Inc on Etsy

Source: Inc, Apr 2011

Etsy has 165 employees and revenue of roughly $40 million. It has raised $50 million from some of the tech world’s most prominent venture capitalists and is thought by many to be a prime candidate for an IPO.

In 2010, Etsy sellers moved $314 million worth of merchandise.  Three hundred and fourteen million dollars is an impressive sum, but it amounts to about $785 per seller after commissions—and before taxes. It seems fair to assume, using statistics the company has released, that there are fewer than 1,000 sellers who make $30,000 a year or more, and a mere handful who make more than $100,000.

Etsy requires that all new products listed on the site be made by the people selling them—the use of mass production, that wonderful innovation of modern capitalism, is verboten.  In other words, the very qualities that make Etsy so attractive to new sellers put the most successful Etsy sellers in an awkward position: They must stay small or abandon Etsy.

The vast majority of Etsy sellers are hobbyists who aren’t in it for the money and, consequently, end up charging rates for their labor that would make even a Walmart buyer blush. I met seller after seller who told me, with a kind of resignation, that they figured to be paying themselves minimum wage or worse.

Working for a few bucks an hour is fine if you like crocheting, but it hurts full-time sellers by creating the equivalent of a developing economy on the Internet.

Another source of price pressure: competition from actual developing economies. As Etsy has expanded internationally, adding foreign languages and currencies, so have complaints about low-cost knockoffs. In 2009, Aki Takada, the founder of New York City-based Oktak, made $45,000 selling handmade cotton coin purses for $22 to $45 each. The following year, a seller from Asia listed a similar purse for $12, and Takada’s sales fell 40 percent. “I kind of had a monopoly before,” she says. “But every year, tens of thousands of new sellers join who can price differently and can copy my style.”

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