Can Etsy make the most of its ‘eBay moment’?

The online retail world is experiencing a bit of deja vu.

In 2000, there was eBay’s so-called “Million Auction March,” in which some influential eBay sellers tried to redirect a million auctions from the popular retailer to hundreds of competing auction sites. Fast forward to 2012. On Thursday, thousands of Etsy members are planning their own protest. The issue: Some indie sellers believe that resellers and collectives that outsource production are managing to infiltrate Etsy, despite the site’s commitment to be a marketplace for people who actually create the crafts.

Considering that Etsy has more than 15 million members and about 875,000 sellers, Thursday’s “silent protest” might not even cause a ripple for most users of the site. But it highlights the tension between Etsy’s need to scale and its stated desire to building a human-centered, intimate community.

“[The protest] is a manifestation of a bigger issue,” said Anupam Palit, an analyst with Greencrest Capital who has written about Etsy.  “The company is going through a crisis of conscience.” Over the past several months, he says he has seen those tensions — between getting bigger, on one hand, and yet retaining its craftsy feel, on the other — bubble over.

Etsy’s ‘problem’ is an enviable one

In a way, Etsy’s problem is one many startups would love to have: It’s nurtured a passionate community of users who care enough to protest the company because they’ve grown attached to a vision of what they want it to be.  And we’ve seen just how valuable passionate virtual populaces can be (just look at what it did for billion-dollar Instagram). But Palit said that, as a growth-oriented company, Etsy’s challenge is to weigh theoretical opportunities against the impact they would have on its core user base.

That isn’t so unlike the conundrum eBay wrestled through in 2000 (and in subsequent years) as it grew the site with banner ads and, later, fee policy changes and other modifications. “[I] sold on Ebay until the fakes started to roll in,” said Heyme Langbroek, an Etsy seller from Belgium, who is participating in the protest. “I left — the quality there went really downhill, I don’t even buy on eBay anymore. Etsy was a place where I thought the integrity was governed, a place for unique, handmade goods.”

“I joined the protest to ask Etsy clearly what they want to become — a mega-selling platform, or a genuine platform for handmade, supplies, and cool vintage stuff,” Langbroek continued.

Palit said Etsy’s current situation also parallels eBay from a tech-investment perspective. Before eBay went public, it had a smaller community but great margins, he said. But after, when it needed to invest in technology to keep up with the growth, its margins were crushed. “It’s a necessary evil,” said Palit. By making Chad Dickerson, the company’s former CTO, the CEO last year and adding new features and products, Etsy’s showing that it’s on the right track, he said. But it doesn’t mean users won’t experience some bumps along the way.

What does Etsy’s ‘human element’ mean?

Not surprisingly, the eBay parallel is one that Dickerson resists. “Ebay and Etsy are fundamentally different companies,” he said. “When we think about the core of Etsy, it’s really about people buying and selling from other people and knowing who’s on both sides of the transaction.”

In an April blog post responding to questions around the seller that ultimately prompted the protest, Dickerson wrote, “Etsy has always been about the human element in commerce.”

The beauty of Etsy is that in an increasingly mass-produced and machine-driven world, the site celebrates human creativity and connection. The problem is that how its “human element” is experienced is, well, up to each human. On the scale of not at all made by human hands to totally made by human hands, Etsy is trying to move a little more to the former to make room for new users and opportunity. But for those who joined the site when Etsy occupied a different position on the spectrum, it will understandably take some time for them to accept the change.

EBay is hardly the only company to have struggled with tension around change — so did TwitterFacebook and MySpace, among others. Some landed on their feet, others didn’t fare as well. But, in a sense, that ones still thriving are still trying to figure it out — when Twitter and Facebook make changes, their users often fight back. But the difference with Etsy is that consequences aren’t measured in likes and tweets but dollars and cents.

“Everything that Etsy does has an economic impact on almost a million sellers,” said Fred Wilson, managing partner of Union Square Ventures. “It’s not unlike a small city.”