A potential client wants to know why he should pay lots of money for
an alternative ecommerce platform when he can set up a storefront through Yahoo Merchant Solutions for just $40 per month.

What arguments for and against can you think of?

I guess features are one.
A commercial package like X-Cart or an open source one like Zen cart
might offer more extensive functionality.
But I couldnt say off the top of my head what that might be

Not sure if Yahoo also demands a percentage of sales revenue.

Not sure if Yahoo offers any additional SEO benefits like free inclusion in their directories.

Anybody knowledgeable with Yahoo E commerce?

There are several points here:

1. 40 USD per month will come to 480 USD per year. To compare, X-Cart license with support subscription is 229 USD , and it is a life-time license. Most of commercial e-commerce packages are also one-time payment scripts when you get a right to use software and get access to the distributive package.

And you always can resell the license if you stop doing business on-line :-)

2. With either commercial or free packages you get the software code and you can install it on any server, thus you can move to other servers if required. So the store really belongs to you and you do not depend on the hosting company itself. I am not sure whether you can access the code in case of Yahoo hosted solutions, if not - that is not good actually.

3. I think hosted solutions are useful for beginners and for those who need a store fully built for them so they do not need to deal with the setting process at all.

However in your case i would recommend a separate package since you will manage the store.

Hope that would help your customer to make the choice.
Keep us informed about the final decision.

I'd also add that, in case of Yahoo Store, you don’t have access to the source code. While you can customize most of a Yahoo Store, you can’t customize all of it.

This doesn't necessarily mean that it will become a problem, but you should be aware that there are some things you simply won’t be able to do.

Twd, have your client made the choice?

Yahoo E commerce is not so bad. But maybe it is expensive for small business.

In my experience the downfall is the reliabilty and the push you get for your buck. It depends on what your clients expectations are.

We have had a couple of clients come to us for a ecommerce redevelopment that were using Yahoo. After your store gets established and is profitable, it is nice to own your site rather than essentially renting. Yahoo is good for getting started although I dont know if Cart and Checkout pages take you over to Yahoo's unbranded pages on their domain. Integrated cart and checkout are essential for a smooth user experience.