Scaling Creativity: Josh Silverman on Etsy's growth, AI integration, and market strategies | E1985

Etsy’s Josh Silverman joins Jason (0s)

• Etsy's impact on communities: The conversation begins with an anecdote about how Etsy facilitates meaningful connections between buyers and sellers, highlighting the platform's role in supporting Ukrainian sellers during the war. This example illustrates how Etsy goes beyond simply being a marketplace and fosters a sense of community and support.
• Etsy's focus on unique and handcrafted goods: The speaker contrasts Etsy's approach to e-commerce with Amazon's focus on mass-produced goods. Etsy emphasizes unique, handcrafted items, offering a distinct alternative to the fast fashion and disposable products prevalent in other online marketplaces.
• Etsy's growth and scale: The conversation then shifts to Etsy's impressive growth, particularly during the COVID-19 pandemic. The speaker notes that Etsy's business doubled in size within a year, demonstrating the platform's ability to scale and capitalize on changing consumer preferences.

The marketplace business model and Etsy's growth (2m54s)

• Etsy experienced a significant surge in growth during the pandemic, doubling its sales in a single day and maintaining that growth since.
• The company's marketplace business model, which connects buyers and sellers, has proven successful, allowing Etsy to grow from $2 billion in gross merchandise sales in 2017 to $12 billion in the past year.
• Etsy's revenue model involves charging a listing fee, a commission on sales, a processing fee for payments, and optional services like advertising.

Maintaining Etsy's unique marketplace and UX challenges (4m58s)

• Etsy's unique promise to buyers: Etsy differentiates itself from other marketplaces by guaranteeing that every item is handmade or designed by the seller, ensuring a unique and human-crafted experience. This promise is crucial for attracting buyers and driving sales for Etsy sellers.
• Challenges of maintaining authenticity at scale: As Etsy grows, it faces the challenge of ensuring that sellers adhere to its policies and maintain the authenticity of their products. This involves using technology to monitor and enforce policies, as well as educating buyers about the unique nature of Etsy's offerings.
• Balancing seller needs with buyer expectations: Etsy must strike a balance between supporting its sellers and fulfilling the expectations of its buyers. This means clearly communicating policies, enforcing them effectively, and ensuring that the user experience (UX) reflects the platform's commitment to authenticity and human-crafted goods.

Defining handmade and GenAI art on Etsy (10m34s)

• Etsy has grappled with defining "handmade" since its inception, as sellers debated whether using store-bought materials or tools compromised the handmade nature of their products.
• Etsy has evolved its definition of "handmade" to acknowledge the use of tools, including computers, as a means of creating art.
• The company draws a parallel to the music industry, where electronic dance music, created using synthesizers and clip libraries, is widely popular, demonstrating that human-computer collaboration can still result in authentic artistic expression.

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Preventing inauthentic sellers and the seller approval process (13m18s)

• Etsy has established "creativity standards" to ensure the authenticity of items sold on the platform. These standards define what constitutes a handmade or unique item, emphasizing that items must be made, sourced, designed, or handpicked by the seller. Etsy uses examples to clarify what is and isn't acceptable, such as prohibiting the sale of mass-produced items with minor alterations.
• Etsy employs a combination of artificial intelligence (AI) and human oversight to enforce these standards. AI tools automatically flag items that appear to be mass-produced or copied from other platforms, while human reviewers are involved in the process to ensure accuracy and make final decisions.
• Etsy has implemented a $15 fee for new sellers to deter low-effort shops and bots. This fee is intended to ensure that sellers are committed to contributing meaningfully to the marketplace. While Etsy acknowledges that some sellers may face financial hardship, the fee is considered manageable and reflects the value Etsy provides. Etsy also relies on search algorithms and community flagging to identify and remove inauthentic items.

Etsy's star seller program and the importance of artisanal items (20m14s)

• Etsy's Star Seller program rewards sellers for consistent quality and service. Sellers who meet certain criteria, such as selling a specific amount each quarter, responding quickly to customers, shipping on time, and receiving consistently high reviews, are designated as Star Sellers. This program encourages sellers to focus on providing a great customer experience and delivering unique, handcrafted items.
• Etsy prioritizes quality and uniqueness over sheer scale. Unlike platforms like Uber and Airbnb, where scale is often rewarded, Etsy emphasizes the value of artisanal items and the stories behind them. The platform recognizes that consumers are increasingly seeking out unique, handcrafted goods that express their individuality and tell a story.
• Etsy provides a platform for meaningful connections and community support. The platform allows buyers to connect with sellers directly, learn about their craft, and support their businesses. This is particularly evident in the case of Ukrainian sellers, who have received significant support from the Etsy community during the war. Etsy provides a space for buyers to find unique items and support artisans around the world, fostering a sense of community and connection.

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Durable products, warranties, and customer loyalty (27m55s)

• The discussion centers around the concept of durable products and warranties, and how they contribute to customer loyalty. The speaker, Josh Silverman, CEO of Etsy, highlights the importance of brands that stand behind their products and offer warranties, citing examples like Danner boots, Crockett & Jones shoes, Briggs & Riley luggage, and Le Creuset cookware. He emphasizes that these brands prioritize customer satisfaction by offering repair or replacement options, even for older products.
• Silverman acknowledges that Etsy's platform doesn't explicitly reward sellers for offering warranties. However, he explains that Etsy encourages sellers to have transparent refund policies and that they are working on standardizing these policies. He also points out that Etsy's unique marketplace, where buyers interact directly with individual sellers, fosters a strong sense of personal connection and customer service.
• The conversation emphasizes the value of handmade and unique products on Etsy. Silverman highlights that Etsy sellers are passionate about their craft and often go above and beyond to ensure customer satisfaction. He also emphasizes that Etsy offers a direct connection between the maker and the buyer, eliminating markups and providing a more personal experience.

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Company operations during the pandemic and efficiency era (36m57s)

• Etsy's Transformation During the Pandemic and Efficiency Era: Josh Silverman, CEO of Etsy, discusses how the company navigated the pandemic and the subsequent shift towards efficiency in the tech industry. He highlights the importance of focusing on core business objectives and streamlining operations to achieve maximum productivity.
• Etsy's Turnaround and Focus on Squad-Based Empowerment: Silverman recounts Etsy's challenging period in 2017, where the company faced declining growth, activist investors, and takeover offers. He implemented a "zero-based budgeting" approach, similar to Steve Jobs's strategy at Apple, which involved a significant headcount reduction and a laser focus on key priorities. This resulted in a 25% reduction in headcount but a fourfold increase in monthly output. Silverman attributes this success to a squad-based structure, where small, empowered teams are given clear goals, timelines, and the autonomy to find solutions.
• The Importance of Constraints and Measuring Productivity: Silverman emphasizes the importance of clearly defined goals, constraints, and the right people in the right roles for team success. He believes that constraints can be beneficial, forcing teams to be creative and efficient. He also highlights the importance of measuring productivity and ensuring that efforts are focused on expanding the business, rather than simply adding headcount.
• Etsy's Lean Operations and Revenue Per Headcount: Silverman emphasizes Etsy's lean operations, with a headcount of 1,800 employees for a $12 billion business. He notes that Etsy is leaner than Twitter, even after Twitter's significant staff reduction, and has a higher revenue per headcount than other companies of similar size and scale. This focus on efficiency and minimizing waste is a core value at Etsy.

Global talent, remote work, and productivity at Etsy (44m11s)

• Etsy's global talent strategy: Etsy recognizes that talent is available worldwide and has established development centers in Mexico and Ireland to access diverse perspectives and skills. They prioritize measuring outcomes and productivity rather than hours worked, fostering a sense of urgency and responsibility among employees.
• Remote work at Etsy: While Etsy has found that remote work can be highly productive for experienced engineers and managers, it has been less effective for early-career employees and managers who haven't worked at headquarters. As a result, Etsy has adopted a hybrid approach, encouraging employees within a 60-minute commute to come into the office two days a week.
• Benefits of a hybrid model: Etsy believes that a hybrid model fosters a vibrant community, particularly for early-career employees who benefit from mentorship and in-person collaboration. They are investing in technology and tools to ensure that their remote workforce remains productive and engaged.

AI's impact on team size, productivity, and customer support (50m56s)

• AI is driving increased efficiency and productivity across various departments at Etsy. This is leading to a situation where the company may not need to hire as many new employees, even as the business grows. The speaker believes that AI will continue to improve productivity, potentially doubling efficiency every two years.
• AI is particularly impactful in customer support and engineering. In customer support, AI tools are being piloted to provide more personalized and efficient service. In engineering, AI is helping developers understand the downstream effects of their code, leading to better code quality and faster development cycles.
• AI is enabling Etsy to create new features and services that were previously impossible. For example, Etsy has launched a "Gift Mode" feature that uses AI to recommend personalized gifts based on user preferences. The speaker also envisions a future where AI could analyze social media data to suggest gifts based on a person's interests and online behavior. This would require careful consideration of privacy implications, but the potential benefits are significant.

SEO strategies, organic traffic, and handling IP issues (55m10s)

• Etsy's SEO strategy focuses on organic traffic and content creation. Etsy has over 100 million unique listings, each with its own metadata and photos, which helps Google index the site effectively. Etsy also partners with Google to improve indexing.
• Etsy is investing in brand marketing and building traffic to its app to become a destination site. This strategy aims to avoid being reliant on downstream platforms like Google and Facebook, which control the economics of search and advertising.
• Etsy has a strong relationship with rights holders to address IP issues. They have a special portal for rights holders to report violations, and Etsy proactively removes items that are likely to be infringing. Etsy also works with rights holders to create licensed merchandise categories.