Is Amazon invincible? A question which often pops into my mind whenever I read about the company’s latest innovation. With 244 million customers, it claims to be the biggest e-commerce platform in the world. A company which transitioned from an online book-seller to robotics (Alexa) and delivery drones, Amazon continues to delight its customers and in return, becoming more powerful every day. Is there a chance for other players to compete with Amazon in this age of high multi-homing and network effects?
Well, it seems like one company – Etsy, a peer-to-peer e-commerce website focused on handmade or vintage items and supplies, stands strong against Amazon. Launched in 2005, the platform has 54 million active members today (only 22% of Amazon’s size) with 1.4 million active sellers and 19.8 million active buyers. After Etsy went public in 2015 with an initial valuation of $3.5 Billion, the company, who had historically dominated the “handmade and vintage” niche market, saw its worst dreams come true when the incumbent Amazon launched its own hand-crafted products platform called “Handmade”. With an initial portfolio of 80,000 products, a customer base of 244 million and best-in-class search engine optimization, Amazon “Handmade” could have been the end of Etsy except that it wasn’t. Amazon witnessed multiple issues while entering the market which made it lose its first chance of entry.
a. Commission fees – Given Etsy’s excellent reputation in the market, the first mistake which Amazon made was pricing which was more than 3x that of Etsy’s. While Etsy charged vendors 3.5% commission sales, Amazon charged them 12% which automatically narrowed the list of vendors who were interested in doing business with Amazon
b. Relationship with third-party sellers: Amazon has a reputation of being a customer-based platform whereas Etsy focuses much more on nurturing its relationship with sellers. While Amazon refused to share detailed customer information with sellers and did not provide any support, Etsy invested in multiple initiatives to help entrepreneurs establish a strong business presence e.g. Etsy seller handbook, Etsy labs, Etsy wholesale blog, Etsy Street teams and various other systems to help sellers understand the customer better. Moreover, sellers often saw Amazon as a future competitor given its history of working with third-party sellers as pilot to test new products and once they see a sizable customer demand, Amazon starts sourcing the product directly from manufacturers eliminating the intermediaries.
c. Brand reputation: Amazon is often referred to as the “home of the cheap and readily available” which does not match with the effort and involvement which a customer puts in while purchasing a vintage item. Most of Etsy’s vintage items are 20+ years old requiring customers to appreciate and assign value based on their judgment which may not necessarily be the cheapest price in the market. Despite 244 million customers, Amazon failed to interest its diverse customers to buy vintage items who had come to the platform to find everyday items whereas, customers coming to Etsy knew they were looking for vintage items and ended up being loyal customers.
d. Customization: Amazon did not offer any customization to sellers while uploading the products while Etsy offered features like free upload of up to 5 pictures, video demos, etc. helping sellers promote their products better
Although sellers continue to seek more from their experience with Etsy, for instance, better support service, more customization, etc., the brand continues to be the preferred choice. Unless Amazon returns with a business model which is drastically different from Amazon Marketplace, the company will have to forget winning in this niche. This is also a very strong case in point for other e-retailers, who are looking to disrupt the giant Amazon, indicating that organizations who are involved in the development and relationship-management of sellers may end up generating loyalty and in return a strong market presence.