The Pros and Cons of eCommerce Marketplace Selling

Online retailers have much to gain by selling through third-party marketplaces, but they can’t be overdependent on them.

Third-party marketplaces such as Amazon, Walmart, Google, and eBay allow outside retailers to boost their own eCommerce sales by taking advantage of the marketplace’s public brand recognition and marketing prowess. This is exceptionally valuable for small, independent retailers who could greatly benefit from having their brands marketed under the umbrella of Amazon, Walmart, et al. However, there are major caveats that should be known whenever one decides to start selling through outside channels.

Third-party marketplace(s) boost sales, increase customer bases, and are a crucial part of a powerful marketing strategy. But merchants must realize that going omni or multichannel should only be part of a larger marketing effort and not base their entire business model solely around them. Let’s now dig into the pros and cons of third-party eCommerce marketplaces and the key points of interests that are involved.

The Pros

#1: Improved SEO Ranks and Search Engine Visibility

There are currently almost 2 billion websites on the Internet today and any website without prior history on the Internet or optimal SEO ranks (namely, through Google) might as well be invisible. For new online businesses, piggybacking onto an established name such as Amazon will allow them access to a much more substantial pool of potential customers. The largest marketplaces on the Internet have prime SEO ranks within the first page, which is analogous to those companies with the largest advertising budgets and the most varied avenues for marketing. Independently, it is not impossible for a standalone business to achieve the same levels of public brand recognition as a major corporate entity–but not without years and years of constant investments towards advertising, marketing, and SEO maintenance, in addition to building trust with the public and solidifying your company’s reputation for the positive.

#2: Lowered Overhead

Just about any merchant can get involved with third-party marketplace selling, so long as they meet the requirements stated by the marketplace owner, learn how to post products onto their system, and agree to pay them for use of their services either by monthly fee or a commission based on sales percentages. In some cases, such as Amazon’s Fulfillment by Amazon (FBA) and other dropshipping services, a business can cut even more operating costs by letting the platform take care of essential operations like warehousing, inventory maintenance, distribution, and shipping. Marketplaces often use their own payment management systems, thus saving the merchant from having to take care of payment management and processing on their own.

#3: Customer Support

When selling through a third-party marketplace, the third-party also assumes the responsibility of after-purchase care for the customer. Quite often, small independent businesses may be understaffed and cannot adequately handle large volumes of customer inquiries whereas a major corporation would have a battalion of agents ready to handle customer service issues, especially those that operate around the clock, 24/7/365. If using a third-party marketplace as means of virtual warehousing (such as Amazon FBA), the marketplace will even be responsible for answering customer questions, processing returns and exchanges, payment, etc.

#4: Lowered Risks and Less Technical Involvement

Independent online retailers not only have to manage how their businesses operate, but also the maintenance and security that comes with owning a live website. On average, a website is attacked by hackers and cybercriminals every 39 seconds across the globe. Website security must be up-to-date or else the risk of that site being successfully targeted and attacked increases tenfold; the resulting damage could potentially ruin a business and even prevent it from ever recovering. Major marketplaces also know this, which is why their websites are fitted with the latest security measures to prevent cybercrime as they’re just as vulnerable to a business-ending cyberattack as the virtually-unknown merchant in the far end of the Internet. Plus, major third-party marketplaces have the infrastructure to handle extreme volumes of web traffic, such as the increases which occur during the holiday shopping season or on special holiday sales events throughout the year. Selling through a third-party marketplace eliminates or significantly reduces those responsibilities for the independent merchant, while still allowing them to generate sales and conversions.

The Cons

#1: Heavy Competition and Sales Cannibalization

On one hand, selling through a known retailer gives the independent merchant a much-needed boost in sales, customer reach, and exposure. However, whenever one chooses to sell through a third-party, they are in direct competition with other merchants with the same goals in mind, as well as the marketplace(s) itself/themselves. The bigger the company’s marketplace, the more likely that other smaller merchants will latch on and sell through there as well. Constant repricing must be done in order to stay on top of the competition but it’s not such a clever tactic when every other merchant is looking at what the other is doing and trying to counteract. When a merchant reprices their products to match or beat out their competitors, they risk undercutting themselves out of profit should a marketplace sale happen and the marketplace takes its percentage cut or commission for using their services. In the most extreme cases (such as through Amazon), the marketplace might even undercut itself just to capture the sale for themselves and away from the outside merchants within the marketplace. The marketplace is making money one way or another, even if it means cannibalizing sales from merchants under its own brand umbrella.

#2: Your Shop and Your Customers Aren’t Really Yours

When a merchant opens a shop within a third-party marketplace, a contractual agreement is made that not only entitles the marketplace to a percentage of the sales as compensation for using their services, they also restrict the merchant from stealing away their customers as the database of collected customer info actually belongs to the marketplace, not the merchant selling inside of it. Furthermore, as the merchant takes advantage of the services offered through the marketplace’s website, their shop within it is technically part of the marketplace and not the merchant’s own operation. Remember: being able to sell on a third-party marketplace is an AGREEMENT that allows the merchant to do so–as long as they adhere to the marketplace’s stipulations and rules. After all, the marketplaces are also in business for themselves and aren’t running a charity out of the kindness of their hearts. They’re there to make money, just like the independent merchant. Except, on a much grander scale.

#3: The Cost(s) of Doing Business on a Third-Party Marketplace

Make no mistake. Marketplaces, though generous enough to invite and allow smaller businesses operate under their branding, are still competitors and the use of their services come at a cost. The exchange of goods and services does not end with the retailer and consumer; for selling through a third-party channel is, itself, a service. Here, the marketplace is the retailer and the independent business is the consumer. On the monetary side, the marketplace can and will impose a commission based on how much a business sells per period. These fees and deductions deduct from the sales earnings of the independent merchant and effectively place an earnings cap on all sales coming from the marketplace versus the merchant selling on their own. The merchant who chooses to operate without the aid of a marketplace won’t have to worry about sharing their profits with another additional entity (outside of its own employees, suppliers, etc.) but they most likely won’t be doing the same level of business as they would be if selling through a third-party channel. While the monetary side is important, perhaps what is even more valuable than the sales percentages is the traffic and customer data that will be collected with each purchase through the merchant’s spot in the marketplace–and the merchant in the marketplace has zero claim to the customer data and traffic; that all belongs to the marketplace.

#4: Customer Distrust

A large majority of consumers that shop with major marketplace retailers have no idea where their items are coming from as they assume that the merchandise comes from a single source. For example, there are many instances to be found online where shoppers who originally purchased from Amazon receive their items in a Walmart box. Walmart, of course, is Amazon’s top competitor and vice versa. Why would they be in business together? Exactly, they’re not in business together. At least, not directly. This practice is known as retail arbitrage and while Amazon’s Marketplace guidelines prohibit such actions, it’s not very well enforced and those caught in violation of the Amazon Marketplace agreement can just as easily start up an all new account within moments of having a previous account deactivated as a result of contractual breach. An unethical merchant can open an Amazon Marketplace, post items for sale that are actually sourced from other retailers at lower prices, and then fulfill their orders through those retailers while keeping the cost differences. This happens because while other retailers may offer the same item for less money, they typically don’t have the advantage of Amazon’s shipping deals. Also, the use of marketplaces makes it easy for bootleggers to peddle fake merchandise that can easily hide within the genuine articles, allowing for quick and easy scams. Amazon, in particular, doesn’t vet their Marketplace enrollees as thoroughly as a company of their standing should and very often, bootleg merchandise makes their way into the main Amazon store, blending in with Amazon’s own regular inventories as well as the inventories of legit marketplace merchants.

Bonus: Marketplace-Specific Pros and Cons

Though Amazon Marketplace is at the top of the third-party channel totem pole, their system is not the only game in town. They still face stiff competition from some of the biggest names in the eCommerce and tech industries; names such as Google, Walmart, and eBay. Here, we’ll list the pros and cons that are specific to each of the four most popular third-party marketplace channels.

Pros of Amazon Marketplace

• Amazon is the Current King of eCommerce: As of June 2022, Amazon is the largest eCommerce retailer with 37.8% of the US market. This percentage, believe it or not, is actually down from their performance last year, which saw them claim over half of all US eCommerce. Still, selling through the Amazon Marketplace is a quick way to generate mass amounts of organic traffic thanks to Amazon’s public brand identity and their premium ranks with search engines.
• Amazon is the “Everything Store”: When Amazon founder Jeff Bezos first launched his little garage-run bookstore in 1994, he envisioned it growing into a massive empire which encompassed all of retail, selling just about everything under the sun. Such aspirations seemed like pipe dreams to anyone with rational thought processes, but that’s ultimately what became of Amazon. If it exists, chances are that it can be bought on Amazon so no matter what kind of market or industry a new retailer wishes to enter, they can get their start through the Amazon Marketplace.
• Virtual Warehousing through FBA: Fulfillment by Amazon (FBA) lets outside merchants use official Amazon warehouses to store their merchandise, as well as operate the shipping processes for them. When an FBA item is sold, Amazon will pack and ship as though it were their own sale (and, to a degree, part of that sale is theirs).

Cons of Amazon Marketplace

• Additional Costs: Access to Amazon’s seemingly unlimited resources and customer base comes at a cost and that cost is typically higher than other third-party channels and marketplaces. In exchange for use of Amazon’s services and name, Amazon takes commission from all of their marketplace merchants. For high-volume merchants in the marketplace, this can be seen as an acceptable loss but for newer, less-prominent sellers who are just getting their feet wet with third-party eCommerce, the fees charged by Amazon could act as counterintuitive to the effort of even selling on Amazon in the first place.
• Highly Competitive: Because Amazon is so well-known, not only would a merchant have to deal with competing against other merchants of their own ilk, they would also have to compete against the major established brands that also sell through the Amazon Marketplace. To make matters even worse, all of the marketplaces are competing directly with Amazon themselves and Amazon will see to it that they stay on top. This includes undercutting prices on their own merchandise just to secure the sale and customer away from the competition..
• Unreliability: Despite Amazon’s sometimes oppressive rules and regulations for merchants who wish to use their Marketplace services, Amazon isn’t that effective in actually enforcing said-rules and regulations. Part of this is due to Amazon’s own size; even with a dedicated army of marketplace rule enforcers, it would be almost impossible for Amazon to keep an eye on every single merchant that enters their marketplace. Enforcement is typically left to the merchants to report misdeeds on their own. Also, contrary to Amazon’s tough marketplace guidelines, they don’t do a very good job at vetting each marketplace entry who applies for a spot. As such, bootleggers and scammers are aplenty in the Amazon Marketplace and unless a shopper knows exactly what to look for in detecting a scam or fake product, most will go unnoticed and blend in with the other merchants as well as Amazon’s own genuine listings. Anyone caught in violation of the Amazon Marketplace rules will have their accounts deleted and, if necessary, whatever fraudulent sales made will be returned to the customers upon discovery. However, there’s nothing to prevent the offending parties from returning to the Amazon Marketplace with another new store under another new name.

Pros of Google (Google Shopping)

• Most Popular Website in the World: Google is the most popular website in the world as well as the most widely-used search engine on the Internet. Most SEO rules and SEO good practices are based on and abide by the Google algorithm. Ergo, every business with an online presence has to go through Google–including Google’s own competitors; namely Apple, Amazon, Microsoft, and Facebook. In addition to the plethora of other Google search engine-centric marketing services such as Google Ads, Google Shopping is the Alphabet Company’s venture into eCommerce. 46% of shoppers start their product search on Google (the other 53% go through Amazon), making Google an easy way for independent retailers to get out and introduce themselves to the buying public.
• Unlimited Free Listings: Google does not charge a fee for listing products on Google Shopping and there is no limit to the number of listings uploaded. This is in direct response to the COVID pandemic and was put into action in July 2020, as well as part of Google’s battleplan to compete against Amazon head-to-head. Google’s free unlimited listings for merchants is a stark contrast to the industry-high fees charged by Amazon for use of their Amazon Marketplace.
• Customer Trust: Because Google is the #1 top search engine on the Internet, shoppers and potential customers can access user-generated content scattered all across Google in relation to a specific product and/or retailer such as customer reviews. 79% of shoppers trust an online review as much as the do personal recommendations and Google is the leading and most popular source of online reviews. Positive reviews can be just as or even more effective at converting shoppers into paying customers than an optimally-designed product page; the review itself can do the selling for the merchant, even if the shopper never even visited the merchant’s website beforehand.

Cons of Google Shopping

• Price Competition: Shoppers can use Google to effortlessly find the best deals on the entire Internet. For the merchant, that means having to stay on top of the countless other competitors that are selling the same or similar item(s) and pay very close attention to how they’re being priced in the collective market. Dropping prices cuts into profit and there’s a fine line between staying competitive and taking losses. Merchants that use a dropship service for merchandise may not be able to deviate from set pricing, which will put them at a disadvantage against other sellers who may be severely undercutting set prices because they might’ve gotten a better deal or that they’re unaffiliated with the dropship service and are thus free to sell at whatever price they choose.
• Steep Learning Curve: The Google Merchant Center is where sellers post their products to Google Shopping, set their prices, as well as manage where and how often their items appear as featured listings. Effectively managing Google Shopping campaigns through the Merchant Center is already a time-consuming process if independent merchants wish to gain visibility and stay competitive against other sellers but for the eCommerce novice or newcomer, learning the ins and outs of Google Shopping and the Google Merchant Center can be overwhelming. As intuitive as Google’s systems are, they’re not as streamlined and as simple to use as other services such as the Amazon Marketplace for example.
• Difficult to Integrate: Some eCommerce platforms such BigCommerce have native integration with Google systems to efficiently manage and operate Google campaigns from within the admin section of the platform. However, if a seller’s website does not have native Google integration capabilities, it can be rather difficult to integrate Google with other inventory management systems and shipping software.

Pros of Walmart Marketplace

• Brand Recognition through Walmart: Walmart is the world’s largest retailer and the direct competitor to Amazon. Contrary to how certain parts of the consumer public feels about Walmart’s reputation and business ethics, they still have an instantly recognizable brand name and image that people know. Walmart is a relative newcomer to eCommerce in comparison to Amazon and eBay, but their undeniable and virtually infinite presence throughout the general consumer public makes up for their late entry into the industry. If not you yourself, someone you know shops at Walmart and someone else they know shops at Walmart as well. As one of the world’s most famous brand names, Walmart steadily generates business through millions of customers every day.
• Virtual Warehousing: Like Amazon’s FBA service, Walmart also offers merchants in their marketplace fulfillment services that will take care of warehousing, order processing, and shipping for an additional fee. For small businesses and independents that are selling through Walmart, this helps create the illusion of the brand being much larger than it really is and this carries the side-effect of instilling trust with the purchasing public.
• Better Merchant Vetting: With other third-party channels and marketplaces, the jump to selling is as simple as simply signing up for an account and posting the products. Unfortunately, this creates a backdoor for scammers to hawk fake or bootleg merchandise and, in the worst scenario, allows for fraudulent sales when dishonest merchants don’t make good with keeping up their end of the seller-customer transaction. For a seller to enter the Walmart Marketplace, Walmart requires that all marketplace applicants wait an undetermined judging period as they review the submitted application and determine whether or not they will be granted entry into the Walmart Marketplace. While this helps weed out the phonies and fraudsters from the crowd, this also prevents legitimate merchants from taking the first steps into growing their own respective businesses as quickly as possible. At worst, Walmart may even deem them unworthy to even join the marketplace for whatever reason. This is both an advantage and disadvantage of the Walmart Marketplace (see below).

Cons of Walmart Marketplace

• The Merchant Vetting Process:  Walmart’s application system is in place to help minimize the amount of potential trouble merchants from entering the Walmart Marketplace. It protects their customers from being scammed by unethical and dishonest merchants as well as protects the Walmart image from the damage caused by hosting a trouble merchant. It also curbs the potential influx of bad merchandise from reaching and contaminating the other product listings of other Walmart Marketplace sellers, along with the merchandise available on Walmart’s own website. The downside is that a potential seller with genuine honest intent could be mistakenly barred from selling on the Walmart Marketplace. It’s unknown if a denied application equates to a permanent ban from the Walmart Marketplace but it will most definitely create a setback that could give competitors an upper hand as they continue to sell and grow themselves during the reapplication/judgment period.
• Heavy Competition: Again, like the Amazon Marketplace, the Walmart Marketplace is bustling with outside merchants and sellers that come from all different markets, industries, and backgrounds. Any seller that enters the Walmart Marketplace will be stepping on the toes of other marketplace merchants, including Walmart itself. Competition will be extremely plentiful and for the ill-equipped marketplace newcomer, it may even be insurmountable having to deal with all of the other competing sellers as well as Walmart.
• eCommerce Not a Priority at Walmart: Walmart may be the world’s largest retailer, but they lag behind Amazon, the leader of all eCommerce. That’s because Walmart also tends to their traditional ‘brick-and-mortar’ retail locations and the company sees itself as not an eCommerce-based business, but as a traditional retailer. The core of Amazon’s business operates entirely through the Internet so they don’t have physical store locations to manage. Walmart, however, relies on the physical stores to generate the majority of its business, which it does. Only 2 to 3% of Walmart’s total revenue comes from Internet sales, which gives them reason not to fully put forth the effort in building a stronger Internet presence. As a result, Walmart’s eCommerce systems are behind the curve considerably when compared to major eCommerce entities and Internet-centric retailers.

Pros of eBay

• High Organic Web Traffic: Amazon and eBay set the foundations for eCommerce as we know it. Even though eBay doesn’t garner nearly the same amount of random web traffic and organic visits as Amazon does, eBay does just fine for itself as it is still one of the most widely-viewed websites on the Internet today. There will always be a steady flow of new and returning visitors to eBay, which means that there will always be a steady flow of new potential customers to your brand should you sell through eBay.
• Available Anywhere in the World: Some marketplaces are only available in select parts of the world but eBay markets and sells across the globe via the Internet. Since the sellers themselves choose which regions where their listings will be made available, they can set their visibility either domestically or branch out and sell to other countries. eBay sellers can be anywhere in the world and sell to anyone in the world if they so choose.
• Brand Recognition: eBay launched in 1995, a year after Amazon’s debut, making it one of the oldest and longest-tenured online retail avenues. They were also one of the first sites to open their marketplaces up to the public to allow anyone to sell through their brand. In comparison, Amazon launched the Amazon Marketplace 5 years later in the year 2000. eBay is responsible for the online auction site as we know it now and while that method of selling has lost popularity throughout the years, their Buy it Now program allows for almost instantaneous purchasing without having to wait it out for an item listing to close a sale. This saves shoppers from the frustration of losing out on a purchase because they were either late to the auction listing or got snaked by a last-nanosecond bidder.

Cons of eBay

• Severely Outdated System: eBay’s longevity on the Internet does come with a degree of negative aspects. One of them is their archaic and antiquated backend for posting items and managing sales. Because eBay constantly attracts a high volume of site visits and transactions, the company cannot afford to make revolutionary changes to its own software and even its design layout without risking a temporary site shutdown. As an alternative, eBay does small revisions to its systems over time as to not disrupt their business and traffic flow. Much of the original eBay is still present in its current iteration, just buried beneath additional code revisions. New sellers that are even somewhat familiar with the latest eCommerce platforms and omni or multichannel marketplaces shouldn’t expect to see the most modern functionalities and features available.
• Price Undercutting: Customers typically shop eBay in search of lower prices than those offered by other retail websites. As it is with Amazon and Walmart, there are well-known and well-established consumer brands that sell through eBay but in the same marketplace pool are unaffiliated sellers that could be offering the same product, but for far less than the average price. Used or pre-owned merchandise, B-stock items, or even open-box products contribute to the price inconsistencies with a group of the same item and many eBay users are perfectly fine with purchasing a pre-owned or open-box version of product so long that it’s priced lower than the same item but in brand new, unused condition.
• Sellers are Responsible for Fulfilling and Shipping Orders: eBay does not have a virtual warehousing program like Amazon or Walmart has, so it’s up to the seller to take care of those duties themselves. A low-volume seller on eBay should have no problem fulfilling, processing, and shipping the orders but high-volume eBay sellers would need to employ an entire warehouse staff to run all of the order fulfillment operations. Plus, as eBay users are rated through a user-generated system, problems with orders can result in negative ratings as well as possible intervention through eBay themselves. In order to gain and maintain the highest customer ratings (depicted as stars and feedback ratings on eBay), shipments need to be addressed, processed, and sent out as soon as possible. Each late shipment, incorrect item sent, and/or damaged item will almost always result in a ding against the eBay seller rating and should that number drop low enough (most eBay users don’t trust seller ratings less than 98% positive), customers will learn to distrust that seller and not even consider doing business with them.

The Takeaway

Third-party marketplaces offer a fast and effective way to increase sales and visibility, but they come with a number of costs. It is important for online retailers to weigh the pros and cons of using a third-party marketplace before making a decision. If retailers want to establish their own identity and break out on their own, they should never rely on marketplace selling as their main business model. Ideally, marketplaces should be part of a broader marketing and promotion campaign to avoid falling into the trap of relying too heavily on them. Businesses that rely only on marketplace sales will never grow independently and instead, will be destined to continue acting only as extensions of the marketplace itself, thus cheating themselves out of growth and earnings potential.

Bonus, Part II: Feedonomics for BigCommerce

In July of 2021, BigCommerce announced the purchase of Feedonomics. Feedonomics previously partnered with BigCommerce in order to develop Feedonomics for BigCommerce, which integrated Feedonomics’ features and benefits into the BigCommerce platform. There are no long-term contracts, percentage fees, or setup fees associated with Feedonomics; it is simply a 3-month commitment and a predictable flat fee for BigCommerce. In addition to adding a built-in feed management system to its platform, Feedonomics’ new parent company, BigCommerce, plans to continue integrating with partners for a “best-of-breed” experience for their users.

Features and Benefits of Feedonomics

Feedonomics provides automation, optimization, error detection and troubleshooting, performance monitoring, and unmatched user support 24-7-365 all within a central hub. Use Feedonomics to utilize a single data feed to create multiple product catalogs following best practices for each channel; maintain accurate product data throughout the day to keep your listings and prices competitive. With Feedonomics, you can connect to more than 60 advertising and marketplace channels worldwide. Feedonomics is also integrated with BigCommerce, Shopify, and WooCommerce, making it compatible with existing systems. Data corruption is prevented by Feedonomics’ automated systems and proprietary AI technology while inventory buffers allow you to control your inventory and avoid overselling, helping you to maintain your seller ranking.

To learn more about how Feedonomics for BigCommerce works, check out our article: Product Feed Management with Feedonomics

By integrating Feedonomics into BigCommerce, customers are able to take advantage of both systems’ multichannel marketing and sales capabilities. Diztinct is an official design partner with BigCommerce. If you’d like to learn more about our custom BigCommerce design services and additional web development solutions, get in touch with us today and get ready to make your website work for you.