The History of E-commerce


E-commerce has grown; it's estimated that 72 million users shopped online on "CyberMonday," on November 26, 2007.
E-commerce has grown; it's estimated that 72 million users shopped online on "CyberMonday," on November 26, 2007.
© Robyn Beck/AFP/Getty Images

Over the past 12 years, the Internet has changed the way we buy and sell goods and services. Do you remember buying airline tickets before the Internet? Can you imagine buying a new computer or car without doing hours of Web research? And Christmas shopping? You actually had to step foot in the mall…ugh.

By definition, e-commerce means the buying or selling of goods and services over the Internet. According to the Pew Internet & American Life Project, 66 percent of the adults online have purchased something over the Internet, whether it's books, shoes or a Caribbean cruise.

But if you extend e-commerce's definition to include researching products and services online without buying anything, or bidding on an online auction but not winning, then the number of adults who participate in e-commerce jumps to 93 percent [source: Pew Internet & American Life Project]. That's just about all of us.

Even with a slumping global economy, online retail sales continue to rise. According to recent forecasts by Forrester Research, online retail sales will increase 17 percent in 2008 to reach an annual total of $204 billion, with the biggest sellers being clothing, computers and cars [source: InformationWeek].

E-commerce's history is short but fascinating. Over the course of a few decades, networking and computing technology have improved at exponential rates. Powerful personal computers linked to global information networks have powered a whole new world of intellectual, social and financial interactions. And this is only the beginning.

How did e-commerce get started? What were the first companies to really capitalize on the selling power of the Web? Read on to find out.

How E-commerce Started

Organizations like the National Retail Federation offer users help with online shopping.
Organizations like the National Retail Federation offer users help with online shopping.
© Brendan Smialowski/Getty Images

As far back as the 1960s, businesses were using primitive computer networks to conduct electronic transactions [source: 123EDI]. Using something called Electronic Data Interchange (EDI), a company's computer system could share business documents -- invoices, order forms, shipping confirmation -- with another company's computer. In the beginning, each company had its own standards for formatting these documents. But in 1979, the American National Standards Institute (ANSI) came up with something called ASC X12, a universal standard for sharing business documents over electronic networks.

Prior to that, in the late 1960s, the military developed ARPAnet to ensure that crucial communications were circulated in the event of a nuclear attack. The original ARPAnet connected four large U.S. research universities and relied on huge, unwieldy computers. In 1971, researchers developed the Terminal Interface Processor (TIP) for dialing into the ARPAnet from an individual computer terminal [source: ARPAnet]. But the greatest networking evolution came in 1982, when ARPAnet switched over to Transmission Control Protocol and Internet Protocol (TCP/IP), the same packet-switched technology that powers the modern Internet.

By the early 1980s, individual computer users -- still mostly at major research universities -- were sending e-mails, participating in listservs and newsgroups, and sharing documents over networks like BITNET and USENET.

CompuServe was one of the first popular networking services for home PC users, providing tools like e-mail, message boards and chat rooms. In the mid-1980s, Compuserve added a service called the Electronic Mall, where users could purchase items directly from 110 online merchants [source: SmartComputing]. While the Electronic Mall wasn't a huge success, it was one of the first examples of e-commerce as we know it today.

In 1990, a researcher named Tim Berners-Lee at the European Organization for Nuclear Research (CERN, from its French name) proposed a hypertext-based web of information that a user could navigate using a simple interface called a browser. He called it the "WorldWideWeb" [source: NetValley]. And in 1991, the National Science Foundation lifted a ban on commercial businesses operating over the Internet, paving the way for Web-based e-commerce.

In 1993, Marc Andreesen at the National Center for Supercomputing Applications (NCSA) introduced the first widely distributed Web browser called Mosaic. Netscape 1.0's release in 1994 included an important security protocol called Secure Socket Layer (SSL) that encrypted messages on both the sending and receiving side of an online transaction. SSL ensured that personal information like names, addresses and credit card numbers could be encrypted as they passed over the Internet.

In 1994 and 1995, the first third-party services for processing online credit card sales began to appear [source: Keith Lamond]. First Virtual and CyberCash were two of the most popular. Also in 1995, a company called Verisign began developing digital IDs, or certificates, that verified the identity of online businesses. Soon, Verisign switched its focus to certifying that a Web site's e-commerce servers were properly encrypted and secure.

Now let's take a closer look at the two companies that transformed e-commerce in the mid-1990s: Amazon and eBay.

The Founding Fathers of E-commerce

Amazon provided one of the first full-scale e-commerce business models.
Amazon provided one of the first full-scale e-commerce business models.
© Justin Sullivan/Getty Images

In July 1995, Jeff Bezos boxed up the first book ever sold on Amazon.com from his Seattle garage [source: Amazon.com]. Within its first 30 days of business, the self-proclaimed "Earth's largest bookstore" sold books to online shoppers in all 50 U.S. states and 45 countries [source: Amazon.com].

With Amazon, Bezos tapped into a powerful new e-commerce market. Books, he had realized, were cheap to ship and easy to order directly from publishers. Publishers had already created vast digital archives of their titles on CD-ROM, something that could be uploaded to a Web site [source: Time].

Amazon.com set the standard for a customer-oriented e-commerce Web site. Users could search available titles by keyword, author or subject. They could browse books by category and even get personalized recommendations. They could also purchase books quickly and securely with the patented "one-click" checkout system.

But the most popular Amazon.com feature has always been the reader review option [source: E-commerce Land]. On Amazon, any registered member can write and publish a book review. And other users can rank each review, creating a hierarchy of top Amazon reviewers. Amazon's online community feel -- in addition to the steep discounts on many books -- has contributed to the site's popularity.

Amazon went public in 1997, and as the dot-com boom reached its pinnacle in 1999, Bezos was named Time's "Person of the Year." Amazon has expanded its offerings beyond books. It currently offers music, movies, electronics, toys, home and garden equipment, clothing, jewelry, video games and digital downloads. Amazon runs seven different international Web sites, has distribution and customer service centers in seven countries and employs more than 17,000 people worldwide. Yet despite its growth, Amazon hasn't always been a financial powerhouse: It didn't post its first quarterly profit until 2001 and its first annual profit until 2004 [source: Seattlepi.com]. But in the first quarter of 2008, Amazon announced a profit increase of 33 percent over last year, an impressive achievement in tough economic times [source: Associated Press].

Back in 1995, when Bezos was shipping books from his garage, Pierre Omidyar, a software programmer, started coding a simple Web site he called AuctionWeb. Omidyar was curious if people would use the Internet to bid on each other's used items. Looking around for something to sell, Omidyar picked up a broken laser pointer. Within a day, it had sold for $14.83 [source: eBay]. Omidyar e-mailed the buyer to make sure the guy knew it was broken. The buyer's response? "I'm a collector of broken laser pointers" [source: eBay]. Welcome to eBay.

eBay leveled the e-commerce playing field. You didn't have to be a Web entrepreneur or an existing business to sell things online. All you had to do was raid your attic, post a listing, and there was a good chance that someone, somewhere, would pay money for your old junk. In 1996, with two full-time employees, eBay sold $7.2 million worth of goods. By 1997, with the help of a Beanie Babies frenzy, eBay sold $95 million in goods. In 2007, eBay sold $52.5 billion in auctions, had more than 220 million registered users and 13,000 employees [source: eBay].

Both eBay and Amazon paved the way for today's e-commerce merchant. Consumers can buy almost anything online, including shoes, home goods and even a real shark's tooth. Just type "unusual items for sale" in a search engine, and see what comes up.

For lots more information about e-commerce and related topics, check out the links on the next page.

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