Amazon 'Handmade' vs Etsy (or How To Compete Against Your Biggest Competitor).

Amazon launched Handmade, a craft product marketplace, a few days ago. This is a direct competitor to Etsy. Is this a search for new growth areas for Amazon? Etsy, the biggest player in the craft marketplace space, should have been an obvious acquisition target if Amazon was truly interested in owning this space? With a market cap of $1.55Bn Jeff Bezos could have personally paid 4 times that amount to purchase Etsy without breaking a sweat.

So why didn’t Jeff Bezos just buy Etsy? Why did Amazon launch an Etsy competitor that is more than likely to add very little to it's bottom line? I think there are three reasons

  1. Margins: Amazon plays for the long term (deferring profit making) but this does not mean disregard for growth. For Handmade to make sense, with the commitments of time/people that will go into this seemingly related but tangential segment, Amazon will have to charge a large transaction fee (with a 12% transaction fee proposed). Etsy charges three times less. This would be a huge problem for Amazon. To buy Etsy and then increase transaction fees would alienate a huge number of Etsy sellers and undercut any synergistic value gained from such a purchase. Sidenote: Synergistic value is one of those made up business school terms used to pad decision making in acquisitions, it’s a combination of a healthy chunk of art and a little science.  
  2. Target Customer: In a marketplace/two sided technology company the growth of the marketplace, and consequently the company, is determined by how well the product serves the need of the customer, the customer being the entity that parts with money. This is a fundamental difference here between whom Etsy considers as their customer (the crafts maker) and who Amazon considers as their customer (You and I). This is not to say the other side of the marketplace is ignored on either of these platforms, it’s just an indication of where priorities lie. This focus also determines the pricing versus value balance; Amazon focuses on the lowest price for their customers, Etsy (despite opening up the marketplace to mass produced products) focuses on craft uniqueness and quality . The value loop (a systems thinking approach) below shows how Jeff Bezos thinks about growth. The second loop shows my estimation of Etsy’s approach. Combining these two would almost certainly result in a negative reinforcing loop (i.e. a money losing proposition for Amazon). I do think the 3rd reason is the most important though..
  3. Culture: A recent New York Times article shared more about Amazon culture than had been revealed up until that point. Say what you will about the validity of the claims or otherwise there must be some element of truth to it. The overriding impression is that Amazon is driven mainly by data and very little ‘heart’. This is the opposite impression you get from Etsy; Etsy is a B Corporation that measures  ‘returns in more than just numbers, it measures its value through employee well-being, community engagement and environmental sustainability. Of course the numbers matter, but this comes as a result of nailing employing wellness, engaging with their community and being environmentally sustainable. You won’t find these as the core tenets of Amazon culture. To combine these two cultures would absolutely not work.

Amazon cannot change who it is, the sellers on Amazon Handmade will be folk looking for volume sales on their ‘mass produced unique’ products. A good number of them will be current Etsy sellers who manufacture in bulk (i.e. not craft makers). These sellers are not who Etsy is and this will actually help Etsy solve that problem.

So how does Etsy (or any smaller competitor) compete against the elephant in it's room? It’s simple; by continuing to do best by it’s true customers and by doing what it does best; enable people like me to buy a truly one of a kind hand-painted tea box by a Ukrainian immigrant in Brooklyn for my tea loving (ok, obsessed) wife. It’s by curating the long tail of quirky and cool craft products out there for people who are now yearning for even more customization in a mass-produced consumer product world.

Your thoughts?