Etsy Focuses on Search Algorithms to Increase Sales

As more and more e-commerce players enter the market, companies are seeking ways to differentiate themselves in terms of the unique value they can bring to customers. In this episode of Mastering Innovation on SiriusXM Channel 132, Business Radio Powered by The Wharton School, Rachel Glaser, CFO of Etsy, describes what the company is doing to improve the connection between buyers and sellers.

The nearly 60 million items for sale on the online marketplace — including jewelry, clothing, and furniture — present a search algorithm challenge: Show the results that best match Etsy shoppers who, according to Glaser, are on the hunt for something “special.” Glaser discusses the company’s work on search capabilities to improve the user experience on the site and increase conversion rates.

An excerpt of the interview is transcribed below. Listen to more episodes here.

Transcript

Rachel Glaser (CFO, Etsy)

Nicolaj Siggelkow: As you said, it’s a two-sided platform. So we need to make sure we have a good value proposition on either side of the platform, both for the customers to make it easy for them to find what they want, and for the artists or the contributors to make their life easier. Running a business is not necessarily the first thing that comes to mind if you are at home and you create some interesting objects. So how do you help people become part of this community or become part of this platform?

Rachel Glaser: That’s the lightning in a bottle that we think we have because it’s very rare to create a marketplace that has enough demand to attract the supply. The very first day somebody shows up and wants to sell something, if there are no buyers, they’re not going to be able to make the sale and vice versa. If there’s buyers but there’s no supply, they’re not going to want to buy anything. So getting a two-sided marketplace propped up and really growing is very rare. You can think of very few of them that have been successful. Etsy has achieved that over many years. The proposition we have for our buyers is this enormous array of very unique items. We’ve talked a lot to our investors about wanting to own “special.” We’re in a sea of sameness. We can all think of lots of e-commerce players that offer items that have either a very good price or are very convenient, and they’re mass-merchandised. Etsy offers a wide range of things for people that are looking for something unique or special in their lives. I can think of something unique or special happening almost every month in my life, whether it’s an occasion or a holiday, or I just really care very much about expressing myself in a certain way. We’ve been able to attract sellers that produce a wide range of items. We talk about our six major categories, but we’re in very many more categories than that. If I gave you a few fun facts, for instance, we sell …

“We’ve talked a lot to our investors about wanting to own ‘special.'” – Rachel Glaser

Siggelkow: I like fun facts. Go ahead.

Glaser:  … an engagement ring every 90 seconds, for instance, and we sell eight pieces of clothing and a pair of shoes every single minute. We sell everything that every retailer does, but these things that we have are really unique and customized, especially for your “unique and special” needs.

Siggelkow: Now, that’s on the buyer’s side. Now that then raises the question of how will I ever find that one particular unique item on your site that I really want? That’s a big challenge on the buyer’s side. Tell us a little bit about the search capabilities. Presumably, you have invested quite a lot in that to make it easier for me as a customer. If I just type in “shoe,” that’s helpful, but how do I narrow it down to the one that I will find amazing and spectacular?

Glaser: It’s such a good point. We have been working with a tremendous amount of focus on that for the past two years. The company has been working on it since its inception, but Josh Silverman, who’s the CEO of the company, and I both started about two years ago, and our CTO started a little bit after we did. In the past couple of years, we’ve been very focused on trying to narrow down to the fewest priorities that are going to drive the highest amount of value, and search is one of them. We have almost 60 million items on the site and none of them are skewed. There’s no UPC code attached to these things and they’re each like a snowflake, each one different than the next. If you sell this beautiful red cashmere, hand-knitted pashmina, it’s gone. That’s a very unique problem for our search and machine learning engineers to be able to, on a single search result, hone in on the best result for that query.

Fifty-seven percent of our searches have over 800 results and 33 percent of them have over 10,000. And when you pair that with the fact that 83 percent of the conversions come from the very first page — when I say conversion, I mean to click on the result and make it all the way to order the item — and 54 percent of them come from the top three rows, it’s really important for us to try to find the correct result for you, which might be a different result than it is for me. We spend a lot of time on something called context specific ranking, where it’s trying to take all the data that we can know about you, your geography, the views you’ve had on other items, and the things you’ve purchased most recently, and serve up the best results for you that might be very different from the results that I would get if I were searching for the exact same item. We’ve been at it for the past, let’s call it six quarters, and we’ve made that search result a little bit better. For instance, a year ago, if you searched for a blue desk, you might get a page of search results that would include blue desks, but you also might see a blue desk lamp and a blue desk clock. Now, when you search for a blue desk, you’re much more likely to get a list of blue desks. It’s getting better, and we’ve seen the impact it’s had on our conversion rates and our growth, in our top-line sales, but we have a lot more work to do.

“Fifty-seven percent of our searches have over 800 results and 33 percent of them have over 10,000.” – Rachel Glaser

Siggelkow: Clearly the task of curating the offering for a particular customer is much harder if you have 60 million individual unique items than you have a few SKUs. Plus, as you were just saying, these items turn around a lot, right?

Glaser: That’s interesting that you used the word “curated” because, for the most part, it’s a completely open marketplace. Any seller who’s roughly following the guidelines we give for items that can be sold on Etsy — so very loosely, we say that an item has to be vintage, which we define as something 20 years old or older, or it has to be something that the maker had some hand in the invention of, whether they raised the sheep to create the wool to knit the sweater themselves or they designed a leather bag, and they procured the leather, designed the look of it, but took it to somebody else to stitch it together, but some hand in invention — so anybody that follows those rough guidelines can sell on Etsy, and we don’t limit them. But what we do, is through our search algorithms, we will give a quality score with all kinds of data that is fed into that score, so that we’re trying to get the highest-quality items to the top. The scores would include things like: Is the photo resolution really great? What is the price of this item relative to other prices in the category? Does the seller have a high quality rating from other people who have bought from that seller or that shop? What we see is that the cream rises to the top and so it’s sort of a virtual way of creating, where the things that are lower quality — beauty is in the eye of the beholder, so something that you think is high quality might not be the same thing that I think is high quality — but we’re trying to factor in all of those elements so that the best items are surfaced first.

About Our Guest

Rachel Glaser is Etsy’s CFO, bringing more than 30 years of senior financial experience to Etsy. She’s responsible for overseeing the company’s global financial operations. Glaser joined Etsy from Leaf Group, where she served as CFO since 2015. While at Leaf Group, she led efforts that strengthened operating efficiency and helped the company through a transformative period and a return to growth. Prior to joining Leaf, Glaser was CFO at Move, Inc. and helped lead a successful sale of the company to News Corporation.

Glaser has also held roles as senior vice president, operations finance at Yahoo, and at the Walt Disney Company, where she spent nearly 20 years in leadership positions in finance, operations, and technology teams. Glaser was elected to the board of directors of The New York Times Company in 2018.

Mastering Innovation is live on Thursdays at 4:00 p.m. ET. Listen to more episodes here.

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