Depending on whom you ask, Alicia Shaffer, owner of the hit Etsy store Three Bird Nest, is a runaway success story — or an emblem of everything that has gone wrong with the fast-growing online marketplace for handmade goods.  With the help of up to 25 local seamstresses and alluring photography, Ms. Shaffer takes in upward of $70,000 a month in revenue selling twee headbands and leg warmers via Etsy. But as her business has grown, she has been harshly criticized online and accused of mass-producing goods, of obtaining wares from China. Detractors consider her a blight on Etsy’s hipster cred.  The dispute over how goods are produced and sold on a site that prides itself on feel-good, handmade authenticity underscores the growing pains transforming Etsy as it moves toward a potentially lucrative initial public offering of stock.  As for Ms. Shaffer, she denies the claims that have dogged her business recently but says she understands why questions have arisen about the volume of goods she produces. She says her store strictly adheres to Etsy’s guidelines, including that all items listed are either handmade or “vintage” secondhand, with some new exceptions that allow for approved outside manufacturing. “We’re a team of dedicated Etsy artisans who have been able to grow a tiny shop into a little machine,” she said.  For many of its fans, Etsy is much more than a marketplace. They view it as an antidote to global mass production and consumption, and a stand against corporate branding. It’s their vote for authenticity and good old craftsmanship, and a seemingly ethical alternative to buying from big corporations. And it has helped spur a wider industry of items that claim to be artisanal, authentic or bespoke, whether bedsheets or beef jerky.  Etsy, in turn, has ballooned and benefited from a growing demand for that kind of shopping, currently offering more than 29 million listings of handmade jewelry, pottery, sweaters and sometimes-regrettable objets d’art. It had 54 million members at the end of last year, of whom 1.4 million listed an item for sale and almost 20 million made at least one purchase in 2014, according to its I.P.O. prospectus.  Though the site still loses money because of high development costs, it is booming, with gross merchandise sales reaching $1.93 billion last year. The fees Etsy collected on items listed and sold, as well as on services like the promoted placement of goods, reached $196 million.  But criticism of the production methods of Three Bird Nest and other increasingly high-volume sellers, together with a string of defections by prominent vendors, reflect the company’s struggles to balance growth with maintaining the indie credibility that fueled its popularity.  Some sellers say they worry that the site could soon become overrun with knockoffs and trinkets. Others say Etsy’s handmade ethos could soon become just a marketing gimmick, turning off shoppers drawn to the site’s alternative appeal.  “Handmade businesses aren’t infinitely scalable, just by the definition of the term,” said Grace Dobush, a writer and longtime Etsy seller who made waves last month when she declared she was finally done with the site. “As Etsy has gotten bigger, it’s gotten more like eBay.”  Etsy grew out of a design project that three Brooklynites took on for an arts-and-crafts bulletin board. At the time, the indie craft scene was just starting up — a plethora of craft sales, blogs and boutiques selling handmade goods — of which one of Etsy’s founders, Rob Kalin, was an active member, according to acquaintances. Etsy declared to shoppers it was building an entirely “new economy” that would re-establish a personal connection between buyers and sellers, and it allowed its merchants to sell only things they made themselves.  But as stores took off, sellers started to complain that one person could not possibly keep up with the flood of orders. The logical next step, they said, would be to take on investment and hire employees, or outsource the manufacturing, but doing so would run afoul of Etsy’s rules.  Still, Etsy stuck to its ban — Mr. Kalin was known to be a vocal opponent of easing it — until late 2013, when, under its new chief executive, Chad Dickerson, the site relaxed those standards. The change allowed sellers to hire workers or outsource the production to small-scale manufacturers that met a set of labor and ecological criteria. Almost 30 percent of sellers on Etsy work in “self-organized teams,” according to Etsy’s I.P.O. prospectus, and there are already over 5,000 instances of Etsy sellers outsourcing their manufacturing.  Critics charge that decision helped open the floodgates to a wave of mass-produced trinkets. For example, a red necklace carried by various sellers on Etsy, with price tags ranging from $7 to $15, can also be purchased through the Chinese wholesale manufacturing site Alibaba.  According to Alibaba, the necklace is made by the Yiwu Shegeng Fashion Accessories Firm, based south of Shanghai, which claims that it can churn out almost 80 million similar necklaces a month. Jacky Wang, listed as the company’s chief executive, did not return requests for comment.  “It’s like having a gourmet restaurant on a street with upscale galleries, bookshops and coffee shops, and a McDonald’s or a Walmart gets built in a vacant lot on the street,” said Diane Marie, an artist who sells handmade jewelry from her home in La Pointe, Wis., and who has called out so-called “resellers” on Etsy’s discussion forums.  Etsy does police such cases, but it can be akin to playing whack-a-mole. Users can flag a suspected reseller to the site’s Marketplace Integrity, Trust & Safety Team, and Etsy has also said it uses algorithms to detect suspicious sellers. But it acknowledges in its prospectus that it cannot fully vouch for the standards of its sellers and the manufacturers they work with. Some critics have questioned whether there is sufficient incentive to investigate or shut down sellers that generate big traffic and sales.  In Ms. Shaffer’s business, Three Bird Nest hires up to 25 seamstresses — local mothers like herself, who work either at home or at a space at the warehouse she now rents in Livermore, Calif. — to churn out thousands of orders a month. She hires a photographer to shoot in-house photos of her products, modeled by a friend. She sells imported necklaces and other accessories imported on another site, threebirdnest.com, but says none of those products make it onto her Etsy site.  Still, her story has in recent weeks brought intense scrutiny, after a recent interview she gave Yahoo News. Some critics found boot socks on Alibaba’s site that looked the same as her store’s; Ms. Shaffer said that her images were stolen. Still, with sales doubling in the past year, the store will soon start to outsource some manufacturing, Ms. Shaffer said. To prove to Etsy that she will continue to design her headbands and legwarmers, she will have to detail her outsourcing process with step-by-step photos and fill out long questionnaires.  Other sellers, increasingly from outside the United States, also say that the distinction between handmade and mass-manufactured is not as sharp as it may seem. Kyoko Bowskill, who runs the Link Collective store on Etsy, works with independent artists to design patterns for Japanese furoshiki wrapping cloth, and consigns the manufacturing to a small family business outside Tokyo that specializes in traditional dyeing methods.  “I’m all for ramping up production,” said Ms. Bowskill, who now sells 40 to 50 cloths a month at $50 each. “Etsy shouldn’t be about one person crafting goods all by herself with no sleep,” she said, adding, “We’re building a viable business, but that doesn’t mean we’re mass-manufacturing.”  Etsy declined to make officials available for interviews, citing the quiet period leading up to its stock offering. In its I.P.O. filing, however, Mr. Dickerson acknowledged concerns that Etsy is “diluting our handmade ethos” by allowing sellers to work with manufacturers.  “After all, Etsy has always served as an antidote to mass manufacturing,” he said. “We still do.”  Still, its success, and perhaps its problems, have spurred a flurry of would-be Etsys, like Artfire, a community-based marketplace for handmade items. Artfire gained traction for a while — especially among disgruntled Etsy sellers, who started to migrate to the site — but many of those defectors soured when it started charging a monthly fee for hosting storefronts. DaWanda, an online bazaar based in Germany selling handmade and vintage products, is popular in Europe, but its sales are thought to amount to just a fraction of Etsy’s.  Nicole Burisch, a fellow with the Museum of Fine Arts, Houston, and an expert on crafts, said separating the handmade from the manufactured would always be tricky. After all, she said, how handmade is a hand-knit sweater or clay pot?  Most of the goods for sale on Etsy were never strictly handmade, she said — “that is, unless you are digging your own clay, weaving your own cloth, raising your own sheep.”
The online marketplace and those who buy and sell on it say that imitation handmade goods, and rules restricting how hit vendors can grow to meet demand, are complicating the site’s drive for authenticity.