Online stores - how do they work?

E-commerce product sales totaled $146.4 billion in the United States in 2006, representing about 6% of retail product sales in the country. The $18.3 billion worth of clothes sold online represented about 10% of the domestic market. Online shops represent more than 70% of the total e-commerce yearly.

For developing countries and low-income households in developed countries, adoption of e-commerce in place of or in addition to conventional methods is limited by a lack of affordable Internet access.

Online shopping is the process consumers go through to purchase products or services over the Internet. An online shop, e-shop, e-store, Internet shop, webshop, online store, or virtual store evokes the physical analogy of buying products or services at a bricks-and-mortar retailer or in a shopping mall. The metaphor of an online catalog is also used, by analogy with mail order catalogs.

All types of stores have retail web sites, including those that do and do not also have physical storefronts and paper catalogs. Online shopping is a type of electronic commerce used for business-to-business (B2B) and business-to-consumer (B2C) transactions. The term "Webshop" also refers to a place of business where web development, web hosting and other types of web related activities take place (Web refers to the World Wide Web and "shop" has a colloquial meaning used to describe a place of business, the place where one's occupation is carried out).

Payment 

Online shoppers commonly use their credit card for making payments, however some systems enable users to create accounts and pay by alternative means, such as:

* Debit card
* Various types of electronic money
* Cash on delivery (C.O.D., offered by very few online stores)
* Cheque
* Wire transfer/delivery on payment
* Postal money order
* PayPal
* Google Checkout
* Moneybookers
* Reverse SMS billing to mobile phones
* Gift cards
* Direct Debit in some countries

Some sites will not allow international credit cards and billing address and shipping address have to be in the same country in which site does its business. Other sites allow customers from anywhere to send gifts anywhere. The financial part of a transaction might be processed in real time (for example, letting the consumer know their credit card was declined before they log off), or might be done later as part of the fulfillment process.

While credit cards are currently the most popular means of paying for online goods and services, alternative online payments will account for 26% of e-commerce volume by 2009 according to Celent.

Product delivery 

Once a payment has been accepted the goods or services can be delivered in the following ways.

* Download: This is the method often used for digital media products such as software, music, movies, or images.
* Shipping: The product is shipped to the customer's address.
* Drop shipping: The order is passed to the manufacturer or third-party distributor, who ships the item directly to the consumer, bypassing the retailer's physical location to save time, money, and space.
* In-store pickup: The customer orders online, finds a local store using locator software and picks the product up at the closest store. This is the method often used in the bricks and clicks business model.

Shopping cart systems

Shopping cart systems

* Simple systems allow the offline administration of products and categories. The shop is then generated as HTML files and graphics that can be uploaded to a webspace. These systems do not use an online database.
* A high end solution can be bought or rented as a standalone program or as an addition to an Enterprise resource planning program. It is usually installed on the company's own webserver and may integrate very well into the existing supply chain so that ordering, payment, delivery, accounting and warehousing can be automated to a large extent.
* Other solutions allow the user to register and create an online shop on a portal that hosts multiple shops at the same time.
* open source shopping cart packages include osCommerce, Magento and Zen Cart. Virtuemart is a shopping extension for the extremely popular CMS Joomla.
* Commercial systems can also be tailored to ones needs so that the shop does not have to be created from scratch. By using a framework already existing, software modules for different functionalities required by a webshop can be adapted and combined.

Fraud and security

Given the lack of ability to inspect merchandise before purchase, consumers are at higher risk of fraud on the part of the merchant than in a physical store. Merchants also risk fraudulent purchases using stolen credit cards or fraudulent repudiation of the online purchase. With a warehouse instead of a retail storefront, merchants face less risk from physical theft.

Secure Sockets Layer (SSL) encryption has generally solved the problem of credit card numbers being intercepted in transit between the consumer and the merchant. Identity theft is still a concern for consumers when hackers break into a merchant's web site and steal names, addresses and credit card numbers. A number of high-profile break-ins in the 2000s has prompted some U.S. states to require disclosure to consumers when this happens. Computer security has thus become a major concern for merchants and e-commerce service providers, who deploy countermeasures such as firewalls and anti-virus software to protect their networks.

Phishing is another danger, where consumers are fooled into thinking they are dealing with a reputable retailer, when they have actually been manipulated into feeding private information to a system operated by a malicious party. On the other hand, dealing with an automated system instead of a population of store clerks reduces the risk of employees stealing consumer information, or dumpster diving of paper receipts. Denial of service attacks are a minor risk for merchants, as are server and network outages.

Quality seals can be placed on the Shop webpage if it has undergone an independent assessment and meets all requirements of the company issuing the seal. The purpose of these seals is to increase the confidence of the online shoppers; the existence of many different seals, or seals unfamiliar to consumers, may foil this effort to a certain extent.

A number of resources offer advice on how consumers can protect themselves when using online retailer services. These include:

* Sticking with known stores, or attempting to find independent consumer reviews of their experiences; also ensuring that there is comprehensive contact information on the website before using the service, and noting if the retailer has enrolled in industry oversight programs such as trustmark or trust seal.

* Ensuring that the retailer has an acceptable privacy policy posted. For example note if the retailer does not explicitly state that it will not share private information with others without consent.

* Ensuring that the vendor address is protected with SSL (see above) when entering credit card information. If it does the address on the credit card information entry screen will start with "HTTPS".

* Using strong passwords, without personal information. Another option is a "pass phrase," which might be something along the lines: "I shop 4 good a buy!!" These are difficult to hack, and provides a variety of upper, lower, and special characters and could be site specific and easy to remember.