Marketing
24 February 2023
Etsy drives incremental revenue with search, advertising upgrades
The marketplace has internal "squads" focused on specific areas of improvement.
Photo by Kelly Sikkema on Unsplash
The marketplace has internal "squads" focused on specific areas of improvement.
Etsy mounted a strong showing in the holiday quarter, posting “very strong” performance to close out 2022.
While a lot of talk lately is on the external factors shaping retail, Etsy executives spoke more about the internal improvements they made to the marketplace in areas such as search and advertising.
Here’s a look how the company focused the team, and the results that these initiatives drove:
Inside Etsy, a big focus is the Right to Win. This describes focus areas where the company seeks to make marked improvements.
“Each year, we pick a select set of customer experiences where we believe we can make material improvements in ways that result in materially better experiences for buyers, more sales for sellers and better returns for investors,” said CEO Josh Silverman. “Etsy teams, often working in what we call a squad, are tasked with a single customer experience to improve in ways that achieve a specific financial target.”
In 2022, executives put a focus on advertising. In particular, they called on the team to make ads more relevant for buyers, while at the same time keeping seller ROAS above targets. The result was a better experience for customers, Silverman said. It also delivered results to the tune of over $100 million in incremental annualized revenue.
Silverman broke down how the squads function:
Squads have a great deal of freedom to test fast and learn fast and a strong bias to action. They often push more than one release per week, typically to 50% of Etsy's audience, so we can quickly measure whether that release has demonstrably lifted GMS or moved the target metric.
Importantly, we meet monthly to review the progress made by each squad. By doing this across our entire portfolio of work, we're able to understand the degree of payback we're getting or not from our investments, how they're impacting daily performance and adjust our work accordingly to ensure we're moving the ball forward to improve customer experiences and meet our targets.
For Etsy Ads, product enhancements throughout the year drove “better-than-anticipated performance,” said CFO Rachel Glaser.
“This included utilization of neural network embeddings, a type of machine learning advancement to increase ad relevance, which drove more clicks and purchases,” Glaser said. “We also launched a more visually engaging ad experience with videos on the homepage that increase conversion and return on ad spend for sellers.”
Etsy also made a concerted effort to improve the search experience on the marketplace throughout the year. Results will only compound
As Silverman put it, “With about 120 million live listings, getting you to the good stuff is really important.”
Search was also an area that saw continuous cycles of testing and scaling. The search team launched 120 experiments that were ramped up.
Among those were Etsy Lens, which allows users to provide a picture in the search field as opposed to words. Etsy is also improving neuro models, which helps search make sense of meaning as opposed to words.
“In fact, the neuro models we're using use the same kind of underlying algorithms that ChatGPT uses,” Silverman said. “So we're already using some of the underlying technologies that you're seeing from great innovators like Open AI, and it's having great impact.”
Improvements bring additional opportunities to make the path to purchase easier. Search results could now have a buy button embedded, enabling people to buy items directly from the results page, rather than having to go to an additional listing page.
Going forward, the company is looking to add more multimodal search that allows users to combine pictures and words. Silverman also wants search results to become more personalized to a particular user.
The company is also focused on what search results do for the business. It pays close attention to the processing power used, and weighs the cost added versus the results that the feature drives.
“Having multiple objective functions has been very helpful. How do I do something which drives conversion rate but also drives repeat visit rate?” Silverman said. “Those two actually might not be the same in terms of search results, so training our models to solve for more than one thing at one time.”
Development of chat-like interfaces is also top-of-mind given the rise of ChatGPT, and Silverman said that type of innovation is “very possibly” a future feature.
“We are constantly testing what's on the frontier,” Silverman said. “And if it makes our experience better and it does it in a way that's profitable, we're going to do it.”
New advertising opportunities are being beta tested for in-store audio and product demos.
Retail media’s fast growth isn’t only limited to increasing spend. The advertising itself is also poised to appear in more places beyond ecommerce marketplaces, and even beyond the web.
The latest example comes from Walmart Connect, which is the retail media arm of the world’s largest retailer.
Walmart shared details on testing that it is completing for in-store retail media. To this point, Walmart Connect has been considered the advertising platform for Walmart’s ecommerce site. But these tests indicate that’s poised to expand.
Stores present a potent opportunity for Walmart. It has 4,700 big box locations around the U.S., and customers returned to them in droves last year. In 2022, 88% of the retailer’s customers visited Walmart stores.
Walmart Connect already has already dipped a toe into in-store advertising, with a TV wall, self-checkout ads and integrated marketing. The new pilots aim to take a step further.
“The next frontier of retail media is in-store experiences, and it’s one we’re excited to chart,” Whitney Cooper, head of omnichannel transformation at Walmart Connect, wrote in a blog post on the new tests. “But it’s still an emerging opportunity for us, as we continue to test what serves customers best and which solutions are scalable to Walmart’s size.”
Here’s a look at the two new offerings currently under beta test:
Walmart suppliers will be able to integrate product demos into campaigns across in-store and digital environments.
Product demos aren’t new to store floors, but Walmart Connect is seeking to give them an update that blends digital and physical experiences.
“Part of our test is how to enhance the omnichannel experience by bridging the physical back to digital: For example, by pairing a demo cart with QR codes that link back to a curated Walmart.com landing page so customers can find inspiration and shop their list all in one spot,” Cooper wrote.
Walmart is currently offering 120 demos at stores each weekend, and plans to scale to 1,000 by the end of 2023.
Walmart Connect will now offer advertising placements on Walmart’s in-store radio network. Suppliers will have the option to purchase ads by region or store, enabling targeting of key markets.
“This is the first time brands will be able to speak directly to Walmart customers through this medium,” Cooper writes. “These ads also create a new upper-funnel touchpoint for brand marketers and out-of-home (OOH) buyers to create awareness, because in-store audio is about connecting with customers wherever they are in the store — they don’t have to pass the brand in the aisle.”
With the tests, we’ll be watching for how this advertising is measured, and whether Walmart Connect is tracking impact across different types of formats, and not just a single campaign.