Is it a digital good that is downloaded (e-book or software)?
Is it perishable or fragile?
Does it have to be seen and held (designer fabrics, perhaps)
Is there enough demand to make your venture profitable?
Does it have little competition from large online companies (niche products)?
The last two characteristics are the ones that can be hard to pin down. Here is a generally accepted method of arriving at an idea of how heavy the demand and competition is for a product.
If you have a special interest in some products that meet the above criteria, great, but don't limit your investigation just to items you like. You are looking for a niche product with relatively good demand (enough to make it profitable), but without heavy competition.
One way to see what the demand is for products you are interested in is to look at search engines to see how frequently people search for the product you are considering.
The result of all this research should be that one or more products will fit into a niche market - products with some demand, and relatively little supply. For the best results, focus on one niche product category, and offer a wide selection. That way, you can become the best online source for that particular category. For example, instead of offering general craft supplies, offer the widest possible selection of needlepoint kits. This strategy will also allow you to rank higher in search engines because you can optimize your pages for fewer, more specific, keywords.
