Etsy's secret? The "Cult of Me"

May 10, 2012: 1:18 PM ET

The online marketplace for handmade and vintage goods just scored another $40 million in venture funding. Here's why it's surging.

By Doreen Lorenzo, contributor

FORTUNE -- It's easy to see that many consumers are increasingly seeing themselves as creators, too. Companies that will launch successful products and services in coming years will not only understand this phenomenon, but also embrace and enable it.

The reasons why are all around us. On the most basic level, consumers are interested in personalizing their gadgets, an attempt at making off-the-shelf technology their own. In the realm of social media, especially, examples of the consumer as creator abound. On Facebook, for instance, the average user creates 90 pieces of content each month, in terms of original photos and posts, according to the company. And on a larger, commercial stage, there's Etsy, the online marketplace that connects makers of handmade goods -- usually individuals or small businesses -- with potential buyers around the globe. Etsy's sales statistics reflect the growing wave of consumer/creators, and the company just raised $40 million in venture financing (from Accel Partners, Union Square Ventures, and others) for international expansion. The site sold $62.8 million worth goods (after refunds and cancellations) in March 2012, up 41.5% from the same time last year. The number of items sold was up 34% from March 2011. Any business leader would be pleased with those growth figures, no matter what the industry.

And then, there is a strong interest brewing worldwide in terms of the Maker's Movement, even among large, multinational corporations. If you're not aware of this trend, it's about the do-it-yourself engineering that happens in garages and bedrooms, on weekends and during lunch breaks and other moments of free time. Once considered an "alternative" culture in the realm of tech geeks and even hackers, the Maker's Movement is now being mentioned in PowerPoint presentations at Autodesk (ADSK), the software company that caters to professional architects and designers, and even in the halls of General Electric (GE). GE, for instance, has been hosting GE Garages, a lab-like resource that helps everyday people tinker with technologies and invent products. In other words, GE is embracing the "indie" spirit of the Maker's Movement rather than competing with it. And it's a movement that's gaining steam worldwide. In China, the first Maker's Faire -- essentially a conference for DIY robotics fans and other engineers -- took place in April in Shenzen, and in Rome, Italy, a similar event took place this spring.

These examples also illustrate a concept that I call the Cult of Me. While at first glance, this term might sound rather ego-centric, it's really about two key themes that business leaders need to pay attention to: consumers wanting to create, and consumers wanting to be part of communities -- or cultures -- that create. These cultures are often built around strong, even near-fanatical passions for hands-on, far-from-the mainstream approaches to engineering and design, and that's why I think the term "cult" might be more appropriate than "culture."

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At the center of Cult of Me thinking is the reality that many consumers today aren't just hoping that corporations will invent and market products and services to them; instead, they want to participate directly in the innovation process as individuals, too. But it's not just about simple crowd-sourcing for ideas by asking people to suggesting how to improve or create products via online brainstorming sites, as was the rage in the mid-2000s. Today, consumers want to participate in forming and promoting their concepts in a very personal way, with themselves in the spotlight. They want to nurture and develop their own individual creative visions. And share them on a world stage via social media.

Whether their creative activities are limited to crafting posts and photos for their Facebook profiles to inventing homemade robots or designing decorative pillows to sell on Etsy in their spare time, consumers are becoming product developers and brand strategists themselves.

First, some context. It is too simplistic to say that understanding the Cult of Me is best applied to keeping tabs on what Millennials, or the youthful generation of people born in the 1980s that defines itself via social media and DIY culture, desire as products and services. Instead, it's important to realize that people of all ages are engaging more with social media than ever before, using online tools to create content and craft their own personal brands. McKinsey, for instance, found in a 2010 survey that adults older than 35 are increasingly using social networks at a rate that's rising higher than that of young people aged 25 to 34. There was a 7% annual increase in the use of social networks among 25 t0 34 year olds compared to 21% to 22% increase among 35 to 54 year olds, and a whopping 52% increase in social networking among 55 to 64 year olds.

But beyond merely understanding just how influential social media is for Cult of Me participants across generations,it's even more key to recognize effective ways to tap into the Cult of Me using social media as a conduit. And this can be done without allocating large resources of capital and time. Here are a few:

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- Use social networks for market research. PepsiCo (PEP), for instance, created new sub-brands of its Mountain Dew soda based on consumer insights it gathered via its online "DEWmocracy" promotional campaign. Fans of the soda helped design flavors and packaging for these brand extensions, and even uploaded videos of themselves reacting to the winners. Since the consumer-designed flavors were released in 2008, PepsiCo has sold more than 36 million cases of the new products. But in addition to launching focused efforts to prompt consumers to create for your company, as PepsiCo did with Mountain Dew, it's also worth remembering that consumers love to offer up their personal likes and dislikes—for free--on social media sites. Wise companies will constantly pay attention to trending topics on Facebook, Tumblr, Pinterest, and other popular networks to discover clues on new product ideas, even if they don't have the resources to create their own campaign or Web site using social media, as PepciCo did.

- Use consumer data to anticipate consumers' future needs, rather than merely address what they want now. Market researcher Gartner named "contextual and social user experience" as one of 2012's biggest tech trends. If you think that's a jargony term, it is. But consider how Gartner defines it, and it makes sense, especially in the Cult of Me era. "Contextual and social user experiences" refers to software systems that use data on individuals to "anticipate the user's needs and proactively serve up the most appropriate and customized content, product, or service," according to Gartner. Rather than note that consumers are buying, say, more wireless keyboards than ever before, perhaps your company can use these systems to predict they'll want certain types of additional features for their next keyboard purchase. This could range from new colors to more ergonomic shapes. Gartner predicts that through 2013, such predictive systems will thrive. Businesses that use these systems will, too.

- Encourage all employees to create and share for internal research. Remember, your staff is made up of consumers-as-creators. Learning about their extracurricular habits and personal interests can garner proprietary and quick insights that can be used for product development. This can be as simple as having employees from all departments and levels contribute their own, original ideas to internal or external blogs, or even the company's Facebook page—all formats that encourage the sharing of ideas along with an employee's direct ownership of these ideas. At frog, we've launched a "passion" initiative, where employees are welcome to create and share videos, online posts, and other materials about subjects they are interested in personally. We often gauge how popular and feasible some of these personal creative initiatives are—such as a beautiful, real-time data-visualization on how, where, and what people post on Twitter, created in an employee's spare time. Then, if it makes sense to, we help support such original new work with our company's marketing and other resources. It's a fascinating and motivating way for us to seek out potential new products that's also rewarding for employees.

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In conclusion, it's key to pay attention to how and what everyday people are interested in creating to get a better understanding of the Cult of Me. It's one thing to simply observe and note the current trendiness of DIY ingenuity. But the smartest executives will also learn to channel Cult of Me thinking to guide their companies in bringing to market new products and services based on keen observations of what consumers create as they fashion their own, individual Cults of Me.

Doreen Lorenzo (@doreenl) is the president of global innovation firm frog and an executive vice president and general manager of the Aricent Group, frog's parent company. Doreen drives frog's company strategy and oversees its worldwide operations. During her 14 years with the company, she has been instrumental in re-structuring the company, taking it from a traditional design boutique to becoming one of the world's foremost global innovation firms, securing broad-based arrangements with an array of Fortune 500 clients. She serves as a member of the World Economic Forum's Global Agenda Council on Emerging Technologies, 2011-2012.

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