Etsy is on pace to add one million new sellers to the crafts marketplace this year. Since they launched in 2005 Etsy has been adding more new sellers every year, increasing the growth rate ever so slightly. Three years ago 1,700 new sellers joined every day, a rate which has now increased to 2,500.
As much as $3.7 billion worth of goods will be sold on Etsy this year. That’s more than $10 million on average every day. They will get there by adding $450 million in GMV growth to grow from $3.25 billion in 2017. The one million new sellers will be a major contributor of that growth.
And yet in 2017 the active sellers metric grew by less than 200,000 sellers, all meanwhile more than 850,000 new sellers joined. An active seller is an Etsy seller who has incurred at least one listing, or transaction charge in the last 12 months. That’s because less than half of those ever sold an item, and some of the sellers from previous years stopped selling. As old sellers get lost to churn new ones are there to replace them.
One thousand sellers with the most orders accounted for more than 10% of all sales on Etsy. Just 70 of those joined last year, most were selling for years. Amazon and eBay are similar in this - the top sellers generate the majority of sales volume, with the long tail of small sellers providing the rest, and most of the top sellers have been selling for years.
This is the reality of an e-commerce marketplace - millions of sellers on the platform, a million more ready to join, and a short list of top sellers generating most sales. The chance of one of those new million sellers becoming one? Statistically very small. A marketplace wins by retaining top performing sellers, not by adding thousands of new sellers. Not all sellers are created equal, and few have the capital, and experience needed to run a $100 million and beyond businesses.
Marketplaces continue to attract more sellers, often - like Etsy - increasingly more as the platform grows. For them it is one of the celebrated metrics - it is better to have a million sellers than not. But assuming these marketplaces last for a century, even given how unlikely that is, they are all going to have a billion sellers eventually.
This means that over time more sellers compete for the same number of customers. While a million new sellers join on Etsy they don’t all bring new sales. Some instead reduce sales for existing sellers. Which means that on a mature platform the mere act of joining as a seller will not generate sales. It’s like being the 545th shelf on the newly opened 13,565th aisle in an endless Walmart store.
Amazon marketplace is experiencing the same thing - close to 3,000 new sellers join every day. A million new businesses will try it this year. As an aggregator of supply Amazon is unique a position where supply is almost limitless. As Ben Thompson puts it, Amazon is in a virtuous cycle attracting more suppliers, and users.
“Once an aggregator has gained some number of end users, suppliers will come onto the aggregator’s platform on the aggregator’s terms, effectively commoditizing and modularizing themselves. Those additional suppliers then make the aggregator more attractive to more users, which in turn draws more suppliers, in a virtuous cycle.”
– Ben Thompson, Stratechery.com
Amazon will too eventually have a billion sellers, figuratively speaking, as it attracts all small and medium-sized businesses (SMBs). There is zero marginal cost to adding more sellers. But that hides the reality of how top-heavy all marketplaces are, gaining most sales from a few percent of top sellers.
Somehow despite the chaos of churn there are new sellers every day wanting to try selling on Amazon, eBay, or Etsy. The realization is that none of those platforms have trouble attracting supply (or in fact demand either). The challenge for all of them instead is creating an environment where the suppliers can succeed.