Updated to include comments from Jim Cramer.

NEW YORK (TheStreet) -- As a marketplace for crafts and handmade goods, Etsy(ETSY) - Get Report by definition sells unique items that are difficult to sort into the average retail categories.

What category does a vintage Polly Pocket toy fall under? Or a bunny-themed egg warmer? These quirky items are difficult for Etsy to categorize and unlikely to surface under the average search made by a buyer. Compare that to an e-commerce site like Amazon(AMZN) - Get Report , which can much more readily group products into easy-to-navigate categories such as beauty and appliances.

When Etsy first started out, this was less of an issue, largely due to the lower volumes of sellers, buyers and products. A decade ago, most of the buyers were sellers themselves and happy to take the time sifting through unique products to find exactly what they wanted.

"The needs of the niche marketplace we were in 2005 are very different than our needs today," said Jaime DeLanghe, senior product manager for search at Etsy.

Now with more than 32 million products, 1.5 million active sellers, and 21.7 million active buyers, coupled with Wall Street's demand for even more user growth, Etsy finds the importance of search and discoverability reaching new levels.

Etsy's stock is down almost 50% since its all-time high reached at the close of its first day of trading in April and has seen its net losses swell.

"Most of our work on search has been focused on making the marketplace more understandable for people who don't know what they're looking for yet," DeLanghe said.

Consider someone totally unfamiliar with Etsy checking out the site -- Etsy needs to make sure that consumer isn't overwhelmed by the vast number of products. One of the major changes Etsy has made to prevent that from happening is introducing a new taxonomy of categories that help a consumer navigate the site. While the old categories were more geared to how sellers would describe their items -- such as "knitted products" and "metalwork" -- the new categories are focused more on what buyers may be thinking about -- such as rings, scarves, cat-themed products, and so on.

This new system was launched in February and was followed in July by a new feature called Exploratory Search, which takes a broad query and offers subcategories to help buyers better find relevant products. For example, if you search for jewelry, you will then be presented with subcategories such as earrings and bracelets. And if you click on earrings, you will then see categories like "Hoop Earrings" and "Ear Jackets & Climbers." 

These updates were made to make search more intuitive and simple for consumers. According to Etsy, they led to a 10% increase in search engagement metrics such as listing click-through rates.

"We've heard from buyers that Etsy can feel overwhelming. This gives new people a better entry point into the marketplace," said DeLanghe. "You don't have to be an expert to search on Etsy anymore."


But despite these improvements, some analysts are concerned that there's only so far Etsy can go.

"Search has been and will forever be a big challenge for Etsy," said Wedbush analyst Gil Luria, who has a sell rating on Etsy and a $9 price target. "Etsy's doing what it can, but inherently its products are never going to be conducive to structured search, which will always be a disadvantage for them." Structured search requires specific and quantifiable data -- so if you were to search on Amazon for a 12-pack of toilet paper, that would easily lend itself to structured search.

"I've never been a fan, and remain no fan," said TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio, of Etsy. "This is the 2001 dot-com of this moment. It got through the chute and don't know how it did it."

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While Luria understands that Etsy provides a different experience than say, Amazon, he's not sure that the company can grow its user base much larger with the challenges it has in search.

"Etsy has a limited market opportunity," Luria said. "They compete in a niche, and they've probably gotten pretty close to saturating that niche. The fact that they won't be able to do any better on search means that they're not going to be able to get out of that niche, so that's one of the reasons I don't think the stock can do well. The growth rates will inevitably slow down as they finish saturating their niche market."

Forrester analyst Sucharita Mulpuru-Kodali isn't as concerned as Luria. Sure, Etsy doesn't have the same search capabilities as Amazon, but Mulpuru-Kodali doesn't see that as that big of an issue.

"Etsy's search is actually pretty good for a marketplace," she said. "I just question, how big of a problem is this?"

Search, though, has a huge impact on every aspect of a marketplace like Etsy. If buyers aren't finding what they want, they'll leave, and if sellers aren't satisfied with the placement of their products in search, they'll leave, too.

"Asking about search on Etsy is [similar to] asking: do layouts and display matter for the neighborhood store?" said Max Wolff, chief economist at Manhattan Venture Partners. "There's a reason there are candies and batteries and razor blades by the checkout counter. Where you sit in the discovery process matters."

When a buyer goes to Etsy and types in a broad search term like Jewelry, it's up to Etsy to make sure the results are relevant and inviting.

"It's improving, which is the good news," Wolff said. "The bad news is there's still a lot of room for improvement."