Etsy is a company that hosts an online marketplace. There, it offers handmade, craft or vintage items from sellers worldwide. The company categorizes these items into several categories. These include Clothing & Shoes, Home & Living, and others. Etsy has been a prominent name in the industry and serves millions of users worldwide. Overall, it has been successful in its business model.
What is Etsy?
Etsy started its operations in 2005 under Robert Kalin, Chris Maguire and Haim Schoppik. More specifically, it originated from their freelance design project operating under GetCraft.com. At the time, Kalin had started working as a furniture maker and had a challenging time marketing his craft. He also noticed the other founders had similar issues due to their work. On the other hand, they also had to pay significant charges to host their work on eBay.
The founders sought a better and more inexpensive platform for their work. They got together and started to come up with ideas. Finally, they decided to launch a platform for similar workers to host and offer their work. This work would later become the base for Etsy. Furthermore, they designed the platform to meet the needs of creators specifically. At the same time, it focused on other areas where they faced issues.
Initially, Etsy started its platform with significantly lower charges than others. The company also secured $50,000 in funds from various connections through Kalin. However, the founders didn’t need the finance since they had a unique product to offer. In a short time, the Etsy platform became a significantly sought-after marketplace. By 2007, it had over 450,000 registered sellers.
Etsy also gained significant attention for its platform through social media networks. The company also prided itself in being well-connected to its community of creators. Similarly, it sent regular attendees to some of the most in-demand art galleries throughout the Americas. The company also convinced various creators to join its platform through those ventures. These features allowed Etsy to grow and expand its business significantly.
At the time, Kalin was handling the company and its operations. While the company was growing with time, the management did not see him as a satisfactory leader. At the time, Maguire and Schoppik did all the hard work, while Kalin was only responsible for generating new ideas. Due to their workload and dissatisfaction with Kalin, Maguire and Schoppik left Etsy in 2008. Kalin stepped down as CEO, although he didn’t leave the company.
Over the years, Kalin played a significant role in managing and growing the company. Later, he became the CEO again, only to be supplanted by Chad Dickerson in 2011. Under the new leadership, Etsy became an even bigger company. Similarly, the new management allowed the company to go public in 2015. However, that created even further issues for the company. Nevertheless, it has stayed operational and a top name in the market since then.
How does Etsy work?
Etsy provides a platform where creators can offer their craft for sale. Etsy makes the process to start selling for those creators more straightforward. Similarly, it provides them with a platform to access dedicated tools and features to enhance their sales. However, they must understand how to use the Etsy platform first. The first step to getting started on Etsy is through its website, Etsy.com.
Creators wanting to sell their craft using the Etsy platform must visit its website first. There, they can open their own Etsy shop. The platform allows them to be their shop manager. This feature helps them set up their shop preferences for how they want to sell their products. Similarly, they can select the language to describe their products. Lastly, they can choose the trade currency and their location.
Etsy users must also select a name for their shop. The company recommends choosing a name close to the personal brand creators offer. In other words, it must reflect what they are selling. However, it must not be similar to other shops on the platform. Once users choose a name for their shop, they can start listing their products on the platform.
Listing products on the platform is straightforward. Creators must add photos and adjust their thumbnails first. Once they do so, they must complete their listing information. Users must also enter their inventory quantity and price for each item. The platform also offers them the ability to set their shipping fee. Before finalizing the listing, users can preview it to ensure it is ready to exhibit.
Etsy also allows users to choose their payment methods. There are various types of electronic payments that Etsy supports and offers. Usually, users prefer PayPal, although others may also use Etsy Payments. Then, users must provide their billing information. The last step for users is to optimize their shop. Although this step is optional, it can enhance their sales significantly.
What is the Etsy business model?
Etsy uses an e-commerce business model to offer its platform. The company uses a B2B2C business model, similar to Amazon and eBay. However, Etsy focuses on a specific niche, which Amazon and eBay cannot satisfy. The company started its operations to provide creators with a platform to offer their craft to the public. Similarly, it focused on charging lower fees than other alternatives.
Etsy uses a marketplace business model where its platform is essential. The company connects buyers and sellers worldwide. Usually, buyers include creators who use the platform to present and sell their goods. Etsy is one of the preferred choices between creators who want to sell unique items. The marketplace supports those sellers reach buyers willing to buy their goods.
Etsy uses a commission-based business model where it makes money on every transaction. The company charges its sellers a commission for every item they sell. While these commissions were low initially, Etsy has increased them over time. Similarly, Etsy uses a subscription-based business model to make money from various plans.
Apart from these, Etsy uses an advertising business model. This model allows the company to partner with other brands and makes money through users. However, this model also incorporates an affiliate marketing business model. Through this model, the company promotes specific users and products in exchange for a fee. Moreover, Etsy also makes money from various other business models.
How does Etsy make money?
Etsy makes money from various sources. The Etsy marketplace is the essence for these sources. Overall, an explanation of each of those sources is as follows.
Listing fees
Etsy makes money by allowing users to list their products on its platform. The company charges a $0.20 fixed fee for every item a merchant places on the Etsy platform. Similarly, the company makes money every time a user renews their listing. Usually, it is a repetitive fee for each product on the platform.
Transaction fees
The primary income source for Etsy is its transaction fee. It is one of those sources that the company has used since its inception. While Etsy used a 3.5% rate in the past, it has increased its percentage to 5%. Essentially, sellers have to pay 5% of their sales as a commission to Etsy. Nonetheless, these charges are significantly lower than some alternatives.
Advertising and promotional fees
As mentioned above, Etsy also uses an advertising business model. The company puts these sources under the Etsy Ads and Offsite Ads segments. Etsy Ads allow advertisers to promote their products through the Etsy platform. Usually, the rates may differ based on various factors. On the other hand, Offsite Ads charges users to promote their goods on other networks.
Etsy Plus
Etsy has a plan which falls under the subscription-based model. Etsy Plus allows sellers to access premium features with various add-on tools. In exchange, Etsy charges a $10 fee for the plan. This plan also gives them access to a free “.store” domain and 50% off other domains. Etsy partners with Hover to offer these plans.
Pattern
Etsy also offers Pattern, a website builder that helps merchants create their stores. In exchange, the company charges a $15 subscription fee. The listing and transaction fees differ from the Pattern platform. Etsy also offers a trial version for 30 days. Once this period is over, users must pay for the subscription.
Etsy Payments
Through Etsy Payments, Etsy allows merchants to accept payments in different currencies. Similarly, it offers them a broad range of payment options. In exchange, Etsy applies a percentage and fixed fee to facilitate payments. The rate may range between 3%-6.5%. On the other hand, the fixed fee comes at about $0.30 per transaction.
Conclusion
Etsy is an online marketplace that focuses on creators. The company started its business to support creators in their quest to pay lower transaction fees. Consequently, Etsy rose to fame and became one of the prominent names in the market. Etsy uses a marketplace business model paired with others to create revenue streams. The company makes money from those streams, including the ones listed above.
