Etsy Business Model and SWOT Analysis – How Does It Make Money?

Overview

Etsy is an online marketplace for buyers and sellers of unique items. These items include handicrafts, hand-made products, vintage products, and other unique items that are hard to find on any other marketplace.

Etsy does not sell any products directly. Rather it brings together buyers and sellers from across the world. It provides marketing and e-commerce services to sellers with various types of fees. It has a global presence with customers from virtually every country in the world. Currently, there are around 90 million items listed on its platform by sellers from across the world.

Etsy is listed on the NASDAQ stock exchange, and its current share price is around $ 165.03. The company reported $ 1,725 million with net profits of $ 349 million for the fiscal year ended 2021.

Company Profile

Let us briefly discuss the company profile of Etsy.

Company NameEtsy Inc.
Websitestitchfix.com
Founded2011
FoundersRobert Kalin, Chris Maguire, Haim Schoppick,
Key People Josh Silverman – CEO, Mike Fisher – Chief Legal Officer, Rachel Glaser – CFO
HeadquarterBrooklyn, New York, US.
Company Revenue$ 1,725 million for FY 2020
Key CompetitorsAmazon Handmade, eBay

What is Etsy? A Brief History

Etsy is one of the largest online marketplaces in the world. It certainly the largest one for unique items such as handicrafts, handmade items, and vintage products. It started operations in 2005 and has grown to a global presence since then.

Etsy offers its services to a worldwide audience of buyers and sellers. It has a total of 1,508 employees currently. It serves buyers and sellers alike with its cutting-edge technology and advances e-commerce tools. It has around 4.7 million active users that sell around 90 million+ items worldwide. It has a large buyer base of around 90 million customers with a purchase made on Etsy every half a second.

Source: etsy.com

Etsy started with a vision of keeping e-commerce a human process. Its mission statement reads:

“To keep commerce human”.

It means the company wanted to keep hand-made products a priority in the marketplace. So far, the company has lived up to its promise. Although, it has changed the definition of handmade items slightly. Despite that, the company has maintained the reputation of an e-commerce site that offers hand-made products without overreliance on automation and commoditization.

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Sellers and buyers can trade products in over 50 retail categories. Sellers can sell products created by themselves or curated from top-quality suppliers. According to the company reports, its sellers contributed $13 billion of sales in the year 2020 alone.

What Does Etsy Offer and How Does it Work?

Etsy combines the needs of sellers and buyers. It primarily acts as a common marketplace for buyers and sellers. However, unlike other e-commerce platforms, it created a differentiation of offering unique products. These products can be in any retail category from household items to fashion and from toys to art and collectibles.

Etsy for Sellers

Etsy appeals to craft makers and skilled professionals across the world. It offers comprehensive commerce and marketing tools to sellers. Sellers can create a dedicated store for free on Etsy. Listing a product is charged at $ 0.20 per item. Each transaction is charged by Etsy for a commission of %5 of sales.

Source: etsy.com

Sellers get some valuable services from Etsy that include:

  • Free shop registration
  • Products listing at $ 0.20
  • Transaction fee of 5% of the sales amount
  • Dedicated marketing tools with paid advertisements starting at 15%
  • Seamless payment solutions
  • Marketing and promotional tools
  • Business analytics and insights
  • A choice between a Standard and Plus package starting at $10 per month

Sellers can sell items in over 50 retail categories provided they meet the criteria. The preference is given to arts, crafts, and vintage products.

Etsy for Buyers

Etsy is a unique e-commerce platform for several reasons. Its prime reputation is of a marketplace with unique products. Buyers can find arts, crafts, handmade products, and vintage items on Etsy.

Buyers can shop for items without creating an account with Etsy as well. They can browse for a product in the listed product categories or do a quick search. All items are sold by the registered sellers on Etsy. Hence, shopping at Etsy is a safe venture for buyers.

Product Categories

Buyers and sellers can trade products in over 50 retail categories. The items sold on Etsy can be bought or sold from anywhere in the world.

Here are the top-performing product categories on Etsy.

  • Arts and collectibles
  • Home decor
  • Wedding and party
  • Craft supplies and tools
  • Vintage products
  • Clothing and shoes
  • Jewelry and accessories

Each product category has several sub-categories.

Etsy – Business Model

Etsy follows a conventional e-commerce business model uniquely. It connects buyers and sellers from across the world. The marketplace is for unique and customized products without an emphasis on automation and commoditization.

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Etsy’s main appeal is to the sellers. It provides a commerce platform, marketing, advertisement, and other important services to sellers. It charges on a commission basis for product listings and successful transactions to its sellers.

Etsy has a unique customer base that looks for creativity and uniqueness. Therefore, the products on offer must compellingly meet the criteria of creativity and uniqueness. Buyers can order any products without creating an account too. There are no direct commissions or fees charged to buyers by Etsy.

Etsy works as a communication hub between buyers and sellers. It means buyers can directly communicate with sellers for any queries regarding products. It further enhances the “human touch” principle of Etsy.

Etsy – Unique Selling Proposition

Etsy is unique in several ways to other e-commerce platforms. Though it also acts primarily as an e-commerce platform only. Its most compelling and the unique selling proposition is its curated collection of products. Its sellers offer products that are hard to find by on other marketplaces. Most of the products are made by artisans and craft makers that include handmade products with customization.

Etsy has a global presence with sellers and buyers using its platform from virtually every country in the world. Thus, its global reach and brand recognition are also its strengths.

Etsy prides itself as a marketplace that offers a human touch in commerce at every point. However, its use of data science and machine learning enables it to offer the right products to the right buyers. Thus, it retains a large proportion of its first-time buyers.

How Does Etsy Make Money?

Sellers using the Etsy platform provide the main revenue source for Etsy. As it offers several services to the sellers, it charges them on a commission basis as well.

Listing Fee

Sellers can create a new account and a store at Etsy for free. Each item listed at the store would be charged $0.20 per item. Each listing is valid for four months only. After that, each renewal takes place at the same rates.

Transaction Fee

When customers make a purchase, they incur a transaction fee for the seller as well. Etsy charges its sellers a 5% transaction up from 3.5% earlier.

Sellers can promote their products and stores with paid promotions and advertisements offered by Etsy as well. Etsy would choose the ad display platform for its seller partners. The service is charged at 15% of the sale value.

 Subscriptions

Etsy offers two subscription plans for its sellers; Standard and Plus. Standard subscriptions are free and offer all fundamental features. Plus, subscriptions come with additional features and a $10 per month cost.

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Etsy – Revenue and Financials

Etsy is listed on the NASDAQ stock exchange with the trading symbol of ETSY. Its current share price is around $ 165.03 as of now. It reported revenue of $ 1,725 million with a net profit of $ 349 million. The company owns total assets of $ 2,404 million including $ 1,244 million of cash and cash equivalents.

SWOT analysis of Etsy

Etsy has an established history as an e-commerce platform. It was founded in 2005 and since then it has expanded globally. It has several unique and key strength points as well as a few weaknesses in its business model.

Let us briefly discuss the SWOT analysis of Etsy.

Strengths

Here are a few key strength points of Etsy business model.

  • It offers unique products that include handmade crafts, arts, vintage collections, and other items that are hard to find in other places.
  • It has a global presence and brand recognition as a market leader in its e-commerce category.
  • It has strong financial reserves with growing revenues and profits over the past few years.
  • It leverages the powers of technology to retain its first-time customers.
  • It offers comprehensive support to its sellers including promotions and advertisement support.
  • It has created great economic impacts such as 81% of sellers on its platform are women.

Weaknesses

Like any other business, Etsy also has some weaknesses in its business model.

  • It has deviated a little from its original promise of offering handmade products with a human touch to its customers.
  • It faced litigation problems due to a lack of scrutiny of counterfeit products on its platform.
  • The company relies heavily on third-party services such as Google cloud for storing important databases and information that can prove risky for the company.
  • It depends on the revenue generated through commission earned from its sellers only.
  • The company’s larger proportions of revenue come through commission charged to the US sellers only.

Opportunities

Here are a few opportunities for Etsy for further improvements.

  • It can start fulfillment and warehouse services like most of its competitors.
  • It can improve controls and inspections for controlling counterfeit products on its platform.
  • It can lower its commission slabs such as paid promotions that are as high as 15%.
  • It relies too heavily on third-party service providers that can be offered through in-house services such as cloud, marketing, etc.
  • Although it has a global presence, it can expand its global operations and increase revenue from outside the US customer base.

Threats

Here are a few major threats to Etsy business model.

  • It faces increasingly stern competition with e-commerce growth around the world.
  • It relies on third-party service providers that can be risky.
  • Its revenue stream is largely driven by a commission charged to sellers that is hardly diversified.
  • The company may face legal issues due to intellectual property theft or claims.
  • It may face litigation if it is unable to control counterfeit products on its platform.
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