Etsy: a nice idea that’s about to go public
Of all the ways I could define Etsy, the most appropriate seems to be to say that it’s “a nice idea”. Yes, I know that nice can mean just about anything and is loaded, but aside from what a page that allows artisans, artists, and creators in general to distribute their output suggests, I like Etsy because of what it has managed to do in such a short time and that over time it has experienced many of the problems that startups of this type tend to have, and what’s more, it’s solved them nicely.
As an academic, it’s a nice case study, the sort that are a pleasure to discuss in class because they generate a lot of interesting discussions about the problems that growing companies face.
And now this nice project is about to go public, and may well be the most important tech related operation since 1999. The objective is to raise around 100 million dollars, the final figure could well reach 300 million dollars or more thanks to the work of its more than 50 million members, 1.5 million-strong sales team, almost 20 million active buyers, and some 200 million dollars in sales. It makes no profits: in fact it’s a loss maker (some 15 million in 2014), and it may well lose more if we bear in mind the need to hire more people and to faces the costs of maintaining a publicly traded company, but it is still a project that allows a lot of people to make money from doing things they like, removed from the idea of industrial scale output or large runs, and for those prepared to pay for something different.
It was set up in 2005 by a group of Brooklyn-based artists looking for a way to find markets for their products, and the original technology platform lasted just two-and-half months. According to Robert Kalin, one of the three founders, the name came to him while watching a Fellini film, but more importantly has no meaning, allowing for the creation of a brand from scratch.
Etsy’s market within e-commerce was relatively open at the time, and it was able to grow quickly during its first two years. During its third year of life, the company began to emerge as a viable alternative to eBay, which was experiencing problems with some of its sellers, and that ended in a strike, prompting further speculation that Etsy’s time might have come. Robert Kalin stepped down in favor of Maria Thomas, who moved from National Public Radio. The new management team worked on improving the interface and the navigation and search tools, as well as expanding its markets beyond the United States. The company has been accused of providing a platform for people selling works not produced by themselves, and has experienced problems related to managing customer relations, all of which is what makes it such a nice idea.
It’s free to set up an Etsy store on the site, and each item costs a one-off twenty cents to list. Etsy charges a sales commission of 3.5 percent. The site has attracted sellers of all kinds: hand-made arts and crafts, artists’s materials, clothes, furniture, and decorations more than 20 years old, and now any item that might be considered unique, even if it is industrially made.
The IPO is a way to find funding to further professionalize the site, as well as covering the expectations of funds that entered in previous investment rounds. The intrinsic profitability of a site like Etsy probably depends on economies of scale, but it seems clear that it generates value for the thousands of artists and artisans who sell their products via the platform. Going public will not be an easy process, and for some of those involved with the site is little more than a betrayal of its original stance in opposition to big business.
The question now, aside from whether the markets like this non-traditional approach to e-commerce, is what can be done with a nice idea like this in its next phase of life.
(En español, aquí)
