In 2016 Etsy Showed Why Marketplaces Need to Focus on Additional Services

Today Etsy reported Q4 2016 and full year results, and all the numbers look great.

Sellers sold $2.8 billion worth of products, up by 19.0% from a year ago.

Etsy now has 1.75 million active sellers (sellers with at least one sale in a year), up by 11.7% or 185,000 from a year ago. But more crucially during 2016 Etsy had 28.56 million shoppers who made at least one sale, up by 18.8%. It’s a great sign for a marketplace to have the number of buyers grow faster than the amount of sellers, it means more opportunities for both existing and new sellers.

As a business, Etsy is focused on what additional services they can provide to a seller. While marketplaces look like middle-men websites which facilitate the sale, modern marketplaces offer much more. Best example of this is Fulfillment by Amazon of course. But Etsy is very strong here too - Etsy generates more revenue from seller services, than from the marketplace fee.

In Q3 2015 Etsy seller services revenue overtook marketplace revenue. And during 2016 it has continued to grow by 47.0%, compared to 19.3% growth of marketplace revenue. So not only is Etsy expanding services it offers, this strategy is proving to be very fruitfull for their revenues.

A unique advantage Etsy has compared to other US marketplaces like eBay or Amazon is how much of sales happen on mobile phones. It’s now up to 49% of total sales, and in 2017 it should go to 50% and beyond. Etsy has been successful at both attracting mobile traffic, and building a mobile app experience.

However Etsy remained unprofitable, with losses in Q4 2016 greater than those expected by analysts sending the stock price down. We think Etsy focus on growing the marketplace and revenues is the right one, and going profitable is not out of sight. It’s worth mentioning that losses have decrease by almost -50% compared to 2015.

Etsy has already announced the launch of Etsy Studio, a B2B marketplace for craft supplies. Etsy Studio is another additional service Etsy is adding, further expanding the offering shops get by joining Etsy. Etsy is on track to do great things in 2017.

Amazon Handmade, opened in 2015, has so far been unable to slow down Etsy’s growth, exactly because they don’t offer the same level of extra services Etsy has. This point highlights how growing marketplaces like Walmart need to approach their own growth - find what unique offerings they have for sellers. Etsy is expanding in all verticals for the handmade craft market, but other marketplaces have opportunities to not only focus on their niche, but also what they can help with in that niche. Payments, shipping, packaging, returns, etc. are some of the examples.

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Juozas Kaziuk─Śnas

Founder of Marketplace Pulse, Juozas wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Based in New York City. Advisor to other startups and entrepreneurs. Occasional speaker at conferences.

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