Etsy (NASDAQ: ETSY) sells a lot of stuff. The e-commerce company, which specializes in unique and handmade goods, processed over $13 billion of transactions in each of the last two fiscal years.
You might be surprised to learn that Etsy’s profits don’t come from its customers, though, as they do for a retailer like Walmart or Home Depot. That’s because Etsy operates as a marketplace platform that works to connect buyers with sellers. Thus, its merchants are the ones funding the business. And the profits Etsy extracts from these sellers are much higher than Walmart could earn.
Marketplace businesses have some major advantages over traditional retailers. For example, they don’t hold inventory, which is a huge cost burden and financial risk that saddles its vertically integrated peers. Etsy also doesn’t need to maintain its own expensive shipping and logistics network like Amazon.