A lot of people scratched their heads when Etsy raised $27 million. What on earth? Handmade goods, that's about as low tech as you can get!
Then Umair Haque, a well respected blogger and strategist - albeit one who is known for being a bit “out there” - asked Is Etsy the next Google? Maybe Umair was just saying that this is big. One of his commenters pointed out: “not Google, but maybe the next eBay”.
That makes sense. When eBay came out, the first reaction was “huh, Pez Dispensers and junk from garage/attic?”. eBay was an online garage sale and Etsy is an online street fair.
The bloom has gone off the eBay rose recently, so it is interesting to think about what went wrong at what was almost the perfect start-up success. Many people critiqued eBay for buying Skype at too high a valuation, but that seems like a tactical error only. The big issue is that they lost sight of what made eBay special when they started selling mass-produced stuff. There is something about being a public company, with investor pressure for endless hyper growth well beyond the natural growth constraints of the market, that seems to drive this kind of brand-destroying diversification.
Selling off inventory from big companies (eBay’s diversification) may be a great business, but it was not what made eBay magical. Garage sales, antique shops, auctions….these all have a bit of magic and romance. It is about finding something unique and special.
Handmade goods have the same appeal.
Etsy Connections
The reason it is so hard for most technologists to see the power of services such as eBay and Etsy when they first come out is that we tend to look at the world through the prism of big companies and consumers. What is so powerful about eBay is that around 750,000 people see eBay as their primary source of income and double that‚ 1.5 million‚ see it as a significant contribution. Etsy can have the same income-generation impact for lots of people globally. Where do all these millions of people fit in the big company/consumer model?
According to a 2005 survey, close to sixty percent of Americans reported that they dreamed of starting their own business.
Etsy is part of a much broader economic shift. So is the Blog Networks challenge to MSM and the smaller rounds of financing for start-ups in the programmable web.
We may be witnessing the historical high water mark of giant companies in developed economies. In 1955, Fortune 500 companies generated 1/3 of GDP in America. In 2000 that had risen to 2/3. If you prefer %, from 33% to 66%. Hidden in those numbers are the countless family farms that could not withstand the onslaught of Agribusiness and the Mom & Pop shops that closed when Wall Mart came to town.
Imagine a world where the Fortune 500 share of GDP went back to 1/3 and small businesses got back the 1/3 they lost in the last 50 years.
This may be about to happen for 3 big reasons:
Maybe we are finally going to see the long-anticipated wave of mass customization.
The trouble is, customization costs a lot of money. Ask a Savile Row tailor. Consumers want that special something at a price that is a bit closer to the mass produced stuff.
Who is going to meet that demand for mass customization? The mega farming corp in Iowa that is used to distributing huge volumes via Cargil, onto to General Mills and finally to Wall Mart? Or thousands of artisanal specialty food producers? The supplier who contracts with factories in China to produce huge quantities of toys based on what consumers bought last year and who will lose his price break if he changes the volume? Or the thousands of small producers locally who will custom-produce on demand, meeting the actual demand today?
I would always bet on the latter. This is a distributed version of the Dell model applied to lots of industries. This is distributed mass customization.
The reason that mass customization has taken longer than predicted is that we have been looking in the wrong place. Re-tooling large companies to do mass customization is too hard, the micro-niches are too small and there is just too much fear of cannibalization and resistance to change.
This is the coming wave of small business that can easily trade globally - with each other to offer new products and with consumers to meet specialized demand.
What has been missing is order aggregation. There are plenty of long-tail customers who reject the mass-produced plastic toy made in China but who want the pink version of the Rambo soldier made out of recyclable wood (OK, I made that one up!). But you won’t find enough of these customers by setting up shop on your average high street.
Aggregating the long tail is clearly something that the Internet does well.
Etsy is a good example of an emergent business network that creates trust within a specific market. That trust enlarges the market by enabling transactions to happen. Then more suppliers come into the network to meet growing demand and the range and quality of products improve; and so the consumer demand improves and so on….
Just don’t try shoving mass-produced junk through these networks. It won’t work. These networks have a very good junk filter!
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Fred Wilson loves Omair. Fred Wilson invested in Etsy. Omair loves Etsy. Am I thinking too much? Perhaps.
Posted by: Ravi | February 27, 2008 3:01 AMSo, eBay is the place where you can buy (used or new) stuff on the cheap and Etsy is the place where you can buy new things you can't easily buy - and which are presumably expensive.
Very interesting.
Posted by: Jens | February 27, 2008 3:55 AMI think Etsy has the chance to become big. It is similar to a Stock Photography website in principle. Photographers and Graphic Artists, can post their work on stock photography sites and finally have a chance to make money off of it. Rather than normally having to specifically find their own clients and sell themselves. Now other forms of art, sculpture, embroidery and sewing, wood-working, etc can have a place to establish their own brand identity. Whereas before they were confined to having to set up booths a craft shows and selling to a rather limited audience or through word of mouth. Great idea.
Posted by: Justin | February 27, 2008 5:10 AMgo etsy!!!
in a world where 51% of generation x moms stay at home with their children, we have to have SOME way of making money to sustain our lifestyles and pay for the ridiculously high mortgages/rents of today.
plus, the internet savvy DESERVE to discover the gems of talented artisans. and the artisans deserve to enjoy the comfort of their homes and convenience of their schedules. why should we have to sit outside all day, every weekend, at a craft fair or street market, only to sell 1 or 2 items?
now i have to go put my artwork up on etsy!
Posted by: renee - 21st Century Parenting | February 27, 2008 5:38 AMHow about a personally hosted auctions solution like WP Auctions, where a blogger can install a plugin and run their auctions to their own readership.
Posted by: Hyder | February 27, 2008 7:29 AMMy wife makes a respectable income through her Etsy shop, and she sells in (for her) huge volume to customers in the UK and Canada taking advantage of the weak dollar.
People who write Etsy off underestimate the growing indie craft movement worldwide, and the desire people have to purchase one-of-a-kind handmade goods. For the first time, artists, designers and artisans have a vehicle to reach millions.
So long as Etsy sticks to the basic model, I suspect they will be viewed as a tremendous success story in the coming years.
Posted by: Jeff Barrus | February 27, 2008 7:40 AMI wonder if perceptions would have been different had the nature of the typical product at Etsy been a little less plushy - say custom motorbikes, media players or unavailable-elsewhere mobile devices.
Pretty much anything that can be mass produced can be made better for the individual purchaser when custom-built. The traditional downside is the added cost, but as you suggest, a system like Etsy offers a way of minimizing the overhead. While conformity and peer pressure is responsible for the purchase of a lot of products (think branding - Coca Cola, Nike...), and that kind of marketing isn't going away any time soon, there's still a huge opportunity for products that can provide higher (personal) value.
Whatever, I for one welcome our sock puppet overlords.
Posted by: Danny | February 27, 2008 8:40 AMFrom what I saw and read about Etsy it's a marketplace for independent artists and people who want to buy hand-made crafts or art.
But how is mass customization related to Etsy? An artist makes a painting/blanket and put on Etsy instead of standing on a street fair. You buy if you like or pass on it. Where is customization here? Read the wiki definition of mass customization -- it's mass production plus some customization. Dell is a good example of mass production. It builds parts and allow customize your computer via wizard-like web interface. Where is customization on Etsy?
Posted by: Gleb Tulukin | February 27, 2008 12:40 PMyes, and readwriteweb is the new WSJ.
it's so sad how every other post on the web is ending with a question mark = rumor/ speculation = not reliable!
Bloggers gone wild!
Posted by: r | February 27, 2008 1:05 PM"we tend to look at the world through the prism of big companies and consumers"
This is a grave, grave error. Not ony did eBay thrive on the "small guy", so did PayPal, Skype and even Google (small guys drove AdWords). Salesforce to a lesser extent (but Salesforce has gone upper scale, leaving a large opportunity for a new player, posibly SugarCRM).
If you can figure out how to aggregate and profitably monetaize the small guys, you've got a good business.
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Posted by: Moto Kurye | February 27, 2008 3:42 PMEtsy is in no way the next ebay or google. Its a nice website but I dont see it gaining that kind of popularity and profits.
Posted by: bleecer | February 27, 2008 5:24 PMThis is a very interesting article, but I must disagree with your conclusion. You state:
"Etsy is a good example of an emergent business network that creates trust within a specific market. That trust enlarges the market by enabling transactions to happen. Then more suppliers come into the network to meet growing demand and the range and quality of products improve; and so the consumer demand improves and so on….
Just don’t try shoving mass-produced junk through these networks. It won’t work. These networks have a very good junk filter!"
Etsy is currently squandering some of the trust it had built up through fairly endemic poor management that starts at the top and filters all the way down through the lowest rung of Etsy Admin. There are some great people there, but there seem to be no systems in place to help them do their jobs. There also seems to be a lot of deadweight -- people placed in positions of authority with little training or aptitude for customer service.
Etsy is at a very important and delicate stage of its growth -- its customer service is bad and getting worse and there seem to be no policies or procedures in place. Staff have proudly admitted that they don't want policies or procedures -- they don't want to be "stuffy" or act like they're from "an '80s business school". They currently do everything from conflict mediation to shop closures to weeding out mass produced items on a case by case basis.
And as far as Etsy having a "very good junk filter", I must disagree. The forums are full of people wondering why shops they've flagged (for selling mass produced wares) have not been closed down. Admin is apparently too overloaded with other problems to even begin to deal with the increasing flood of mass-produced items hitting Etsy, many of which come from former eBay sellers fleeing that venue.
And there have been long-standing complaints about the inclusion of vintage items (defined as anything over 20 years old) on a site supposedly meant for handmade items only.
Your readers might want to check out the Etsy forums themselves, or perhaps read this article and comments about recent Etsy shop closures at The Consumerist:
http://consumerist.com/360889/sellers-growing-increasingly-unhappy-with-lack-of-professionalism-at-etsy
Posted by: Venture Capital | February 27, 2008 7:31 PMEtsy has bad customer service. From employees who mute others based on emotion, to engineers and employees who openly mock sellers and buyers on the forum. Their entire policy regarding problems is to deal with it on a case-by-case basis. Accidental shop closures being called deadbeats by employees, and no apologies when the mistakes are found... Etsy at its current form will not be the next eBay. They need some ground rules and leashes for their employees first. Vision is awesome, execution is lacking.
Posted by: BomaBoma | February 27, 2008 7:48 PMThat makes sense. When eBay came out, the first reaction was “huh, Pez Dispensers and junk from garage/attic?”. eBay was an online garage sale and Etsy is an online street fair.
----
This actually describes much of the content on Etsy as well. Try as they might to hide it from the press and general public, thirty percent of the items sold on Etsy are commercially made items.
Posted by: explosiveb | February 28, 2008 8:13 AMWhile I think that marketplaces like Etsy and their growing competitors have a great potential to meet the demand for more consumer individuality and customized products, I think the conclusion to see in these platforms a niche for mass customization is wrong.
For once, and in accordance with what Gleb Tulukin said above, how could micro brands and self-representing artisans possibly tap the market of mass-customization without starting to mass produce? However, if they decided to mass produce, they would have to change their entire business model, hire employees and have them do parts of the work. This, in turn, isn't "handmade" in the sense of philosophies such as Etsy's (at least not according to their public statements).
Customization and bespoke, on the other side, is a much more doable concept in this niche, and it's not a novelty at all. Take DaWada's Style Lab, for example. Etsy used to have "Alchemy", where buyers could place inquiries for bespoke items, and I hear it is currently being revamped and improved and going to be relaunched (codename "red sofa", and blame the management if the red sofa is going to be something totally different!). But that's customization, isn't it, not mass customization.
What's possibly appealing in the "handmade customization" business right now is that on platforms like Etsy and DaWanda, odds are high that a customer indeed gets their super bespoke item for a hilariously low price (one that any reasonable artisan wouldn't care to pick up a pencil for), but that is not because these sellers have access to low cost supplies and are able to produce genuinely low cost units, but because they are undercharging due to ingorance/inexperience or due to the fact that they are located in countries where things cost a fraction of what they might cost elsewhere.
Consequently, in order to tap marketplaces like Etsy for mass customization, their current model would demand fundamental changes, and I am not sure whether the current user base on these marketplaces would love to hear about it.
In any way, can YOU think of how a true mass-customization concept on Etsy would look like? So far you give us a thesis, what with "mass customization" being announced as one of the big things in 2008 by the way, but what would your ideal realization look like, I wonder?
Posted by: Vish | February 28, 2008 8:19 AMActually, there is a lot of mass produced junk on Etsy.
You can sell anyhting you'd like if it's 'Vintage' and guess what? They have no clear definition of Vintage.
You can sell anything you'd like if it's a 'Supply' and guess what? Well, see above. There's no cut and dry explanation.
And then, people routinely violate the rules, which are confusing enough, by selling mass produced items of all sorts. It's not quite an ebay flea market, but it's far from a 'handmade' haven. Not to mention the site is managed with massive incompetence.
The 'junk filter' is supposed to be 'flagging' stores, but people routinely complain that mass produced items stores that they flag on Etsy stay there forever - while Etsy will al of a sudden shut down perfectly legitimate shops with no warning and little recourse.
Next eBay, maybe, if they ever get a management with a clue. Next google, well, if you're extremely confused, okay.
Posted by: Sinbad | February 28, 2008 8:31 AMThere is money to be made, if someone were to create a new "Etsy" that really did have a junk filter and focused truly on handmade.
Some days I sit and think why am I not focusing my efforts on creating the Etsy competition? There's your free million dollar tip people. Create a new version of Etsy that doesn't really focus on being hip/indie and all those other things and you could make millions. Just sayin'.
Posted by: LaDeeeDaaaa | February 28, 2008 11:28 AMthanks for the discussion on my etsy post. interesting...and perhaps not so "out there" after all.
Posted by: umair | February 28, 2008 2:33 PMEtsy will be a threat to ebay someday , will all the jack up price of ebay seller are going strike for this hikes, so what going to happen next ? since etsy is a brilliant idea and community focus driven, i would not be suprise if etsy will be acquired by ebay..... two thumbs-up for etsy.
Posted by: Nat | March 1, 2008 3:45 PMNat
www.workersinc.com
I think Rob is doing a fantastic job at reinventing the way artists can get their products to market.
However I also agree with the comments around mass customization of handmade goods - I'd imagine it's pretty tough to achieve without some sort of automation in the process beyond an advertising service for distributed artists.
Imagine enabling ETSY creators to use www.emachineshop.com or www.ponoko.com to automate the product selling AND making AND delivery processes?
A creator's dream come true = I get to create, create, create and an automated process sells, makes and delivers for me. This is also the gateway to distributed mass customization.
Posted by: Derek Elley | March 2, 2008 3:56 PMI agree a lot with you, but I suggest calling it Mass Niche. It deserves a different name, and it makes more sense to position the term independently (yet symmetrically) from Mas Customization, than as a subset. Mass customization is "one large company (X) many different products", but Mass Niche is "one unique product (X) many small companies". I actually have been writing a book about it, and you can see my definition here.
I think Mass Niche has the potential to become the ultimate solution for free market economy. (I don't like the term 'capitalism', because putting capital at the center is misleading.) I have a chapter to write about this, but just imagine majority of people working for small (let's say 1 to 10 people) businesses. Less income gap, more freedom to pursue one's passion as a career, higher chance of a 'smaller' success. The last one is an interesting notion. Becoming the next Google and making billions of dollars will be still difficult, but there will be a lot more chance to make 300K as one-person business. Call it success 2.0...
Posted by: hyokon | March 3, 2008 9:18 AMWe recently released the 3rd in a series of reports on the Future of Small Business that covers these topics. They are available at: www.intuit.com/futureofsmallbusiness
A couple of quick points on small businesses (businesses with less than 500 employees): they employ slightly over half of all private sector employees in the US, and they've generated between 60%-80% of net new private sector jobs over the last decade. Their share of the US economic pie has also grown over the last decade - and we are forecasting this trend to continue.
As for mass customization, we think small businesses will lead in this area. See our most recent report - The New Artisan Econonmy for more details. We define "artisan" much more broadly than traditional artisans and include knowledge artisans.
Posted by: Steve | March 3, 2008 1:42 PM