Etsy Inc., the online marketplace known for handmade and vintage goods, is undergoing a significant pivot in its marketing strategy, moving away from traditional television advertising toward a heavier emphasis on search optimization powered by artificial intelligence. This shift comes as the company grapples with declining buyer numbers and seeks to reconnect with consumers in a more targeted, efficient manner. According to recent earnings reports, Etsy’s gross merchandise sales fell 4.8% year-over-year in the second quarter of 2025, prompting executives to rethink how they attract and retain shoppers.

The decision to scale back on TV ads, which have long been a staple for building brand awareness, reflects broader changes in consumer behavior. Shoppers are increasingly turning to precise, AI-driven searches rather than broad discovery, a trend Etsy aims to capitalize on by enhancing its platform’s search capabilities.

AI Takes Center Stage in Search Optimization

At the heart of this strategy is Etsy’s investment in AI technologies designed to improve product discovery and personalization. The company has updated its search algorithm in 2025 to prioritize relevance and quality, incorporating machine learning to better match buyer queries with unique, handcrafted items. As detailed in a recent article from Marmalead, these changes encourage sellers to optimize listings with high-quality images, detailed descriptions, and accurate tags, potentially boosting visibility for those who adapt quickly.

This AI focus isn’t just about internal tweaks; it’s also influencing Etsy’s external advertising spend. Instead of splashy TV campaigns, resources are being redirected toward search engine marketing and AI-enhanced ad placements on platforms like Google, where intent-driven searches can yield higher conversion rates.

Financial Implications and Market Response

Financially, the pivot appears to be paying off in some areas. Etsy’s revenue grew 3.8% in Q2 2025, even as it sold off its musical instrument subsidiary Reverb, according to Digital Commerce 360. Executives, during the latest earnings call transcribed by Investing.com, highlighted a “strategic shift” toward making the platform more delightful for shopping, not just buying, with AI playing a key role in this transformation.

However, challenges remain. Active buyers continue to decline, and the company is betting on long-term growth through acquisitions like the fashion marketplace Depop, which could benefit from AI integrations to attract younger demographics.

Seller Perspectives and Platform Evolution

Sellers on Etsy are feeling the ripple effects. Posts on X (formerly Twitter) from e-commerce experts suggest a growing sentiment that AI is reshaping product research and ad targeting, with some users noting automated tools for scraping competitor ads to inform strategies. This aligns with Etsy’s push for sellers to embrace AI labeling for generated content, as outlined in a 2024 policy update covered by Marketing Dive, which aims to maintain the platform’s human-touch ethos amid AI proliferation.

Critics, however, worry about potential over-reliance on algorithms, which could sideline smaller sellers without the resources to optimize effectively. Reid Southen’s X post from last year echoed concerns about AI flooding the site, though Etsy’s guidelines now require clear labeling to preserve authenticity.

Broader Industry Trends and Future Outlook

This move mirrors wider e-commerce trends, where AI is flipping traditional models from volume-based to quality-focused experiences, as noted in a post by venture firm a16z on X. Competitors like Amazon and eBay are similarly ramping up AI for search and personalization, intensifying the race for relevance.

Looking ahead, Etsy’s leadership is optimistic. By ditching costly TV ads—estimated to save millions annually—and leaning into AI-driven search, the company positions itself for sustainable growth. Yet, success hinges on balancing innovation with its core identity as a haven for unique, artisanal products. As one industry analyst put it in a recent TV News Check piece, AI is the “wild card” that could either revitalize Etsy or expose vulnerabilities in a crowded market.

In the coming quarters, metrics like buyer retention and ad ROI will be closely watched. If executed well, this strategy could not only stem declines but also redefine how niche marketplaces thrive in an AI era.