Problems with centralized marketplaces

Decentralized marketplaces aren’t ready for widespread adoption yet, but there are reasons that the status quo may not stand. There are problems with centralized marketplace platforms. From Roger Allen in the post What’s The Future Of Online Marketplaces & Blockchain’s Technology Impact? at Forbes in October 2017:

Yet, whether it is Amazon, Upwork, or Project4Hire, each of these platforms have something in common – they run off of centralized platforms. There is one internal system that matches buyer and seller together, whether based upon algorithms, search criteria or other proprietary methods.

But oftentimes what is lacking from these platforms are two key elements, namely transparency and social interactions. These twin pillars of commerce – whether online or in person – reflect the most important aspect of making a sale, and that is trust.

Traditional online marketplaces can change their internal fee structure as they choose. Many times the result is an ever changing fee structure that hurts buyers and sellers alike.(Note: For the fees of various online marketplaces see this list).

Additionally, there is a lack of transparency with these centralized platforms. There is no sure way to know who is behind the “anonymous” username, and there is not an easy way to identify previous transactions. This results in growing amounts of online marketplace fraud.

Allen goes on to describe the benefits of decentralized marketplaces:

The greatest advantage of these decentralized platforms is the blockchain technology itself. As a blockchain – think of a ledger or database that contains a history of all transactions that take place on the platform – the platforms are completely auditable by all participants.

The real opportunity to me is open community ownership of the platform, rather than being owned by a single entity that can govern as they see fit, including changing rules, fees, etc. It’s certainly tied to blockchain, though the execution so far doesn’t make me think Amazon has anything to worry about.

Andrew @ EcomLoop
EcomLoop founder. I've worked in ecommerce since 2005, beginning with my own ebay store. I've run multiple independent ecommerce businesses on Magento, Joomla, and more recently, Shopify and WooCommerce. I believe marketplaces should be looked at as a sales channel and that all independent businesses should strive to build a direct connection with their audience for long-term success.

Leave a Reply