As Google’s Product Search tool is about to adopt a paid-only model in the US (now known as Google Shopping), Etsy is making a bold move to ensure that its sellers aren’t negatively affected. As of October 2nd, the handmade shopping community will begin purchasing more than $250,000 worth of Google Product Listing Ads on behalf of its sellers throughout the holiday season. According to Etsy, this initiative may or may not be continued through 2013.

This decision reflects Etsy’s commitment to its community, but says even more about the amount of traffic Etsy was about to miss out on. Before Google decided to change things, product searches for pretty much any homemade / handmade craft would lead to an Etsy page. Now, this simply wont be the case unless someone pays up.

Update: Etsy has extended this to non-US residents, as explained below.

Etsy knows a decine in traffic would only harm its community and frustrate users, so it is biting the bullet and paying upfront to keep things as they were. According to Etsy, without purchasing product ads, “sellers could lose visitors and visibility during the most crucial time of year.”

To keep the steady flow of traffic to the marketplace and to better evaluate the value of Google’s paid ad offering, we’re excited to announce we will be purchasing Google Product Listing Ads on behalf of our sellers through the end of 2012.

This news follows a record breaking month for Etsy, as the community collectively sold nearly 4M items this past August alone. The company also just recently introduced site-wide gift cards.

Here’s more on the new Product Listing Ads, from Google:

More details on Etsy’s decision and future plans:

  • All U.S. based Etsy sellers with at least one active listing are automatically enrolled in Google Product Listing Ads. No action is required for the seller’s listings to be added, and there is no additional fee.
  • Etsy will automatically send active listings to Google on sellers’ behalf. Google then indexes them in Google Shopping based on their own criteria.
  • Traffic from Product Listing Ads will be reported in a seller’s shop stats dashboard.
  • We’ll be experimenting with the Etsy user experience on traffic that comes from Google Product Listing Ads.
  • Etsy will explore the data about referral traffic to determine whether these purchased ads are successful in driving sales, and use the results to evaluate whether this or similar programs continue next year.

Today’s announcement shows that Etsy can make tough decisions to keep itself afloat. Conversely, it also shows that the company will have to move quickly if it wants to maintain previous traffic levels, as buying ad space constantly will not be anywhere near as lucrative for the company (when compared to the free publicity it was getting). It will certainly be interesting to see if Etsy can manage optimize its site and operations to the level that Google’s changes feel like a minor bump in the road. For now, it feels like a crater-sized pothole.

Interested and curious Etsy users should check out the announcement’s forum here, and can alternately decide to opt out of the free publicity.

Here’s an important update for Etsy users outside of the US, the company says you’ll be included too (yay!):

We worked with Google and are happy to announce we will now be able to include all English language listings, not just US sellers.

You can read more on Etsy’s forum.