Etsy versus eBay

My project team is taking a close look at Etsy.com, the online handicraft marketplace. Our immediate thought was, this site must be killing eBay in terms of handicrafts. Well, as this forum discourse shows, there is still debate on the matter. But at more than $100 million in annual sales through the site in 2008 (and a far higher number projected for 09), we can’t help but think a chunk of that would have otherwise been listed on eBay.

To be fair, eBay started suffering long before Etsy, so let’s quickly summarize how key competitors are winning against the (former) auction giant:

Craigslist

Craigslist does what eBay could do, but it does it for free. This great Wired article lays out the argument nicely. Craigslist, by charging so little for its services (most of what people use craigslist for is free), is “starving” the classified market of revenue.

Other online market concepts

Auction startups have grown to fill in the gap eBay left when switching to a largely fixed-price focus. Check out sites such as ubid.com, onsale.com, and ecrater.com to see what these competitors are up to

Amazon

The 800 pound gorilla of e-commerce, and a shocking example of success at eBay’s expense. By offering superior search technology, cleaner web design, and radical simplicity (including fixed price), Amazon has led while eBay has been forced to follow.

So what’s Etsy doing right?

Etsy is a great example of a “between market” Blue Ocean strategy (Kim and Mauborgne, 2004, 2005). Let’s envision two markets for handicrafts: 1) your local craftshow / retail boutique and 2) eBay.

Your local market provides:

1) a knowledgeable seller (oftentimes also the maker)

2) a means of social interaction

3) a way to learn about the products.

eBay provides:

1) an installed base of customers

2) an efficient payment / delivery system

3) a wide range of products and suppliers

Etsy occupies the space between the two. It provides the meaning and fun of a physical marketplace with the diversity and efficiency of an online market. We’re going to take a closer look at Etsy over the next few weeks, but the most immediate question I’d like to pose is – where else is there a “blue ocean” between eBay and an existing market?