![](https://craftindustryalliance.org/wp-content/uploads/2019/11/merry-and-bright-by-properletter.jpg)
Image by ProperLetter on Etsy.
Are Etsy’s new ads platform and focus on free shipping having an effect? Let’s look at the Q3 2019 financial report released on October 30.
In the last few months, Etsy has made a lot of changes. It integrated its ad platform, put more emphasis on free shipping and rolled out new search algorithms. Etsy’s financials for the third quarter of 2019 were on track, making it seem like the big bets are working.
“We are just beginning to see the impact of these initiatives, which we believe further our competitive advantages and will have a more meaningful contribution to our results in 2020 and beyond,” CEO Josh Silverman said in a press release.
And sellers who aren’t totally on board with the changes? You will learn to love them.
“We think that is absolutely the right thing to do for the business into the long-term health of the brand and therefore for all of our sellers,” Silverman said regarding the push for free shipping.
“And in order to do that, we have a set of carrots and sticks at our disposal to encourage sellers to adopt that.” One stick is not showing items not eligible for free shipping on the first page of search results.
Etsy Ads
Combining the Promoted Listings tool with Google Shopping into the new Etsy Ads platform has gotten blowback from sellers, but Etsy reports it hasn’t seen a drop in use or in overall budgets. “Sellers are largely taking a wait-and-see approach, and we want to make sure that we’re sensitive and respectful to that,” Silverman said on the earnings call.
Etsy’s Services revenue, which includes ad spend, shipping labels and Etsy Plus, totaled $56 million in Q3, up 48% from the same period of 2018. Etsy thinks sellers are playing it too safe with their budgets. “Our data indicates that many sellers are already earning very strong returns for each dollar invested, and yet their budgets are too low,” he said.
But on the whole, Silverman said he believes overall reaction from sellers has been “pretty good, and I hope I don’t miss signal that.”
Etsy confirmed that it has pulled back on buying its own Google Shopping ads in order to encourage sellers to buy them instead.
![](https://craftindustryalliance.org/wp-content/uploads/2019/11/PortlandLeather.jpg)
Image by PortlandLeather on Etsy.
Free shipping
The push for free shipping has shown some successful results: In July just 24% of items offered free shipping to the U.S., and at the end of September that number was 62%. Silverman attributed an increase in purchases per visit to the free shipping initiative, even among habitual buyers. “People who know us and love us the most are the people that are having the most positive reaction to free shipping,” he said.
The percentage of gross merchandise sales eligible for free shipping in the U.S. more than doubled to 81% since June, Chief Financial Officer Rachel Glaser said. “The initial impact of free shipping has resulted in lower prices for buyers,” she said. That’s great for buyers, but is it hurting sellers?
Etsy is aware of the complaints from sellers about free shipping, especially from those who ship internationally, sell heavy items or mostly offer products under $35.
“We see that sellers are absorbing more of the shipping price than we expected … rather than passing those costs along the buyers,” Silverman said on the earnings call.
Tests of the free shipping tools showed sellers moving about 84% of the postage costs into the item price. But in practice, sellers have been shifting only about 60% of shipping costs, which means a weaker bottom line for makers.
To combat losses like that, last week Etsy debuted a smart pricing tool for U.S. sellers that it plans to replicate for international sellers in 2020.
Search updates
The new Etsy search algorithms have “a deeper understanding of the relationship between items, attributes and users,” giving shoppers more personalized results based on their interests and tastes.
And, of course, the search results are prioritizing free shipping offers within the U.S. About 60% of items are listed as eligible for free shipping, but that means “40% of items are not given first-page placement, even if our search algorithms might have previously ranked them higher,” Glaser said, which leads to lower sales, which is bad for sellers and for Etsy’s bottom line. “We’ve pushed some of the really good search results off to a second page or further and that causes a decrease in conversion.”
But she said they will continue to play with the “cocktail of ingredients” that create the best search results. Or rather for sellers, perfect their assortment of carrots and sticks.
What’s next?
“We’re often asked how much more runway Etsy has to grow,” Silverman said on the earnings call. He pointed to the product development team, which in 2016 ran 200 experiments per year. In 2019, they’ve been running 100 tests per month, with just 6% more staff. These “experiments” refer to behind-the-scenes tweaks to the Etsy platform to help drive sales.
Also on the to-do list is building trust with buyers. Etsy reports “significantly higher” conversion rates for items with multiple reviews as compared to listings with no reviews. But currently only about 15% of purchases on Etsy result in a review. So reviews are getting more real estate on product pages, with helpful reviews (with longer text and photos) highlighted, and Etsy is testing ways to encourage more customers to leave reviews.
The financials
Gross merchandise sales were up 30.1% in the third quarter of 2019 from the same period last year, and revenue was up 31.6%, Etsy said in its quarterly financial report.
Gross merchandise sales (GMS), referring to the value of all of the products sold via Etsy’s marketplace, surpassed $1.2 billion in the third quarter of 2019, from $902 million in the second quarter of 2018.
Revenue, the money Etsy earned from its commissions on those sales plus services such as ads, was $197.9 million in the third quarter of 2019, up from the $150 million it earned in Q3 2018. (This includes, for the first time, revenue from Reverb, the music gear marketplace Etsy absorbed in August.) For the whole 2019 fiscal year, Etsy now projects 34% to 35% growth in revenue from 2018, an adjustment up from 32% to 34% growth it projected in August.
The fourth quarter is, of course, the most important of the fiscal year. Etsy is boosting its TV advertising spending, and the second season of NBC’s “Making It” with Etsy trends expert Dayna Isom Johnson begins Dec. 2.
![etsy-q3-2019-results](https://craftindustryalliance.org/wp-content/uploads/2019/11/etsy-q3-2019-results.png)
![Grace Dobush](https://craftindustryalliance.org/CIAFebruary2016/GraceDobushC.jpg)
Grace Dobush
contributor
Grace Dobush is a Berlin-based freelance journalist and the author of the Crafty Superstar business guides. Grace has written about business and creative entrepreneurship for publications including Fortune, Wired, Quartz, Handelsblatt and The Washington Post.
Great article. Thanks for sharing. I use paid ads and free shipping and it works very well for me.
It’s interesting that Etsy stock just fell 25%. I sold my stock at $56+ which turns out to have been a good move, for now.
I sell on Etsy and I can “feel” a downward turn for sellers (who are the real customers). If Josh Silverman is so convinced that the company will power through these changes, maybe he can explain why my entire Etsy Group has seen a big drop in net income. I think sellers will give up or look for another venue, that is a risk for Etsy.
Thank you for this very informative article. I tend to crawl into my Etsy selling bubble and not pay attention to their financials. I succumbed to the free shipping push in order to receive a boost in search and now offer free shipping on orders over $35. I’ve seen an uptick in multiple item orders, so that has been a beneficial byproduct. I use Etsy ads with success; however, I am one of those sellers who has kept the budget low in a “wait and see” mode.
I read this post and the other one about “How Etsy Alienated Its Crafters and Lost Its Soul”. And it’s true.
I am beginning not to like Etsy (I’ll get to the free shipping issue in a moment).
I’m talking about censorship. Because I was *twice* banned [permanently] from their “community” forums. Twice.
Censorship is rife on their forums, rife.
I was banned for calling out the quality of craft items (I was really referring to resellers that are selling things that aren’t even remotely handmade, but unfortunately I’m not the best communicator and so Etsy members saw it as an outright attack on all things craft).
First off, on the forums, sellers are encouraging others to sell tacky, kitsch, cheap and environmentally damaging items. Does Etsy care about this? No. All they care about is profit. Meanwhile, people are having to scroll ever more to find decent items that are handmade, vintage or truly unique.
Next up, I was banned for promoting a zero waste lifestyle (yes you read that right). I didn’t sware at anyone. I didn’t mention any specific shops or listings. I wasn’t even rude. It didn’t stop them from attacking me though. Were those horrid posts censored? No. No they weren’t.
I was officially “warned” for being “politically incorrect”.
They even threatened to take the ban from the community forum all the way over to my Etsy shop.
That’s blackmail. That’s not nice. And it’s very discriminatory I might add…
If/when they read my blog they’ll no doubt threaten my Etsy shop yet again, because I am not kind:
https://www.vidaenigmatica.org/the-etsy-community-forum-is-behaving-like-a-fascist-organisation-and-one-of-the-moderators-thinks-he-is-kim-jong-un/
Yes, I do think Etsy has become a racist, fascist place. Well the “community” forum is anyway.
Later, I was banned for calling out Etsy on it’s inherently racist pro-BLM policy. This came as a surprise.
https://www.vidaenigmatica.org/is-etsy-a-racist-organisation/
They also prioritise rankings of listings with a quantity of more than one. This encourages resellers to list mass-manufactured goods, goods which are simply “designed” (often they are copied from stock illustration sites so they’re not even designed by the seller).
The fact is that if you disagree with or criticise Etsy’s policys in any way shape or form on the Etsy “community” forum, they’ll ban you. They don’t want debate. They simply want to pat each other on the back at what a wonderful job they are all doing. Selling ever more crap. Meanwhile, the quality of the items listed is going DOWN. It’s all becoming very Ferengi like.
Now far be it from me to troll them (I’m not). I got a little message in my seller dashboard encouraging me to partake in their forums. And so I did. Why invite others to participate if you can’t handle what they might say?
With that out of the way, their free shipping policy is a total failure for any seller selling outside the US (because shipping to the US obviously costs more than selling locally). All it does is hurt local buyers by significantly penalising them (because Etsy tells you to raise their prices of everything to ‘çompensate’ for “free shipping”). Local sellers are therefore subsidising the cost of shipping for US buyers who somehow expect to get things sent to them for nothing (even though they are not located in the same continent!).
I meant to say:
Local buyers are therefore subsidising the cost of shipping for US buyers who somehow expect to get things sent to them for nothing (even though they are not located in the same continent!).