Is Amazon Handmade the Death Knell for Etsy?

Mark Lennihan/APEtsy executives celebrate the company's IPO with employees and guests last month at the Nasdaq MarketSite.

There's a new arts and crafts marketplace hitting cyberspace, and the company behind it is going to attract plenty of attention. The Wall Street Journal reports that (AMZN) has been actively reaching out to the artisans who make Etsy (ETSY) their home, surveying their interest in a new platform that the e-commerce behemoth is readying to roll out called Amazon Handmade.

Etsy has carved out a cozy corner of cyberspace where the makers of handcrafted items and sellers of vintage items gather to reach an audience. Etsy has been able to stand out successfully in the otherwise cutthroat climate of e-tail. There were 1.4 million active sellers on Etsy last year, and their goods were snapped up by 19.8 million active buyers.

Will Amazon's presence in this niche be disruptive to Etsy? Will it expand consumer appetite for homemade wares? We still don't have all of the answers, but Etsy vendors and shoppers alike will want to pay attention to what Jeff Bezos' dot-com darling does in this space in the coming months.

Building a Better Etsy

Amazon's survey didn't provide any insight into what its pricing strategy will be. Etsy currently offers very competitive rates to indie artisans trying to grow their own cottage industries. Etsy charges just 20 cents to list an item on its site for four months. It then charges just 3.5 percent of the subsequent sale.

%VIRTUAL-WSSCourseInline-799%Amazon itself takes a different tack. It's been an open platform for third-party sellers since 2000, offering vendors big and small access to its growing audience. Amazon doesn't charge any listing fees for individuals looking to sell no more than 40 items a month through the site, but it does charge them 99 cents for each sale, and then we get into variable costs that typically consume another 6 percent to 15 percent of the ultimate sale, depending on the product category.

Amazon Handmade could have its hands full if it prices itself out of Etsy's vendor base, but there's also something to be said about the new platform providing incremental sales. If the fees are fair, there's no reason a talented artisan can't sell through both digital storefronts. Amazon would expand a craftsman's client base, and there isn't anything wrong with that.

Etsy's Rookie Mistake

Things have been rough for Etsy since it went public in April at $16 and nearly doubled to close at $30 on its first day of trading. Concerns surfaced about vendors selling counterfeit goods on the site, and then it posted a widening loss in its first quarter as a public company in May.

The stock has gone on to give back nearly all of its opening-day gains. That's more pain for its shareholders than for the folks buying and selling on Etsy, though one has to wonder if the site will be able to keep its selling commissions so cheap if it continues to post quarterly deficits.

Now we have the Amazon challenge, which at the very least will draw attention away from Etsy as the marketplace of choice for handmade goods. If Amazon promotes Amazon Handmade with the same kind of home-page marketing push that it has used to promote Kindle products in the past, it's going to draw a crowd. That's great news for potential sellers on the new site, but it may not be such good news for Etsy itself.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of and Etsy. Try any of our Foolish newsletter services free for 30 days, and check out our free report for one great stock to buy for this year and beyond.