Longview

What: Shares of artisan marketplace operator Etsy (NASDAQ:ETSY) fell by over 20% in October, according to S&P Capital IQ data, after Amazon.com (NASDAQ:AMZN) officially launched a direct competitor, Handmade, at Amazon. The e-commerce giant began laying the groundwork for the niche site earlier this year when it began poaching sellers from Etsy.

So what: In no uncertain terms, Amazon's entry is what caused the drop -- shares lost over 11% on the day Handmade was announced. With the official launch, Amazon steps into the ring for handcrafted goods, a niche that Etsy has long dominated. Amazon is a ferocious contender and infamous for its willingness to absorb incredible losses in an effort to undercut rivals, and it has the scale and experience to put serious pressure on e-commerce competitors. Amazon's entry is a very real threat that should not be underestimated.

Now what: While Amazon boasts 285 million active customer accounts, compared to Etsy's mere 22 million, there are a lot of key differences between the services from a merchant's perspective. Most notably, Amazon's fee will be dramatically higher at 12%. Etsy's fee is 3.5% plus a 20-cent listing fee. Amazon hopes to justify this higher fee by offering more support in terms of marketing, shipping, fraud protection, and access to its much larger user base.

But only time will tell if Handmade is successful in posing a viable threat to Etsy. An estimated 90% of sellers are considering listing on Handmade, according to a Wedbush research note, but whether or not they choose to move their business over will depend largely on whether or not Amazon users demonstrate demand for handcrafted goods.

Etsy reports third-quarter earnings after the close today. Handmade launched after the end of the quarter, so there won't be any financial impact to the results, but investors will want to listen to see how management reacts to the impending threat.

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool owns shares of Etsy,. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.