Etsy creates value for both consumers and sellers of handmade goods. Sellers gain access to tens of millions of consumers. Etsy allows them to profitably practice and validate their craft. They also gain feedback based on what products are selling, reviews customers are leaving, as well as data Etsy provides on how many people are viewing vs buying their products. This information allows sellers to understand where they lose the customer and therefore take immediate action in changing their products or listings rather than waiting until the next craft fair. They can essentially become entrepreneurs, developing new products, deciding how much to spend on advertising, interacting with customers, etc. For consumers, it provides a one stop shop for handmade, unique goods. There is also an emotional, feel-good aspect to purchasing something handmade from a local artist when the rest of the world is outsourcing cheap products to foreign countries.
Etsy captures value by charging the seller a $0.20 fee for each listing, 3.5% commission on each sale and 3% + $0.25 payment processing fee as well as collecting fees from sellers opting to promote their listings1. In 2016, they processed almost $3B of transactions and earned $365M of revenue2.
Amazon has definitely taken note, however, and in 2015 fired back by launching Handmade at Amazon. They charge 15% commission and a $1 minimum referral fee3 (more than double Etsy’s fees.) You must apply to be a vendor which can take 4-6 weeks to hear back on. They don’t provide information on things such as how many people view your products and customers must specifically search for handmade products for them to even show up. This friction in the experience has allowed Etsy to maintain its market share against Amazon. It seems as though Amazon is not focusing much on quality because multi-homing tendencies are high and they already have a large user base to get eyeballs on the products.
The question now is whether Amazon will be able to slowly squash Etsy or if Etsy will be able to stand its ground. Personally, I think Etsy will be able to stand its ground for a few reasons. First, Amazon’s main capability is providing quick and convenient products to you through their sharp logistics and fulfillment skills. Amazon consumer expect 2 day delivery with few errors. Handmade goods, however, do not lend themselves well to this model. They take time to make, they’re often customized and they’re sent through millions of small sellers. Something about the fact that items make take a few weeks before they’re ready to be shipped makes them feel real and genuine and special. Additionally, taking care of customer complaints and returns on customized, unique goods could potentially be disastrous. Second, Amazon is great at predicting what products might suite you based on a number of factors including previous buying history. Most people don’t go to Etsy, however, for routine products and often don’t even know what they’re looking for. They want something different and unique, often as a gift for someone else. Therefore, Amazon’s algorithms are likely less effective on handmade goods. Finally, Amazon has a marketing disadvantage. Amazon has a very commercial, big company feel to it where consumers feel they get cheap, often commoditized goods whereas Etsy’s mission is to “Keep Commerce Human” – a mission that speaks to artists and consumers of handmade goods. Overall, it is hard to say for sure whether Etsy will survive against the Amazon giant, but if the last two years are any indication, it appears that they will be just fine.