This week’s podcast is a deep dive into Etsy. And how it is leaning into the creativity and human connection aspects of marketplaces.

You can listen to this podcast here, which has the slides and graphics mentioned. Also available at iTunes and Google Podcasts.

Here is the link to the TechMoat Consulting.

Here are my 5 questions (thus far) for assessing the viability of a specialty ecommerce company.

1. Is the company sufficiently differentiated in the user experience?
2. Can the company compete and/or differentiate in logistics or infrastructure without ongoing spending?
3. Does the company have a strong competitive advantage in a circumscribed market?
4. Is there a clear path to significant operational cash flow?
5. Has the company avoided markets and situations that are attractive or strategic for the major ecommerce companies?

Here are the mentioned articles and podcasts:

Etsy and How to Predict the Winners in Specialty Ecommerce (Tech Strategy – Daily Article)

Pinduoduo, Etsy, and OTC: How Specialty Ecommerce Can Thrive Against the Giants. (Tech Strategy – Podcast 97)

———–

Related articles:

• A Breakdown of the Verisign Business Model (2 of 2) (Tech Strategy – Daily Article)
• 3 Factors Will Determine the Future of Verisign Inc. (Tech Strategy – Podcast 191)
• A Strategy Breakdown of Arm Holdings (1 of 3) (Tech Strategy – Daily Article)

From the Concept Library, concepts for this article are:

• Specialty Ecommerce

From the Company Library, companies for this article are:

• Etsy

Photo by Annie Spratt on Unsplash

——transcription below

Welcome, welcome, everybody. My name is Jeff Towson, and this is the tech strategy podcast from Techmoat Consulting. And the topic for today, why TikTok shop is a big problem for Etsy.  Now, a couple years ago, I wrote kind of a lot about specialty e commerce. It’s really one of my favorite. Literally, it’s probably my favorite type of business is specialty e commerce.

 

You know, everyone talks about the Amazons and the Alibaba, and that’s very important because they’re the giants, just like Walmart is important if you talk about retail.  But there’s a whole other layer of specialty players, uh, that are very differentiated, that can do quite well. Specialty retail, obviously there’s lots of retail stores.

 

Go into any shopping mall, you’ll see lots of, well, there’s specialty e commerce players as well. I really do like the space. I think it’s there’s enough dynamism and differentiation that you can do well. But the space is not so digitally turbulent like media.  that it, you know, things just change too quick.

 

You get a good spot in specialty. It’s a pretty stable, predictable place to live and grow. So I like that space. And within that Etsy is kind of one that comes to mind because not only is it specialty e commerce, it’s a marketplace platform, specialty marketplace business model. Those are pretty rare.

 

Most of them are specialty e commerce sites like Shein or Temu or others.  Uh, anyway, so I’m going to talk about them and sort of why I think the ground has shifted beneath their feet. I’ll go through their business model. This will be a, a company deep dive today. And then I’ll, I’ll sort of go why I think the, the ground has shifted under their feet.

 

And they’re probably going to have to move pretty quick.  but it’s, it’s a cool company and, uh, it’s worth, studying. I’ve written about it before. You can find it on the website. Anyways, that will be the  topic for today.  My big announcement, which I’ve been talking about a lot this last week, is we’re doing the tech tour in Beijing in May.

 

It’s just Beijing, one city. And we’re going to do four companies, a couple days of tourist stuff, fun stuff, go to the Forbidden City, all that stuff. we’re kind of calling this the Economy Tour, because we basically, I think we’re only going to do this one time. We basically came up with a shorter tour that’s one city, visiting multiple tech companies in the city.

 

that basically made it a lot more affordable for a lot of people, because  Our tours are pretty great things, but they are a little bit larger of a price tag, so this is much less. We’re going to do this one time, so if you’re interested in that, it’s going to be May 22nd to 26th, well after the Berkshire Hathaway stuff, because I know people are going to that.

 

It’s in the spring, which is awesome for Beijing, because the weather’s fantastic. anyways, it’s going to be great. If you’re curious about it, go over to, uh, Techmoat Consulting. com. You can find all the details, including the price.  Uh, there, or feel free to reach out to me and we’ll send you all the information, but we’re basically signing people up, uh, this week  and that’s going all right.

 

So anyways, that’s kind of the only news for today. And with that, let me, well, let me do my disclaimer. Nothing in this podcast or in my writing or website is investment advice. The numbers and information for me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate overall.

 

Investing is risky. This is not investment legal or tax advice. Do your own research. And with that, let’s get into the content.  Now, I’m going to skip the quick tech news this week because it’s, it’s going to be a bit of content. There’s a couple of topics I want to touch on and I’m going to try and keep it to 30 minutes.

 

So I’m going to move a little bit quick. Okay. So first thing to think about when you think about Etsy is what  does it take to survive and thrive as a specialty e commerce company,  including specialty marketplaces like Etsy and some others.  I wrote a couple articles about this. I’ll put the link in the show notes.

 

Basically, how do you predict the winners in specialty commerce? And I basically identified five factors, which I’ll go through.  Uh, cause you know, you’re obviously going against the giants, right? How do you beat Amazon?  And also, I did a podcast on this, which was actually podcast number 97, which was 100 podcasts ago,  called Pinduoduo Etsy, How Specialty Commerce Can Thrive Against the Giants.

 

So that’s there as well. I’ll put the links to both of those in the notes. And for those of you who are subscribers, I’m going to send you kind of one, probably two articles about Etsy this week.  I also sent you three articles about Facebook meta over the last, I kind of went a little crazy on that one. I mean, it’s, it was a lot of strategy ideas.

 

I mean, I don’t know how much there must have been 10, 000 words. I kind of know I went off down the rabbit hole on that one a little bit. So there’s a lot of good strategy concepts that you can learn a lot about digital strategy. Just start studying Facebook. So anyways, I sent those out over the weekend.

 

Yeah, it was a bit much. I know it was  anyways. Okay, so Etsy is on the way. But let me talk about it. How do you assess the viability of a specialty e commerce company?  Uh, here’s my five questions. I’ll put these in the show notes as well.  Question number one. Is the company sufficiently differentiated in the user experience?

 

Now that’s on the demand side. That’s, you know, if it’s B2B, you’re talking about customer, you know, businesses as buyers. If it’s consumer, you’re talking about consumers as buyers. So the user experience.  And  most of your strength is going to come from there.  And the good news is there is a lot of ways to differentiate in e commerce in both of those areas.

 

There’s a lot of room for creativity and we see companies all the time walk into any, next time you go to a shopping mall, just look at the store by store by store. Why does that company do well against Walmart? Why does that company do against Zara? And you’ll see that they’re all pretty differentiated on the user side.

 

So that’s question number one. Question number two.  Can the company compete and or differentiate in logistics or infrastructure without ongoing spending?  That’s a little wordy. Why does that matter?  You have to differentiate on the user experience, the demand side, or on the supply side, which means your stores.

 

Your logistics network, if you’re an e commerce company. Uh, your infrastructure that you’re doing. Your sales mechanisms. Now,  differentiating there is a good idea because it means maybe your warehouses are completely different or your stores are completely different than the standard, uh, stuff you see at an Amazon.

 

And they can’t retool their big logistics site to do what you do. Like, let’s say perishables or groceries.  So one, can you differentiate in logistics or infrastructure,  or can you compete? Now most companies don’t differentiate on the supply side.  They’re doing stuff that is pretty similar to what Amazon does or Walmart does.

 

Sometimes there are exceptions like groceries, some fashion, but generally your ability to differentiate is not as good. So then you just want to avoid competing because one of the big levers the big boys use, is they outspend you.  They have economies of scale in retail, logistics, and infrastructure.

 

That’s  core Alibaba strategy. They build a digital network that covers a whole country of warehouses and they keep flooding billions into that every year. You don’t want to compete in that. You have to avoid that game of ongoing spending.  Uh, now if you have little neat, new, you know, boutique stores or pop up stores, okay, you’ll have some stuff, but you’re not in that.

 

of who can spend more opening huge department stores all over Thailand or Southeast Asia or who can build better warehouse networks.  You either have to differentiate or you just have to not be in that game. Now if you’re highly differentiated on the demand side,  special skin care products.  The logistics bit is not that big a deal, you just ship some boxes.

 

So the best solution is not to play that game at all or maybe if you have on demand groceries or fresh produce You can play that game. Okay, number three. Does the company have a strong competitive advantage in a circumscribed market?  Ultimately, you’re gonna differentiate you’re gonna get some traction.

 

You’ve got to have a moat  And it’s better if you have a moat and a highly differentiated product in a small, strange, circumscribed market.  You don’t want to be in gentle merchandise. You want to be a very specific combination of services and products for new moms  in Indonesia. You want some unique circumscribed market that you are highly differentiated against and that you have.

 

You know a switching cost built in or something. So that’s question three. Do you have a strong competitive advantage against eventually? If you have a good business, the big boys might look at you and you’ve got to have some protection  Also, if you’re a smaller businesses, you always have to worry about new rivals  because if you’re smaller It’s easier for companies to jump in against you from start So you got to have a barrier to the new entrance and you got to have a some degree of protection against the big boys  Okay, number four  Is there a clear path to significant operational cash flow?

 

Now, one of the big problems here is specialty  niche e commerce and retail businesses have to do something in their area that the big boys don’t have to do. They have to make money.  It is very easy for an Amazon or Walmart to get in your space and not care about making money. Because they make so much money in their left pocket, they don’t worry about the right pocket.

 

If you’re going to be a specialty company, you’ve got to have a specialty that generates cash in itself or you’re not going to make it.  So that’s going to limit the type of plays you can do. It’s got to throw off sustainable and sustain, you know, significant cash flow.  And a lot of specialty niches don’t.

 

Okay, last one.  This is kind of the easy one. Has the company avoided markets or situations that are attractive or God forbid, strategic  for the major players?  Like if you’re too attractive, you’re going to draw the attention of Amazon. You are how attractive is it? It’s better if you’re off in some strange niche, they don’t care about.

 

The worst scenario is, are you in something that is considered strategic for them, like supermarkets is for Alibaba?  Alibaba is not going into supermarkets to make money. They may make money. They’re going in there because they see that as key strategic infrastructure for reaching their customers all across China.

 

You do not want to be in a space that is considered a strategic necessity for a big boy.  Like, just forget it. Uh, groceries is actually that space for China. Uh, anyways, so those are the five. I’ll go through how I sort of see Etsy about that, but I’ll, I’ll put ’em in the show notes and you can take a look at ’em.

 

I find that a pretty useful list to use. Alright, let’s talk about Etsy now, and we’ll sort of start with that framework.  Let’s call Etsy 1.0. Sort of, you know, the history that’s been up until, let’s say, two and a half, three years ago.  When you look at Etsy, what you really see, for those of you who aren’t familiar, I’ll go through it.

 

is very compelling differentiated factors in the user experience.  And most of their differentiation is coming from the types of sellers they have on the platform. It’s a marketplace platform and the unique inventory. that they do have. You can find stuff on Etsy. Most things on Etsy, you can’t find anywhere else.

 

Now Etsy, it’s a marketplace platform, buyers and sellers. They really were creative on the seller side where if you’re in the US and Etsy is mostly, most of their sellers are in the US and the UK.  If you ever go to a flea market, downtown Manhattan. You know, they set them up on Saturdays, people set up little booths, and they sell lots of little arts and crafts that people make.

 

Uh, you know, they’ve, you know, someone has knitted something, someone has made a ceramic pot, or they sell vintage stuff. Here’s a bunch of old clothes from the 1970s, here’s some old coins, you know, stuff that people find, you know, in their attics or in various places. So they would sell arts and crafts that are made by the person selling, or they might sell vintage stuff.

 

Uh, basically they digitized and you know, you could go there on a Saturday on the Upper West Side of Manhattan and look around at all these little shops and there’d be one person behind each sort of table and they digitized that process and that was clever because it is very unique on the seller side.

 

The inventory is very unique  and it also turns out it was somewhat global. Because it turns out there are people who make arts and crafts all over, and you can sell them across border.  I have a little, you know, in my office, I have a little model of Starship, right? The first rocket, you know, that Elon did that could land.

 

Oh, well, not the first one. The first one, the first prototype of Starship. And I wanted a model of it. I couldn’t find it on Amazon. I went on Etsy. And I found some dude in England who was, all he does is make models of various rockets by SpaceX.  So I ordered it and they shipped it to Thailand and it got us like 40 bucks or 50 bucks and why that  so They’ve got a very unique inventory on that side Let me read you a little bit of their how they describe themselves  because they’ve been at this for a while So they have very good description of what they do,  you know in terms of our language Keep in mind.

 

This is a two sided marketplace Etsy never takes possession of the inventory. They don’t even have warehouses I think they just Coordinate and the inventory is never in their possession  Okay, so how they would describe themselves, they say, you know, we want to,  okay, it’s a two sided marketplace that connects  passionate and creative buyers and sellers.

 

Now they will use these words a lot, like  our buyers are thought, this is their language from their 10K, our buyers are thoughtful consumers looking for items that are a joyful expression of their tastes and values.  Uh, their sellers are active creative artisans  and entrepreneurs. So their marketplace, Etsy.

 

com, they have a couple others, but we’ll talk about that one, is a global destination for unique and creative goods made by independent sellers.  And that’s not bad language. Let me read you a little bit more. They’ve got sort of well evolved language that’s, you know, they’ve been doing this for a while.

 

Okay.  What is their value to consumers?  They have meaningful, one of a kind items.  Uh, handcrafted and curated  with passion and expertise by creative entrepreneurs. See, you can see sort of the language there. One of a kind items. That’s a big part of it. Handcrafted. Okay, so that’s people making stuff in their homes for the most part.

 

It’s almost all entirely one person operations. And actually it’s almost like 80 percent women and mostly white women, actually, if you look at the numbers. So it’s sole of solopreneurs working out of their house. So handcrafted, so people making stuff.  So they say handcrafted and curated with passion. So it’s either people making stuff or people hunting for unique things like coins.

 

If you want Japanese currency from the 1910s,  you can find it on Etsy and have it shipped to you.  Uh, with passion and expertise for creative entrepreneurs. Okay,  now, why would someone buy something like this? Okay, so that’s the seller picture and their unique inventory is what matters.  You can find stuff that you can’t find anywhere else.

 

Why would a buyer care? So what is the differentiating experience of the buyer? And they’ve pretty much nailed this. They say  kind of three things. I’m looking for everyday items with meaning.  Okay, what would that be? Home furnishings.  If you want a special type of coffee table or a special type of lamp, you can find very individualistic things that would have meaning for you.

 

And one of the things they talk about is people buy stuff that reflects their individual style.  If you ever watch the TV show Friends,  for those of you who are familiar, in the apartment of the Friends, they had a sort of a picture frame pasted on the door around the keyhole. I’m sorry, the peephole.  You can buy that on Etsy.

 

Apparently it’s a huge seller. Like, go look and you’ll see it. Like that little yellow picture frame that’s on the door of the friend’s apartment when you look through the people. You can get that there. So, individual style. The other thing they talk about is when you buy something special for specific occasions throughout the year.

 

So, I don’t know, Christmas, special holidays, celebrations, your friend is graduating, you want to get them something unique. So everyday items with meaning or individual style, then there’s special occasion, events, and then the third category is basically gifting.  That if you want to demonstrate thought and care and something special.

 

So, and they lay this out very well in their reports, you know, that,  and I, actually, I like all of those categories. I like, cause all of those categories, they’re not product categories like furniture versus apparel. They’re categories of the consumer experience. I’m buying something as a gift is very different.

 

I’m buying something for a special occasion. I’m buying something to reflect my individual style. And they do quite well in home furnishings and apparel. so they call it style, gifting, and celebration. Style is something you buy for yourself. Gifting is something you buy for someone else. Warren Buffett loves companies that are gifts.

 

Because people spend a lot more when it’s a gift. and then celebration, that’s something for us.  So they put that in there. Some of the numbers, they say 87 percent say they can’t find this stuff anywhere else.  Uh,  30 percent are kind of looking for a gift when they go on to shop, or they’re sort of browsing for inspiration.

 

Anyway, so very good detail, sort of, about,  you know.  The platform and what they have hand. These are the words you’ll read handmade, customized, personalized, vintage, uh, on the platform. I pulled the 10 K from 2022. They had 100, 000, 000 items listed,  uh, about 28 percent were custom or made to order. Because it turns out when you go on there to buy something you have an interaction with the seller because it’s a solopreneur And I’ll talk about Etsy 2.

 

1. They are leaning into the relationship aspect with the seller so I’ll talk about that and about 45 percent of their GMV is when sellers or buyers one of them is outside of, let’s say, the U. S. So there’s a cross border aspect. Okay, that’s sort of Etsy 1. 0 standard description very differentiated on the user experience on both sides.

 

Against that, do they differ in so the answer to the first specialty question, do they differentiate in the user experience? Yes, that’s what they’re doing.  Do they  differentiate or avoid competition on the logistics and the supply side? Question two. Yeah.  They really don’t do anything in terms of logistics or infrastructure.

 

You connect the buyer and the seller, they put it in a FedEx or whatever box and ship. So they’ve avoided the whole spending game of logistics and warehouses and all of it. Good. That’s question number two. Do they have a strong competitive advantage in a circumscribed market? Yes, network effect, network effect.

 

Uh, they have some degree of consumer mind share, but mostly it’s a network effect because they’re a marketplace platform. So question one, question two, question three, solid yes. Do they have operational cash flow? Yeah, they’re pretty good.  They got a solid gross, you know. They’re, they’re a digital creature.

 

They don’t have the inventory. They have some operational aspects due to customer service. Uh, but no, they’re, their cashflow is solid. They’re not showing huge growth, but I’ll give you the numbers later.  Have they avoided the markets and situations that are attractive or strategic for the major e commerce companies?

 

For the most part, yes,  we do see.  You know, more and more, the big players are getting into various types of, you know, second hand goods, handcrafted goods, but  for the most part, they’ve, they’re, yes, I, this is what you want. You want to be so different that you’re kind of a pain for these companies to go after, and you don’t want to be so profitable that they feel compelled.

 

This is not a huge opportunity. I’ll give you some of their numbers. Their, their revenue is.  about 2. 5 billion USD in 2022. Against that, their gross profit was 70%, so 1. 8 billion. they actually spend a lot on marketing. That’s actually a significant concern, uh, 25 plus percent. But, you know, operating income at the end of the day is about 25%, so 400 to 500 million.

 

Okay,  it’s a good opportunity. It’s not something that Amazon has to get.  So,  that’s good. Okay, so answer those questions. Fine. Good, good, good, good. That would be sort of how I would consider Etsy 1. 0 and that hasn’t changed much. I looked at my notes five years ago and pretty much had the same point.  Okay, now let me get to what’s happening now, what’s changing, which is the point of this podcast.

 

Now, what is Etsy 2. 0? And this is, I mean, this is just my language. It’s not coming from them at all. All right. Three things have happened in the last couple of years. Like number one, their GMV spiked pretty good during COVID.  Uh, 2020, 2021, they really did pop their numbers. I’ll give you the  exact numbers.

 

Their Revenue in 2020 was 1. 7 billion. Their revenue in 2022 was 2. 57 billion. So they went up by about their gross mark, you know, GMV went up by about 30%. So they had a good bump fine.  their primary, they started to lean into something, which they’re calling the human connection.  If you read their annual report, now they lead with our mission is to keep commerce human.

 

And they talk about the need to avoid automation and commoditization.  of life and that we are, you know, now it’s kind of my language. This is, you know, it’s about human connection and creativity. You’ll see this language a lot.  Uh, now what are they doing?  And this is my opinion of what they’re doing. their primary differentiation is still the same, which is we have a unique collection of sellers and a very unique inventory that you can’t find other places that hasn’t changed.

 

but they’re leaning more into this human connection aspect,  which is,  okay, you’re not just, one of the interesting things about their inventory is it doesn’t really have SKUs. I mean, if you look at a typical marketplace platform, what do they do?  They put everything into a category. Okay, here’s our pots, here’s our pans, here’s our socks.

 

Everything gets an SKU.  And then it’s all sort of, you know, packaged and then the software is very good at matching you. Okay,  most of the stuff on their platform is very unique.  In fact, almost everything is unique. It’s not like you can standardize any of it. It’s a lot of creativity. Everything is sort of handcrafted and so on.

 

Now, historically, what they focused on is They talk a lot about building unique tech to handle search and discovery.  It’s much harder to do search and discovery, which is kind of what a marketplace does, when everything is non standardized.  Okay, so they talked a lot about that. Now they’re sort of saying, look, not only are things not standardized, but the part of the thing that makes us unique, this is all me talking, not them, is there’s a relationship between you and the seller.

 

We want you to know their story. This is not just a random pot built by some company. No, this is made by this person and you can hear their story. And this is a quote from them to keep commerce human.  And  that’s an interesting dimension to the buyer experience. It is also a good counter strategy to increasing automation and commoditization.

 

Let’s focus on creativity. Let’s focus on the human connection, and that will be part of the experience. It’s the product, plus the relationship, plus understanding the person who made this pot that’s on my desk or that I’m giving to my mom for her birthday,  right? So they tell stories. They’re trying to customize.

 

And  one, I think that’s an interesting idea as a differentiation. Two, I think it’s a good strategy because what it really does, if you think about it in terms of digital strategy, it creates better and deeper interactions, right? Marketplaces run on interactions. We make connections and we make interactions between buyers and sellers and everyone tracks the GMV of those interactions or they track the number.

 

But you can also think about the depth and the quality of those interactions. Is this, I have no relationship with anyone I’ve ever gotten a ride from on Uber.  Didn’t know who they were, never saw them again.  Uh, this is much more interesting where you can, in theory, have more loyalty,  uh, greater engagement, more, uh, retention, greater frequency.

 

And  there’s an idea I’ve written about, which I haven’t talked about in years, which is called the market network. And this is not my idea. This is from  James Courier, the guy from NFX. If you go on my concept library page, look up market network. And he basically argues that marketplaces don’t have to be just like big shopping malls.

 

That when you do B2B marketplaces, like when you’re dealing with your lawyer or your accountant or people, the relationship becomes a much more important part.  of the transaction. It’s not just buying and selling from a driver you’ll never see again. This is my lawyer that I worked with for years. So when, when you start to combine a professional network with a marketplace, you get what he calls a market network.

 

And I think that’s what they’re going for here is  we’re building more of a relationship, almost like a social network. And we’re combining that with a marketplace.  Uh, that’s very cool. So that was kind of the thing they talk about most now.  And I, I think that’s, I think that’s good strategy to tell you the truth.

 

now they, they sort of outline how do we,  you know, how do, how is that going to drive our business? And, okay, it’s fine. But I, I think  the more they can lean into that, the better. Now, one of the reasons I titled this podcast, Why TikTok Shop is a Problem for Etsy. Because what does TikTok Shop do?  They take solopreneurs and SMEs who are making videos and they turn that into a commercial relationship.

 

I mean, this idea of we’re going to create stories so that you know who the seller is. Well, that’s TikTok shop.  It’s people filming themselves talking about, I’m a farmer. Here I’m growing my crops. This is my family. Here’s the farm today. Would you like to buy the corn we just grew?  That’s tiktok shop. So you can see that like what they’re saying they’re going for sounds a lot like where tiktok already is in terms of e commerce.

 

That’s why I think that’s important. Okay. So that’s kind of the,  the first thing. The other thing that they’ve done in the other years, the last couple of years is they have expanded to multiple platforms.  They were one major platform at seat, which I just talked about. they’ve been doing some MN&A. They bought reverb, deep hop, uh, a platform called ELO seven, which is in Brazil.

 

These are all platform business models. So they’ve kind of got. Four platforms now. One really big one and three small ones. what do they do? Well, reverb is a marketplace platform for musical instruments,  right?  You can see that, that they’re basically taking, this is an interesting way to think about expanding from your core business if you’re a successful platform business model, is they’re taking the playbook that they have and they’re looking for other situations that have similar dynamics.

 

So they’re looking for marketplaces that are non commodities,  that are creative, that have sort of special values and community. Well,  professional musicians only buy certain types of instruments. Amateurs buy others, right? You can see the same dynamics we just talked about for artisans building pot, you know, doing pottery and crafts.

 

You know, you can see the same thing with musical instruments, especially used ones. or ones that are built by, you know, small manufacturers.  So that was one they did, which is Reverb. They also did Elo 7, which is basically a copy of Etsy, but it’s Brazil. So that’s an earlier version, basically a horizontal expansion into Brazil, which is kind of an interesting move.

 

And then there is Depop, which is basically fashion, house of fashion, but it’s, it’s reselling. I don’t think the word is used close, but you know, secondhand, it’s this, that kind of marketplace. So again, fashion has a lot of sort of creativity involved in there too. And what I liked about this approach, it actually reminded me of big pens, which is a company I think is really cool.

 

They jumped into other spaces.  They didn’t really go for an adjacency. They didn’t say we’re good at this one space. So we’re going to look for something directly adjacent. No, they jumped into different places, but they all have similar characteristics. If you ever look at Big Pens, which is a really interesting business, they sell the pens you see everywhere, like these little cheap pens you can buy in every drugstore and store.

 

They also sell lighters, uh, and they also sell razors. Three very different types of products, but they all have similar characteristics. They’re disposable. They’re at a very low price point. They’re available absolutely everywhere.  And they are naturally expiring. You always have to, you know, pens run out of ink, lighters run out of fuel, whatever it is, razors go dull.

 

So you always have to rebuy. And they target businesses with similar dynamics. That’s what this looks like to me. they have compelling customer experiences in all of these businesses. They have, they require a unique set of sellers.  they all kind of require sophisticated search and discovery, uh, more complicated because they’re highly unique.

 

Now the other thing I didn’t talk about, which I’ll get to, is  all of these businesses require fairly effective brand and performance marketing.  And this is a big part of what they, Etsy does. I actually think it’s a significant problem.  Anyway, so that’s kind of the three things they’re doing. Let me get to the so what.

 

I think I’m right on time. Oh, I’m right on time. 30 minutes. Okay, I’m going to finish up here and give you the so what from my experience,  my opinion.  All right.  When I look at Etsy, let’s call it 2. 0.  Given that framework I just laid out,  three things jump out at me.  Number one, they have very low engagement and buyer frequency.

 

Everything about them is very differentiated, but most of their buyers  You know, it’s a couple days a year they’re on the site  and I like Etsy, but I’m not on there every week. You know, I’m by almost by definition, by being so unique, people don’t come in as much. If you’re doing groceries, people come in every couple of days.

 

So,   now that, that sort of just goes part and parcel with the space you’ve chosen, but you get low frequency, you get low engagement.  That means you have not as much data.  and it makes you more.  Uh, dependent usually on search engines,  you know, because how are people going to get their way to do that when you’re, when you’re going on WeChat or line, you’re checking in every day, you go direct to the app because it’s a habit.

 

If you’re only going to a site every, maybe if you’re a really significant buyer once a month,  uh,  You tend to come in through a search engine. So that’s why, one, that low frequency of engagement, that’s a significant problem. Two, it makes you much more dependent on performance and brand marketing. If you want to read really good stuff about performance marketing and how to do it, read the Etsy annual report.

 

They have very good detail on how they do this. Because they always, I mean, you go into a search engine and you look for something weird, like a saxophone or  Japanese currency from 1920s. You are most likely going to see something from an Etsy lister pop up in the search engine. That’s where you’re going to see it.

 

It’s not, they’re not just advertising Etsy, they’re advertising the items listed on Etsy.  So that’s good, but okay, that means being very good at performance and brand marketing is incredibly important. And they spend a lot of money on this. I mean, it’s, I’ll give you, I think it’s 29%, 26 percent of their revenue is spent on marketing.

 

That’s pretty big.  Okay, that’s sort of problem number one. Problem number two, the company is fairly slow in terms of innovation.  Now, if you’ve been listening to me for a while, you know I say this about all sort of U. S. based companies. I think, because I live in Asia, in China, and everything’s fast. We think it’s all slow in the U.

 

S., which, objectively, it is. Like, it drives me crazy. But if we look at Etsy, which has a cool interface, it really does have a cool user experience. There’s no video.  There’s no gamification.  There’s very little social. There’s no community aspects. I mean there is,  you know, that is  Now, I can say the same thing about Uber.

 

I can say the same thing about Expedia. I can say all of them. But compared to what comes out of Asia, which is sort of the e commerce epicenter,  that was all baked in years ago. You go on Shopee, look at all the gamification. Why do you think Americans are flocking to Shein and Teemu? It’s fun. The website’s crazy.

 

There’s flash deals and, you know, points and gamification and you get some coins and then there’s, you know, Ctrip, there’s videos and it’s awesome. So  When I put that together,  I sort of get to my conclusion, which is the point, which is  I think the landscape of e commerce is changing quickly.  I think video is merging with e commerce very quickly.

 

TikTok shop is definitely the frontier of that and they are rocking and rolling. Someone told me the other day that TikTok shop is already the number two e commerce site in Vietnam and that they’re going to become number one very quick.  Turns out video plus e commerce is fantastic and you know who it’s really fantastic for?

 

Small sellers, little shops, they love this because they have to stand out against the bigger merchants. One way you do that is you do exactly what Etsy was talking about, you make it personal.  You know, you do person to person interactions. I know this farmer selling corn because I’ve watched his videos.

 

So, Video Plus Commerce is a game changer, especially for SMEs and solo sellers.  And, you know, when you listen to what Etsy says they’re doing, it’s like, yeah. You’re going exactly where we’ve kind of already reached in Asia.  And then on top of video, which is powerful in its own right, there’s gamification, there’s points, there’s just the more dynamic user experience.

 

So anyways, what does that mean for the company? I think TikTok Shop is going to be a big problem for them. And this whole idea that we all have unique SKUs, no SKUs, and it’s very unique, so search and discovery. Well, video solves all that problems. And you can do image recognition with cameras. So, you know, the search and discovery algorithms are all video run anyways.

 

So that’s kind of going away.  Anyways, I think it’s a significant problem. But in some extent, I think Etsy is a very good picture of what specialty e commerce is going to look like in the future.  Once they get video and some of the more dynamic sort of user experience baked in. But I think their overall strategy is correct.

 

Be highly differentiated against buyer needs and against the seller inventory. Over time, make it much more personal. As opposed to just a impersonal marketplace transaction, like an Uber getting a ride. The more you lean into personal, person to person, human connection, creative. That, I think, is absolutely true for most e commerce sites.

 

, and I think they’re doing well. I just think,  the players we’re coming, we’re seeing coming out of Asia are so much further down that path., that it’s going to be an interesting, I think it’s a problem.  But we’ll see.  And we’ll see what’s going to play out. But yeah, I think strategy wise, you can learn a tremendous amount about special e commerce from Etsy, even their M& A approach, I think is very well thought out.

 

So anyways, that’s kind of my take on that today. Uh, okay. I’m a little bit over about six minutes. I’m trying to keep these podcasts to 30 minutes, but  that’s actually easy to do if I’m doing a strategy lesson. But when you get into a company deep dive, it’s kind of hard to do them quick because there is actually a lot there.

 

I mean, I just, I just took you through a lot of stuff pretty quick. I think. Anyways, that is it for me for today in terms of content. I hope that’s helpful. Those are your subscribers. I’m going to send you at least two, maybe three articles on this coming up. there’s a lot going on here that I think is very helpful.

 

And that is it for the content. Anything fun going on? Nothing really for me, I’m just working away. It’s been a pretty great start to the year.  I’m currently watching a TV, a South Korean TV show on Netflix called Singles Inferno.  Uh, this is, this is the girlfriend uh, deciding what we watch. And it’s, it’s actually pretty good, I’ll give a, like reality TV is such a strange product and service, but I get why it has such pull.

 

Apart from the fact that, like, you don’t have to hire actors, so it must be ridiculously profitable. Uh, but this is a South Korean show where they, they put, Season 3 is the one I’m watching, which is better than Season 1 or 2, which we already watched. You, you put, uh, young South Korean men and women on an island and you make them date and, you know, all of that stuff.

 

But it’s, the reason I find it kind of interesting is because it’s a dating reality show, which is really usually the worst.  Like too hot to handle and love is blind and all these sort of shows out of the US and Brazil and they’re awful But when they have these dating shows like in South Korea in Japan, it’s the same model But everyone behaves quite  as I hate to say honorably  But everyone is actually pretty nice and there’s like no crazy people Like it’s actually like, you know, like  they’re actually maybe they’re playing the game.

 

Whatever. It’s TV But you could also see them all like going home and having their family dinners like very family focused sort of Traditional values, but it’s a reality TV show at the same time It’s a very strange mix  and I find I can’t watch like reality TV shows out of the US anymore It’s just like I have to be like ready to be angry  But I can watch the ones out of Japan and South Korea and Asia.

 

They’re actually kind of nice So, I’m not sure what that means, but anyways, Singles Inferno Season 3. It’s actually pretty good. I don’t know if I can tolerate a full season, but I’m sort of committed because she wants to watch the whole thing. Anyways, that was my, that was my last couple days. All right, that is it for me.

 

I hope this is helpful, and I’ll talk to you next week. Bye bye.

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.