From Vertical to Horizontal Value Chains: The Case of Etsy.Com

Over the past two decades, the liberalization of economic policy and technological innovation triggered the international fragmentation of value chains. Analysts of Global Value Chains (Gereffi et al., 2005) investigated the determinants of the global restructuring of production and factors influencing the creation of value and its capture. Arbitraging on labor costs in emerging economies, leveraging on the coordination potential of ICT, and taking advantage of the diminishing frictions to cross-border trade, global buyers in many industries offshored mundane manufacturing activities to concentrate on knowledge-intensive activities (i.e. innovation, design and marketing). The search for scalable efficiency –that is the production of high-volumes of products at low cost by offshoring and consequently reaping consistent margins– is the main driver behind the observed geography of production. 

While these theories effectively explained the present phase of globalization and the consequent division of labor among developed and developing countries, we find difficult to apply these theories to an emerging phenomena: the increasing participation of the customer in the production of product/service and the consequent rise of small-scale, artisanal firms in the U.S. and in Europe. The decreasing costs of production technologies such as digital manufacturing tools (de Jong and de Bruijn, 2013), consumers' request for custom-made products differing from big box retail ones (Economist, 2014), and the possibility to sell globally via e-commerce websites, fuelled the birth and growth of a number of small-scale artisanal firms operating in a variety of markets. Many of these small-scale producers are coalescing on e-commerce websites provided by platform firms such as Etsy, the world's leading marketplace for crafts-based products. 

These websites are the pivots of complex ecosystems, wherein the rules and logics behind value creation and capture differ from those pinpointing global value chains. First, these websites provide hobbyists and prospective entrepreneurs with tools and services to address a global demand for artisanal products that they could not otherwise serve. Second, portals like Etsy allow small-scale producers to experiment and prototype their products and business models without remarkable fixed costs. Third, the logics behind the functioning of these ecosystem seem to allow a more equal distribution of the value created among producers and the platform providers. Finally, these websites are apparently stimulating the creation of novel manufacturing firms stimulating what Etsy calls "people to people" commerce. By connecting like-minded consumers, these platforms allow them to produce small batches of artisanal goods. Many of these experimentations remain hobbies, while others are incubated within the platform and become proper ventures selling their products also outside of it. What we observe is the transformation of long and vertical value chains in short and horizontal ones.

Moving from an analysis of Etsy and from data related to the revenue structures of the platform and its participants as well as from case studies of firms that were born an grew thanks to the website, we aim at contributing to the GVC theory providing with a framework to understand, analyze, and assess the potential of people-to-people commerce based on platform.