A Deep Dive into the Etsy Business Model

In a digital landscape dominated by a single company, Etsy stands out by prioritizing the human aspect of commerce. As an e-commerce platform specializing in vintage items and craft supplies, Etsy creates a special space for artists to earn income from their creative work.

Discover how Etsy successfully combines a humanitarian approach with profitability and the marketing strategies that have propelled its prominence.

FactDetails
FoundersRobert Kalin, Haim Schoppik, Jared Tarbell, and Chris Maguire
Founded onJune 18, 2005
Company HeadquartersBrooklyn, New York, USA
Funding receivedTotal of $97.26 Million in 8 rounds
Etsy’s IPO dateApril 1, 2015
Etsy’s IPO milestoneLargest IPO to date for a New York-based venture-backed startup
Number of usersOver 25 Million users
Number of employees (as of 2015)Approximately 400 employees

What is Etsy?

Etsy is an e-commerce marketplace that connects artists with global buyers, allowing them to sell their handmade, unique products. It stands out from platforms like Amazon and eBay by providing value to both sellers and buyers.

Sellers can monetize their craft, while buyers can find one-of-a-kind items that showcase their individuality. Since its inception in 2005, Etsy has grown into a publicly listed company with substantial funding. Unlike its competitors, the company focuses on a specific niche: craft items.

Exploring Etsy’s business model, revenue strategies, customer segments, and value propositions provides fascinating insights into its success.

Etsy’s Historical Journey

Etsy’s journey began in 2005 when Rob Kalin and his friends sought an online platform to sell their handcrafted goods. From a Brooklyn apartment, Etsy quickly gained traction by providing innovative tools for sellers. By 2007, it had amassed nearly 450,000 registered sellers and secured substantial funding.

Leadership changes followed, with Maria Thomas and Chad Dickerson playing key roles. International expansion and controversial decisions, such as allowing manufactured goods, fueled further growth. Going public in 2015, Etsy raised $237 million and now stands as a prominent e-commerce platform with a vast user base.

Ownership of Etsy

The company is currently owned by Etsy Inc., with John Silverman serving as the CEO. In May 2017, Etsy faced significant shareholder pressure due to disappointing profits and a loss in the first quarter. Consequently, the board appointed John Silverman to replace Chad Dickerson as the company’s CEO.

How Etsy makes money

The company generates revenue through various channels, which contribute to its overall financial success. Let’s explore the major revenue streams employed by Etsy:

  • Listing Fees: Sellers are charged a $0.20 minimum fee per listed product for four months;
  • Commissions: Etsy applies a 3.5% transaction fee on the total sale amount;
  • Advertisements: Sellers can promote their items through cost-per-click (CPC) ads;
  • Subscriptions: Etsy Plus offers enhanced tools for sellers at a monthly fee of $10;
  • Pattern: Sellers can create personalized websites using Pattern, with a free trial and subsequent $15 monthly fee;
  • Payment Processing: Etsy Payments applies transaction fees based on the chosen payment method;
  • Currency Conversion: Etsy charges a 2.5% fee for converting sales to the seller’s currency.

Inner Workings of the Company

Etsy operates through a straightforward process that facilitates seamless transactions between sellers and buyers. Let’s delve into how it works:

  • Seller Registration and Listing: Sellers join the marketplace by signing up and creating an account. They then proceed to list their products for sale on Etsy’s platform. To list items, sellers are required to pay a fee, which covers a four-month duration for each listing;
  • Buyer Search and Selection: Buyers navigate the Etsy marketplace to discover and explore a wide range of products. They have the option to apply advanced filters to refine their search and simplify the browsing experience. If buyers have any questions or inquiries regarding a particular item, they can communicate directly with the sellers before making a purchase decision. Alternatively, buyers can add desired products to their shopping cart for future checkout;
  • Secure Transaction and Payment: The actual buying process takes place on Etsy’s platform. Buyers proceed with the purchase by selecting the desired items and initiating the payment. Etsy acts as an intermediary, securely transferring the payment from the buyer to the seller’s designated bank account. In return for facilitating the transaction, Etsy charges a commission on each sale;
  • Rating and Reviews: Once buyers receive their purchased goods, they have the opportunity to provide feedback on their experience. They can rate the seller based on their satisfaction with the transaction and leave a review detailing their thoughts on the product. This feedback mechanism not only helps buyers make informed decisions in the future but also enhances the overall experience for subsequent buyers on the platform.

Etsy’s Business Model

Customer Segments:

The company operates as a two-sided marketplace, catering to both buyers and sellers as its primary customer segments.

  • Buyers: These individuals are interested in purchasing unique and distinctive products, including crafts, vintage items, and one-of-a-kind goods. The company provides them with access to a wide range of such offerings, sourced from artists and sellers worldwide. Buyers can enjoy the convenience of international shipping, ensuring their desired items can be delivered to their doorstep, regardless of their location;
  • Sellers: Etsy’s sellers consist of artisans, craftsmen, small-scale manufacturers, and creators of handmade products. They utilize Etsy’s platform to showcase their work, establish online shops, and earn income by selling their unique creations. Sellers have the freedom to set their prices, list as many items as desired, and utilize product tags to enhance discoverability.

Value Propositions:

Etsy delivers value propositions to both its buyer and seller customer segments.

For Buyers:

  • Access to a vast collection of unique products from artists globally;
  • Ability to purchase singular vintage items;
  • Convenient international shipping options.

For Sellers:

  • A platform to showcase and sell their artistic creations;
  • Control over pricing and product offerings;
  • Enhanced visibility through product tagging.

Channels:

  • Etsy employs various channels to reach its target audience and facilitate transactions:
    • Etsy’s own platform serves as the primary distribution channel;
    • Social media platforms are utilized for marketing and engagement;
    • Workshops and events hosted by Etsy contribute to seller education and community-building;
    • Partner programs help expand Etsy’s reach;
    • Online and offline advertising initiatives promote brand awareness;
    • Word-of-mouth recommendations play a significant role in attracting buyers and sellers.

Customer Relationships:

The company fosters customer relationships by building and nurturing an online community that supports its two-sided marketplace.

They prioritize seller education and support through customer service assistance and hosting events that facilitate knowledge sharing. The focus is on fostering a sense of belonging and promoting local commerce.

Revenue Streams:

  • Advertisement services offered to sellers;
  • Sales commissions charged on each transaction;
  • Listing fees for sellers to showcase their products.

Key Resources:

  • The e-commerce platform itself, facilitates transactions, payment processing, and shipping logistics;
  • The underlying infrastructure supporting the platform, including tools, processes, and features;
  • The community of buyers and sellers that drives engagement and marketplace activity.

Key Activities:

  • Ongoing development and maintenance of the platform, including the integration of essential tools, payment systems, and shipping processes;
  • Building and nurturing a thriving community of buyers and sellers, ensuring a balanced and vibrant marketplace.

Key Partners:

Etsy’s key partners are synonymous with its customer segments: buyers and sellers. Both sides are essential for Etsy’s success as a two-sided marketplace. Without buyers, sellers would lack an audience, and without sellers, buyers would have limited product options.

The collaboration and trust between these two parties form the foundation of the company’s business model.

Cost Structure:

  • Platform development and maintenance;
  • Customer support services;
  • Shipping logistics;
  • Marketing and advertising initiatives;
  • Staff salaries;
  • Seller education programs;
  • By efficiently managing these costs, Etsy sustains its operations and ensures the continued growth of its marketplace.

Etsy’s Competitors

  • ArtFire: An online platform that facilitates buying, selling, and interaction for crafters. It provides a unique feature where buyers can post “wanted” ads for specific handmade items;
  • Amazon Handmade: Amazon’s dedicated platform for crafters to sell their work, exclusively offering products that are handmade, hand-altered, or hand-assembled;
  • Big Cartel: Geared towards makers, Big Cartel offers customization options for store themes, helping artists personalize their online presence in a world dominated by mass-produced goods;
  • eCRATER: A marketplace that connects sellers and buyers, providing access to a forum where users can engage in discussions and share experiences. It also offers customizable online shops;
  • iCraftGifts: A Canadian marketplace specifically catering to handmade art, craft, and fashion items. Sellers on iCraftGifts can leverage marketing services, community blogs, message boards, and participate in arts and crafts events;
  • IndieMade: This platform provides artists with tools and support, including photo galleries, web hosting, marketing resources, and assistance in managing their stores;
  • Misi: A UK-based marketplace for handmade and personalized goods, Misi focuses on helping designers create, build, expand their businesses, and boost sales;
  • Shopify: A versatile e-commerce platform that enables sellers to create their own online stores, with mobile optimization and customization options for domains and layouts, catering to users without prior technical knowledge;
  • Society6: Designed for verified artists, Society6 grants sellers complete control over their artwork rights, providing a platform for showcasing and selling their creations;
  • Volusion: Similar to Shopify, Volusion empowers sellers to build responsive websites with custom domains. It offers resources for order processing, payment management, and shipping logistics;
  • Zibbet: With a community of over 55,000 independent handmade sellers, Zibbet supports artists throughout the entire process, from creation to shipping. It provides a range of tools and opportunities for growth.

Etsy’s SWOT Analysis

Strengths:

  • Exceptional Customer Satisfaction: Etsy prioritizes delivering unique products, resulting in a positive experience for buyers and sellers;
  • Enhanced Credibility: Etsy’s approval process and reliable online payment system build trust and credibility among users;
  • Steady Cash Flow: A substantial base of regular consumers ensures a consistent cash flow for Etsy’s sustainable profitability;
  • Reliable Distribution Network: Etsy’s outlets and efficient supply distribution network guarantee timely product delivery;
  • Strong Dealer Relationships: Etsy fosters loyalty and provides excellent services, leading to a robust dealer base;
  • Respected Reputation and Brand: Etsy’s consistent market share growth has elevated its market value and brand recognition;
  • Skilled Workforce: A qualified and well-trained workforce ensures a safe and pleasant experience for customers;
  • User-Friendly Platform: Etsy’s website and mobile app offer a seamless interface, enhancing the buying and selling experience;
  • Global Reach: Etsy’s platform enables buyers and sellers from around the world to connect and transact;
  • Diverse Product Range: Etsy’s broad range of unique and handmade items appeals to a global audience.

Weaknesses:

  • Technological Gap: Despite being a leader in its segment, Etsy falls behind some competitors in terms of technology and invests less in research and development;
  • Shipping Complexities: Operating globally, Etsy faces challenges with shipping costs and delays in order processing;
  • Authenticity Concerns: Customers may encounter difficulties in verifying the authenticity of arts, crafts, and vintage products on Etsy’s platform.

Opportunities:

  • New Markets: Etsy has the potential to explore and expand into untapped markets;
  • Globalization: Etsy’s platform attracts customers and sellers from all around the world, presenting opportunities for increased customer and dealer engagement;
  • Corporate Social Responsibility (CSR) Activities: Implementing CSR initiatives can empower local artists, encouraging them to utilize Etsy as a platform to sell their products;
  • Research and Development (R&D): Increased investment in website and app development can enhance the overall customer experience, fostering greater customer engagement.

Threats:

  • Limited Supply of Unique Products: The scarcity of rare items may lead to high public demand that Etsy struggles to meet due to limited supply;
  • Exchange Rate Fluctuations: As an international platform, Etsy is exposed to fluctuating exchange rates, which can impact profitability and result in potential gains or losses;
  • Increasing Competition: The entry of new competitors in Etsy’s market may lead to reduced revenue and profitability;
  • Online Security Threats: As an online business, Etsy faces the inherent risks associated with cybersecurity, including the potential vulnerability to hacking or viruses, which could pose a threat to its operations.

Conclusion

Etsy’s business model has been instrumental in its remarkable success as a global marketplace for unique and handmade products. By focusing on a niche market and creating a platform that caters to both buyers and sellers, the company has carved out a distinct space in the e-commerce industry.

The strength of Etsy lies in its commitment to customer satisfaction, its credibility as a trusted platform, and its ability to maintain a steady cash flow. With a user-friendly website and mobile app, the company provides a seamless and enjoyable experience for users worldwide.