. Dropshipping businesses, on the other hand, typically rely on their suppliers to handle customer service inquiries. This can make it more difficult to get timely responses to questions or problems. Dropshippers also often fall short on offering returns and other after sales services.
Dropshipping vs Ecommerce: Which Business Model Is Right for You?
There are many things to consider when choosing between ecommerce and dropshipping as your business model. If you are selling physical goods, you will need to factor in the cost of inventory, warehousing, and shipping. Dropshipping can be a great way to reduce these costs, but you will need to carefully consider the other aspects of your business to make sure it is the right fit.
If you’re just starting out, dropshipping can be a great way to test the waters without investing too much money upfront. You can also use dropshipping to supplement your existing ecommerce business. However, if you have the capital to invest in inventory and you’re looking for more control over your business, ecommerce may be the better option for you.
Both models also come with their own set of marketing challenges. Ecommerce businesses will need to invest in SEO and social media marketing to drive traffic to their website. Dropshipping businesses will need to focus on building relationships with suppliers and generating targeted traffic through Facebook ads or Google AdWords.
Whichever model you choose, it is absolutely essential to ensure that your website offers that most seamless product search and browsing experience to your visitors. E-commerce search engines play a pivotal role in meeting the modern customer’s online shopping needs, which is why more businesses are adopting advanced technologies that power their site search. Platforms such as Zevi are at the forefront of this AI-led e-commerce revolution. With Zevi, businesses can power their e-commerce site search with natural language search, advanced filters, synonym detection and typo tolerance, and a lot more.