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Pros & cons of selling digital products in marketplaces like Etsy & Udemy

Discover the boons and banes of selling digital products in marketplaces, as well as your alternative options if you decide a marketplace isn't for you.

January 22, 2019 by Lauren Cochran

If there was one application on my phone that I would say is my greatest downfall, it’s my Amazon shopping app.

If I need something, it’s a conditioned response. I pick up my phone, load up the app, and look through hundreds of products catering to my particular craving at a given time, add to cart, and checkout.

Sometimes, I even do this in my sleep. (No, really. That’s how I ended up with 140 Reese's peanut butter cups last week.)

But while this sleep-shopping habit is bad news for my bank balance, the availability and accessibility of places like Amazon -- a digital marketplace where anyone can become a merchant and start selling products -- are great for entrepreneurs.

At least, entrepreneurs who sell physical products. The landscape isn’t quite as welcoming for digital creators, but it all depends on context: whether or not a marketplace is right for you ultimately depends on what your business goals are.

Before we dive into that, let’s look at the basics.

What is a digital marketplace?

At their most basic, a digital marketplace is any site where multiple merchants can put products up for sale.

Digital marketplaces are pretty ubiquitous today, and they’ve been great for consumers on the search for convenience: no matter what your niche is, you can probably find a marketplace that caters to your interests.

To give you an idea of the products, they can run the gamut from digital goods like online courses and digital downloads to physical commodities such as clothes and food, or potentially include services like coaching and consultations.

And they’re a big contender for the online dollar. Online marketplaces constitute 50% of all online retail sales across the globe.

For our purposes, this article will be focusing on third-party marketplaces, but online marketplaces can come in many varieties.

Peer-to-peer marketplaces, such as eBay, are also considered digital marketplaces, and service-based marketplaces like Fiverr and Rover likewise fall into the same overarching category.

For buyers, they work like a digital superstore and allow them to find products that meet their needs either by browsing through the categories or using search terms.

For merchants, they’re a little more complicated.

While the process varies between marketplaces, the usual rigmarole for sellers is as follows:

  • Create a seller-specific account
  • Pay a monthly fee to list products
  • List your products
  • Potentially pay a per-transaction fee on top of payment processing fees
  • Provide shipping or delivery information
  • Wait for feedback from customers
  • Receive deposits for your transactions at a designated interval

Depending on the marketplace, you may also have to create a merchant bank account to receive your funds.

It’s not necessarily a bad deal. Although you’ll have to contend with policies you didn’t set -- more on that later -- and work through someone else’s system, there are some noteworthy advantages to selling your products in a marketplace.

What are the advantages of digital marketplaces?

If I could only tell you one reason to use a digital marketplace, it’d be this:

When you list your products on a marketplace, you’re getting built-in through-traffic whether you do anything more than put them up for sale or not.

Probably not a lot of traffic, since like anything else online, your sales are only as good as the marketing strategies driving them, but still -- you’ll get visitors just by using the service.

That’s Amazon’s chief selling point for merchants, in fact. Amazon has over 150,000,000 unique visitors every month in the US, and if your products are on their website, there’s a good chance at least some of those visitors will land on your product pages.

And when you consider that 40% of traffic to retailer websites comes from direct visits -- in this case, the visit would be to Amazon -- its promise to reach more customers for merchants has clout.

There’s more to it than just increased traffic, too.

Because with that surplus of traffic comes the potential to expand your niche.

We’ve talked a lot in the past about the necessity of building audience personas, but the reality is that no matter how much research you do, you’re never going to see the full scope of who your customers could be.

Which means you may miss significant opportunities to grow your business.

But when your products are in a marketplace, you reach more than just your ideal customer: your products can end up in the hands of people you would never have considered in your marketing strategies.

In other words, marketplaces allow your customers to come to you instead of necessitating that you always go to them.

That said, this is a double-sided sword. Because while it allows you to expand beyond your niche, it also weakens your grip on that niche.

I think Omo and Eulanda, co-founders of Hey! Dip Your Toes In (HDYTI), summarize this dilemma nicely:

“The key consideration with niche marketing is whether you want to be a ‘small fish in a big pond’ or a ‘big fish in a small pond.’”

In a marketplace, you’re always choosing the former, not the latter.

Beyond traffic and audience discovery, the other advantage of selling your digital products in a marketplace is the ability to piggyback off of trust in that marketplace.

Keeping with our Amazon example, 53.4% of people are more willing to buy from an unknown brand if it’s on their marketplace than any other store.

That boost in trust isn’t to be taken lightly. 49% of customers say their concerns about privacy and safety stop them from shopping online, so having a well-known brand associated with yours as a seller is a big boon for your products.

And having built-in review systems where customers can leave testimonials for your products, as is typical on marketplace websites, doesn't hurt either.

Unfortunately, in the words of Shakespeare, all that glitters is not gold, and that’s never truer than when you’re looking at the downsides of marketplaces.

What are the disadvantages of digital marketplaces?

Marketplaces can definitely be powerful for sellers, but they’re not without some significant cons, and for content creators and solopreneurs who sell digital products, those cons can be downright detrimental.

First and foremost, the greatest detractor from digital marketplaces is the fees.

Because oh, there are so many fees.

There are your standard transaction fees to consider: regardless if you use PayPal or Stripe, all payment gateways take a cut of your transactions. The standard is 2.9% and $0.30, but this price can fluctuate depending on your business locale and your customer’s location.

Marketplaces, unfortunately, often also include listing fees if you don’t pay for a monthly account, which are additional expenses for every product you list.

Individual transaction fees aren’t uncommon occurrences either, sometimes ranging as high as 15% of your total sales price.

That’s on top of your payment processor fees.

It can add up fast and subtract from your bottom line even more quickly.

And when you consider the fact that only 40% of small businesses are profitable -- the rest are either losing money or just barely breaking even -- the escalating fees become a major problem for entrepreneurs.

But how do those fees hurt digital product creators in particular?

Let’s say that you’re selling an ebook.

It probably isn’t priced too steep: maybe it’s $9.99.

You pay the listing fee for it ($0.99), put it up for sale, and something amazing happens. You get ten orders overnight.

Your net profit, on the other hand, isn’t as exciting. Because for every sale, you’re paying the payment processor fee and transaction fee for the marketplace, so it really breaks down like this:

$9.99 - ($0.30 + $0.29) = $9.40 after payment gateway fees.

$9.40 - $1.50 = $7.90 after transaction fees to the marketplace.

So although your ten ebook sales brought in $98.91 after the listing fee, your take-home is $79.00.

The deductions compound if you have a monthly fee on top of it, as well.

Plus, that take-home won’t show up at home for a while, which brings us to the second big pain point for marketplaces:

You have to wait to get your money. Sometimes, you have to wait as much as up to 15 days if the marketplace only processes payouts once a month like Envato, a marketplace for digital assets, does.

Ouch.

Maybe it’s just me, but the only things I don’t mind waiting 15 days for are Thin Mint cookies.

It gets worse, though.

Because marketplaces, especially the larger ones, are a lot like a 1980s action-hero film.

Sabotage and espionage are ample, and if a marketplace determines that your storefront or products violate its terms of service, your wares -- and payouts -- can be pulled with little to no recourse on your part.

Consider the experiences of one seller whose competitor supplied fraudulent five-star reviews to their product pages.

Even though the seller contacted the marketplace to let them know about the discrepancy, the merchant’s goods were still pulled and deposits held until they could work with a consultant and appeal the case.

While the story may read more like an episode of House of Cards than everyday business, the reality is that experiences like that aren’t uncommon in large marketplaces.

Part of why it’s so prolific is obvious -- there’s more at stake in a marketplace -- but the other side of it is how easy it is for your competitors.

They don’t need to do in-depth keyword research to find your products, customers, or strategies.

All they need to do is search for similar products to their own, and they have holistic competitor intelligence in their hands before they’ve taken their next sip of coffee.

After all, 77% of businesses say having this kind of intelligence is vital for outshining their rivals.

So your competitors would be fools not to capitalize on learning everything they can to out-compete you when your products are side-by-side with theirs in a marketplace.

And unfortunately, that good business sense on their part spells a bad business end for you.

But not all marketplaces are made equal, so before we close the case, let’s take a quick look through some of the options for creators who want to sell digital downloads.

3 digital marketplaces reviewed for creators

#1. Udemy

Udemy is an online course platform marketplace that functions similarly to Amazon within the online education sphere. Unfortunately, its focus on its niche significantly limits its customers.

Pros:

  • If you’re approved as an instructor, you have access to a support community.
  • Your payouts can come through Paypal or Payoneer, which provides customers with a wide variety of methods to pay (such as credit, bank accounts, or e-checks).
  • No monthly fee.

Cons:

  • Tons of competition -- they’re the world’s largest online course collective, and that means there are instructors with years of practice to beat in the marketplace.
  • Transaction fees range from 3% to 75%.
  • You can’t sell anything but online courses. If you decide to expand your product offerings, you’ll have to find another platform.

Now, let’s look at another marketplace that runs into an opposite problem -- it’s not specialized enough.

#2. Etsy

On the opposite side of the spectrum is Etsy, a marketplace that earned its fame by supporting small businesses who had unique products to offer -- and it remains a fantastic solution when those products are physical. The ability to sell digital downloads was added later, and it shows.

Pros:

  • For artists who work with physical mediums, Etsy can’t be beaten. Customers go there with the expectation to buy -- and pay -- for one-of-a-kind works.
  • Etsy has its own payment system, which allows you to limit the transaction fees from payment processors like PayPal.
  • A built-in review system is included in the marketplace, allowing customers to put their worries at ease when they first land at your store or product pages.

Cons:

  • You don’t own your customer data on Etsy, and if you want to market to them or move to another marketplace or selling solution, you’re out of luck.
  • Etsy wasn’t designed to sell digital downloads, and that lack of foresight is clear in the checkout and delivery process.
  • You can expect 5% of your sales to go to Etsy directly -- not you.

Finally, let’s look at a platform that’s geared for selling digital downloads.

#3. Gumroad

For many, Gumroad’s low monthly fee seems attractive for an all-in-one platform with a marketplace feature, but this ecommerce platform has a few notable drawbacks for digital creators.

Pros:

  • You can sell physical goods in addition to digital wares.
  • Plans start out at an appealing $10.00 a month.
  • Payouts are delivered weekly, rather than monthly or biweekly.

Cons:

  • Transaction fees start out at a not-as-attractive 3.5% and peak at 10% per sale.
  • Its customer service department doesn’t have the most pleasant reputation in the business (to put it politely).
  • Bugs are so frequent for both creators and customers that it could be an extra in a Beetlejuice film.

Each marketplace and platform has its share of strengths, and for entrepreneurs who are interested in selling digital and physical products, they each offer features that are worth considering.

But they’re not the only options in town.

So, what are your other options?

Outside of marketplaces, you have two other options:

  • Sell on your own website
  • Sell on a platform without a marketplace

And like marketplaces themselves, both have their pros and cons.

Here’s the quick and dirty of them:

#1. Sell on your own website

Every entrepreneur dreams of running their own show, and if you choose to sell your digital downloads on your website, that’s what you’ll be doing.

Pros:

  • Total control. Every pixel of your website and the buyer’s experience is determined by you and you alone.
  • Endless, though not always easy, customization. If you want to sell from a sidebar, you can sell from a sidebar. You probably shouldn’t, but you can.
  • Ability to market and nurture customers over the long haul. There may be more customers on Amazon, but most of them are searching by the product, rather than loyal to the third party seller.

Cons:

  • Hosting fees. Purchasing your own hosting package puts you in control, true, but that means you have significantly more moving parts to maintain and fund -- particularly when it comes time to scale.
  • Technical headaches. If something breaks on your website, it’s on you -- and only you -- to fix it, whether that’s with hours (or more) of work or by hiring a third-party consultant.
  • Plugins break. Even if you do everything right on your side, selling digital products on your website requires a hefty handful of plugins, and they can (and do) break when your CMS updates.

If you want to stay in complete control, selling on your own website is definitely the way to go. If you’re looking to do things the really easy way, though, there’s an even better option.

#2. Podia

I won’t dance around the fact that I’m as objective about Podia as I was about my third-grade crush.

Which is to say not at all and even the way Podia sharpens pencils can get butterflies-a-stirring in my belly, but with the obvious issues of bias aside, here’s what you need to know about Podia:

  • You get all of the perks of using your own website to sell your digital downloads, including a custom domain, without any of the cons.
  • There are no transaction fees. Not a single one.
  • Our support team is pretty amazing. That’s what Jamie Keddie says, and you’ll notice a similar theme on our examples page.
  • Want to sell online courses and digital downloads? We’ve got you covered. The same is true for memberships, too, with our Shaker plan.

And recently, we released a new feature that allows you to embed your checkout process directly on your website, so if you’re one of the tinkerers who prefer to code your own way, we’ve got you covered there, as well.

But best of all, you can try out all of these features today -- for free, with no credit card or obligation -- with our two-week unlimited trial.

So go ahead, if you’ve decided marketplaces aren’t for you and don’t want to get tied up in the technical nitty-gritty of selling on your own website, give us a try.

We’re Creator-first, always.

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The long-view of marketplaces for selling digital products

Amazon may be the best choice for consumer convenience when it comes to ordering peanut butter cups, but digital marketplaces aren’t always the best choice for the merchant -- especially the creative one.

Here’s the skinny on marketplaces:

  • A digital marketplace is any website where users can browse products from multiple merchants, whether those products are physical, digital, or service-based.
  • Marketplaces have unique advantages for sellers, including built-in traffic, the ability to discover new customers, and trust-boosting brand association.
  • Unfortunately, they also have significant downsides for merchants -- starting with fees, graduating with long wait times for payouts, and topping off with ample competition.
  • Udemy is great for selling online courses if you’re approved to become an instructor and courses are all you want to sell.
  • Etsy is home to the one-of-a-kind gift, but it was designed for creators who work with physical goods, and digital products are treated as an afterthought.
  • Gumroad strikes a nice balance between digital and physical sales and includes a marketplace, but it comes with (really) high transaction fees.
  • If you’d rather bypass marketplaces altogether, you can always sell your products on your own website.
  • In fact, if you want to be involved in every aspect of your business -- including the technical side -- we recommend using your own website.
  • If you’d prefer to do things the easier way, however, that’s where we come in. You get all of the control of selling on your own website without any of the complications.

Should every seller swear off marketplaces? We don’t think so. Whether or not a marketplace is right for your business depends on your needs: do you want more traffic and less hands-on involvement, or more control over your customers and profits?

If you want the first, a marketplace is probably a good place for your products.

If you prefer the second, however, our door is always open.