Etsy: Supporting Handmade
In creating a platform that supports creative entrepreneurs around the world, Etsy hopes to reimagine commerce and build a more sustainable world.
Founded in 2005, Etsy has always had a clear mission to match crafters and artists with buyers seeking unique and handmade items. Its platform has to-date helped over 1.5 million creative sellers build businesses to sell their work to over 20 million customers worldwide.
How Etsy Creates and Captures Value
In the face of huge e-commerce platforms such as Amazon and Ebay, Etsy has managed to grow its business through a successful targeting of a niche segment of the market – artisan and handmade products. Etsy is today the premier destination for selling and buying unique, handmade products.
Etsy is a two-sided marketplace that leverages indirect network effects to incentivize each side of the market to join and continue to use its services. At the heart of its model lies the sellers, and the business has been working hard to ensure it maintains the loyalty of its creative sellers to the Etsy platform. The logic of this approach is sound – more sellers result in more unique and attractive products on Etsy’s marketplace, which attracts more buyers. More buyers in turn attracts more sellers who are looking to build a sustainable business off their products. This positively reinforcing cycle has enabled Etsy to build a business that generated $741 million of transactions in 2015. Etsy captures value by charging its sellers a small listing fee, a flat 3.5% transaction fee, and a payment processing fee of 3% of transaction value.
A Clear Focus on Sellers
A more detailed look at Etsy’s seller-focused approach shows several initiatives to remove barriers for sellers to reach buyers. The company provides sellers with a comprehensive array of tools to build websites, list their products and to market them easily on its platform, as well as across mainstream social media channels. In 2014, Etsy also launched a credit-card processing dongle named Etsy Reader, to support the 35% of its sellers who also sell their products at local craft fairs. To support its sellers financially, the company has also piloted a crowdfunding project called Fund on Etsy to provide an alternative way for selected sellers to raise capital up front to finance their production costs.
Most recently, Etsy has announced Etsy Studio, a secondary platform for sellers to reach a new audience of DIYers. Etsy Studio allows for DIY buyers to purchase input materials and tools, and access a library of user-submitted instructions and guides to build their own products. By doing so, Etsy is now competing with traditional craft supply retailers such as Michaels to build out the audience to which sellers can sell their products.
Don’t Forget about the Buyers
Etsy has also invested heavily in the buyer experience. With data suggesting buying on its platform peaks around holiday periods, Etsy has released additional features designed to help improve the discovery process for buyers. A common complaint of its platform is that searching for the perfect item amongst the millions of listings can be difficult; in response Etsy has released features such as a gift finder, and more recently, announced the acquisition of an AI company to improve its search and imaging processing algorithms.
Expansion of its Mission
Founded as a company to support artisans and creative makers, Etsy has since doubled down on a mission focused on sustainability and small-businesses. Its vision is to change the global economy to a more localized, small-business driven, fair and connected way. Etsy lives its mission through its continued support of the artisan community through local conferences, as well as a dedicated team in the US and Europe focused on advocating governments for policy reforms that affect micro-entrepreneurs.
The company has put its money where its mouth is and opted to list as a certified B-corp, a program that certifies companies on social impact metrics such as environmental performance, transparency, legal accountability and broad social missions. Etsy scores very highly on these metrics, posting a 127 score (versus a median score of 55 among other assessed companies). A score of 80 is required to be certified as a B-corp. By prioritizing its performance on this front, Etsy is clearly signaling that profitability is not the sole metric upon which it measures its success – a value proposition that should continue to lock in like-minded sellers and buyers onto its platform and sustain its business into the future.
Etsy’s B-Score Performance for 2016
References
- http://nymag.com/thecut/2016/04/etsy-capitalism-c-v-r.html
- https://www.bcorporation.net/community/etsy
- https://www.fastcompany.com/3068180/innovation-agents/etsy-studio-is-ready-to-turn-your-side-hustle-into-a-real-business
- http://www.forbes.com/sites/paularmstrongtech/2016/12/15/what-you-dont-know-about-etsy-and-its-2017-strategy/#5ce267d64d90
- https://techcrunch.com/2016/02/23/etsy-shares-spike-13-as-it-reports-strong-revenue-in-fourth-quarter/
- https://qz.com/429645/crowdfunding-on-etsy-buyer-beware
- https://worldaccordingtocarp.wordpress.com/2010/09/12/techcrunch-teardown-etsys-business-model/
- http://www.pymnts.com/news/retail/2017/the-evolving-face-of-etsy/
- https://techcrunch.com/2016/09/19/etsy-buys-blackbird-ai-to-bring-more-machine-learning-into-its-search-platform/
Very interesting company. Just curious if you know the company is profitable yet? A lot of platforms also seem to claim that they are artist-friendly, but fail to attract transaction. Artists either still sell through their own websites or Amazon. Do you think Etsy will go mobile in the near future?
Andrew – great post! I have been a big fan of Etsy, but also see some of its problems (and actually launched a startup based on one of those problems some years ago).
One of the interesting things about Etsy is that it seemed like a classic case of network effects – up to a point. Certainly, as with any marketplace, Etsy was more attractive to buyers as it increased its seller volume, and more attractive to sellers as it increased its buyer volume. However, there seemed to be a little bit of a ‘breaking point’ for the network effects. As time passed, and more and more sellers flocked to Etsy to peddle their wares, a problem emerged: there was a lot of CRAP (technical term) being sold and advertised on Etsy, and sorting through it was a time-consuming and frustrating process for the end-user. Sellers joined the platform who didn’t make decent-quality products, or who copied other sellers’ designs more cheaply, or who just made unappealing products. Buyers had to sift through the immense amount of junk on the website to find anything truly great, and even then, the quality was questionable. In a way, after a point, Etsy suffered from the gym problem: the more people who used it, the more other people didn’t want to use it…
Thoughts?
Whoa! This is a classic case of adverse network effects. Wondering what a company like Etsy can do to prevent such behavior?