Excerpt from my book, Make Passive Income
A discussion about passive income and making money online invites a more in-depth conversation about online marketplaces. An online marketplace is a type of e-commerce site where multiple third parties provide products and services with transactions processed by the market operator. Marketplaces offer a wide selection, product and service availability is high, and prices are more competitive compared to standalone sites. Frequently visited online marketplaces include:
- Apple App Store
- Creative Market
There are many advantages and disadvantages to using marketplaces which we can review.
Advantages for Sellers (You and I)
- Marketplaces offer plenty of traffic and customers, so they are perfect for making money fast.
- They spend millions on brand awareness and marketing.
- They provide a template or layout which sellers simply need to populate.
- They host your profile, products, services, and more.
- They take care of processing, financial transactions, and fulfillment.
- They are an excellent and quick way to expand your online footprint and profile.
- Leads and additional sales may occur through having a marketplace presence. For example, a customer finds you on Amazon then navigates to your personal site.
- It can be inexpensive or less expensive to operate a business in a marketplace compared to a standalone site.
- They take care of technical and web development activities.
Disadvantages for Sellers
- You must play by their rules and guidelines which can constrain your activities.
- It is 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 (50-50 chance).
- A significant change in their business model or shift in focus can significantly hurt your revenues.
- Marketplaces tend to give preferential marketing and promotional treatment 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. This may not align with your revenue and profit goals.
- You typically must split/share revenues with them.
- A lack of transparency regarding internal marketplace 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 meaning marketplaces and customers benefit from transactions long before you do.
- You do not gain access to customer data—for example, email addresses—even if you are responsible for bringing those customers to the marketplace (customer data drives a business forward).
- Sales reporting can be inadequate not giving you a line of sight to the information you need for effective analysis and decision-making.
- With so many rules, constraints, and revenue sharing, it can feel like you are working for the marketplace thus not working for yourself.
- Search engine optimization parameters may be limited which could result in fewer opportunities to influence your visibility and rankings.
- You are a tenant on their domain.
As you can see, the disadvantages of using marketplaces far outweigh the benefits. However, if generating income quickly is a top priority, or you are new to working online, then marketplaces can be very beneficial especially in the short term. For example, selling on Amazon has proved to be very financially rewarding in my case. Over the long-term, however, putting yourself, brand, and assets first before marketplaces and social media networks are the way to build a successful online presence and business. For instance, prioritizing your blog or e-commerce site in line with or over a marketplace.
The most successful passive income earners do not focus excessively on taking the easy, lazy, and convenient marketplace approach. Rather, they work hard to build their brands one project and product at a time. Many are reaping the rewards far greater than most marketplace-only sellers. Furthermore, they experience greater decision-making control and work freedom.
Ultimately it does not have to be an either-or decision. You can leverage marketplaces while developing your online platform inviting a holistic approach. Just make sure you do not let marketplaces get the better of you—but the opposite—so that you do not end up a marketplace puppet or bitch. Realizing sales is a wonderful feeling, but you need to remain steadfast with a goal to generate sufficient passive income independent of marketplaces.