Amazon vs. Etsy – an incumbent’s futile attempt to disrupt the “vintage” category
Why Etsy witnessed the entry and fall of the giant Amazon in the niche category of handmade and vintage items
Is Amazon invincible? A question which often pops into my mind whenever I read about the company’s latest innovation. With 244 million customers, it claims to be the biggest e-commerce platform in the world. A company which transitioned from an online book-seller to robotics (Alexa) and delivery drones, Amazon continues to delight its customers and in return, becoming more powerful every day. Is there a chance for other players to compete with Amazon in this age of high multi-homing and network effects?
Well, it seems like one company – Etsy, a peer-to-peer e-commerce website focused on handmade or vintage items and supplies, stands strong against Amazon. Launched in 2005, the platform has 54 million active members today (only 22% of Amazon’s size) with 1.4 million active sellers and 19.8 million active buyers. After Etsy went public in 2015 with an initial valuation of $3.5 Billion, the company, who had historically dominated the “handmade and vintage” niche market, saw its worst dreams come true when the incumbent Amazon launched its own hand-crafted products platform called “Handmade”. With an initial portfolio of 80,000 products, a customer base of 244 million and best-in-class search engine optimization, Amazon “Handmade” could have been the end of Etsy except that it wasn’t. Amazon witnessed multiple issues while entering the market which made it lose its first chance of entry.
a. Commission fees – Given Etsy’s excellent reputation in the market, the first mistake which Amazon made was pricing which was more than 3x that of Etsy’s. While Etsy charged vendors 3.5% commission sales, Amazon charged them 12% which automatically narrowed the list of vendors who were interested in doing business with Amazon
b. Relationship with third-party sellers: Amazon has a reputation of being a customer-based platform whereas Etsy focuses much more on nurturing its relationship with sellers. While Amazon refused to share detailed customer information with sellers and did not provide any support, Etsy invested in multiple initiatives to help entrepreneurs establish a strong business presence e.g. Etsy seller handbook, Etsy labs, Etsy wholesale blog, Etsy Street teams and various other systems to help sellers understand the customer better. Moreover, sellers often saw Amazon as a future competitor given its history of working with third-party sellers as pilot to test new products and once they see a sizable customer demand, Amazon starts sourcing the product directly from manufacturers eliminating the intermediaries.
c. Brand reputation: Amazon is often referred to as the “home of the cheap and readily available” which does not match with the effort and involvement which a customer puts in while purchasing a vintage item. Most of Etsy’s vintage items are 20+ years old requiring customers to appreciate and assign value based on their judgment which may not necessarily be the cheapest price in the market. Despite 244 million customers, Amazon failed to interest its diverse customers to buy vintage items who had come to the platform to find everyday items whereas, customers coming to Etsy knew they were looking for vintage items and ended up being loyal customers.
d. Customization: Amazon did not offer any customization to sellers while uploading the products while Etsy offered features like free upload of up to 5 pictures, video demos, etc. helping sellers promote their products better
Although sellers continue to seek more from their experience with Etsy, for instance, better support service, more customization, etc., the brand continues to be the preferred choice. Unless Amazon returns with a business model which is drastically different from Amazon Marketplace, the company will have to forget winning in this niche. This is also a very strong case in point for other e-retailers, who are looking to disrupt the giant Amazon, indicating that organizations who are involved in the development and relationship-management of sellers may end up generating loyalty and in return a strong market presence.
Sources:
https://smallbiztrends.com/2016/06/best-online-marketplace.html
https://en.wikipedia.org/wiki/Etsy
http://www.ecommercebytes.com/cab/abn/y16/m08/i09/s03
https://wemakewebsites.com/blog/amazon-vs-etsy-a-comparison-for-merchants
http://www.luckybreakconsulting.com/blog/the-problem-with-selling-on-handmade-at-amazon/
https://www.salehoo.com/blog/sick-of-ebay-try-these-alternative-places-to-sell
https://www.scrapehero.com/amazon-handmade-vs-etsy/
http://nypost.com/2015/10/08/amazon-launches-etsy-killer-handmade-crafts-site/
Great post Onaizah! I actually had never heard of Amazon Homemade, so they must not have done a good job promoting it to consumers either. It is an interesting lesson that even strong platforms needs to adjust their business model as they try to enter a new segment of the market. Sellers would likely be open to multi-homing on Etsy and Amazon if the commissions were similar. I wonder if Amazon could not lower the commission to compete more closely with Etsy as to not cause issues with their marketplace sellers.
Thanks Natalie. Fully agree with you on the ‘adjusting your business model’ part. I don’t know either why Amazon would keep their commission rates so high but I do think that even in the scenario that they had low commission rates and sellers multi-homed between Etsy and Amazon, Etsy may still get more stickiness just because it invests in relationship management which is very important to new entrepreneurs (similar to our learnings from XFire case).
Interesting post Onaizah, I’ve never heard of Amazon Homemade either. It’s funny though how your point on commission fees reminded me of the platform simulation, maybe Amazon should have gone through that exercise! I really do think Etsy has designed its platform with a strong focus on vendors and customers, simply using the Amazon brands quickly eliminates the homemade design-conscious feel.
Thanks Lulu. I think that’s true – Amazon brand does eliminate the homemade feel and in a segment which is based on relationship and customization, Amazon may not be the right player to exist. Wonder if Amazon will make another attempt to enter this industry though!
Great post! It feels like platforms like these are commoditizing what feels ‘homemade’ and ‘artisanal’. Wonder how/if Etsy helps its retailers expand their inventory to stay unique and retain customers.
Definitely! I think Etsy does a variety of programs to engage with suppliers/retailers and encourage innovation. Some programs I know about are Etsy seller handbook, Etsy labs, Etsy wholesale blog and Etsy Street teams through which vendors are actively engaged with the company, understand customer trends and also get innovative ideas for future.
Nice post! This article echoes to the discussion we had in class about why so many social media platforms have emerged while Facebook exists. I guess the question posted to Etsy is on expansion, is the ‘niche’ market big enough for its (or its investor’s) appetite? If it has to head-to-head compete with Amazon in some other categories, what would be smart choices that it can replicate its success in the handmade sector?
Great post Ona! Amazon’s missteps regarding Handmade brought to mind the company’s general struggles in the fashion apparel and accessories categories. I went to the Handmade website and it definitely seems out of sync with the intimate, cozy feel that Etsy is good at projecting. I wasn’t aware Amazon’s high commission fees. Thanks for posting.