Etsy: The Dark Horse of E-commerce
Etsy started small with what many may call a niche market. But the growth Etsy has been having recently hints towards something big and important in future.
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In 2018 Josh Silverman, the CEO of Etsy made this statement as part of a podcast -
“We're living in the sea of sameness,” CEO Josh Silverman said in a July podcast the company hosted for its sellers. “People are buying more and more of the same mass-produced goods from the same few logistics companies, and the world wants an antidote to that.”
Looks like Etsy’s wish has come true. The company’s quarterly revenue has seen a growth of 100% year over year between 2018 and 2020. And if we account for the latest quarterly earnings (Q2 2020); the growth has been close to 400%. That’s almost a 100% jump in revenue between two consecutive quarters. Not even Amazon had that growth during the pandemic. In some ways, one can think of this growth as the acceptance of Etsy’s mission -
Our mission is to Keep Commerce Human. People make Etsy possible. We provide a meaningful space for sellers to turn their creative passions into opportunity. We enable buyers to discover unique items made with care. And we treat our employees and our community with respect. We’re here because the world needs less of the same and more of the special.
The mission to be the torch bearer of creativity is how Etsy differentiates itself from other e-commerce platforms. One can also understand Etsy through the analogy of other successful unicorns like Uber or AirBnB. Ben Thompsan writes in Aggregation Theory -
The third wave are industries that don’t have such an obvious digital component. Airbnb, for example, deals with vacant rooms; what makes it work is the way it has digitized — and thus commoditized — trust. Uber deals with cars; it has digitized both trust and dispatch. More importantly, both have nailed the user experience in a way that incumbents have been sorely lacking.
There are close to 3 million sellers on Etsy and over 92% of users have reported that they were not able to find a product they were looking for besides Etsy. Etsy has thus digitized and commoditized trust and creativity.
Creativity itself has become more important with time especially since the pandemic. This is partly because home has suddenly become the place where people are looking for new experiences and partly due to the fact that the next evolution in online shopping is personalization. As I’ve noted in my previous essay The fourth layer in online shopping -
The fourth layer is when businesses will empathize with the user and make it possible to deliver products that are customized and personalized for the user.
Etsy in a way is making shopping more personal and empathetic enabling users to shop per their interest and identity. CEO Josh Silverman puts it nicely in this interview -
Yeah, but there’s all kinds of, let’s say, baking supplies, parchment paper that you would use for a baking project you can buy anywhere. On Etsy, the parchment paper will come with your grandmother’s recipe printed on it so that when you and your kids are doing a baking project together, your grandmother can be part of that project, even if she’s not with you physically. It’s that kind of thing that I think can inject special into what otherwise feels like an everyday item.
Etsy is bringing this next level of personal shopping by connecting millions of creators (or sellers) with users around the world. In a way this creative connection from one person to another person is what makes Etsy special and this is why the company is in a great place to leverage the opportunities that lie ahead.
A better social network
At some level, sellers on Etsy are creative professionals who users identify with. Etsy has millions of niches on its platform which presents a wonderful opportunity for the company to grow. As the overhead to maintain a niche business; for instance, delivery, order management, user interaction etc is being simplified; its now easier than ever to setup and maintain a shop. Besides, as the internet is becoming an integral part in everyone’s life, there are more and more opportunities to grow any specific niche. Taken one step further in Li Jin in 1,000 True Fans? Try 100 -
As the Passion Economy grows, more people are monetizing what they love. The global adoption of social platforms like Facebook and YouTube, the mainstreaming of the influencer model, and the rise of new creator tools has shifted the threshold for success.
Although, the article specifically writes in context of influencers on social network, the same at some level is true for Etsy. Many of Etsy sellers or creators have profile on Instagram (example) and can be thought of as influencers. In Etsy’s case, the best part is that, the avenues for creative work can be more than just products. Etsy creators can offer online classes, participate in discussion forums, host special events etc. Some of this also means Etsy would overlap with being a social platform. But that is exactly how Etsy should probably see it. With many of the social networks integrating shopping, the line between being a social platform vs a shopping platform is getting blurred with time. Walmart’s recent investment in TikTok is further proof of this fact and Etsy is in a much better position than the giant to integrate the elements of social. As other social networks like Facebook, Instagram or Twitter are becoming too big and more people are connecting online (rather than offline), the sentiment is shifting towards more closely knit networks. As pointed out in this WSJ article -
The average person will use 10 social networks daily by 2023, up from six currently, according to Activate. Nearly 30% of adults aged 18 to 24 already use 10 or more, the company said.
Etsy is probably a very good contender when it comes unbundling a social platform like Instagram, focusing just on the creativity market.
TikTok & Etsy - A match made in heaven
The thing with creativity is that people don’t always exactly know what makes them creatively tick. Right now, most of the discovery on Etsy is intent based i.e people need to know what they are looking for and then search for it (barring the home page suggestions). Instead creativity is generally more exploratory and its only when people see hundred items or how other people are using it, they might identify with a specific one. The holiday ads by Etsy is one example of how the company is helping people to understand when they can be creative.
Similar to the ad, Etsy can offer more exploratory ways for people to find their inner creativity and at the same time learn and build an interest graph based on what people explore. We are already seeing rise of platforms that do this. As I have noted in my previous essay titled TikTok & the New Internet -
TikTok takes this responsibility of building a feed away from the user and into the hands of an algorithm. It keeps the fixed assumptions to a minimum in terms of user’s likes or dislikes. It also takes away the “winner takes all mentality” that is so prevalent in social networks. A Twitter user for instance who has a million followers, would definitely see his tweet getting more likes/comments than an average person. TikTok removes this hurdle or negative incentive.
TikTok has taken an AI first approach towards discovery and a similar approach could be a better fit for Etsy. It can become the digital version of your neighborhood downtown market which keeps changing over time adjusting itself to your interests. It can be one limitless feed of sellers launching specials, discussion forums, customers promoting products they just bought or popular products being highlighted. The feed can be customized for every user; some might be interested to self learn; others might be home designers and many might be creators themselves who are trying to actively contribute.
Capitalizing with Crypto
We are at the cusp of a new order for almost everything that has been a common place in the world right now. We have electric cars disrupting the century old gas vehicles, internet (with the help of covid) breaking apart the five day work week model or the meat industry being challenged by plant based alternatives. On similar lines, what we are seeing with Crypto and DeFi (Decentralized Finance), is this new way to think about money and investments in general. One critical part of the same is how we see creators establishing businesses on their own. With platforms like Youtube, Instagram, Snapchat we have seen creators building a huge audience and then capitalizing on that audience by setting up their shop or being associated with brands. In Etsy’s case, new sellers get more popular as they get more transactions and positive reviews. But the incentive model right now includes sales and reviews both of which mostly works in seller’s favor in terms of the practical benefits. For example if I am a user who believes in you as a creator from the start, what incentive I have to leave positive reviews or promote what I bought from you ? Is there a better way to incentivize this connection which is beneficial for both ? This is where social tokens enabled using the Blockchain technology comes into play. As noted in Creators, Communities, and the Gray Space in the Middle -
It feels like we're entering the next evolutionary phase of online communities, where you and others are not just members of the same chat room talking about a shared interest, but are stakeholders of the community itself, in a system with baked-in incentives to reward you for the value you put in. The community is able to evolve a product alongisde the creators.
What this means is that the next era for building creative niches is by providing incentives in form of social tokens from the very start. As such, a user like you or me who follows a creator and likes what they are producing can participate in such a way that we can both benefit as the niche grows. Mentioned in the same article -
Now, creators can not only engage but transact with their fans directly: the community can voice their opinions and have a better chance of being heard, the perks can be designed to reward members who add the most value, and the community can benefit through token ownership and redeemable real world rewards. The creator goes from being an aloof entity behind a veil of corporate interests to an active participant in their own community.
This ultimately means, it should get more easier for creators around the world to start their business on Etsy and be assured they have the same level playing field as any other big brand or online retailer. For instance, if I like a creator who designs specific type of wall paintings and I see potential for growth; as a follower, I can devote my time and energy and be assured that it will be properly rewarded.
Etsy has lot of other advantages too that are probably underestimated right now. The diversity Etsy has in its workforce (50% women in leadership positions) or among its sellers (86% sellers women), its emphasis on keeping the commerce human and the focus on being ESG conscious will work in its favor with time. One can say that Etsy is a step ahead of any other technology company in terms of where the world is going from a society point of view. Besides this, Etsy’s focus on making a more creative world is what makes it different from many other companies and one that gives it a lot of room to grow. Ultimately though, it will also come down to how innovative the company is and how its able to leverage the new opportunities technology has to offer.
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