Etsy is an online marketplace focusing on handmade, vintage, and unique factory-manufactured items. It connects artisans and crafters with consumers looking for personalised and distinctive products, ranging from crafts and jewellery to home decor and art.

Etsy’s impressive growth…and its downside

Since its launch in 2005, the platform has experienced constant growth. Just a year after its launch, in 2006, Etsy had over 10,000 sellers and had facilitated millions in sales. The platform quickly expanded globally, allowing sellers and buyers from various countries to connect. Etsy went public in April 2015, raising approximately $267 million. Its successful IPO marked a significant milestone for the company. As of 2023, Etsy had over 5.4 million active sellers and approximately 96 million active buyers.

Etsy’s impressive growth in the number of merchants, with sellers jumping by 21% from 2022 to 2023, has significantly impacted the platform. However, as Waldow (2024) reports, this surge comes with challenges, as many vendors have expressed frustration over several issues. Historically positioned as the go-to hub for handmade and personalised items, Etsy now faces a dilemma: some sellers feel squeezed out by those who sell products in bulk, utilise dropshipping, or offer items at lower prices. Compounding these issues is Etsy’s updated fee structure, which increased from 5% to 6.5% per sale in 2022, leaving many sellers struggling to earn a sustainable income, especially in today’s inflationary climate.

In such a context, it is unsurprising that an increasing number of unhappy sellers are considering moving to other platforms, hoping to find more favourable conditions to sell their handcrafted, one-of-a-kind items. Kransoff (2024) lists several recently launched platforms that could serve as Etsy’s alternatives: Artisans Cooperative, Big Cartel, Bonanza, IndieMade, Goimagine, Shop My Porch, or Making.

Shelter runaway chickens

Like any nascent two-sided platform, these platforms face the well-known chicken and egg problem, which describes the difficulty in attracting one group of users without the presence of the other group, creating a cycle that can hinder growth. In our book, we detail several strategies platforms can adopt to overcome this problem. One approach—which we dubbed “Shelter runaway chickens”—might be particularly interesting for Artisans Cooperative, Big Cartel, Bonanza, and the like. The central message we want to tell the owners of these platforms goes as follows.

Attracting users to your platform can be surprisingly cost-effective when those users are itching to leave a competing platform. Imagine you’re stepping into a market already dominated by a major player. This heavy presence naturally raises the stakes for newcomers, amplifying entry barriers due to the notorious “winner-takes-all” phenomenon. Not great, right? But here’s the silver lining: many users may feel that this giant platform has grown so large that it’s actually dropping the ball on service quality.

This scenario is particularly potent when the users within a particular group compete against one another, leading to negative same-side network effects. As the Etsy example illustrates, the more service providers there are, the more cutthroat the competition becomes for a limited customer base. Yes, the customer pool might grow, but there’s a tipping point where the influx of new providers starts to dilute the benefits, creating user dissatisfaction. That’s where your opportunity lies; you can entice those frustrated service providers with an alternative—your new, smaller platform. Your pitch? A competitive landscape where they face less pressure. And guess what? The bigger your rival, the stronger those negative effects can become, making it easier for you to attract at least a handful of those users. This is your chance to utilise a “judo strategy,” flipping your competitor’s size against them.

We see this play out in the social media arena as well. Giants like Facebook, Twitter, and Instagram have opted for a business model that hinges on monetising user data, leading to negative cross-side network effects as users grow wary of their privacy. In response, several alternative social media platforms—Vero, Mastodon, Diaspora—have emerged, promising a safer and more private experience.

However enticing as this strategy might sound, it’s not without challenges. Markets saturated with strong positive cross-side network effects and significant switching costs can make it tough to gain traction. Yet, where this strategy can flourish, it requires a careful approach. Remember the saying: “One day chicken and the next day feathers.” Success can be fleeting if you don’t manage your platform’s growth wisely. The ultimate goal? Ensure that service providers on your platform can effectively serve more customers than they could on the competing giant. This may mean narrowing your focus into a niche, but it could be the sustainable path to competing with a formidable incumbent.

(During the preparation of this post, the author used GenAI tools to collect ideas and improve the expression. After using this service, the author reviewed and edited the content as needed and takes full responsibility for the publication's content.)

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