I’ve been contemplating whether Amazon or eBay would acquire Etsy given that it’s now trading at around a $1bn valuation. This is down 75% from the $4bn it was was valued at when it floated last year.

I’m going to break out a few numbers and take a run at calculating whether Amazon, for an easy example, could just build a new Etsy rather than buy the one that’s there.

Technical

Building the Etsy site and infrastructure is going to take a team of 20 outstanding developers less than a year. Not many top developers would turn down $200k per year for a greenfield project for Amazon. We’ll add $50k to fully load this. So let’s say that’s $5m in salaries. Add another $2m for some product managers and recruiters.

And let’s give everyone a 100% salary bonus if they get this thing shipped by year end. So we’re at $14m for staffing.

Server costs are basically zero. We own AWS already but even if we didn’t, I doubt we could push beyond $1m in the first year (especially given we take a year to get a product up.)

iOS and Android apps - $1m each is a huge budget for outsourcing them. So $2m for both apps.

(I’ll say right now that I’d agree a fixed price to clone Etsy’s site for $2m and I’d have it done in six months.)

So a total for technical of $15m. Let’s double it for no real reason: $30m for a team of c.25 top people.

Office space

We’ll need an office. SF rents are the most expensive in the country at $80 sq ft so let’s base ourselves there. Our team is going to need some luxury digs so let’s give everyone 300 sq ft of desk space. We’ll need 7,500 sq ft of office space, doubled to make room for our ping-pong, fussball tables, Lego kanban boards and more. 15,000 sq ft @ $80 = $1.2m annual rent.

We’ll take a five year lease and pay it up front: $6m. Plus an outrageous $4m of agents’ and legal fees, and fit-out costs. $10m

Business development

We’re going to need to absolutely nail our sales. We need to attract both sellers and buyers - let’s take them separately:

Sellers

At its IPO, Etsy claimed 1.4m active sellers. Rather than debate the merits of this number, we’ll just take it at face value. (Their definition: An active seller is an Etsy seller who has incurred at least one charge from us in the last 12 months.)

Total sales through the platform were $2bn ($1,400 per active seller, per year).

To launch our new marketplace we want Etsy’s biggest sellers to join. So let’s apply the 80/20 principle and pursue the top 20% of their sellers, that’s 280,000 sellers. We’ll just give them all $1,000 in cash for signing up: an irresistible offer. And to get the word out we’ll hire 5 home-based salespeople in every state to pound the streets and visit every craft show and market. We can get these guys for under $100k, including a car. So that’s a salesforce of 250 people at an annual cost of $25m.

So our sales costs for attracting these sellers will be $25m ongoing and an exceptional $280m in cash payments to get them onboard. We’ve got six months to build this sales team while the product team get something built.

Marketing to buyers

We also need buyers. That means building a brand for the general public. So we need to go insane on the advertising.

We’ll pump $50m into developing a brand.

I was surprised to find that 36 US companies spend over $1bn annually on advertising. We’ll be competing with McDonalds, Apple (a recent entrant), and Coca Cola. Going the traditional route is probably not for us but let’s put $200m aside for general TV and print advertising. We need to think a little outside the box.

Some ideas: It’s probably going to work out cheaper to just buy the top 25 craft magazines at $5m each rather than pay for their advertising space. So let’s do that. $125m spent - we’re now the biggest publisher of craft magazines. Some of these mags might even be profitable! But let’s just assume we have to write the whole sum off after a year, and give everything to the staff for $1.

So, at the end of a year, we’ve spent:

  • $30m on building the site.
  • $10m on office space. (prepaid for five years)
  • $25m on a sales team
  • $280m in cash given away to get sellers on board
  • $50m on brand identity and development.
  • $200m on TV and print advertising.
  • $125m on the top 25 craft magazines in the US

A sum total of: $970m

Basically it’s going to come down to a cointoss.

Some notes: Etsy made a loss of $15m last year, so we don’t even have to consider that we’re losing profits by taking a year to do this ourselves - we’re actually saving money!

It’s clear that the value in Etsy is the brand. I don’t know how far into the minds of Americans our $375m annual marketing budget is going to take us.

Etsy’s current annual operating costs are c. $140m