As a marketplace for handmade products, Etsy always will face a measure of backlash any time it acts like a corporation. Such is the nature of a company where an estimated 95% of sellers run their mom-and-pop shops out of their homes, crafting goods that generate average annual sales of just $2,300.
So Etsy can’t be surprised by this week’s boycott by thousands of sellers, which coincides with the company raising its transaction fee on product sales and shipping from 5% to 6.5%. While it’s unclear how many sellers shuttered their virtual stores in protest, an online petition garnered 64,525 signatures as of early Tuesday afternoon.
In reality, the seller fuss looks like a minor blip on Etsy’s radar. The protesters represent a miniscule fraction of the 5.3 million vendors on Etsy as of January. Company officials have barely blinked at the protest, showing no signs of backing off the fee increase. Etsy leaders have said they plan to re-invest revenues from the added fees into advertising, technological improvement, and customer service support.
And while the disgruntled sellers’ frustrations are understandable—nobody wants to surrender more cash to faceless corporations, which already collect decent-sized transaction, shipping, and payment processing fees—the protest largely misses the mark.
For one, Etsy remains a good deal for its vendors, many of whom couldn’t afford a physical storefront. The new 6.5% transaction fee, which is added on top of a 20 cent per-item listing fee, is still lower than most of its top competitors.
By comparison, Amazon takes a 15% cut on items sold through its Handmade storefront, eBay sets transaction fees of roughly 10% to 15%, and Meta collects a 5% commission on sales made on Facebook and Instagram. Amazon and Meta don’t charge listing fees, while eBay offers at least 250 free listings per month and charges 35 cents for most items after that.
The relatively small cut is remarkable given that last year’s operating income at Amazon ($24.9 billion), Meta ($46.7 billion), and eBay ($2.9 billion) dwarf those of Etsy ($465 million). In theory, all three companies could lower their transaction fee and undercut Etsy, running the smaller marketplace out of business.
Etsy also has proven it can responsibly spend additional revenue on expenses that help attract more buyers, rather than greedily padding the corporate bottom line.
In mid-2018, Etsy raised its transaction fee from 3.5% to 5%. Despite that increase, Etsy’s adjusted profit margin before interest, taxes, depreciation, and amortization only rose from 18% in 2017 to 23% in 2018 and 2019. That modest increase came as Etsy boosted its marketing budget by 36% and spent 25% more on product development.
“Like we did on another transaction fee increase that we did in 2018, we plan to reinvest a considerable portion of that incremental revenue back into the marketplace because we want to directly have that benefit the seller,” Etsy CFO Rachel Glaser said on a February earnings call.
While Etsy’s adjusted EBITDA margin jumped to just over 30% in the past two years, that increase is likely an anomalous event attributable to a pandemic-driven spike in sales.
Etsy sellers also gripe about the company’s recent acquisitions of Depop and Elo7, two buyer-and-seller marketplaces that cost a combined $1.8 billion in mostly cash. It’s a fair enough argument: Why hike seller fees when the company has that much money sitting around?
But both acquisitions represent investments designed to help improve and scale the Etsy platform amid competition from much larger rivals. Amazon, Meta, and Google have deeper pockets, a larger bench of software engineers, and cross-product marketing advantages over Etsy. For this scrappy upstart to survive long-term, it needs to grow.
To their credit, Etsy vendors offer some legitimate critiques.
The company’s mandatory Offsite Ads program for higher-volume merchants—a system in which Etsy unilaterally advertises vendors’ products on Google, Facebook, and other well-trafficked sites, then charges a 12% to 15% transaction fee on sales attributed to those sites—makes the marketplace no better than Amazon or eBay for sellers. Etsy also could invest more in its notoriously poor customer service systems, which frustrate countless sellers.
On the whole, though, Etsy continues to strike a strong balance between seller utopia, buyer paradise, and Wall Street darling. A 1.5% increase in transaction fees does little to change that.
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Jacob Carpenter
NEWSWORTHY
A market that’s clicking. Digital ad spending in the U.S. increased 35% in 2021, the highest year-over-year jump in 15 years, as consumers spent an even greater amount of time online, according to a report Tuesday by the Interactive Advertising Bureau and PricewaterhouseCoopers. The Wall Street Journal, citing the report, wrote that digital ad revenue reached $189 billion last year, with roughly three-quarters of the money spent on 10 large digital platforms. Digital ad sales had been rising about 15% to 20% annually over the past several years.
Opening up Horizon. Meta has started testing features that will let a select group of creators sell virtual items within the company’s Horizon Worlds metaverse platform, TechCrunch reported Monday. The development marks an early collaboration between Meta, which hopes to pioneer the so-called metaverse, and third-party developers who could build virtual reality products and experiences within the platform. Meta officials said they would charge a 47.5% fee on sales made through its Quest virtual reality system and Horizon Worlds metaverse—more than the often-criticized app store transaction fees levied by Apple and Google, which take a 15% to 30% cut.
Not quite ready. Apple smartwatches won’t have a built-in blood-pressure monitor until 2024 at the earliest, as the company continues to struggle with technological hurdles, Bloomberg reported Tuesday. Citing sources familiar with the matter, Bloomberg reported that the much-anticipated feature hasn’t yet met Apple’s standards for accuracy, resulting in delays that could stretch into 2025. Apple faces stiff competition from Samsung and Alphabet-owned Fitbit to develop a smartwatch with the technology, which would warn wearers if they have hypertension.
Back on the market. The Chinese government started Monday to soften its crackdown on the video game sector, issuing new gaming licenses for the first time in nine months, Reuters reported. Chinese officials granted publishing licenses to 45 games, some of which are developed by large tech companies targeted over the past two years by President Xi Jinping’s administration. Government regulators have argued that Chinese tech companies accumulated too much power, prompting tighter controls over the industry and several high-profile investigations into large conglomerates. Chinese leaders also issued strict limits last year on the amount of time that children can spend playing video games.
FOOD FOR THOUGHT
A wee bit hypocritical? If you’ve noticed a whiff of schadenfreude emanating from Silicon Valley and the Amazon headquarters, this might be why. A new Bloomberg report finds that Microsoft, which has artfully avoided antitrust scrutiny in recent months, has been making it harder for Windows and Office users to run those programs on Amazon Web Services, Google Cloud Platform, and other rivals’ cloud-computing systems. Microsoft president Brad Smith, who has needled his tech rivals for their anti-competitive practices, said companies complaining about the practice raise “some valid concerns.” Smith did not elaborate on any immediate changes.
From the article:
The impact has been felt at companies and organizations both large and small. A person familiar with the software systems at a Fortune 100 company said Microsoft’s rules don’t allow running its existing Office software on Amazon’s cloud, and require it to pay more to run the Windows operating system on its rival’s servers.
One consultant tried to help a Fortune 10 customer move to Google Cloud, but the client abandoned the idea after finding it would increase the costs of Windows licenses by $50 million over five years.
IN CASE YOU MISSED IT
The hottest new perk in corporate America: Pay your employees to stop working, by Megan Leonhardt
Exclusive: How Anatoly Yakovenko’s crypto startup Solana Labs is building what investors think will be a core layer of Web3, by Anne Sraders and Declan Harty
Russia’s invasion of Ukraine is pushing the world to find a new, greener recipe for fertilizer, by Bernhard Warner
‘Super stressed’ Twitter staff have monthly ‘day of rest’ ruined by Musk drama, by Maxwell Adler, Sarah Frier, and Bloomberg
FIFA launches the ‘Netflix of soccer’ with new streaming service, by The Associated Press
Yelp joins Citigroup and Apple in covering travel costs for workers seeking abortions, by Kelsey Butler and Bloomberg
BEFORE YOU GO
Protected at all costs. At Meta, you can put a price tag on Mark Zuckerberg’s peace of mind. Insider, citing a new regulatory filing, reported Tuesday that the Facebook and Instagram parent spent $25.2 million on security-related costs for keeping Zuckerberg safe, far more than his fellow tech CEOs. By comparison, Amazon spent $1.6 million on security for then-CEO Jeff Bezos, who has since stepped down from the position. While Meta doesn’t elaborate on details of the spending, Insider previously reported that Zuckerberg has around-the-clock bodyguard protection and an office with bullet-resistant glass, among other security measures. Even if it seems like an astronomical number, can you blame him?
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