The Challenge at Etsy

Etsy is the fast-growing online marketplace where artists and craftspeople can sell their products.   Wharton Professor Barbara Khan calls it a "very well run, high-quality street fair."   Etsy has 39 million unique visitors per month.  More than $525.6 million of items were sold on the site last year.  Etsy generates revenue through a small listing fee as well as a transaction fee equal to 3.5% of an item's price once it is sold.  

As this article on Knowledge at Wharton notes, the site faces an interesting challenge as it grows.   As it becomes very popular and goes more mainstream, it risks alienating some of its hard-core original customers.  Will the artists and craftspeople see it as less quirky and unique?   Will some people accuse of it selling out when they learn that some vendors, who are larger than perhaps it may seem at first, appear on the site?   This challenge isn't new, of course.  However, it creates a dilemma for a company such as Etsy.  After all, the company benefits from network effects, i.e. the value to each buyer and seller rises as the number of buyers and sellers increases.  People want to be where many other buyers and sellers are.  That network effect drives Etsy to get bigger at first.  Yet, at some point, that urge to get big fast runs up against this potential backlash... are you becoming "too mainstream" and "losing your soul"?  

The challenge for Etsy moving forward is to maintain that quirky appeal, to stay appealing to the unique artists and craftspeople who made the site popular.   They can continue to grow, while staying true to those values and positioning. However, it will take hard work.    To achieve this objective, the firm ought to be very clear now about what they absolutely won't do moving forward.  What is absolutely out of bounds?  Moreover, they need to be very clear about their core values.   What do they stand for as an organization?  What values are non-negotiable?  By being more explicit about these issues, Etsy and other firms like it will be more likely to avoid alienating their original, hard-core customers.