Etsy - Business Model

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Discussion

Etsy and the Long Tail of user-generated craft

Massimo Menichinelli:

"The best example that showcases the business possibilities of the DIY Craft movement is Etsy, a social commerce marketplace conceived by Rob Kalin along with Chris Maguire and Haim Schoppik in early 2005. It has now over 6.2 million members (400,000 of them are sellers) and it’s currently selling 6.5 million items. Gross Merchandise Sales started at $ 166,000 in 2005, were $ 180.6 million in 2009 and in 2010 (September) were $ 206 million. In January 30 2008 Etsy was reported being “almost break-even”, and received $ 27 million in Series D financing.

Etsy’s main business model is creating a marketplace for the long tail of DIY Craft, charging a listing fee of 20 cents for each item and getting 3.5 % of every sale,with the average sale about $ 15 or $ 20. Etsy also has another income from Showcase, Etsy’s advertising program designed for its sellers. By purchasing a 24 hour spot in the Showcase, Etsy sellers highlight their featured items in prominent places on the site to increase shop awareness and boost sales. Prices are $ 15,00 for Holiday and Main Showcase, while for the other showcases the price is $ 7,00.Therefore, there are even doubts if the core business of Etsy is providing a marketplace for handmade goods or rather an advertising business. Moreover, Etsy has its own API to lets developers tap into the Etsy community, building their own Etsy-powered applications for the web, desktop and mobile devices. In 2007 Etsy was reported being interested in expanding Etsy’s offline ventures: Etsy started running workshops open to local crafters and would like to provide support services, such as business advice and small loans in the future.

There are some criticism of Etsy’s business model, as well, since it seems to be not really a viable model for the makers. Only 4% of Etsy sellers are males, the average seller is a 35 years old woman and is is often a married woman with (or about to have) young children, with a higher-than-average household income, and a good education. Most probably Etsy attracts women with the hope of successfully combining meaningful work with motherhood. Unfortunately, it is very hard to make a living only with Etsy: very few sellers have done it, and the community confirms it. In fact, it seems that Etsy exerts a downward pressure on prices, since all the sellers (that live in different cities) are in direct competition and can’t increase volume (the usual answer to slim margins), because the items are artesanal and not mass-produced.

Megan Auman of craftmba.com suggests that Etsy should be regarded not just as a marketplace, but as a business incubator accelerating the successful development of DIY and Microproduction Craft businesses through an array of business support resources and services. Etsy offers a low-cost entry point into the marketplace, but as a business grows, it should think about leaving Etsy and have a different e-commerce store, a more proper step for building a rising brand (just like White Elephant Vintage did, for example). Moreover, as we said before, prices in Etsy will likely not rise because of the strong competition, and this is another reason for moving out of Etsy when the skills and the sales of a seller improves." (http://www.openp2pdesign.org/2011/open-design/business-models-for-diy-craft/)