If you want to sell online, there are many options, ranging from setting up your own shopping cart to using ebay.com or etsy.com to list your products.   I’ll examine the main pros and cons to each approach.

DIY – I’m calling the first approach DIY (do-it-yourself).  This is the approach where you either build or buy shopping cart software and run it on your own website.  You essentially pay once for the code / license, and then you are on your own.  One example of this that I have used extensively is Sunshop, which is php / mysql based.  Here are the pros and cons to this approach.

Pros:

1. Unlimited customization – if you get source code with the cart, you can customize (or pay a programmer to do it) the code to behave any way you want.  It can match your website in design and navigation.
2. Lower monthly costs – Usually you pay a one-time license fee, with optional yearly support and upgrades.  This cost can be drastically lower than paying a monthly fee and transaction fees imposed by hosted providers.
3. Stability – If you are happy with the product, you keep it the way it is.  You are not subjected to upgrades / modifications to how features work, or features you like being phased out.  If the original vendor goes out of business, you still can run the software since you own the license.
4. Data Ownership – You have access to all your data – products, customer information, orders, etc.  If you need to change carts in the future, or manipulate the data in some way, you have it all at your disposal.

Cons:

1. Up front costs – You’ll have to spend perhaps thousands of dollars to buy the license, install it, and get things up and running.  If you aren’t sure your products will sell, this can be a daunting investment.
2. Upgrades – As features are added to the product, you’ll need to upgrade your copy – this can be relatively easy, but if you have customized your version quite a bit, you’ll find upgrading to a challenge.
3. Security – Any security issues, PCI compliance, etc., are your responsibility.  This can be scary if there are any bugs in the code that hackers can exploit.

Hosted – third party – This approach consists of paying a monthly fee to use a hosted shopping cart solution.  Companies like volusion.com or 3dcart.com offer this type of platform.  Also ebay.com, etsy.com, and others fall into this category.  You set up your products and manage your store on their platform.  Here are the pros and cons:

Pros:

1. Easy setup – These systems often have wizards to walk you through setup, and you can have your store online literally in minutes.   There may be tools to quickly import your products as well.
2. Low entry fee – No need to pay for installation, or a license fee.  Some do not even have setup fees and may offer a free 30 day trial.
3. Traffic – Many solutions like etsy or ebay bring in traffic and allow searching across all merchants.  So you instantly will have people looking at your offerings, which can start bringing in sales quickly, with little advertising.  This can help prove out demand for your products without a huge investment.
4. Automatic upgrades and security – The hosted provider will be responsible for maintaining the security of the platform, and upgrading features on a continual basis.

Cons:

1. Fees – Generally, you will pay a monthly fee and/or a transaction fee based on the amount of sales you generate.   These fees can go up without much notice.
2. Dependence / Lock in – If fees go up, or a feature you need isn’t implemented, you are stuck, at least in the short term.  You would have to either live with the limitations / cost, or move your store to another platform altogether.  Moving to another platform means pulling your data (if the host allows a full export), and import it into another cart system.  This can be time consuming and expensive.
3. Security – Large cart systems which have many merchants are big targets for hackers, simply because of all the financial / customer data stored in one place.  Although these carts are generally pretty secure, you can be sure they are constantly targeted by hackers trying to find vulnerabilities.

In the end, there’s no easy answer to the original question.  Over the years I’ve seen (and encouraged) clients to go with one type of cart or another, based on their particular situation and budget.  I think option 2 (hosted solutions) are gaining in prevalence, at least for smaller merchants, who are selling small volume on the side.  However, if you have a high volume of sales, and want to build your brand, the DIY approach will probably yield better results over time.