I think the glaring issue with that line of thought is that the position of 'rent seeking middleman providing a web storefront' is pretty commoditized, and is likely not viable long term.

In their niche, they had a smaller addressable market, but they had a moat from their brand within said niche. Outside of the niche, that moat doesn't exist, and they are competing against Amazon, Ebay, and many others.

I disagree. Having a reputable online handmade trinket shop was very valuable because it was the largest and had the best brand recognition. Being a Chinese factory retail outlet is less valuable because _everyone_ is a Chinese factory retail outlet.

We just have to solve which market has a larger space to grow in:

Market for cheap Chinese goods.

Market for handmade trinkets.

I have a pretty good feeling that I know which one is more profitable. I'm sure investors know too.

Sure, the market for cheap imported goods is much larger. It's also more competitive. Do you really think Etsy is going to stand against Walmart, Amazon, etc?

Etsy is occupying a niche of semi-customized trinkets, a minority of which are hand-made. This isn't a space that Walmart and Amazon seem particularly interested in.

I don't think it's that simple. The real problem is that people want nice, handmade trinkets at cheap Chinese goods prices. Which is why the cheap Chinese good manufacturers spam their generic AliExpress-tier wares into places like Etsy to fool people as to what they're getting.

The websites that function as clearinghouses (Amazon, Etsy, etc.) could figure out ways to prevent it but they have incentives to play along with obfuscation as to which market the consumer is shopping in.

The problem is that "cheap Chinese goods" is already monopolized by eBay, Aliexpress, Banggood and Amazon. I don't see how they're ever going to break into it.

Small businesses have absolutely no obligation to work for "investors."

Is Etsy, a public company with a valuation in the tens of billions, still a ”small business”?

Every business has an obligation to work for the investor.

That really depends on how the small business is funded.

The only reason to go to Etsy is to (try to) find unique stuff. If that stuff is diluted 100-1 by Chinese knockoffs, there's no reason to go there anymore. I might as well go to eBay or Amazon, which probably have even lower prices.