Have you ever tried to buy something bespoke? Needed a handcrafted gift? If so, you have more than likely come across Etsy.com, an e-commerce marketplace that connects artisan sellers to buyers who seek out these handmade and vintage products.
Etsy benefits both buyers and sellers that participate on its platform. The website provides sellers access to willing and interested buyers from around the world who seek out these non-mass products. Sellers can create a virtual shop and brand on the platform with the freedom to dictate their own product offering and pricing. Additionally, Etsy helps with marketing sellers and their products and facilitates transaction payments with buyers. Buyers benefit from Etsy’s aggregated product selection and access to local and global artists. This is especially important given that many of these sellers may not have the ability or funds to directly reach consumers on their own. Etsy’s value proposition to both sellers and buyers have led to stickier customer relationships and a long list of sellers. In Q1 2016, Etsy had 1.6 million active sellers and 25 million active buyers). Further, Etsy has seen strong network effects with direct traffic comprising 80% of traffic and 78% of purchases attributable to repeat customers. Buyer loyalty and growth over the years have further boosted Etsy’s revenue, with most of its revenue coming from the $0.20 listing fee per product and the 3.5% commission from each sale. Continued growth in revenue depends on boosting the number of transactions, active sellers, and buyers on its platform.
Despite its historically strong growth, the Company has experienced stagnation and risks market saturation. According to Etsy, it already has sellers in 99.9% of US counties. Some of this slowed growth is attributed to Etsy’s core value proposition that focuses on handcrafted products. These products by nature are more difficult to scale because they are not mass-manufactured. However, Etsy’s position as a public company creates a tension with its core values by subjecting it to shareholder growth expectations and comparisons to peers such as Amazon.com. As a result of these growing pressures, the Company adjusted its sales strategy and potentially muddled the platform’s identity as a handcrafted marketplace.
In 2013, Etsy’s CEO Chad Dickerson redefined the term “handmade” by allowing sellers to hire outside staff and manufacturers to produce products on a larger scale. This move divided the community of sellers. “It’s not a Company plagued with scandal. The problem? You can’t scale heart” claims Grace Dobusha a former Etsy seller. Unlike when it first launched in 2005, Etsy now has more competition to capture and keep its seller and customer base. The rise of social media platforms has lowered the barriers to reaching customers and marketing products outside of a marketplace like Etsy.
Additionally, services such a Shopify and SquareSpace allow sellers to create their own e-commerce store for a nominal fee. The launch of Amazon Handmade in 2015 further complicates Etsy’s relationship with its artisan sellers. One 3-year seller grew tired of trying to remain relevant on Etsy and left to join Handmade. She wanted to be an early adopter because “you’re the first to get people’s feedback ratings, their sales, that kind of thing,” she says. “Eventually there’ll be more competition, but I feel like by [that time]…I’m hoping to be more established.” The rise of larger manufacturers on the website have frustrated many sellers who are unable to defend themselves on the platform. Many sellers on Etsy are have described stories “of having their designs ripped off, resigned to the fact that getting copied, and competing against cheaper knock-offs… an increasingly inevitable part of doing business on the site.” In addition to other competitors on Amazon Handmade, the artisan seller on Etsy is also competing on an increasingly unfair playing field on the platform against these larger players with more resources. Although Etsy continues to grow traffic on the website, it is uncertain how sustainable the Company will be as a platform for handmade artisans. Sellers go to where the buyers are, but will buyers stay?