Online Marketplaces: Advantages and Disadvantages

 

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A discussion about making money online invites a more in-depth conversation about online marketplaces for e-commerce and freelancing. An online marketplace is a type of e-commerce site where third parties provide products and services. The market operator is responsible for backend and frontend systems, UI/UX, processing transactions, and more. It might also engage in marketing activities to grow its platform, for example, offering an affiliate program. Alternatively, many online entrepreneurs operate independently of marketplaces. For instance, Malik runs an online store with software from Shopify whereas Holly uses WordPress to sell her freelance services. Examples of online marketplaces include:

  • 99Designs
  • Alibaba
  • AliExpress
  • Amazon
  • Apple App Store
  • Creative Market
  • eBay
  • Etsy
  • Envato
  • Fiverr
  • Google Play Store
  • iStock
  • Teespring
  • Udemy
  • Upwork
  • Zazzle

Let’s review the advantages and disadvantages of online marketplaces.

Advantages for Sellers
  • Popular marketplaces attract high traffic and millions of customers, so they offer high earnings potential.
  • They take care of the backend, systems, security, and web development activities.
  • They spend millions on brand awareness and marketing.
  • They provide storefronts, landing pages, templates, and layouts, which sellers simply need to populate.
  • They host your profile, products, services, and more.
  • They process purchases, billing, financial transactions, and returns.
  • They provide seller dashboards, analytics, and reporting.
  • They’re an excellent and quick way to expand your online footprint and profile.
  • Leads and additional sales may occur by having a marketplace presence. For example, a customer finds you on Amazon then navigates to your site.
  • It can be inexpensive or less expensive to operate a business on a marketplace than independently.
Disadvantages for Sellers
  • You must abide by their rules and guidelines, which can constrain your activities.
  • It’s you against the marketplace since rules often change to benefit their bottom line, not yours.
  • If their business goes down, you go down with it, so you must hope competent management is in place (a fifty-fifty chance).
  • A significant change in their business model or shift in focus can significantly hurt your revenues.
  • Marketplaces often give preferential marketing and support to their best-selling partners, which can leave you to fend for yourself while still having to share revenue.
  • Seller support is usually dismal if you are not a top provider.
  • Marketplaces may set a pricing range for your products/services, which may not align with your revenue and profit goals.
  • You typically must split/share revenues with them.
  • The lack of transparency regarding internal corporate activities means you must hope/trust everything is working as it should.
  • They can terminate your partnership for any number of reasons leaving you with little recourse.
  • Your profits/payments are usually delayed anywhere from weeks to months while marketplaces and customers benefit from transactions long before you do.
  • You do not gain access to customer data—for example, e-mail addresses—even if you are responsible for bringing those customers to the marketplace (customer data and analytics drive a business forward).
  • Sales reporting can be inadequate and lack the information you need for effective analysis and decision-making.
  • With so many rules and constraints, it can feel like you are working for the marketplace and not working for yourself.
  • Search engine optimization (SEO) parameters may be limited, which could result in fewer opportunities to influence your visibility and rankings.
  • You’re a tenant on their domains.

Analysis

As you can see, the disadvantages of using a marketplace far outweigh the benefits. Also, if you must share more than 50 percent of your revenues with the operator, it won’t work in your favor and will produce a win-lose scenario. However, if generating income fast is a top priority or you’re new to working online, then marketplaces can be very beneficial. Over the long-term, however, putting yourself, brand, and assets first before marketplaces and social media networks is the way to build a thriving online business and presence. I prioritize my blog over the likes of Amazon, YouTube, and social media sites. I focus on, and develop, my virtual real estate before anyone else’s.

Final Word

The most successful online workers do not focus exclusively on marketplaces. Rather, they work hard to build their brands one project and product at a time. That group is attracting rewards far greater than most marketplace-only sellers. Furthermore, they experience greater control, anonymity, freedom, and expression.

Ultimately, it doesn’t have to be an either-or decision. You can leverage marketplaces while developing your online platform for a holistic approach. Secondly, ensure you don’t let marketplaces get the better of you—but the opposite—so that you can achieve your revenue, profit, and financial goals. Making sales is a wonderful feeling, but you need to remain steadfast in generating sufficient income independently. I personally do not focus on marketplaces because of the lack of transparency, favoritism, and backroom deals that take place. I haven’t ruled them out completely, but I would temper my expectations when using them.

 

Chad Tennant

Chad is an online marketer, consultant, and publisher. He helps businesses and individuals achieve growth and financial success. Learn more at digitalfodder.com/about

 
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