Etsy Scores Big by Thinking Small

BlogHer Original Post

the etsy logo and motto, a site where buyers and sellers of handmade items come together, recently made the news by raising $27 million in investment funds.

This had pundits asking questions like "Is Etsy the new eBay?" or "Is Etsy the Next Google?"

Deb Roby provided some background on Etsy for BlogHers in her article
Etsy Bloggers (Let's Talk Shop)
. She explains several features of the site, so if you aren't familiar, give Deb's article a run through. At least one BlogHer that I know of, Jen Lemen, sells her handmade SoulSister Designs on Etsy. If other BlogHers have a store at Etsy, please speak up in the comments.

The news of the $27 million in new capital was discussed on Read/Write Web. Their article,
Distributed Mass Customization: Is Etsy the Next eBay? raised some points about the importance of this news about Etsy.

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:

1. The Internet reduces transaction friction, making it easier for small businesses to do business with each other, with consumers and with big companies.
2. Big companies are no longer seen as a reliable source of employment; decades of outsourcing and layoffs at the first whiff of a problem, all cloaked in inhuman corporate speak, have had their effect. This changes the risk/reward decision for talent. The best and brightest will more likely go the self-employed route, start a business or work for a small business where at least you have coffee with the owner and he or she looks you in the eye when (s)he has to fire you. Fortune follows talent.
3. Consumers are looking for that extra special something, the customized motorbike and the grass fed local beef and the hand-made jewelry. We want what your average person does not have, the opposite of mass produced products. This growing consumer demand arise from decades of mass affluence and the fact that the Internet makes these types of products visible.

That makes a comparatively small venture capital amount like $27 million sound pretty important. Susan Mernit at Susan Mernit's Blog comment about the article quoted above in Understanding the value (and secret) of Etsy:

Bernard Lunn say etsy reflects a coming era of mass customization--his comments are excellent, but he missed--or downplayed--some points I want to make about etsy.

1. Etsy works because it empowers 20-somethings and moms who want to run home based businesses. It is international and local at the same time.

2. Etsy empowers personal brands. Similar jewelry is more attractive when made by someone you know and care about.

3. Etsy empowers social networks around taste and affinity. When you favorite designers and objects, you meet others and see their choices. Likewise, you see what designers favorite.

4. Etsy has a tagging system that supports taxonomy--an issue, since their search sucks--but this is user-supported metadata.

5. Sustainable and quality, feels like a closed circle, but is open. Appears committed to social justice values, non corporate.

Stacey Higginbotham at Gigaom, commented in Etsy Nabs $27M to Get Crafty that

I think Etsy has the ability to emerge as one of the winners from the frenzy surrounding Web 2.0 and social networks. The site is beautiful (which was one of the reasons Caterina Fake, [Ed.] one of the Flickr founders, invested) and it provides much more that a straight-laced online marketplace. Crafty people can go to the site to see workshops streamed live from Etsy headquarters, for example; they can also connect with one another on various forums. It has a passionate user base, and much like the recently funded Automattic, flirts with profitability on a regular basis.

Most of Etsy’s sellers make a decidedly nontechnical product. In fact, the company’s success so far (it has 650,000 users and lists almost 1 million items) is testament to how the current generation of entrepreneurs is using technology to build something that has little to do with tech.

Not everything is roses. Stacey Higginbotham points to some dissatisfaction around Etsy with this comment,

However the challenge will be to convince those same entrepreneurs that technology is still important when it comes to keeping online users happy.

Indeed, a few days ahead of the latest round of news about Etsy, Meg Marco at The Consumerist wrote Sellers Growing Increasingly Unhappy With Lack Of Professionalism At Etsy and pointed up a number of technological and service issues with Etsy, among them that

The sellers who use the site, however, are getting all riled up after several stores were shut down without notice due to simple, easily-resolved complaints from buyers.

Even if Etsy does have issues to iron out with its users and sellers, I think Read/Write Web and Susan Mernit's Blog made excellent points. We've reached a place in American history where thinking small and buying local or buying from small suppliers may be the best way to get items that are safe from the mass-produced toxic, poisoned, polluted, and genetically modified products of our corporate economy. Judged by those standards, hand-crafted looks pretty appealing.

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