As I’m sure you’ve heard (it’s caused quite a stir) Etsy launched a new ad program yesterday. Called Offsite Ads, it’s mandatory for shops with $10,000 in sales or more. Listings will be advertised on Facebook, Google, Instagram, Pinterest, and Bing (why Bing?) and, when a listing sells, the shop owner will pay Etsy a 12% fee. Shops with less than $10,000 in sales can opt-out, but if they do choose to participate, their fee will be 15%.
When I received the email saying that my shop was “a success story” so my participation would be mandatory (such flattery!) I’ll admit to getting hot under the collar. I’ve worked hard to tweak my SEO, writing titles and tags so each listing gets found in search organically. I take pride in the fact that I’ve never spent a dime on advertising to earn that $10K! I don’t want Etsy forcing me into business decisions. How patronizing and condescending to assume that I don’t know what I’m doing.
Then, I spent some time reading and thinking, and listening to the earnings report that was released last night. I can’t say that I’ve come around exactly, but I think I’ve come to a deeper understanding of the new program. And I’m mostly on board now. Here’s why.
There might be an untapped market of customers out there
Etsy sees a huge untapped market out there of potential buyers. They feel the customer base currently shopping on Etsy is a small fraction of what’s out there, and they feel that the frequency with which Etsy shoppers are making purchases could be greatly increased. I agree with them here.
In Etsy’s opinion, reaching these new customers, and increasing this frequency, is best done through advertising. Is this true? I’m not sure, but I’m willing to take their word for it. This advertising takes two forms. One is “top of the funnel” which includes things like cable TV ads that reach brand new people who may have never heard of Etsy. Another type of advertising is retargeting ads. These are ads on platforms like Facebook or Instagram that show someone a picture of something they were recently looking at on Etsy, reminding them to come back and complete their purchase. (These are super effective! When I get a retargeted ad I end up back on the site shopping all the time.)
With the old Google ads program sellers assumed the risk
Of course, Etsy already had two ad programs sellers could opt into paying for. One was on Etsy itself (what was once called Promoted Listings and is now called Etsy Ads). The other was on Google Shopping. Since the summer, these were combined and Etsy was spending sellers’ budgets between the two.
But when it came to advertising on Google, Etsy felt the program was underperforming. They thought managing everything for sellers might help, but it didn’t help enough. There was more untapped potential out there and Etsy wanted to figure out how to get it so they came up with a new plan: take away all the risk.
On the Q4 earnings call last night CEO Josh Silverman explained, “Many sellers view offsite advertising as risky.” Here’s why. When you pay for an ad on Google, you might use up your whole budget just on clicks and never make a sale. That’s how online advertising works: pay per click. You could pay $10 to get sixteen clicks and then…nothing. The visitor might click through and never buy. Or they might buy from someone else’s shop. What a waste of money! Many sellers simply say no thanks (myself included).
“We heard from sellers a fear that they’re going to spend money upfront and not have it convert to a sale,” Silverman said. “And not just a fear, that’s a reality. It may not convert to a sale.”
Now Etsy assumes the risk
With the new Offsite Ads program, Etsy assumes all of that risk. When someone visits your shop and then, later, sees an image of your product as an ad on Facebook and clicks on it, Etsy pays for that click. If that customer never buys, Etsy doesn’t charge you. Let’s say it happens again on Instagram. Again, Etsy foots the bill for the click. Marketers say that a consumer needs to see something seven times before they buy it. So Etsy might be paying for a whole lot of clicks. You, the shop owner, will never see that.
Setting up an effective ads program on 5 platforms requires expertise
Here’s the other thing: setting up a retargeting ad program for your business on Google, Facebook, Instagram, Pinterest , and Bing (why Bing?) take both time and expertise. Now, granted, maybe you’re not interested in doing this. (I get it, I’m not all that interested myself!) But if you were, you’d have a pretty steep learning curve in order to figure it out. With Etsy’s Offsite Ads, sellers don’t have to learn anything. Etsy’s ads team has all the expertise and they’re taking care of it. That’s pretty valuable and worth paying for.
This new ad program is also more efficient. If you think about it, the previous ad program on Etsy was actually hundreds of thousands of tiny ads programs. Each seller who chose to pay for Google Ads set their own budget and Etsy managed it. Now, with Offsite Ads, we’re all in a single ad campaign together. It’s one big retargeting campaign. That means Etsy can pool the data from Google and Facebook and use it to learn. “That’s exactly the kind of thing that a platform can do is pool the resources of the sellers together to get something that individual sellers could never get on their own,” Silverman said in the call last night.
Etsy says that with Offsite Ads being paid for in this new way, they’ll be able to use its marketing budget to fund top of the funnel ad programs such as television advertising that brings in new buyers. (Granted, they said the same thing when they increased the fees from 3.5% to 5%. Too many fees and it starts to feel like squeezing sellers to increase value for shareholders for sure.)
Okay, so why are small sellers (those under $10,000 in sales) able to opt-out of the program? According to Silverman, Etsy heard from a good chunk of small sellers that they don’t want to grow any larger. Maybe they’re brand new to Etsy, or maybe they’re selling on Etsy as a hobby, and an increase in sales volume would be super stressful for them. So these sellers don’t have to be in the new ad program unless they want to. Once you hit $10,000 in sales Etsy feels you’ve demonstrated a seriousness of purpose and a willingness to commit to growth. Then your fee drops permanently.
Wait and see (and make adjustments)
Sellers don’t begin paying for the Offsite Ads until April 14. Until then we’ll have a month and a half to let it run and watch the impact on our sales volume. I think that’s a good time to evaluate our margins. If Etsy is correct and 1 in 10 sales come in through Offsite Ads it may be that we, as sellers, need to implement a small price increase to make up for the 12-15% fee. (I realize that raising prices isn’t possible for everyone for a whole variety of reasons. Competition is tight. Maybe the additional sales volume will make up for it, but maybe not.)
It doesn’t feel good to be told you’re involuntarily enrolled in a program with a 12-15% fee attached, and that you’re now an advertiser when you didn’t really choose to be one. I also don’t think this new policy (or any of Etsy’s policies since it went public) jives with the ethos of handmade, or the soul and purpose of why making things with your hands matters to us, to our customers, and to society.
Offsite Ads is about one thing and one thing only: selling more stuff. And Etsy isn’t pretending they want to sell more stuff so that makers can thrive. No. That’s not it. They want to sell more stuff in order to increase shareholder value.
I get all of that. But I also run a business which means I do want to sell more stuff. I have a suspicion Etsy may have figured out how to do that and, even if they’re wrong, I’m interested enough to hang in there and give it a try.