The 3 Rules on How to Expand Marketplaces

Amazon and Etsy are both for different reasons important case studies in understanding the evolution of marketplaces.

Recently, we highlighted how Etsy is building out the services part of its business. Amazon as well is earning an increasing amount of money through several services provided to manufacturers and merchants on its marketplace.

Always think of marketplaces as service providers to sellers (and buyers).

One has to view Amazon’s logistics advances through this lense. Yes, Amazon Flex and co. and the “Global Supply Chain” programme are build for Amazon’s online retail operation but more than that are to supplement the marketplace and help its sellers. Amazon is building an infrastructure for other companies to use so the company can collect an ever higher tax from an ever increasing number of companies doing business with Amazon’s services.

Imagine the market power an UPS or FedEx would yield if one of those would command the biggest marketplace in a given country as well. This is what Amazon is building, coming from a different starting position.

But not everyone can build that.

Etsy on the other hand is showing what else marketplace companies can do. Build additional marketplaces that are closely enough related to the established marketplace to get network effects to kickstart the new endeavour (and, of course, have it meaningfully connected for this purpose):

Our 1.7 million sellers are able to create jobs and incomes for themselves and build value in their communities, connecting with 27 million buyers all through the Etsy platform. […]

Etsy Studio, the first new market we’ve built from the ground up since debuted in 2005, will be a global market dedicated to craft supplies that seamlessly combines inspiration and shopping in one place. When it launches this spring, visitors will be able to shop original DIY projects and tutorials alongside all of the supplies they need to bring those creative projects to life. […]

We’ve developed a whole new set of tools for categorizing and describing items and combined those with a new shopping experience tailored specifically to the needs of DIY shoppers.

The craft supply market is enormous: approximately $44 billion in the US alone.


DIY supplies are a natural extension to Etsy and they are a huge market. It makes perfect sense.

Etsy is also building out the backend for sellers:

Our new Shop Manager is a centralized hub for creative entrepreneurs to run their businesses, bringing the tools they depend on and all of their Etsy, Inc. sales channels like Pattern and the new Etsy Studio into one place.

A new dashboard allows sellers to quickly see a snapshot of all the information they need – conversations from buyers that need to be responded to, orders that need to be fulfilled, as well as shop stats and finances. A new shop advisor tool will also notify sellers if something needs urgent attention, and a new navigation allows sellers to easily switch from task to task. In the coming months we will also be adding a new order management and shop stats experience to Shop Manager.

Let’s call this the third marketplace rule in this article:
Don’t underestimate the power of the backend for sellers. Marketplaces need the bestsellers and big brands, but ultimately they live and die by the long tail. And the long tail is comprised mainly of small operations with few resources and last not least, in the case of Etsy and others, of amateurs and semi-amateurs. Making it as easy as possible for both big and small sellers is very important. (More so for the smaller sellers obviously.)

So, to summarize:

  1. Services, services, services
  2. Closely(!) related product categories/markets can be targeted to build additional marketplaces for.
  3. Never underestimate the backend.

More on this topic:


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