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How to Create an Online Marketplace like Etsy – Explore Guide

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Horizontal marketplaces like Amazon, Alibaba, and others offer a wide assortment of products – from the best-selling smartphone to something unexpected like a rubber purse designed like a chicken! The plethora of products on offer draws in a large number of consumers.

But their boon is also their bane – lack of specialization.

This is where vertical marketplaces like Etsy have an advantage – they offer a tailored ecosystem to a well-defined audience. The platform is purpose-built for a specific category of products.

It, in fact, can be credited with pioneering the niche marketplace strategy, and gaining success with it.

Etsy is a platform for the trade of unique handicrafts and creative products. Its peer-to-peer business model befits the users, wherein the sellers are also buyers and vice-versa. Also, with its setup, the marketplace provides a platform for a large number of solopreneurs and sellers considering a side hustle And that is, in essence, the concept behind the marketplace.

The $12.7B worth two-sided marketplace is an eCommerce success that continues to inspire businesses like itself and others. The proliferation of eCommerce, globally, presents multiple opportunities on expected lines, but also disruptions caused by innovative business strategies.

In this blog, let’s draw inspiration from the phenomenon that is Etsy, by analyzing its success journey, and the underpinnings that are key to its success. Also discover a step-by-step process about how to create an online marketplace like Etsy.

Success Journey – Idea Borne by Identifying a Market Gap

Etsy, as a concept was borne out of an identified market gap. The founders, Robert Kalin, Chris Maguire, and Haim Schoppik, who were website developers at that time, had worked for clients operating in the handicrafts niche. In those days, (prior to the launch of Etsy) such sellers primarily used eBay as a preferred platform to conduct their business. But, eBay being a platform for multiple categories, was not ideal for these sellers.

The founders anticipated this opportunity to launch a platform that caters specifically to the need of these sellers. So, in 2005, the marketplace was launched as a solution to address some key industry pain points ― identified by the founders in their analysis. Some of these were higher commission rates, (existing) platform complexities, and more.

In comparison to the existing alternatives, the sellers provided a more purpose-built platform to sell unique handicrafts ― and the marketplace gained initial traction among its targeted user base.

While the headstart did give the necessary initial impetus, multiple result-driven additions and strategies, have further helped the marketplace to navigate complexities and challenges all these years.

Stsy Success Timeline

Etsy, thus, remains an inspiration for new eCommerce businesses and existing ones alike. In the following sections of the blog, let’s discuss how you can build a marketplace like Etsy.

Suggested Read: Etsy’s enthralling journey from a Brooklyn apartment launch to 10 billion user strong platform.

Etsy’s Success in Numbers

Success of a business is best quantified by numbers. Let’s have a look at some stats that validate Etsy’s success.

Annual gross merchandise sales of Etsy

Source: Statista

According to Statista, the handmade products marketplace has shown an increase in annual gross merchandise sales since its launch in 2005. While the period between 2012 and 2019 witnessed a steady increase, the pandemic crisis saw a sharp jump in sales. The reason was both ― the increasing traction of eCommerce during that period and Etsy’s strategies that bore results. The revenue figures also emphasize the growth achieved during this period. In 2021, revenue amounting to 2.3 billion US $ was generated on the marketplace, This figure is 35 percent more than the year before.

The marketplace has steadily increased in popularity with its target audience making it the fourth fastest-growing eCommerce website. According to Statista, in 2021, the marketplace had about 7.5 million sellers selling 100 million listed products to about 10 billion buyers.

Build an Online Marketplace like Etsy – Eh, Si!

The name of the marketplace is based on the Italian words Eh, Si, which translates to Oh, Yes in English. So, Yes, let’s discern the process of setting up a handicrafts eCommerce website like Etsy.

In this section, let’s first discuss the business mechanisms of the marketplace, and further read about a step-by-step process that can be adopted to build a marketplace like Etsy:

Business Mechanisms of Etsy

The first step in building a marketplace like Etsy would be to understand how it operates. In essence, what is the modus operandi, what are the key growth drivers, and how it generates revenue. Read ahead to gain insights into how a marketplace business like Etsy can be set up.

Business Model of Etsy

An online marketplace is a digital tool that connects multiple sellers with buyers, while the backend and support operations can be provided by the intermediary that owns the marketplace business. So the marketplace has three key participants: Admin (assigned by marketplace owners), sellers, and buyers.

Depending upon the operative industry of the eCommerce platform, the mutual interaction and key responsibilities amongst the three are organized. The business model of the marketplace is curated accordingly.

In Etsy’s case, the marketplace had to design an operative model to aid the typical interactions in the marketplace – between parties that can operate as both sellers and buyers. Moreover, since these participants are majorly solopreneurs or small businesses, the business model of the marketplace is Peer to Peer or P2P.

To gain a quick overview of the business, let’s have a look at the business model canvas of Etsy:

Etsy Business Model Canvas

Suggested Read: Roles of key participants of the Etsy marketplace

Revenue Channels of Etsy

One of the biggest advantages of the marketplace model is the opportunity to earn from multiple revenue channels. Typically a marketplace owner can earn from product commissions, subscription plans, monetizing advertisements, PPC campaigns, and more from the platform itself. Additionally, a scaled-up multi-seller business further provides opportunities to earn from allied activities.

Revenue of Etsy inc.

Source: Statista

Etsy earns revenue from three primary revenue generation components that include:

– Commission fees for sales transactions and listings
– Revenue generated by proving services for sellers
– Third party sources like payment processor fees.

Expectedly the revenue generated from the platform forms a major part of the revenue. In 2021, it was about 1800 million US $ out of a total of 2330 million US $.

Learn about a detailed illustration of the flow of a typical eCommerce marketplace

Key Features Driving Growth

Features of a marketplace are subjective to its mode of operation. Since Etsy is a P2P eCommerce platform hosting the sale of handicrafts and unique items, the features are included to support the purpose of each participant ― the admin, sellers, and buyers, aligned with their role in the ecosystem. Let’s view the key features of each.

Features for Admin

The following are key features for the Admin in a P2P marketplace for handmade items like Etsy.

Support for Multiple Revenue Streams: A self-evident outcome of multiple revenue stream capabilities on a marketplace is more revenue. But an inconspicuous benefit is the added flexibility. For instance, subscription-only plans encourage vendors to sell more, while commissions-only encourage more vendor sign-ups on the platform. A middle path can have a combination of both.

Additionally, advertisements and a PPC module further help not just in marketing but also contribute significantly to the revenue of the marketplace. Also, better product visibility due to these efforts leads to potentially higher sales, benefitting the marketplace business as well.

Content-driven Platform: Prioritizing quality content has been key to Etsy’s success. It has been a key differentiator in its early days, driving traffic away from the competitors, to its platform.

Furthermore, as most products listed on the marketplace are unique, their appearance forms a major part of their USP. Hence, High-Quality Images with the option of multiple layouts and lucid product details are some key elements for this niche.

Complete Control for the Admin: With multiple sellers in the mix, it is the admin’s prerogative to manage the operations with complete control ― maintaining quality and ensuring the branding of the business. Especially, in the case of a P2P marketplace like Etsy, where the majority of sellers are small businesses of lesser repute and not large distributors of global brands. So regulating the marketplace effectively is a critical imperative in a P2P marketplace.

API-first Ecosystem: Multiple operations on the marketplace are possible via tie-ups with third-party service providers. The Business APIs for these service providers can be integrated with the platform, allowing effective eCommerce operations.

Support for Global Operations: Unique items have the potential to find a global customer base. For instance, Etsy has suppliers from countries like India, that provide raw materials, or finished goods to a global clientele, and vice versa. Some features that support global operations are multilingual & multicurrency support, region-specific payment gateways, and more.

Features for Sellers

The following are key features for the Sellers in a P2P marketplace for handmade items like Etsy.

Seller Dashboard on Etsy

Source: Vantopics

Individual Seller Storefronts: Sellers on Etsy are primarily individual sellers. Sales operations for such sellers are generally not omni-directed. Rather, Etsy could be a solo channel. Thus, the capability to set up individual storefronts offers them the opportunity to establish their brand identity ― encouraging them to sell in the marketplace.

Product Catalog: A rich-featured and intuitive product catalog allows sellers to list their products effectively ― showcasing them on the platform to enhance sales.

Detailed Analytics: Digital sales have the unique advantage of traceability. Data related to sales, traffic, user profiles, projections, and a lot more, support data-driven strategies and future planning.

Ease and Convenience: A key to attracting independent sellers and solopreneurs is a convenient onboarding and selling process on Etsy. Easy and efficient management of their operations enhances the appeal of the marketplace.

Features for Buyers

The following are key features for buyers in a P2P marketplace for handmade items like Etsy.

Detailed Authentic Reviews: In a P2P marketplace like Etsy, user reviews make up for a bigger impact than otherwise. As discussed, the majority of sellers are small businesses selling products that have little market presence. So authentic user reviews help buyers to make an informed purchase decision.

To add to the feature for product reviews, if there are added functionalities wherein parameters can be added to the reviews, and the overall review would go live after Admin approval, the reviews will benefit from both: authenticity and the level of information passed on to the buyers.

Multiple Payment Methods: A key to driving conversions in the modern eCommerce space is to offer multiple payment modes ― eWallets, Card payments, Cash On Delivery, and more.

Effective Search: With multiple, lesser-known products on sale, effective search capabilities are key to buyers landing on the intended page. Keyword-based search with filters options can be detrimental to the success of a P2P marketplace.

Features to Assist Community Build-up: P2P marketplaces like Etsy benefit from a strong community setup within the marketplace ecosystem. Some features that help in forming communities are:

– Direct seller-buyer communication
– Push notifications for buyers about seller activity
– Social media presence for the sellers. Sharing on social media can help sellers in this regard.

See essential features of marketplace websites like Etsy in action

The Process – How to create an online marketplace like Etsy

By now, some understanding of the basic business mechanisms of Etsy has been shared. How it operates, and some key features that underpin its success. With this information, you can further start to plan your business venture. The following steps will help in providing an overview of the process to create a website like Etsy.

Analysis and Market Research

A three-pronged approach can be followed while conducting market research.

Business Positioning: An analysis into identifying demand and supply gaps in the current market can be of help. Additionally, studying the current industry trends, by delving into community forums and conducting market surveys can help with some critical market insights. Handmade and creative products is a niche within the eCommerce industry. But, sub-niches within this niche can also be considered.

Existing Competition: eCommerce industry has been getting competitive with brands pushing to get a piece of the online market share. An analysis of the existing competition ― both global and local, can help in identifying opportunities.

Understanding Buyers in the Domain: An analysis of the intended target audience of the business – their needs, current market gaps, products likely to trigger purchase decisions, and more can help you to build an idea. In a marketplace, both sellers and buyers need to be taken into account for a successful business – that offers value to all participants. For instance, Etsy has been built to provide a platform for a particular audience, as evident from the statistic below.

Self-identification and motivation of Etsy sellers

Source: Statista

Creating the Marketplace Website

With the conclusion of the market research process, the next step is to get down to creating the website that will form the core of your business operations. To achieve the desired objectives, there are two popular approaches.

  1. Coding from Scratch: The website is coded from scratch with this approach. The desired features have to be identified and included pre-launch. This process is resource-intensive and time-consuming. Moreover, higher time would mean that the go-to-market time would be impacted as well. This can be of disadvantage in the dynamic eCommerce ecosystem – the longer you take to bring your business online after the initial market research, the more chances are of the research getting outdated. Moreover, you might lose out on the early-mover advantage in the identified market.
  1. Using a Turnkey Solution: The second approach is using readymade software. The software industry has many competitive turnkey solutions, each with its own strengths and intended ideal use. These software provide businesses with the competitive advantage of low upfront costs and less time for the business to get up and running. You can conduct market research of these software to identify an ideal software with the requisite features to create a website like Etsy out of the box.

How can Team Yo!Kart Help

Yo!Kart is a leading readymade marketplace software that can help to create an online marketplace like etsy. It has been at the heart of 5000+ stellar eCommerce marketplaces around the globe, powering their purpose-built websites. Some of which have also been Handmade marketplaces like Etsy.

Suggested read: A case study of a Yo!kart-powered handmade marketplace like Etsy

The dynamic solution has been built from the ground up and continuously evolved to offer more to the clients. The team has launched a much-awaited Version 10, which re-envisions eCommerce success by enhancing all key growth drivers – pivotal in the eCommerce business.

The customizable and scalable marketplace solution offers multiple result-oriented features for all platform participants. Some key features of the solution are:

Your Business: Admin:
Establish Unique Brand IdentitySeamless Operational Efficiency
High Performing platform Secure with GDPR compliance Dedicated User dashboards for Admin. Sellers, Buyers, and Advertisers. Integrated Blogging module Availability of multiple revenue streams.Intuitive operational workflows Extensive reports and analytics Multiple Pre-integrated Business APIs and popular payment gateways like Stripe, Paypal, and more. Essential eCommerce operations like accounting, inventory control, and more
Sellers:Buyers:
Effective Selling ToolsIntuitive Buying Experiences
Individual Seller Store fronts Rich Featured Product Catalog Effective Order management with returns and cancellation control Result-driven marketing features.Info-driven buyer journey Multiple Payment options Buyer-Sellers communication channels MultiCart Checkout

Yo!Kart is self-hosted and available with one-time payment packages.

Furthermore, a significant Yo!Kart advantage is the availability of in-house customization services to personalize your platform as per individual business requirements.

Launch a marketplace like Etsy with a leading eCommerce solution

To Sum it Up

With the progression of technological advancements, eCommerce continues to attract more buyers, than before. Along with the rising competition, the opportunity to start an eCommerce business is there now, more than ever.

Moreover, markets, the world over are maturing to provide new entrants with good consumer traction.

Having said that, it is still imperative that the eCommerce platform solves key buyers’ problems with a purpose-built platform. Both, the market strategy of the brand and a robust platform with result-oriented features can provide an online platform with the requisite competitive edge.

Even more so, niche-based businesses have been successful in the past and continue to do so. Entrepreneurs can study the market with the right opportunity, and bridge a market gap with their business. A faster launch will further provide them with a competitive edge.

Also, by following the steps mentioned in this blog, one can launch an eCommerce marketplace like Etsy.

Team Yo!Kart, with reliable turnkey solutions, result-oriented customization services, and expert eCommerce consultation provides entrepreneurs with a complete eCommerce solution, under one-roof to build a marketplace like Etsy.

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