Better simpler strategy – how Etsy has survived and thrived
In this blog, Professor Felix Oberholzer-Gee from the Harvard Business School, helps to explain how Etsy has survived and thrived from the potential Amazon onslaught.
October 2015 was a dark period for Etsy, the prominent US online marketplace for handcrafted goods. Amazon had just launched “Handmade” which competed directly with Etsy’s business. US Today screamed “Amazon Launches Its Etsy Killer”.
While Etsy already had significant brand association with the artisanal maker movement, the Amazon customer base – and the potential exposure for the makers – was that much larger at an estimated 285 million buyers versus less than 22 million active buyers at that time. And in platform competition, scale usually wins.
In the six years since Amazon’s entry to the handmade, vintage items and craft supplies space, Etsy’s revenue has more than quadrupled and its share price has risen 20-fold. Its current market capitalisation is under US$30 billion, about 1.7 per cent of Amazon’s US$1.76 trillion.
One reason that Etsy and Handmade can live side by side is that their platforms favour different groups. Amazon is squarely in the customer’s corner. Every feature of its business is designed with customers in mind. By contrast, Etsy was established to support artisans and serve the craft movement. And this difference on orientation manifests itself in many ways.
Etsy charges the sellers lower fees and releases their payments immediately, whereas Amazon holds on to the seller’s funds. Etsy has a long history of supporting the maker movement, engaging in seller education and community support. When Etsy went public in April 2015, it offered its sellers a pre-IPO participation.
Amazon insists on controlling communication and the interaction between sellers and their customers, artisans on Etsy can harvest customer contact information and add promotional material in their shipments. Investors need to understand the distinction between buyer-focused (Amazon) and seller-dominated (Etsy) platforms. The so-called platform cannot afford to neglect the other group entirely.
And that is exactly what Etsy has done. In competing with Handmade, Etsy has become a little less seller oriented, and often mimics Amazon in some of its decisions, including free shipping. And despite greater similarities, a profound sense of difference for the sellers remains. Overall, Etsy has succeeded battling the Amazon superpower by maintaining a sharp focus on the success of its sellers.
The Polen Capital Global Small and Mid Cap Fund owns shares in Etsy. This article was prepared 22 October 2021 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Etsy you should seek financial advice.
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