Week 3 d2 ETSY CASE PDF

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ETSY 2005-2017: ARTSY HEAVEN OR CUTTHROAT CORPORATION? Frédéric F. Brunel Associate Dean of Undergraduate Programs Associate Professor of Marketing Questrom School of Business

When asked about what Etsy represents, Peter Cohan (who teaches Strategy and Entrepreneurship at Babson College) replied: “I think it’s an artsy place where artsy people exchange things? … It’s my sort of cliché of what Brooklyn’s all about. Kind of twee, long beards and stuff like that.” (NPR Market Place, June 21, 2017). Others have characterized the Brooklyn-based artisan two-sided market as “New York tech’s poster child. The company started as a virtual storefront for hipsters’ arts and crafts, and has since seen the largest VC-backed IPO to come out of New York City” (Majewski, T., Nov 5, 2015, BuiltinNYC.com). FIGURE 1 PRODUCTS ON ETSY, AND PICTURES FROM ETSY’S HEADQUARTERS IN BROOKLYN NY

Page |2 FIGURE 2 ETSY’S IPO (APRIL 16, 2016) AND A MORE “CORPORATE” OFFICE SPACE

So what is it really? Answering that question calls for a close examination of Etsy’s history (see below). Below is a summary of important milestones in Etsy’s first 12 years. The years are marked with much idealism, optimism, and achievements. However, the years from 2015 to 2017 have seem many growing pains, losses and the harsh realization that the initial vision no longer worked for this publically traded retail platform. Etsy problems might have started in 2013 when it relaxed the “hand made” requirement for the products . “Ten years ago, Etsy was a marketplace where craftspeople and artisans sold their wares… But before they went public a few years ago they changed direction, and tried to be everything to everybody in ecommerce” according to Gil Luria, Director of Research at the investment firm D.A. Davidson. (as quoted by NPR Market Place, June 21, 2017). While this move boosted sales in the pre-IPO period, it also allowed big manufacturers to reach Etsy’s loyal customers base and it altered the buyer-seller relationships and community identity on the platform. Luria puts it in a blunt manner: “ term, but that’s when Etsy lost its way… .” (as quoted by NPR Market Place, June 21, 2017). “When Etsy started listing $10 bracelets from Chinese factories right next to $100 bracelets handmade by homemakers in Wisconsin, the homemakers could no longer compete” (NPR Market Place, June 21, 2017). Many believe that this is when Etsy became a different company. . However, Etsy remained a small company relative to such giants and that created a new set of unintended competitive difficulties. “Much like Etsy’s artisan craftspeople couldn’t compete with cheap factory products, Etsy itself couldn’t compete with the giants of online retail” (NPR Market Place, June 21, 2017).

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TABLE 1 ETSY’S HISTORY FROM 2015 TO 2017 Adapter from Taylor Majewski (Nov 5, 2015) BuiltinNYC.com and augmented as indicated

2005

Rob Kalin, Chris Maguire, and Haim Schoppik created Etsy in a Brooklyn apartment. The vision was to build an online platform for craftsmen to sell their goods.

2007

Almost 450,000 registered sellers; $26 million in annual sales. By July 2007, the ETSY has realized one-million sales since its start. Etsy raised over $3M in venture funding.

2008

Maguire and Schoppik left the company. Kalin hired Chad Dickerson, the Senior Director of Product at Yahoo, as Etsy’s new Chief Technology Officer. Dickerson started to build out Etsy’s engineering team.

2011

Dickerson replaced Kalin as CEO, after three successful years as CTO.

2012

Etsy raised $40M in series F funding, and became B Corporation certified1. The company expanded internationally, including France, Germany and Australia.

2013

Etsy allowed sellers to sell manufactured goods as well as handmade items. Sales grew from $895M in 2012 to $1.34B in 2013.

2014

Etsy hired Mike Grishaver, a former executive at Pandora, as Senior Vice President of Product in order to strengthen its mobile shopping business. Total sales hit $1.93 billion.

March 2015

Etsy announced that it had filed for a $100M Initial Public Offering (IPO).

April 2015

Etsy went public on April 16, 2015. The company's valuation was $1.8B and raised $237M in IPO proceeds.

November 2015 With 1.5M active sellers and 22.6M active buyers, Etsy valued at $3.5B. November 2016 Josh Silverman (former CEO of Skype and eBay’s Shopping.com) joins Etsy’s board. (Gelles, November 17, 2017, New York Times) Expenses were growing fast. Company a net loss of $2.5 million in the third quarter (Gelles, November 17, 2017, New York Times) March 2017

Etsy under attack by activist investor Black-and-White Capital. BWC was pushing Etsy to cut costs, improve user experience, and even selling the company: “We are fully prepared to take any actions we believe are necessary to protect the best interests of all Etsy shareholders.” (BWC as quoted in Del Rey, May 2 2017, Vox.com).

May 2017

Etsy announced ousting of Chad Dickerson as CEO and appointed Josh Silverman in its place. Also cut 8% of its staff in a cost cutting effort. Stocks dropped 14% in one day (Del Rey, May 2 2017, Vox.com).

June 2017

Etsy announced an additional 140 layoffs (15% of the staff) and suspension of brand marketing activities. Resources would be streamlined and deployed only on highest-impact initiatives and a series of initiatives and projects were abandoned (Steiner, June 21, 2017, Ecommercebytes.com)

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B Corporation is a private 3-year certification of for-profit companies. It is not a type of legal business form, and it is different from the Benefit Corporation legal form. B corporations balance purpose and profit and are required “to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This is a community of leaders, driving a global movement of people using business as a force for good” (bcorporation.net)

Page |4 Etsy’s destiny and trajectory also changed drastically when it went public in 2015. Being a publicly traded company was a game changer and the once idealistic company got a heavy dose of Wall Street realism. For example, Venture capitalist Charlie O’Donnell who was one of Etsy’s first investors when the company started recognized . “You’re kind of dealing with a different set of owners now. You’re dealing with public owners that are watching their bottom line,” O’Donnell said (NPR Market Place, June 21, 2017). As the new owners and investment analysts watched the company, it became clear that its expenses were growing too fast, and the company results became lack-luster. E and some pointed that under CEO Chad Dickerson, there had been a “h ” and unfocussed initiatives that had undermined the company performance and the profitability of the overall business model (May 2, 2017, Vox.com). From a high of $31.00 on opening day in April 16, 2015, Etsy’s shares were trading just above $10.00 by April 2016, and had recorded a low of $6.90 on February 8, 2016 (see below).

FIGURE 3 ETSY STOCK PRICE – FROM IPO TO MAY 2016 Source: Finance.Yahoo.com

In late 2017, Etsy found itself at a cross road and in a battle for its survival and its soul, and with a real sense of urgency. However, how will it negotiate the turn? And more importantly, can it negotiate a turnaround and appease the market? was now in charge and he was trying to calm investors who had grown impatient and were hungry for radical change. Would Josh Silverman be able to right the ship? Would he be able to balance financial imperatives with the social and ecological mission of the firm? Silverman had announced in a June 2017 press release that his “My conviction that Etsy has a unique opportunity within the ecommerce space has intensified during my initial weeks as CEO. Our vibrant community, strong brand affinity, 45 million listings, and ability to connect people through commerce provide us with a differentiated offering and solid foundation for growth. By focusing on our ‘vital few’ initiatives, we will be a more disciplined company that is better positioned to create the world’s most compelling buying and selling experience”.

The recent

had been a tough decision and a bold effort to turn things around and However, these efforts had also left a bad taste with employees. Speaking of the first round of layoffs one employee was quoted as saying “Yesterday felt impersonal, unempathetic and decidedly un-Etsy” (Gelles, November 17, 2017, New York Times). It was also unclear how the changes had impacted consumers’ opinions and overall loyalty toward the firm. The next 12-24 months were going to be critical; Silverman had his work cut out. How was he going to forge a path forward in this very competitive ecommerce environment and with ever demanding investors? How was he going to balance the company’s mission “to reimagine commerce in ways that build a more fulfilling and lasting world, and we’re committed to using the power of business to strengthen communities and empower people” with this business reality? Will he have to make some painful tradeoffs?

Page |6 APPENDIX – BIOS OF THE LAST TWO ETSY CEOS

Chad Dickerson was the CEO of Etsy from July 2011 to May 2017, leading the company in its mission and growing it into a global community of creative entrepreneurs and their customers. During that period, he grew the company from a chaotic startup to a global publicly-traded company, growing revenue 14x during that period. Under Chad’s leadership, Etsy was known for its company culture and commitment to social responsibility. Etsy made the Best Places to Work list every year from 2013 to 2016 and the company became a Certified B Corporation in 2012, recognizing the power of business to generate social good. Chad was CTO at Etsy from September 2008 until July 2011, leading a team that built Etsy’s core platform in its critical early years. Before joining Etsy, Chad led Yahoo’s Brickhouse & Advanced Products incubators, and the Yahoo! Developer Network. He created the Yahoo! Hack Day initiative in 2005, the first internal innovation program of its kind in a large company. Chad came to Yahoo! from InfoWorld Media Group (IDG) where he served as CTO for nearly five years and wrote a popular weekly column for CTOs. Prior to InfoWorld, Dickerson served as CTO of Salon.com and in various engineering positions at CNN, CNN/Sports Illustrated, The Atlanta Journal-Constitution, and The (Raleigh, NC) News & Observer. He serves on the board of St. Ann’s Warehouse, a non-profit theater in Brooklyn, and the Jalopy Theatre and School of Music, a beloved music institution in Brooklyn. Chad holds a BA in English literature from Duke University where he focused on the works of Shakespeare. (source: https://blog.chaddickerson.com/aboutme/ )

Josh Silverman, CEO of ETSY since May 2017, is an entrepreneurial executive who has built and run some of the world's most loved consumer technology companies. In July 2011 he joined American Express as President, US Consumer Services, a Corporate Officer of the company with overall responsibility for the US consumer card and travel businesses. In November 2016, he joined Etsy’s board. Previously Josh Silverman was the CEO of Skype. During his 2.5-year tenure, Skype added more than 300 million users, became ubiquitous across mobile and consumer electronic devices, doubled revenues and tripled profits, while growing to account for 25% of the world's international calling minutes. According to Landor & Associates Skype was the 2nd-fastest growing brand by value (after Facebook) during the 2008-2010 period. Skype's sale to MSFT for $8.5B was announced in early May, 2011. In recognition of his contributions, TechCrunch nominated Josh Silverman as first runner-up for "CEO of the Year" in 2010. Prior to Skype Josh Silverman served as CEO of Shopping.com, held senior executive roles at eBay and was Co-Founder and CEO of Evite, which he led from inception through its sale to Barry Diller's IAC. Earlier in his career Josh Silverman served on the staff of Senator Bill Bradley, and as a management consultant with Booz-Allen & Hamilton. Josh Silverman has been featured in publications such as the New York Times and Fortune Magazine, made appearances on programs ranging from CNN to the Oprah Winfrey Show and has been a keynote speaker at some of the largest technology forums in the world, including the Consumer Electronics Show and Mobile World Congress. He serves as a member of the Board of Directors of Lincoln Center Theater. Josh Silverman holds a BA (Magna Cum Laude) in Public Policy from Brown University, and an MBA from Stanford, where he was class Co-President and an Arjay Miller Scholar. (source: https://www.crunchbase.com/person/josh-silverman)...