The Shopaholic team has figured out whether it is possible to succeed in the e-commerce industry just using the popular SaaS platforms and marketplaces.
Currently, you can trade online both from your own website and from one of the different marketplaces. Shopify, Etsy, VK Goods, Instagram, Ozon, Yandex.Market and many else offer prospects of incredible convenience and tons of advantages compared with using the standalone e-store. But is it worth relying on these promises? Today we will delve into the pros and cons of such an approach, and tip off the reason not to put all your eggs in one basket.
Why Basically Give Up Your Own Online Store?
First of all, let’s clarify what are the reasons for such a decision. After all, e-stores from their initial appearance are proven and reliable tools making the business successful. Let's look at the reasons that marketplaces and SaaS platforms offer.
It Isn’t Necessary to Spend on Development
The development of your own website is an investment. Even if the contractor is just a freelancing student, you should pay for his or her job anyway. But with a thorough approach, the development process includes requirements specification, design, testing, delivery, etc. As a result, the amount can be rather big even in the case of a microbusiness.
When using the third-party platform (SaaS or marketplace), you pay for solutions, not for processes. It can be whether a monthly subscription fee for the ready-made SaaS-based shop, or fee for a certain number of goods published, or a commission per each sale.
For example, the basic Shopify service plan includes a $29 monthly fee plus 2.9% plus $0.30 per each transaction. For the Amazon merchants who were registered as private persons, every single sale costs $0.99 plus a category-sensitive referral fee (from 6% to 45%, usually around 15%). Etsy charges merchants with a fixed $0.20 fee for each sale listing fact.
You Can Launch a Business Having No Clue in the Web Development Aspects
The main advantage of SaaS platforms and marketplaces is that you can launch real sales having completely no understanding of website development and promotion. Seriously, to create your e-store using the ready-made platform, you need just to select the appropriate templates and modules, then pay for the subscription, and, finally, add your goods. For the marketplaces, the workflow is even easier: you need only to add the goods with descriptions and prices. What is more, you can change any of your decisions later if they will turn out to be irrelevant to your business needs.
You Can Keep Within One Day From the Idea to Launch
A quick start is one of the main advantages of Shopify
This point is a consequence of the previous one. If not to take into account the bureaucratic aspects, it is pretty real to prepare and launch online sales within just one day. In real life, of course, it seems rather challenging and requires more time.
Marketplaces Work Smooth and Stable
The owner gets the website-based e-store along with its possible issues. It means that all the design and development flaws must either be fixed or the owner must put up with them.
SaaS platforms and marketplaces, on the other hand, provide their tools for a bunch of users. It allows their owners to test and polish the software without reference to resource spending. That’s why such platforms are usually optimized far better than most of the standalone e-stores.
New Features Can Be Added Immediately
For adding a certain payment system into the Shopify-based store, you need just to connect the appropriate module. It makes the changes extremely easy, eliminating the need for programming and testing.
If the platform has no required module, then in most cases you will be unable to add the feature. However, some platforms allow their clients to create and connect custom modules. In this case, the process is pretty similar to the custom feature development for any website-based e-store.
Most of the Platforms Provide Logistics Services
Fulfillment by Amazon (FBA) is a service that makes it available to store your own goods within Amazon’s warehouses and to arrange delivery from them in cases of sales via Amazon. Multi-channel Fulfillment (MCF) serves different sales channels like third-party platforms or standalone e-stores, as well. In both cases, Amazon provides the delivery service which cost is included in the retail price.
Customers Have Trust in Platforms
Popular and famous marketplaces give their customers assurance that they won't be cheated. As a result, the conversion rate with all else being equal will highly likely be higher compared with the unknown e-store. The internal security rules adopted in marketplaces increase this effect, as well.
Sometimes Platforms Even Subsidize Merchants
Sometimes the SaaS platforms and marketplaces spring surprises like moneyed assistance for merchants. Recently, Amazon announced a similar initiative: along with the Goldman Sachs investment bank, the company has launched a credit line for its customers.
Merchants will have the opportunity to get a loan of up to $ 1 million with a fixed interest rate of 6.99% to 20.99% per annum. Earlier, some other trading platforms arranged similar activities, albeit less large-scale.
Yandex.Market also promised some favors to domestic stores. So, merchants can rely on financial assistance, simplifying deferred payment rules, and reducing the number of inspections.
In the Final Analysis
The most popular online marketplaces in the USA according to online sellers as of January 2020 (index rating from 1 to 10)
As you can see, the most of advantages described above are really unavailable for standalone e-commerce websites. But not all: for example, the logistic services of most platforms serve third-party sales, as well.
Obvious Disadvantages of SaaS platforms and marketplaces
The “Dodo Pizza” experience shows that regular customers who are using aggregators are highly diluted. We cannot track them and communicate with them. The aggregator is unable to advertise a specific offer, it is able to advertise only itself, its service, or discounts.
At the same time, the company working with the customers directly has a possibility to promote the new product or service via the website or mobile application. Someone else’s website, for example, makes it unable to run the online pizza construction set we’re currently working on.
Our revenue is much healthier today. We have our own customer base. We have scale and coverage. This allows us to conduct national-level advertising campaigns. This makes it possible to promote the brand, as well as any specific products. So, we can advertise a product, which acts for our business as the most efficient people attracting tool.
And now let’s define all the risks which are leading by the freedom from the owned standalone e-store in favor of trading via SaaS platforms and marketplaces. And there are many of these risks! We have collected the disadvantages of using different kinds of trading platforms as the only sales channel. Believe me, it wasn't hard to find a case in point for each one of them.
Often Save Themselves in Prejudice of the Merchants
In usual terms, marketplaces engage with the merchants under the rules in place. But once the external conditions change, most of the marketplaces begin to act unexpectedly.
The COVID-19 pandemic significantly affected Amazon, leading the company to grow, and making its founder Jeff Bezos $24 billion richer. At the same time, the company is so overwhelmed with orders that it has turned down usual marketing tools and promo actions, nudging people to buy less.
And there is more to come! In April, struggling with demand, the company temporarily suspended its shipping program. As for now, the program is operating again, but many merchants who are using Amazon shipment service, for more than two months were in a sticky situation.
Punish Merchants for Any Little Things
Often the platforms are too harsh to their merchants. For example, the Russian Yandex.Market obligated their merchants to finish processing all the orders accumulated during the New Year holidays (which lasted more than a week this year) in the first working hour after the holidays. As a result, many merchants failed and got severe penalties. Next time, YM showed its cruelty in the time of quarantine in Moscow. Most merchants had faced unbiased difficulties with the delivery during the lockdown, but YM did not grasp the situation, which led to mass inspections and penalties.
Russian Etsy’s merchants faced the same. Due to a halt of air communication, the delivery outside the country using the Russian Post Office was almost stopped. Despite the situation is obviously force-majeure, Etsy significantly lowered the positions of those merchants who broke the delivery terms.
Block by Reason or Without
The rules of SaaS trading platforms and marketplaces are quite intricate. They are usually developed to help platform owners in any circumstances. That is why, for example, Shopify can block an account of any merchant at any time without explanations.
A screenshot of the Shopify rules with a part makes it happen to block users without explanation
Gather Your Data and Use It Against You
It’s not a secret that marketplaces gather data from their clients. But Amazon decided to take it a step further. Based on The Wall Street Journal’s report, the company analyzed the sales stats of their clients, then listed the most successful goods under the private label and for the most competitive prices.
May Negatively Affect the Reputation
If the good of high quality shares the shelf with its own counterfeit, it affects badly on the reputation of the first one. Remember it when you list your goods at the big marketplace. It is highly possible that among thousands of positions there is a place for some counterfeit.
In the recent past, The European Consumer Organisation (BEUC) had analyzed Amazon, eBay, Aliexpress, and Wisch. They found that two-thirds of the goods analyzed were of unacceptable quality, and some were even dangerous.
Do Not Provide Required Audience Reach
Not all platforms operate worldwide. Even those that, at first glance, look like global ones, can be significantly limited in terms of territorial presence. Instagram Shopping, for instance, is currently active in just less than half of the countries.
There are also examples of discriminatory attitudes. So, for buyers from the United States, Etsy shows products with free shipping as a priority. Such conditions can be provided only by sellers from the USA, which puts the sellers from outside the country in an uneven playing field.
May Indirectly or Directly Support An Unfair Competition
As we said before, platforms are places with their own rules. And these rules can produce conditions for unfair competition. For example, the seller from Ozon.ru complains that one of the competitors has found a loophole to block someone else's goods, laying them away and then doesn’t buying them out. We’re pretty sure it is possible to find other similar cases for other marketplaces.
At the Same Time
A bunch of problems we described above blow the socks off and make us wonder, whether it makes sense to use SaaS platforms and marketplaces or not. But don’t hit the panic button.
Most of the problems matter only when the platform or marketplace is one and only sales channel. Such a restriction multiplies the negative consequences of the described risks. But in a case the channels are diversified, the troubles look much less alarming.
So, the answer to the titular question looks like it follows: it is possible but quite risky. That’s why we strongly recommend using both website-based standalone e-store along with marketplaces and platforms. In every single case, you should try and find those channels that fit the best for selling your goods at the given market. Teaming up with the store, they will allow your business to achieve the maximum possible performance, providing a high level of steadiness regardless of conditions.
We hope that our recommendations will turn out to be useful to you!