Why Etsy Sucks (and why good markets don’t)

Why Etsy is NOT the Passion Economy; it is, in fact, the opposite.

Perhaps the single-most common response I get when describing the Passion Economy is something along the lines of, “Oh, you mean like people doing a side-hustle on Etsy?”

I typically respond with a forced smile and an unenthusiastic, “sort of…”

Here’s what I actually think: For all its good intentions, Etsy is a disaster. It’s terrible for sellers, and it’s awful for buyers. It could have been a very special marketplace, in which people craving something unique are able to find the sole provider of that very thing. Instead, it has turned passionate creators into commodity businesses hoping to grab a few sales away from the merchants of mass-produced dreck.

It is an interesting failure, though, and one that provides some helpful lessons about how subtle choices in the design of marketplaces can have enormous, unintended impact on the buyers and sellers who use them. We can do better.

We are living in the age of marketplace proliferation. A marketplace, as I’m defining it here, is any venue—digital or physical—where people selling something present their wares to the folks who might want to buy that thing. The marketplace makes its money by charging some sort of fee from the buyer, the seller, or both. A shopping mall is a marketplace, a souk in the Middle East is a marketplace, and Facebook and Google are marketplaces, as are Uber and Substack. (Facebook and Google are a bit tricky, because people think of them as providers of a service—social posts, search, email—but they make most of their money by selling our eyeballs to advertisers; we, the users, are the product in this transaction, not the customer.)

Let’s compare Uber and Substack, since they are at opposite ends of the marketplace continuum. Uber removes most of the uniqueness of each driver. We’ve all had that experience of getting into a car with a lovely, eager-to-please driver who offers us water and candy. We are thrilled to give five stars for such great service. But then, we get in another car with a perfectly fine driver who offers us nothing, and we, once again, give five stars. Nobody wants to be a jerk! I do feel for those drivers with the candies and the water. They are working so hard to provide something that the market barely notices. And that is by design. Uber turns drivers into commodities. They are interchangeable units. Yes, they are subdivided into grades, like X and Luxury, and a frequent user does notice the difference between a 4.7 driver and one with a 4.89 score. But Uber controls all the levers. A driver (a seller of services) is a price-taker, getting whatever fee Uber determines, with little bargaining power. That is a commodity, much like a wheat farmer, whose product is graded by the USDA and then is paid whatever the going rate is for, say, Hard Red Wheat No. 1 ($5.41 a bushel at the moment). No amount of proclaiming their unique farming method or the wonderful character of their special grain will raise that price.

The cardinal rule of the Passion Economy is to not be a commodity, to not be an interchangeable unit forced to accept whatever the going price happens to be. That differentiates the ideas behind the Passion Economy from the Gig Economy, where marketplaces do precisely the opposite: turn each unique person into a worker-bot, doing whatever task that platform sells.

Substack, in contrast to Uber, is predicated on the idea that each newsletter should be unique and should service a particular audience. Nobody thinks—boy, I’d love to read a newsletter, any newsletter! By their nature, these newsletters are things that are exactly right for some and completely wrong for most. So, Substack has focused, obsessively, on building its business on the idea that a newsletter writer and subscribers should feel in control of the transaction, trusting that the platform, the marketplace, is not trying to run its own side-hustle. That’s why you don’t get emails from them offering lots of other newsletters; you don’t get offers for something like Substack Premiere. I should note: I am writing this on my own, with no encouragement from Substack. I have no financial relationship with them and, if they end up being worse than I hoped, I will write the ugly truth about them. (I’ve only been on this platform a couple of weeks, so I’m still in the honeymoon phase.) The Substack newsletters you read were, I would guess, recommended to you, personally or through some Twitter or LinkedIn figure you follow. I’d also guess you might have tried some that you hated and stopped reading. Nobody is building an algorithm designed to get you to subscribe to the maximum number of newsletters possible. And the pricing—$50 a year, on average—is high enough that most newsletter writers will be very happy to have a few thousand active users. They are incentivized to create something that a small number of people will value a lot, and a lot of people will not value at all.

Think of something you love, some crafty kind of thing. I love stationery. I love pens and paper and inks, and I’m willing to spend money on the really good stuff. So, I’ve found myself going to Etsy to seek out pen manufacturers and paper makers and—my favorite—letterpress printers. To my frustration, searching for any of these brings up a huge number of results that feel an awful lot like ordering a car through Uber. The way Etsy presents these vendors erases their uniqueness. A search for “letterpress printing” brings up more than eight thousand results, each with a tiny thumbnail photo that looks exactly like every other thumbnail photo. And hundreds of them, maybe thousands, have five-star ratings. How am I going to figure out which one is right for me? I’m not. I’m going to go the Uber route: click on whichever one has a good rating and a decent price.

This is maddening, because I am not going to get what I most want: a printer, whom I could work with to custom make exactly the stationary I vaguely imagine in my mind. And I feel fairly certain that a significant number of printers selling their wares on Etsy would much prefer to work with someone like me, instead of churning out templatized wedding invitations at rock-bottom prices. Maybe someone is offering exactly what I want, but where are they? On page 3 or 93? How many thumbnails do I have to click through to find the one who is right for me?

One can imagine a better marketplace. It would probably be more narrowly-focused, with fewer sellers and fewer buyers, and would provide far more information than a thumbnail and a five-star score. Such a stationary marketplace would probably not make its owners billionaires. But if it were well done, it could be a profitable business.

Li Jin is a venture capitalist who—independently of me—also coined the phrase Passion Economy to refer to these phenomena. At Andreessen Horowitz, Li wrote eloquently about Passion businesses and marketplace. She and I have become intellectual confederates, and she has taught me a lot about the importance of marketplace design. She’s the one who helped me understand what makes Substack so special. (Full disclosure: Because I find her so smart, I decided to invest in her new venture fund, focused on Passion Economy businesses.) She and I agree on so much, but write about things from quite different perspectives, and I see her newsletter, as a great companion to this one.

Li has made me far more optimistic. In phase one of internet marketplaces, the general idea was that it would be winner-take-all. Amazon or Google or Facebook would swallow up all transactions. Etsy is a sort of junior player in this: monopolizing that huge and vague category of “crafts.” No doubt, many of these big players will continue to grow and oligopolize much of commerce. But there are hopeful signs that a new breed of marketplace will emerge—ones more like Substack, and Tindie, and even Github — built not around bulk and scale, but around fostering fewer, more intimate interactions between sellers and buyers. (Github might not technically be a marketplace, but it’s a lot like one, a commons that allows people to gather around shared projects.)

I find just looking through them, even the ones that sell stuff I don’t care about, helps me understand how the Passion Economy works now and will evolve.

If you’ve discovered a marketplace that seems made for the Passion Economy, I’d love to hear about it. Feel free to share your thoughts below in the comments or send me a note at adam@passioneconomy.com