Amazon Handmade: Not All Networks Can Be Stitched Together
In late 2015, experts declared Etsy dead as Amazon launched Handmade, it’s peer-to-peer marketplace for handmade products. And yet with all the factors in place to favor explosive growth, Handmade’s performance has been underwhelming at best. Where did Amazon miss the target?
In late 2015, experts declared Etsy dead as Amazon launched Handmade, it’s peer-to-peer marketplace for handmade products. It seemed to be the natural prediction – Amazon already had a massive network of buyers which made it very attractive for small businesses to join. These small businesses did not have enough time to manage their presence on multiple platforms, so they would likely not multihome on Etsy, which could lead to the long-time incumbent’s demise. Additionally, the artisans and craftworkers who had originally made Etsy successful were increasingly being crowded out on the platform by larger sellers with cheaper, more mass-produced items. These artisans found a breath of fresh air in Handmade’s stricter policies – items needed to be actually handmade as opposed to outsourced to industrial producers. And yet with all these factors in place to favor explosive growth, Handmade’s performance has been underwhelming at best. Although the company is rather secretive about the numbers, as of early 2017 (a year into Handmade’s launch), Amazon marketplace had above 2 million third-party sellers and 310 million active buyers, whereas Handmade had only 500,000 items listed for sale. For comparison, Etsy had 45 million items listed, around 2 million active sellers, 31 million active buyers, and a maturing presence in international markets. Why did Amazon marketplace’s network effects not translate over into Handmade?
Which side initiates the network effects? Buyers for marketplace, Sellers for Handmade —
Amazon marketplace builds and maintains its network mainly through drawing in customers by offering cheaper, faster products. Medium to large business sellers can best cater to this demand pattern and so sell through the marketplace platform. However, the dynamics for artisan crafts business are quite different. Customers buy such products once in a while for a special occasion, and are not necessarily looking for faster, cheaper products – rather they have a higher willingness to pay and are more likely to be planning in advance. Thus, Amazon marketplace’s core value propositions become much weaker in the case of Handmade. The best place to initiate the network, therefore, is through drawing sellers.
Amazon’s model of doing business clashes directly with what sellers value
Sellers essentially want two main things: visibility and money. Handmade’s business model charges sellers $40/month and a 15% commission per sale, which many sellers find outrageous compared to the 20 cents/item listing fee and 3.5% commission charged by Etsy. Handmade’s fee is deemed even more disproportionate given that sellers feel that they are not getting the visibility and customer base they would have gotten at Etsy. Those with experience on the platform mentioned that they felt rather invisible and it that it was hard for them to create their desired brand since the Handmade page is nested within the much larger Amazon website. Amazon also does not distinguish Handmade products in the search results, making it harder for customers to identify these craft products. On top of that, sellers complain that true to its nature, Amazon pushes them for fast delivery, which is very difficult for custom-made orders. And finally, whether or not an item is delivered quickly, if the customer complains, Amazon’s customer-obsessed nature means it almost always sides with customers, which can prove very expensive to sellers of custom-made products. All in all, it seems that the value propositions that Amazon has worked so hard to build and that work so well for Marketplace are difficult to reconcile with the dynamics of selling handmade artisanal products.
Final Thoughts
In the world of winner-takes-all scenarios, it’s easy to jump to the conclusion that companies with the largest existing networks will likely kill other competition. Handmade is a great example of when network effects do not translate to different products on the same platform. Thus, even with the much larger network of buyers and sellers, a heavily integrated set of e-commerce platforms and deeper pockets, Amazon can only benefit with an integrated strategy and brand management between its platforms. Until then, it looks like Etsy will rule.
Great post! I like the sharp criticism shown from your article. This made me think of Alibaba’s Taobao model in China: Taobao is using a C2C model – every single person could open his/her own Taobao shop selling any handmade/self-made products online, while Taobao does not charge any commission from your revenue. This model incentivized those small business owners to explore online channel effectively, but at the same time, the quality of the products on Taobao is not well justified. This is like the 2 slides of a coin. If you choose Taobao’s model, you need to investment hard in managing quality and reputation of your platform while enjoying the benefits of network effects. If you choose Amazon’s model, you need to first worry about how to scale up this new business.
Very interesting post. It doesn’t seem like Amazon has made much effort to develop a tailored strategy (or much buzz) for Handmade. It feels like Handmade has been more of a bolt on to Amazon’s core business. I worked at Amazon this past summer and never actually heard Handmade ever referenced. Interestingly, Etsy just reported its first billion-dollar quarter demonstrating that there certainly could be some money for Amazon to make in the space. There are definitely things that Amazon does have going for it (and potential differentiators), e.g., its Prime feature and its extremely sophisticated fulfillment network, which provide the opportunity shoppers to acquire their handmade goods at the last-minute and with greater confidence.