Etsy Business Model is a multi-sided platform focused on handcrafted goods. With 15 years of activity and around 2 million active sellers worldwide (although two-thirds of them are in the United States), Etsy has become a giant e-commerce marketplace. The interesting thing about Etsy is that it is a niche marketplace – and a very specific niche.
As the About Us on its website says, “Etsy is the global marketplace for unique and creative goods. It’s home to a universe of special, extraordinary items, from unique handcrafted pieces to vintage treasures.”
Etsy connects artists who make handmade unique products to buyers all over the world. On Etsy, people can sell and buy handmade custom items – such as accessories, clothes, shoes, toys, decoration -, vintage items, and crafting supplies.
Launched in April 2005, the company had a successful trajectory leading to its IPO in 2015.
According to Etsy itself, the goal is to allow its community of artists to develop successful businesses, selling their unique and creative products, “something special with a human touch”.
It’s like an Amazon or an eBay, which connects, on the one hand, artists who want to make a living – or at least an extra money – with buyers who are looking for a “one of a kind” product.
Follow this article to understand how Esty’s business model works, which started with a small website aimed at artisans and became a public corporation of more than 360 million dollars.
How Etsy Works
- Sellers sign up on the marketplace and list their products for sale. They will have to pay a fee for getting their items listed, which is valid for 4 months.
- Buyers search for items on the platform, having the option to apply advanced filters that help make the search easier. Buyers can ask the sellers questions before the purchase, or just add the products to the chart.
- The buy-and-sell transaction is done through Etsy, which transfers the payment to the seller’s bank account. The marketplace charges a commission on every sale.
- After receiving their goods, buyers can rate the sellers write a review over the product. This enhances the experience for the next buyers.
At first sight, Etsy is a regular e-commerce marketplace, which sells goods and earns revenue from commissions – like a lot of others. In spite of that, this simple business model has some special features, that make it exclusive:
- Products listed as art & craft are always unique;
- Products listed as vintage must be 20 years of age or older;
- Products can be shipped globally;
- Sellers can create their own shops inside the platform;
- Sellers can choose more than one option for payment;
- Buyers can rate the sellers, thus helping next buyers;
- Etsy’s major growth came from word of mouth in women circles (67% of its users are female);
- Etsy has its own API, so developers can build their own applications for the web and devices;
- Etsy has given support to artists, by running supporting workshops, services as business advice, and even small loans.
Etsy’s Business Model Canvas
Let’s take a look at the Etsy Business Model Canvas
Customer Segments of Etsy
Buyers are the people who purchase unique products, whether craft or vintage items on the platform.
Sellers are the people or smalls manufacturers that produce handmade items. Either they want a shop online or just to earn some money by selling their products.
Value Proposition of Etsy
Etsy provides value to both its customer segments, buyers, and sellers. For buyers, the main value proposition is the fact that they can browse unique products, from artists across the globe, or singular vintage items, and have their goods delivered to their home, wherever they live, because Etsy provides international shipping.
For sellers, Etsy allows them to show the world their pieces of work, choosing the selling price they find fair. Also, sellers can create shops with as many items as they want to offer, and they can even add tags to the products, so the items may be searched more easily.
Distribution Channels of Etsy
The distribution channels of Etsy are mainly:
- Etsy platform itself;
- Social media;
- Etsy workshops and events;
- Partner programs;
- Online and offline advertising;
- Word of mouth.
Key Partners of Etsy
The key partners of Etsy are the same as its customers: buyers and sellers. Because a marketplace only makes sense if there are people who trust its structure to sell their goods through the platform.
But, at the same time, if there aren’t people interested in the products and who rely on the website to purchase, then the sellers wouldn’t be attracted by the marketplace. When there is a two-sided platform, the two sides are, indeed, the key partners of the business.
Key Activities of Etsy
The key activities that enable Etsy to run its business successfully are, first, the development and maintenance of the platform itself, with all of its tools, processes, and features, including payment and shipping.
Besides that, another important activity is to build the community of buyers and sellers the make the marketplace work properly. As mentioned above, there is no point in a two-sided platform if there is no interest from one or two sides of it.
Key Resources of Etsy
The key resources of Etsy are the ones that allows the company to provide its key activities in order to deliver its value proposition. So, they are the e-commerce platform, where all the transactions take place, all the structure behind it, with payment and shipping systems and process, and the buyers-and-sellers community, that promotes the experience in the marketplace.
Customer Relationship of Etsy
The customer relationship of Etsy is based on building the online community, that supports the two-sided marketplace. Besides that, the company works on seller education and support, both by customer support and by hosting events where knowledge is shared, and the local commerce is increased.
Cost Structure of Etsy
The cost structure of Etsy is composed of:
- Platform development and maintenance;
- Customer support;
- Marketing and advertising;
- Staff salaries;
- Seller education initiatives.
Revenue Streams of Etsy
The revenue model of Etsy is very similar to other marketplaces’, such as Amazon. It makes money from different fees, according to the features the users need.
How does Etsy make money?
The major revenue streams of Etsy comprise the following:
- Listing fees: Etsy charges sellers at least $0.20 for each product they list on the platform. And the listing is valid for four months. If there are multiple quantities of the same item, the listing fee will be automatically renewed after each of the items sells. That’s a profitable stream considering that thousands of products are listed regularly on Etsy.
- Commissions: Etsy also charges sellers transaction fees, which are commissions of 3.5% of the total amount for every sale made on the platform. As the payment is processed by Etsy, the company gets its percentage and sends the seller the rest of the money.
- Advertisements: Sellers can advertise their items or shops on the platform. The ads are charged on a cost-per-click (CPC) basis.
- Subscriptions: All Etsy’s users have Etsy Standard suite of tools to help them manage their shops and products. But the company offers a premium option, Etsy Plus, with some extra tools. The subscription fee is $10 per month.
- Pattern: Sellers can build a personalized website to sell their products inside and beyond the platform. But the Pattern shop is free only for the first 30 days. After this period, Etsy charges $15 per month.
- Payment processing: Some sellers are eligible to use Etsy Payments, which provide different methods to facilitate the purchase, such as credit/debit cards, gift cards, online wallets and coupons. Etsy charges a fee for each kind of transaction, which varies according to the total amount of the sale and the country it takes place.
- Currency conversion: When converting the sale to the seller’s chosen currency, Etsy charges a percentage of 2.5% of the entire product amount.
The bottom lines
The conclusion reached, after having analyzed the Etsy business model, is that the company built its name on the trust of its customers – who are at the same time its main partners.
It is an entrepreneurial ecosystem that created a virtuous cycle that keeps getting strong over time. It’s a flywheel that generates network effects that keep adding value to buyers and sellers as shown in the graphic below.
As Etsy itself highlights on its website, with low fees, powerful tools, and support and education, it helps creative entrepreneurs start, manage, and scale their businesses. “All it takes is 20 cents to get started.”