Etsy was launched in 2005 and has grown to $2.8B in sales in 2016 and hitting over $1B in sales in Q4 of 2017. Revenue growth has been accelerating as well along with tighter, but healthier EBITDA margins of 25%. Much of this growth has come after difficult slowed growth when the company went public in 2015 to the replacement of their CEO in mid 2017, who prioritized revenue growth and healthier margins, effectively by increasing some of the costs for sellers through Etsy payments and promoted listings. The question for Etsy remains how they can continue to scale in handmade goods in the presence of newer entrants like Amazon Handmade and a more entrenched platform like Ebay.
Platform Management and Governance
Much of Etsy’s early growth was due to its strict focus on the economics of maintaining a competitive platform that was simple to use for both buyers and sellers. To achieve this they have made significant investments in their algorithms behind search, advertising, and the UI/UX of the platform. To further assist sellers, they provide a number of metrics and data points for sellers for deeper analysis and to optimize their advertising and costs. For buyers they have also focused on a clean and simple interface with easy shipping and clear functionality. Across both sides they continually communicate with the broader community to explain their plans and models behind their platform.
Competition from Amazon
Strong competition has come in through Amazon’s Handmade marketplace, which launched in 2015. The site brings to bear Amazon’s clean interfaces and operational procedures with its massive base of consistent buyers. As a result, many sellers on Etsy have gradually moved over to Amazon Handmade as another venue for selling their goods. Since the costs of multihoming for both buyers and sellers are quite low, many people use both platforms. The Amazon platform also provides many of the same tools and service level agreements, like free two day shipping, that they do on their primary marketplace. While this competition poses problems for Etsy, it has also pushed the platform to continually focus on improvements to its algorithms and overall performance, focusing on maintaining a healthy community of buyers and sellers.
Last year in light of slowed sales, Etsy replaced its former CEO Chad Dickerson with Josh Silverman, a former eBay executive and Etsy board member. The shift indicated a potential directional change for Etsy, much of which played out over the coming months as Etsy shifted its focus toward promoted listings and Etsy payments as a way of further extracting value from sellers and buyers. The moves are believed to help strengthen the revenue growth and margins of the company, however it may yield mixed reactions from both buyers and sellers as prices rise or margins are cut. Given Etsy’s focus on maintaining a competitive and health community using the platform, it remains to be seen how the community will fully react. The move could indicate a renewed focus on experimentation to promote more competition on the platform in an attempt to pull more buyers and possibly more sellers. Etsy will have to balance this experimentation with their community and growth, which in light of the company now being public is under further scrutiny by investors.