Cloning the ETSY Model

Copies of e-commerce business schemes that have worked elsewhere in the world are gaining traction in Latin America

Photo: ©iStockphoto.com/urbancow

Juan Rossi speaks glowingly of e-commerce in Latin America. He runs Ofelia Feliz, an online marketplace for handmade and vintage products as well as arts and craft supplies. This gives artisans – or anybody – a crack at doing what really interests them rather than being stuck in a job they hate.

“It’s not e-commerce; it’s something that’s changing people’s lives,” he says. Rossi, 27, co-founded Ofelia Feliz in 2011 in Argentina and soon expanded it to Brazil, Chile, Colombia, Mexico and elsewhere.

The business model is nothing new. It is a tweak on Etsy, an online marketplace launched in 2005 and now the biggest of its kind in the United States. “Copying models is much simpler because you don’t have to reinvent the wheel,” Rossi said. “We saw that Etsy was totally replicable in Argentina.”

He is not alone. Etsy clones have cropped up around the world, as have copies or spinoffs of eBay, Groupon and Pinterest.

Investors are keen on the approach. “We like models that have already proven to work in other geographies and have local traction,” said Gonzalo Costa, a director of Nxtp Labs, a Buenos Aires-based startup accelerator.

With the cloning strategy, the risk shifts to the capabilities of the entrepreneurs, Costa said. Nxtp helps out in the beginning with equity investments of $25,000 plus hands-on support, office space, mentoring and networking.

The region is bubbling with opportunities – and young people willing to give it a shot. This is for several reasons. First, money is available. Latin American entrepreneurs such as Alec Oxenford (DeRemate.com) and Wenceslao Casares (Patagon) who made it during the 1997-2000 dot-com bubble are financing and mentoring upstarts, so too are such venture capital firms as California’s Accel Partners and New York’s Insight Venture Partners. Airbnb, Facebook and other foreign outfits have opened offices in São Paulo.

Costa said angel investors can bag as much as 400-fold profits after three to five years on equity investments in startups.

It also has become cheaper, easier and quicker to launch online businesses. Cloud computing, for example, has reduced infrastructure set-up costs to $25,000 — $50,000, a fraction of the $500,000 for buying servers, data storage devices and other hardware in the 1990s and much of the 2000s. Getting the word out is easier on the pockets with Facebook, LinkedIn and Twitter.

“With a little investment you can quickly find out what works.” Costa said. “If it fails, you lose only a small amount of money.”

Alexis Caporale started Bixti, another Etsy-like site, in 2010 with family funding. The platform gained users in Argentina and soon it was running in Chile, Colombia, Mexico and elsewhere.

Caporale, 23, is like many of the new entrepreneurs in Latin America: young and without an MBA. This would usually scare investors, but the creation of Facebook by a young Mark Zuckerberg has changed things. Youth is no longer such a challenge – and it can be a benefit. They’ve grown up with Google and social networks. “We have it in our blood,” said Caporale.

That may be so, but it also takes “smart, hard-working, resourceful and creative people” to turn ideas into viable businesses, especially as the easier it gets to start a project the more crowded the field becomes for consumers and financing, said Andy Kleinman, a startup investor and entrepreneur in Los Angeles.

“There are a lot of people who don’t know what they are doing,” said Kleinman, who got his start in 1998 running an online music company as a high school student in Buenos Aires. “There are products that don’t work or that don’t have a business model to make them grow.”

Those who do make it face promising prospects. Economic stability is building up the middle class in Latin America, while widening broadband, computer and smartphone penetration means more can shop online. Forrester Research expects online retail sales in Brazil, the region’s biggest e-commerce market, to more than double to $25.6 billion in 2017 from $12.2 billion in 2012. Argentina, Chile, Mexico and Venezuela, while smaller, are growing at an equally steady clip.

Artisans couldn’t be happier. Once confined to stores and outdoor markets, some are boosting sales five to 10-fold over the Internet, said Carlos Curioni, chief executive of Elo7, a Brazilian Etsy that started in 2008. Elo7’s gross merchandise sales surged 110 percent in 2012 on the year, and the same pace is expected this year, he said.

Elo7 bought Bixti in 2012 to expand in Latin America, a strategy for both growth and survival. As more sites launch, Curioni, 35, expects the Etsy market to consolidate to a single dominant player, similar to what happened in the online auction and e-commerce field. MercadoLibre bought its main competitor, DeRemate, to become the eBay of Latin America.

The latest entrant in the artisan fray in Brazil is Airu. Jaques Weltman, 29, launched the site in 2011 with backing from Rocket Internet, a Berlin-based online business developer. To stand out, his strategy is to provide a well-oiled service that is easy, quick and secure for buyers and sellers. It has, for example, incorporated shipping costs in the checkout and built up customer service workforce.

Airu also launched with a 15 percent sales commission, the first of its main competitors. Elo7 subsequently introduced a 5 percent commission. Ofelia Feliz is holding out. It charges roughly $3-$10 for sellers to promote their products on the home, category and search pages over seven- to 30-day periods.

There are problems. Credit card use remains limited and online payment security is a concern. Banks, e-commerce sites and governments are trying to make online shopping safer with PayPal-like options that limit credit card fraud.

A thornier problem is logistics. Most postal systems are costly, unreliable and slow. “The last mile to consumers is a huge challenge to achieve a broader penetration” of e-commerce, said Hana Ben-Shabat, a partner at A.T. Kearney, a management consulting firm.

Clara Lagos, 37, knows this. She sold a hand-drawn poster on Bixti and took the bus to deliver it to the buyer on a street corner in Buenos Aires. That’s not sustainable for many orders, but she doesn’t mind. The site helps her expand sales beyond a few stores.

“You may have to travel,” she said, “but you reach more people and that’s important.”

Charles Newbery reported from Buenos Aires.

 

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