In 2022, Etsy had 88.3 million active buyers, over 35 million repeat buyers, and 7.6 million habitual buyers. Etsy’s funnel is skewed toward enabling active buyers to become habitual buyers, which is critical for long-term sustained growth in a two-sided digital marketplace.
Why is it so hard to build a platform?
A platform business model is one of the most complex to build because it’s tough to manufacture so-called network effects from scratch. Indeed, when launching a platform, there are two core issues:
1. it’s the chicken and egg problem of distribution. In short, where do you start in kicking off the network?
2. it’s the ability, over time, to reinforce, strengthen and speed up the network so that from a bunch of active users, you get buyers, repeat buyers, and habitual buyers.
Etsy’s chicken and egg problem
When it comes to the chicken and egg problem, this is the core issue of any platform trying to kick off its network effects.
In Etsy’s specific case, since it’s a two-sided marketplace with sellers and buyers, the question is whether to start or prioritize supply over demand.
Of course, when kicking off a platform, you want to take care of both supply and demand. But, you want to make sure what’s the priority in the short-term.
For instance, in Etsy’s case, the priority initially was to ensure enough sellers listing unique items on the platform.
Over time, these listings turned into traffic, which turned into sales.
Etsy’s accelerating funnel
For a digital platform to build long-term success, it’s critical to enable users to become buyers.
Buyers to become repeat buyers.
And repeat buyers to become habitual buyers.
This is where engineering, marketing, and distribution come together to create a growth funnel, where the platform is structured to ensure that sellers keep listing unique items.
Active buyers become repeat buyers and habitual buyers.
At community levels, these were some of the initiatives that worked:
– Continued improvement of messaging between buyers & sellers.
– Continued to expand the use of seller and buyer videos on Etsy.
– Purchase Protection.
– Improved delivery transparency in non-U.S. markets.
– Stepped-up Handmade Policy enforcement.
– Improved clarity for returns.
But there is also a tech component that was key to this success.
Etsy has been massively investing in its internal search infrastructure in recent years.
Etsy revamped its internal search to make it a visual (images and videos as primary avenues to shopping) recommendation engine (customized experience for buyers based on previous journeys); Etsy has restructured itself into a recommendation engine for its buyers!
- Platform business models are hard to build because of the initial chicken-and-egg problem and the inability to transform traffic into buyers.
- Etsy has a flywheel to ensure that unique listings turn into organic traffic, which drives active buyers.
- In turn, customized experiences, seller services, and trust enhancement help the platform transform active buyers into repeat and habitual buyers!
Read Next: Etsy Business Model, Etsy Flywheel.
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