Etsy’s battle against Amazon
Etsy stands its ground against Amazon giant
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.
Student comments on Etsy’s battle against Amazon
I agree that I do not believe that Handmade by Amazon will be able to squash Etsy. I am personally an Etsy store owner, and I think that one of the primary value propositions that Etsy offers is a sense of community among the artists. Artists network and communicate with one another on a regular basis. I do not believe that this is a community that Amazon could recreate, even if they wanted to. I also think that many of the artists would be put off by Amazon’s values
It is hard to ignore Amazon’s incredibly large user base as a threat to Etsy. At the moment, it sounds that Amazon is not prioritizing it’s handmade section, and probably won’t focus on this for a few years; however, I think this program could gain traction with suppliers as a way to connect with many more consumers. Even though the Etsy network is strong, it is still tiny compared to Amazon, and suppliers looking to achieve greater scale will definitely begin to multi-home to wherever the customers are shopping.
I agree with you that at the moment, it seems that Etsy has multiple advantages that can help protect it from Amazon. However, I do wonder why Amazon’s commission fees and referral fees are so much higher, when they are trying to compete against Etsy. In addition, I wonder if the main advantage that Amazon has over Etsy is that while Etsy will often have sellers selling unique pieces, due to Amazon’s more commercial nature, Amazon can get sellers to make multiple of the same piece.
As both an Amazon and Etsy shopper, it was really interesting to read about the different commission and fee structures that they each have. In fact, I didn’t even know that Handmade at Amazon existed, which is surprising given it has been around for 3 years now. I also agree with you that Etsy appears to have a formidable business model against Amazon. I hope that the artists on Etsy can take a lesson from the experience that small business owners have had with selling on Amazon’s marketplace (such as what we saw with the paintball case last week) and perhaps collectively agree to avoid migrating over to Amazon so that they don’t risk getting taken advantage of down the line.
Hi great post. Do you think Amazon’s friction in experience due to high commission, wait time to be approved to be a vendor and lack of transparency in not providing analytics to vendors will not change in the near future? One has to fear some Amazon mid-level manager in recognizing this, (perhaps with the help of blogs like this wink wink), and doing something about it no? The question is – has Etsy’s platform reached network effects or other attributes that will make it defendable or are most of the platform’s differentiation based in replicable features?
Great post! I agree with you that Handmade at Amazon won’t be able to compete well with Etsy. Etsy is known for being a more “niche” platform where quality and creative products are preferred over efficiency and cost. Because of this, I think Etsy will still be able to command a significant market share against Amazon in this specific space.
Great observations! Etsy is definitely the platform for artists and community. As Amazon drives prices down, Etsy sellers can drive ‘value-up’ and provide more artisanal handmade services with an authentic feeling. This value-add model is definitely at conflict with Amazon’s customer-centric (in which they really just mean ‘low price for high convenience’) model. I also think more and more people will be doing this ‘direct to consumer sales’ approach with their own products, I wonder if Etsy could get into the artist-as-a-service model in which individuals are providing consulting or artistic support services (like what Catalant wants to do) but maintain their community-centric/artisan approach.
I agree with your assessment of Etsy’s ability to compete with Amazon. The branding element, in my opinion, is particularly important. Etsy’s brand equity lies in the strength of its community and the promise of bringing small businesses and small business supporters together. Amazon’s brand, on the other hand, is diametrically opposed to Etsy’s. In a world where the leviathan that is Amazon is rapidly encroaching on every single facet of our lives, I think there’s a real sustainable strategic advantage to be had in a challenger that feels authentically “small.”
I completely agree with your points on why Etsy will sustain its market share. In particular, I strongly believe that given the somewhat niche focus of Etsy, it was able to build a very sticky community of both buyers and sellers. For this reason, I don’t believe the community is particularly sensitive to pricing or ease of returns. Furthermore, the general media attention on Amazon squeezing out small suppliers only further incentives people to stick to Etsy.
I 100% agree that Esty will be able to stick out the fight – I would never think to have a dialogue with an Amazon seller, nor would I trust the quality of a customized/personalized product sold through the platform in the same way I would on Etsy. I would argue that despite the fact that Amazon has various types of memberships for customers, whereas Etsy does not, only the latter feels like a true community. Etsy merchants are often willing to negotiate prices, take additional photos of products upon request, and customize items and shipping options depending on a customer’s needs. Although mom and pop retailers may not stand a chance against Amazon in the long run, I believe Etsy will continue to attract artisans and customers looking for unique and hand crafted products.
Thanks for sharing! It appears that artists currently prefer Etsy because of its favorable conditions and priority towards sellers. However, Etsy may be threatened as consumers have increased demand for cheaper prices and become impatient to wait in the on-demand economy. Today, consumers expect that these products are pricier and take longer to deliver. However, these ‘unique’ products can easily become commoditized over time by offering a few types of products on Amazon that are unique and then learning from the types of styles and tastes consumers want for particular occasions and partnering with a few manufacturers who iterate on the design of types of products demanded (example: change up the offering of banners, posters, goodie bags, etc).