[sbierwagen]

This isn't new. The Regretsy blog extensively complained about dropshippers in 2010.

The problem is that operating a two sided marketplace connecting small makers to customers just really sucks as a business. Tons of churn, intractable problems with quality and fulfillment, having to pay for a lot of customer service agents who fundamentally can't solve any problems, since they don't actually work for the person who makes the stuff, and can only hit the "refund" button.

Etsy has every reason in the world to want to get away from small sellers and move to high volume manufacturers, (who have actual QA and customer service departments, which a guy hand carving chess pieces in his basement doesn't have) and nothing to stop them. So the obvious thing happens.

(Except then you're competing directly with Amazon in its area of greatest strength, which historically has been corporate suicide...)

[irq-1]

Etsy should charge the sellers fees per sale, and make them post an expensive bond. Then Etsy can ban drop shipping, give instant refunds, pay return postage, and generally hold the creators to high standards.

Etsy should also mandate the inclusion of a scan code in the package, which the customer can use to show they received the shipment but it wasn't as advertised. This would catch people lying about the contents, when the creators take a photo of the item & code in the box (and send it to Etsy before shipping.) Creators taking a photo and then changing the item will be caught because of the number of complaints, and customers can be refunded long after the transactions using the bond.

[marcinzm]

Fun thing about a two sided marketplace. It needs two sides. If you make life hard for sellers then they won't join and then you, by definition, don't have a marketplace.

[RileyJames]

The point of the article was that Etsy has already established both sides of the marketplace. And that both sides of the marketplace are not equal, as competitors/disruptors are discovering.

To be successful, they need a large consumer base, and a small seller base, who sell high quality goods (which is subjective, but mass drop shipping is certainly not what those consumers are expecting).

Of those, the hardest to attract is a larger consumer base. Sellers will ultimately go where the buyers are.

[marcinzm]

> To be successful, they need a large consumer base, and a small seller base, who sell high quality goods (which is subjective, but mass drop shipping is certainly not what those consumers are expecting).

The only way a small seller base can support a large consumer base is if it's some form of mass manufacture. That more or less leads to drop shipping as the logical conclusion and optimization.

[yowlingcat]

1stdibs, Grailed and Depop would beg to differ.

[quartesixte]

True, but I think when creating marketplaces, you want a little bit more friction on the sell side. Sellers undertake risk + labor to bring products to market. In exchange, they are rewarded via profit. Buyers take no risk + labor in exchange for paying that profit. The market exists to match sellers and buyers and provide a forum for price discovery.

Make it too easy to sell but not have equal reduction in price penalty is how you get Etsy's current problem. Removing the dropshipped items will (hopefully) remove race-to-bottom conditions that in turn allow for small time creators to charge higher prices + profits and buyers to regain confidence that they are getting more perceived value despite the non-commodity prices. But so long as the dropshippers exist, that balance gets destroyed.

[paulmd]

Fun thing about a two-sided marketplace, it has two sides, and sellers need buyers too. In most cases they need buyers so drastically that they will actually pay for the privilege of access to the buyers!

You can make all these same arguments about eBay, or credit card merchant fees. If you charge the seller more for access to rewards-card customers then they won’t join, right?

There is a point of balance, Amex or Diners Club do struggle for adoption, but the guy with the 3% visa or mastercard is actually hugely desirable even if it does cost an extra % or two to get access to that segment of the marketplace.

Unless your business is so entrenched that people are actively seeking you out, you have to go where the customers are. Even if that means accepting an unfavorable deal.

That’s the whole argument about the App Store, right? Android market is free (if you set up your own store etc). But people want access to the apple customer base, because they’ve got more money and tend to spend more money too. So it’s objectively a worse deal to write android apps even if the terms are more favorable, because the customers are less valuable.

[iLoveOncall]

This would be a minor inconvenience for drop shippers but kill small businesses by drowning them in fees and paperwork.

Etsy already charges fees, even just to LIST items, regardless of whether they sell or not.

I've been wanting to sell some of my 3D printed designs, but I'm not paying a buck a piece for a listing that will earn me 5 to 10 bucks if I manage to sell.

[alwillis]

> I've been wanting to sell some of my 3D printed designs, but I'm not paying a buck a piece for a listing that will earn me 5 to 10 bucks if I manage to sell.

The listing fee on Etsy is 20¢ ($0.20).

[iLoveOncall]

In the UK it's more if I remember correctly, and this is only the basic fee which doesn't offer all the functionalities.

[marcinzm]

That's not true.

https://help.etsy.com/hc/en-us/articles/115014483627-What-ar...

[sidewndr46]

this back and forth between protecting sellers and protecting buyers has been done plenty of times before on eBay. There is really no reason to continue repeating that cycle

[INGSOCIALITE]

the /actual/ etsy creators can't afford an expensive bond.

etsy should vet their sellers, simple as

[lbotos]

I have a friend who has an etsy store. He sells some custom woodcuts as well as custom laser etching on cheap chinese cups/mugs/glasses/etc. Where is the line?

[derefr]

> intractable problems with quality and fulfillment

• Re: fulfillment — why not ask Etsy sellers to pre-stock everything that's not made-to-order into fulfillment centers like Amazon's? And, in fact, to send anything that is made-to-order to a fulfillment center first, where it'll be inspected, re-wrapped and re-shipped by the fulfillment center — with the buyer's card only having a hold, not a charge, on it until the seller's goods are inspected by the fulfillment center as good? (In other words: turn the process into a goods-for-money mediated escrow.)

• Re: quality / drop-shipping — I feel like a lot of this could by solved just through simple semi-automated verification. Require for a product to be listed, for the seller to upload a video of themselves making the thing. Then pass those videos to MTurk workers to evaluate them for tricks.

> Etsy has every reason in the world to want to get away from small sellers and move to high volume manufacturers

Except that... that's their whole niche.

Specifically, 90% of Etsy's value at this point is in the market of buyers they have slowly marketed and engaged and cultivated brand recognition with over decades — and those buyers are people looking for low-volume goods. They don't want to buy high-volume goods from Etsy. That's not the association they've been painstakingly educated to have.

If Etsy wanted to get into Amazon's business, they'd have to create a new brand to do it with, because that's just not the business that people associate with the Etsy brand. And that would mean starting from scratch.

[marcinzm]

> Re: fulfillment — why not ask Etsy sellers to pre-stock everything that's not made-to-order into fulfillment centers like Amazon's? And, in fact, to send anything that is made-to-order to a fulfillment center first, where it'll be inspected, re-wrapped and re-shipped by the fulfillment center — with the buyer's card only having a hold, not a charge, on it until the seller's goods are inspected by the fulfillment center as good? (In other words: turn the process into a goods-for-money mediated escrow.)

Because that costs money and most Etsy sellers sell very few things. We're not talking thousands or hundreds or even dozens per months. We're talking single digits per month. Per store. Not per item. With 7 million stores.

> Re: quality / drop-shipping — I feel like a lot of this could by solved just through simple semi-automated verification. Require for a product to be listed, for the seller to upload a video of themselves making the thing. Then pass those videos to MTurk workers to evaluate them for tricks.

See the previous point. No one would use Etsy if they had to make a whole video and go through an automated process for an item that might sell once per year.

edit: Amazon sells something like 350m products including the marketplace and 12 million directly. Etsy sells over 100m. Amazon has 40x the sales revenue. The economists are so different between them it's not even the same universe.

[quartesixte]

>See the previous point. No one would use Etsy if they had to make a whole video and go through an automated process for an item that might sell once per year.

I am not entirely sure of this claim. My own experience with artisnal craftspersons is that they will tolerate higher levels of inefficiencies precisely because they are not operating at scale, and being artisnal makes their cost of revenue really really wonky.

>Because that costs money and most Etsy sellers sell very few things. We're not talking thousands or hundreds or even dozens per months. We're talking single digits per month. Per store. Not per item. With 7 million stores.

I agree with this though, and to direct this at the parent post, that is a LOT of operational overhead. Like, a mindboggling amount you will require Amazon's levels of profit and scale just to properly pull this off. Do not underestimate the sheer amount of labor it takes just to run even fairly simple operations that deal in the lot counts in the low hundreds. Doing this for tens of thousands of potential transactions a day across millions of sellers is asking for trouble. This is why Etsy has sellers outsource this to UPS, FedEX, and the Postal Systems.

[marcinzm]

> I am not entirely sure of this claim. My own experience with artisnal craftspersons is that they will tolerate higher levels of inefficiencies precisely because they are not operating at scale, and being artisnal makes their cost of revenue really really wonky.

To make a video that a human can recognize as showing local craftwork and cannot be replicated at a workshop in China for $50 is a ton of work. Like a ton. Many of these are multi-day or multi-week projects that involve numerous steps. Do they all need to be shown? Or just snippets? How many? How do you ensure that all the snippets are in the same location? Do you need to do this for every product or every product type? If you sell 400 variants per item do you need to cover all of them (if not someone will have a $1000 variation that is hand made and a $10 one that isn't)? Do you pay money for experts to review each video? If not then how do you know it's this seller's cutting board being made and not another, almost identical to most people, cutting board?

Maybe the key difference in our viewpoints is that I very much know that drop shippers aren't stupid or without resources. Their job and "passion" is to know Etsy and it's processes. Actual craftspeoples' job and passion is to make things. The more bureaucracy you add the more the drop shippers benefit because they know how to work through the bureaucracy better than non drop shippers. It's their sole job after all.

[derefr]

> and cannot be replicated at a workshop in China for $50 ... the more bureaucracy you add the more the drop shippers benefit because they know how to work through the bureaucracy better than non drop shippers.

The thing about bureaucracy, is that it has a few tricks up its sleeve: things that are easy for real people to do once, but incredibly expensive to do twice, or to fake from whole cloth. The clearest one of these is identity verification. (Which is why it's at the core of so many other kinds of verification flows today, e.g. dating-site onboarding.)

So, consider this verification flow (c/o an Etsy mobile app):

1. On account registration, require the artisan to go through KYC photo identity verification (= "kyc-verify" API call to third-party KYC service that gets the user to securely upload passport/ID through a popover webview; KYC service verifies that it's a real passport/ID, that it's not already associated with any other account for that service; and then returns the name, country of residence, and photo extracted from the ID in the API call); and then store the name and coutry of residence, and extract the person's face metrics from their ID photo.

2. Guide the artisan to film a high-quality "verification video" of themselves saying some random thing. Auto-verify many extracted frames of this video against the extracted ID face metrics, and then MTurk-verify that the video is of what you requested.

And then this per-product-listing flow:

3. Guide the artisan to film a "process video" as a time-lapse from a single static position in their workshop, showing as much of the workshop as possible; tell them to stand with face and raw materials visible at the beginning of the video, and to stand with face and final product visible at the end. They can do whatever in between — even leave the room, as long as the workpiece does not leave the room at any point. (Compare/contrast: the kind of twitch-stream footage required to verify a speedrun as a world record.)

4. MTurk-verify this process video — tell the MTurk worker examining the video to visually verify that the person seen in the product video is the person from the extracted frames of the verification video; that the person in the video in fact is making the thing (whether with assistance from others or not); that the workpiece does not leave the room; and that the final product is the "same in kind and in quality" as the one in the product listing photo.

5. Allow the artisan to check a box to let people watch this process video right from the product listing page. Give more ranking juice to product listings that do this, and tell artisans that you are doing so.

(And optional bonus step:)

6. If the artisan has verified their ownership of a YouTube channel where they produce fancy edited process videos — which a lot of artisans already do! — then allow them to select a video on said channel to be displayed in place of the raw process video. (But still allow the raw process video to be accessed, through some text-only link, for public-auditing purposes. Also, don't allow any videos on the listing page except for the raw process video or the edited process video subsuming it.) And MTurk-verify this video too (having the MTurk worker watch both the edited and raw videos) — verifying that most shown footage of the process comes from the raw process video, and that the edited video is not misleading the viewer about what was seen to happen in the raw footage video.

This simple flow would cover most product categories on Etsy, as most product categories on Etsy can be made in situ in a single room (if perhaps a large room, across several machines.) This would then therefore eliminate most of the problem. Etsy could stop there, not even requiring verification for more-complex product categories, and the site would still be better off than it is today.

If you want to eliminate 100% of the problem, though, then you would have to require the product's creation process to be described with a component-production-flow graph (where components that go through multiple "passes" in different locations are considered distinct components before/after the "pass"); and then require the producer of each component — if not all the same person — to register as a user, go through KYC, and then upload a video showing the production of that component. The goal would be for each distinct component's process video to be able to be, again, a one-person, one-place, single-shot time-lapse job where the workpiece does not leave the shot.

Most things that aren't one component, would still only be two or three, so this wouldn't have to be too taxing. For products with variants that share early steps but then branch in later steps, you could even reuse the already-verified process steps, and so not have to film those again.

---

Also, as a bonus anti-drop-shipping measure: require the shipping origin for products to match the country of residence from the KYC'ed ID of the maker responsible for the final step in the production flow (who is also, presumably, the seller.)

Require the seller to submit a shipment tracking number to the site before the buyer gets charged... and if that tracking number's country of origin doesn't match, then the transaction doesn't happen and the seller gets a strike against their account.

And also, show the production-flow graph to the user on the listing page, with the country of origin of each component shown prominently under the component. And let users filter listings (positively/negatively) for having components made in a specified country, or for being entirely made in a specified country.

---

> If not then how do you know it's this seller's cutting board being made and not another, almost identical to most people, cutting board?

You don't. But if the seller can prove that they can make an identical cutting board themselves, in a low-volume process... then they're much less likely to be drop-shipping you a cutting board when you order one for yourself.

As much as it could in theory be economical for someone to "scale" low-volume production using drop-shipping... people just don't actually do that in practice. Making things is a skillset; (making a profit while) drop-shipping is also a skillset; and these skillsets aren't often found in the same person.

---

And — bit of a tangent here — even if a real artisan were "scaling production" by drop-shipping you a cutting board... would that matter? We've actually pushed past the point of solving the problem, here.

Most people ordering from Etsy don't actually care about provenance for its own sake.

Consider: the provenance of an iPhone isn't any different than the provenance of a Samsung phone, or even a shitty off-brand AliExpress phone: all three can and have come from the same Foxconn plant. But those three were produced under very different requested tolerances and use very different quality control processes. You want the iPhone or Samsung phone, and not the off-brand one, because Apple and Samsung both put their own checks and balances into the process to ensure quality in the result.

Likewise, an Etsy buyer who cares about getting "artisanal goods", is almost never looking for something made in a specific place. They might be just fine buying something directly from an artisan in China. And they might even be fine ordering something from an importer in America who's buying from an artisan in China. They just don't want to buy something from a factory, regardless of location. Most factories happen to be in China — but that's not the rule they really want to be using.

In short, Etsy buyers care about two things:

• They care about not being lied to about provenance (whether they then rely on that information to make choices or not.) I.e., they care about ordering something nice, and being shipped what they ordered — not some failed attempt to duplicate a stolen product image.

• And they care about the requested tolerances and quality control processes that are implied by the seller's listing. I.e., they care about the product being made how the listing said it would be made — rather than being done by some scammy job-shop without the unique skill required to replicate the original artisan's work.

This means that, for at least some (most?) buyers, there's actually nothing wrong with an "artisan" relying on having goods produced for them by a factory somewhere, but to their specifications — this is known as "private label" production. As long as the artisan can receive and inspect those goods themselves to impose their own quality standards on them, then the work can be considered to be "the artisan's" work. (In this situation, the factory isn't any different than an apprentice working under a master artisan: the master still examines, fixes, and signs off on the their apprentices' work.)

And there's even nothing fundamentally wrong with an artisan relying on a factory to do its own quality-control to their specified standard, and then directly ship the resulting items to customers. As long as an artisan can actually ensure that that's happening!

That's hard, though — it requires a lot of OpEx to be able to afford to regularly fly to China to inspect factory processes, and/or employ a local auditing partner, and/or anonymously sample your own drop-shipped product stream to verify the quality that's going out to real customers. It's too hard for the sort of people who exist on Etsy. If you can do this, then you are now a high-volume manufacturer in truth, and your products don't belong on Etsy.

So I think, in terms of results, as long as Etsy is prohibiting drop-shipping production flows, it doesn't have to do anything to prohibit private-label "import and quality-check" production flows. It just has to make those production flows transparent to the buyer. Which is a much easier task.

[quartesixte]

This. This guy operations and processes. This was beautiful and the corporate bureaucrat in me salutes you.

[nobody9999]

>• Re: fulfillment — why not ask Etsy sellers to pre-stock everything that's not made-to-order into fulfillment centers like Amazon's? And, in fact, to send anything that is made-to-order to a fulfillment center first, where it'll be inspected, re-wrapped and re-shipped by the fulfillment center — with the buyer's card only having a hold, not a charge, on it until the seller's goods are inspected by the fulfillment center as good? (In other words: turn the process into a goods-for-money mediated escrow.)

Why not take a hint from Darknet markets[0] and require escrow for all transactions[1], with funds only being released to the seller after the buyer has confirmed receipt of the goods as advertised, along with seller (and buyer) ratings as well as dispute resolution services?

In many ways, darknet markets are much better than the "legit" online marketplaces. And more's the pity -- because the "legit" players know better and should act accordingly.

[0] https://en.wikipedia.org/wiki/Darknet_market

[1] And since Etsy is a publicly traded corporation and their sellers are presumably "legit" (i.e., selling stuff that doesn't run afoul of nation-state dicta), an exit scam[2] is unlikely.

[2] https://en.wikipedia.org/wiki/Exit_scam

[marcinzm]

Etsy already does all that. Funds are held for some time. There's also a way to dispute a sale to get a refund and so on. Plus credit card charge backs if you're really pissed. Paypal basically exists because it's included htis functionality for the last 20 years so it's nothing new.

The thing is that the vast majority of buyers are perfectly happy with their drop shipped item.

That's the real difference, Darknet has very savvy buyers because the barrier to entry is fairly high and theres is little real competition. If you don't like Etsy then there's Ebay or Shopify stores or Amazon handmade or a local craft fair or just emailing a maker.

I think it's important in these situations, like many others, to not jump to a conclusion such as "legit marketplaces are idiots for not doing X" but rather "why doesn't X work for legit marketplaces but does work for non-legit ones."

[jeromegv]

The thing with handmade and unique items is that the definition of “as advertised “ differs quite a lot. Your definition is not the same as mine.

Also customer tend to game that to get free products which makers hate.

[nobody9999]

>The thing with handmade and unique items is that the definition of “as advertised “ differs quite a lot. Your definition is not the same as mine.

A fair point, although photos provided on the site, as well as seller reputation can (and mostly the latter on darknet sites, but both are useful) address that issue. What's more, an escrow system that requires the buyer to confirm receipt and quality for the seller to receive payment could have an even stronger impact on such issues.

>Also customer tend to game that to get free products which makers hate.

Which is why darknet sites have dispute resolution policies and processes, as well as ratings of sellers and buyers. Those buyers who try to take advantage are shunned pretty quickly as bad actors and unprofitable to boot.

You can't game a system that won't play with you.

I suggest you check out some darknet markets[0] -- not to purchase anything that might raise the hackles of your local government, but rather to see how a marketplace which doesn't have the sanction of law/government/the courts tries to ensure fairness and minimize rip offs and bad actors.

If you do, I think you'll find that many of the tools used in those environments would improve user satisfaction (on both sides) and create a much better marketplace. Even a "legitimate" marketplace like Etsy.

Edit: fixed grammar, added references.

[0] https://darknetmarketlist.com/darknet-market-list/ [1]

[1] Some of the listed markets have been seized/exit scammed/otherwise offline. As the old saw goes, 'caveat emptor'.

[marcinzm]

None of those are innovations. They've existed in legit marketplaces for decades.

[DrewADesign]

Amazon only works because they're centralized and full of uniform, neatly packaged groups of fungible units. Imagine having a super high turnover warehouse full of unique one-off items of different shapes, different sizes (from the size of your fingernail to the size of a large appliance, different materials with most of them being fragile, nothing being uniform enough to be stackable, different risk levels for everything from flammability to pest control...

And even then, many people on Etsy sold antiques and vintage clothes. Maybe they even designed them and had them manufactured in small batches?

[derefr]

> Imagine having a super high turnover warehouse full of unique one-off items...

Auction houses manage it somehow.

[marcinzm]

That's like saying people can fly by flapping their arms because birds can.

Auction houses store items for a limited period of time before liquidating them. The time in storage is fixed and the fees are fairly high. It's a fundamentally different approach to an online retailer.

An auction house that has to store items for years, charge no more than a 10% fee and only charge it if an item sold would go bankrupt.

[DrewADesign]

Sure. So don't antique shops, but your customers do discovery and retrieval on their own, and the scale is orders of magnitude smaller. Auction houses can organize things into collections that are mostly accessed and cleared out all at once-- there's no random access to individual pieces in a giant churning collection, and they don't keep things around that don't get sold in case someone wants them. People can't get a single item from any collection auctioned whenever they want. It's the same problem space-- like going grocery shopping and sourcing food for a large hotel-- but to calculate the logistic viability of nearly anything in one task based on the other just doesn't make sense.

[LargeWu]

I sell on Etsy, primarily hand-printed t-shirts, and stickers. When I make a run of shirts, I might make a dozen or less. Being forced to send them to a fulfillment center means I can't sell them in person or on another channel. I also can't then throw in random extras when I fulfill an order, or send a personal thank you.

Forcing fulfillment center usage would only benefit stores who do a lot of volume. They can afford to take the risk on producing a lot of inventory up front.

[hinkley]

If you sell your goods at fairs or cons it’s not uncommon for the site to go dark for a few days while they haul all their goods to man a booth. Anything that doesn’t sell goes back up.

[derefr]

Since it is by definition a low (sales) volume process, you'd only need to keep one or two of each thing in stock at the Etsy fulfillment center. Items in stores run on "tight logistics" would just have their items constantly going in and out of stock as they alternate between 0–2 copies in stock at the warehouse.

Of course, if things were constantly going out of stock, then you'd want to create a system to allow people to put down a hold on their card to reserve a copy of something, waiting in a virtual line to be the first to get it when it does come back in stock. (Which would actually work much better than Etsy does today, as it would give makers the ability to know how many of each thing to target making as a batch to attempt to satisfy upcoming demand — without money already captured forcing them to work to a potentially-impossible deadline.)

[hinkley]

I think you might be overestimating the throughput of hand crafts. 1-2 items in escrow could be more than 20% of their expected sales at an in person event.

I’m sure it would work better for people who don’t do fairs, but we have decent farmer’s markets in my area and there’s a good number of artists who sell on Etsy or similar in addition to touring the regional in person events.

[tensor]

Shopify did very well connecting small makers/vendors to customers. Granted, to your point they are now trying to go for big vendors, thinking they can somehow unseat amazon. Probably won't work out well for them either.

[actionfromafar]

If Shopify can avoid beating themselves up against the behemoth that is Amazon in a full-frontal assault, while also stay less crappy than Amazon, I think Shopify is on to something.

Amazon can't un-crappify themselves, it's not in their DNA.

[crabmusket]

Shopify is not a marketplace, is it? When I want to buy something I don't go to shopify.com and search for it. I think this is a critical distinction.

[fire_lake]

You’re right, but Shopify is trying to change this with the Shop app

[Sabinus]

Shopify last year gated a lot of customisation functionality behind a 2.5k a month subscription. They certainly are pivoting away from small shops.

[marcinzm]

> and nothing to stop them

Except Ebay and Amazon already existing.

[gunapologist99]

And Amazon having rather high fees.

Jeff Bezos used to say, "Your margin is my opportunity", but I'm not sure he even cares anymore.

[lll-o-lll]

Why not go the Uber route. Both the seller and buyer get rated for each interaction. Enforce a little bio about the seller.

Then a small maker can quickly establish a good reputation, and cautious buyers can only buy from such, while more adventurous might take a punt on someone new. The open market needs information to be efficient; it looks like lack of reliable information is the root of this.

[toast0]

And then once you've established a good reputation, you can do some high volume dropshipping.

[lll-o-lll]

Hmmm, perhaps I am too naive to the devious nature of humans.

[Blackthorn]

Yeah it sucks so much that Etsy continuously buys and shuts down competitors that create new ones...