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Etsy, Amazon Handmade, & Potential Limitations to Scale

Former Vice President at Etsy


Executive Bio

Jay Bergesen

Former Vice President at Etsy

Jay is a former President at Etsy and enjoyed over 6 years at the business from 2011-17. He joined Etsy when the company had 200 employees generating over $500m in GMS. he joined as Product Manager focused on organizing product categories and optimising the shopping experience. He was soon promoted to manage the full buyer experience and also introduced the first advertising product for sellers. Jay eventually progressed to VP of and was a leading senior executive involved in preparing Etsy for the IPO.Read more

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Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Jay, can you provide a short introduction to your role and responsibilities when you were at Etsy?

I joined Etsy in August 2011. At that time, the company had about 200 people, and we were doing around $500 million in GMS on the platform. Over six years, we saw a lot of growth and a lot of change. The company grew to over 1,000 people, although we came back to the mid-700s after a few layoffs. We closed 2017 at $3.2 billion in GMS for sales on the platform. During that period, I led teams ranging from buyer experience to growth to ad products to internal platforms and built software to help the folks at Etsy do their jobs better. We also helped with product efforts to help Etsy grow beyond the US. I helped Etsy design its strategic planning process company-wide and helped the company get ready for its IPO from a product perspective. In the last year, I led the team responsible for and the apps as VP and head of

What were the early growth challenges?

Most of the challenges were probably internal and operational. For example, early on, pre-IPO, we had a team that would focus on the browse experience for buyers, so categories and browsing for items. I was on the browse team. We had another team on search, and so we would ship our own experiences. But to buyers and users, it's all the same. Browse is search; search is browse. We would literally talk to them, and they would say I'm searching, and you would watch them, and they're browsing, and then they'll say I'm browsing, and they're searching. So within one visit, they'll be doing both; across visits, they'll be doing both.

Then we were doing some user research with someone more familiar with product development, and he said it looks like two different teams made this. We were kind of fulfilling a variation of Conway's law, chipping the org chart. That was one thing where, over time, we iterated to make sure that teams had clearer areas of responsibility. Related to that, we went through lots of iterations on how to organize product development teams. We re-organized product development teams probably once a year. To an extent, it's healthy to find that maybe the org structure isn't necessarily fulfilling the needs of the business or could be tuned, but we would go through pretty dramatic changes.

Early one, one approach was we were optimizing for small independent teams. For example, you'd have one product manager, a designer, and four engineers. But we had roughly, say, 50 discrete teams, and it was tough to understand what it all added up to. Also, what would happen when that team was done with the thing that they were working on? It was hard for those teams to reconstitute. We went through several iterations and ended up with a structure that was called groups and squads. Squads were individual atomic teams, and you'd have multiple teams within a larger group, and a group would be around an area of long-term investment. The squads would represent areas of nearer-term investment. You would balance the durability and longevity of a group with the adaptability and nimbleness of a squad. That provided a much more resilient organizational structure. Even in Etsy’s earning reports now, you'll see them referencing squads. That's something where we tried lots of different things and finally found something that stuck and worked.

What were your original thoughts when Amazon launched Handmade?

That was another challenge for growth. Both real and perceived. Amazon was good at putting something out there that sowed doubt in the industry. They announced Handmade in the summer or early fall of 2014. At that time, a small group knew we were planning the IPO, but we hadn't filed the S-1 yet. The IPO was going to be in 2015, so we knew this thing was coming. Of course, anytime Amazon, with all its resources, and for the most part, track record of success in terms of kicking out or disrupting different industries sets its sight on you, you're very nervous. They did a good job of saying, we're going to do this and then give you six months to be nervous about it. Then they launched, and we had our IPO. We had challenges after the IPO, but they weren't explicitly related to Handmade. Still, I think the perception in the media, the market, and the industry was that Handmade was a real threat.

What we found was that yes, Etsy sellers tried out Handmade. We also learned, over time, that our most successful sellers would be on multiple platforms. That's expected. If you're a seller selling at scale, you're going to sell across multiple platforms, and that's okay. But we did observe that there was no meaningful attrition of sellers leaving Etsy to go to Handmade, and there was no material impact on the business that we could attribute to Handmade. It created a lot of doubt internally and externally, which was a challenge to the business. It probably did have a material impact on how it was perceived. Maybe that perception could have influenced the stock price early on; I don't know. But from the actual mechanics of the business, are buyers going to Handmade and leaving Etsy? No. Are sellers going to Handmade and leaving Etsy? No, we did not observe that. It was an interesting situation of the impact of perception and a different impact in terms of reality with the business.

Were you more worried about the sellers leaving rather than the buyers, at that point?

Yes, at that point. I'll also say that historically, anytime you have a two-sided marketplace, there’s always an internal debate; are we optimizing for buyers, are we optimizing for sellers? That was a challenge with Etsy for a long, long time, and it probably wasn’t resolved until 2016, 2017. Which side did Etsy fall on before that? The DNA of Etsy was much more seller-centric, and so I think that drove the fear that sellers would leave, especially the larger sellers, and that would be problematic for Etsy.

Would you say the focus has changed now more to the demand side?

Absolutely, and it's the right shift. Even in the early days, if you asked sellers what they want most, they would say user and sales, and the user is just a proxy for sales. But at Etsy, and I always said this, we lived at extremes, culturally. So during those early days when I was there, Amazon was a significant presence, and they were all about the customer. They probably had some practices optimizing for the customer and, at least from Etsy’s perspective, putting their foot on their merchants and suppliers and whatnot. There was a significant faction, internally, that felt that if we were to move a little bit towards optimizing for our buyers, that would be at the expense of our sellers. It was seen as an almost antagonistic relationship between the two. If a buyer wins, the seller loses, and there would be things we were doing on the buyer side where it was seen as too controversial for sellers.

But that did finally shift. We had an articulation of who our primary customers were in 2016 that I think was helpful. We then said, our primary customers are our sellers. If they're not successful, we're not successful. But for our sellers to be successful, our buyers need to be successful. So that was an articulation of, instead of win/lose, the relationship is if a buyer wins, a seller wins, and then Etsy wins. That was then iterated even further when Josh Silverman took over as CEO because he came from eBay and other marketplaces where they instilled that buyer-centric approach. The theme throughout has been, create a great shopping experience for your buyers, which drives growth for your sellers, which then creates more revenue for the company, which can then reinvest in the buyer experience. It creates a virtual cycle. That was another mass challenge for us early on. It's something that has been clarified, and I think Etsy is benefitting because of that.

So why didn't Handmade take off as much as potentially expected?

That's a great question. I would say that Amazon did not invest in the Handmade brand to set expectations for consumers that you could go to Amazon to find unique items from a real person. That's just not what your expectation of shopping on Amazon is, and that's not what they've been focusing on. If you haven’t created that permission structure for the brand, it’s just not going to exist. Also, they haven't necessarily invested in it from a pure product and buying experience perspective. It's hard to find Amazon Handmade, and when you're in there, it feels like Amazon, for the most part. The listing pages feel the same. Yes, there's a little callout of the seller below, but all the ads and recommendations are for items in the core Amazon marketplace. So it's very easy for you to get back out into the Amazon marketplace and probably really hard to get back into Handmade. But for me, they haven't invested in it as a destination for people to find unique items from real people, and that just isn't, in my mind, what consumers are thinking about when they think about Amazon.

How could this dynamic could change at scale. In 2014 or 2015, when Etsy did $1 billion GMS, it would be very different at $50 billion GMS. My question is more around how you see the competitive threat of Amazon changing when Etsy’s at scale. Given that 50% of searches online actually start on Amazon, could this be a threat to Etsy at scale?

Etsy has articulated that they see the total addressable market not just as items that are deemed special or unique, but all of retail for the categories and geographic markets within which they operate. In that sense, that puts them more in direct competition with Amazon, as well as category-specific players. If you’re talking about home furnishings and you’re in the US, Wayfair is a pretty big category-specific player. Yes, you could see a situation where Etsy grows to a certain scale and perhaps starts bumping up against Amazon. Back in 2011, we always said that we know Etsy will have arrived if you think about trying to find that thing you’re looking for on Etsy first, and if you can't find it, then you go to Amazon. It seems there's a lot of space for that growth to happen and many opportunities for them to coexist.

What would Amazon do? Would they double down on Handmade and invest in that? You also have to think about where they're thinking about finding growth in the future. My sense is yes, there's an aspect of ecommerce, but it's also getting into healthcare and other industries that are significantly large that they can disrupt. Amazon's hands are also probably tied in acquisitions that they want to do, especially with regulatory pressure and oversight in the US. It will be interesting to see.

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Etsy, Amazon Handmade, & Potential Limitations to Scale

August 20, 2021

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