Online marketplaces are booming. $1.5 trillion was spent globally in the top 75 online marketplaces in 2017 alone. Their rapidly expanding reach has also brought legal considerations to the forefront that must be given prompt attention. In this post, we'll explore 5 of the risks online marketplaces face and how to address them.
In 2008, the financial crisis changed the shape of the economy and therefore the ways people not only earn money, but also do business. Coupled with the growing prevalence of the internet and efficiency-driving technologies, the online marketplace strengthened as an economic model. This meant an increased volume of interactions and transactions due to the rapidly expanded reach. In 2017, $1.5 trillion was spent globally in the top 75 online marketplaces.
However, online marketplaces have scaled so rapidly that the legal implications often are skimmed over, rather than carefully considered. For example, while many understood that customers must be presented with legal terms that govern use of their site, few realize that this must be designed to be enforceable.
Here are 5 other risks for online marketplaces that you’re not thinking about:
1. Data privacy & the nuance of consent
Using user data to inform business choices is a double-edged sword. You now have access to users’ personal information. For example, user data gives insight into your customers’ spending habits, income, social connections, and places they frequently travel to. While this information helps online marketplace platforms sell more efficiently, it is meaningless without the customer’s explicit consent. And in the age of GDPR and several other privacy acts, your organization can face serious repercussions for (mis)using information they were not permitted to.
2. Laws of other countries
The reach of the online marketplace is global. This means that inevitably, you will be doing business with people outside of the U.S. As a result, online marketplaces must ensure that their rules comply with those of other countries. For example, the GDPR originated in Europe, but people outside of Europe who do business with European organizations or entities must comply to this regulation. Otherwise, those organizations could face fines as large as 4% of their annual revenue.
3. Class action risks
It is almost inevitable that each organization will have contractors and/or customers who will take issue with some provided product or service. If enough people get together and find something wrong, they can become a class and file a class action suit against your company or business. Case in point: when customers complained that Uber charged them extraneous fees for travels in East Boston and to Logan Airport, they convened as a class to bring the ride-hailing giant to court. And because Uber’s clickthrough agreements were not enforceable, courts shot down their arbitration clause.
4. Scaling too fast
Marketplaces already move quickly with a high velocity of users and transactions. This risk multiplies exponentially when the business moves too quickly without the necessary protections in place. For example, if an organization presents their legal agreements via a house-designed clickthrough, its solution should be able to track and manage each agreement, its location, and which customer signed. Failing to keep track of this puts your organization at greater risk of legal action.
5. Data breaches
Security is indeed on everyone’s minds, but not with the necessary level of depth to minimize risk in online marketplace. As is the nature of the business, online marketplaces often have thousands, if not millions, of customers’ personal information on file. A data breach can expose all this information to malicious sources, thereby putting your company’s reputation and well-being at risk. How can organizations ensure that their prospects, employees, and customers’ information remain safely within their possession? And what is the protocol for if a breach does occur?
Protect your online marketplace from unnecessary risk
Keep these 5 risks top of mind as you scale your online marketplace. It is easy to think only about the growth aspects of your business, because that is the natural inclination of an entrepreneur. However, as a strategic participant in the on-demand economy, it is important to think about the legal risks involved with growing and scaling your business.