If you’re one of the supposed millions of iPhone users who wants to convert from AT&T to Verizon service, or even if you want to ditch your Droid for an iPhone, you’re probably thinking hard about how much that switch will cost you – especially when it comes to ponying up for a new phone. The good news is that unlike the old days where you basically stashed your old phones, cameras, and computers in closets, basements, or even the trash because you didn’t know what else to do with them, there’s now a thriving market out there for used electronics like your iPhone or Droid. This evolving global market, which is now estimated to be worth in the neighborhood of $50 billion, has become known as recommerce.
And while most of the big retailers, along with dozens of startups, now offer trade-in programs for used electronics, the truth is that they are latecomers to a party that got its start back in 2006. That’s when an eBay employee named Israel Ganot saw an advertisement from a store offering to recycle or dispose of customers’ used gadgets. Since he had a couple of older Blackberries he wasn’t using, Ganot dropped by the store to get rid of them. But to his surprise, the company wanted to charge him for taking his devices off his hands. “That was my ah-ha moment,” says Ganot, who partnered with his friend, Rousseau Aurelien, to start a company called Second Rotation, which would provide a fast and easy way for consumers to sell their used gadgets or, if there wasn’t a demand for them, at least get rid of them for free. In other words, the company was offering a way for consumers to do something good for the environment as well as their wallet. That company, which has been renamed Gazelle.com and is based in Allston, Massacusetts, has since become one of the leaders in the recommerce space, having helped more than 150,000 customers rid themselves of some 300,000 gadgets while earning more than $21 million in annual revenue in 2010 by reselling electronics online and into global wholesale markets.
The business, however, was not an overnight success story. Forging awareness of a new market is hard work, and expensive, especially for a startup. That’s why Ganot’s initial business plan focused on partnering with retailers like Best Buy and Radio Shack to help educate customers about how they could trade in their used products to get new upgrades. “Our biggest competitor from the beginning has always been inertia,” says Ganot. “We tried to show them how electronics could work like the car market does where everyone thinks about trading in their current car when they go to buy a new one.” Like many good ideas, however, Ganot’s seemed to be ahead of its time. After about a year of closed doors and unanswered phone calls, Ganot began contemplating shutting his business down. Before he did, though, he took one last chance. In the summer of 2008, he launched the beta site of Gazelle.com, which would buy electronics directly from consumers. “I didn’t have high hopes for the site since we didn’t have any money to promote it, but it was the last card I had,” he says.
Of course, the summer of 2008 also marked the beginning of The Great Recession. Unlike most businesses that were hit hard by the economy’s downturn, though, Gazelle saw a surge as customers flocked to the site to try and make whatever they could by selling their used electronics, where the average device returns an average of $100. “It ended up being a great time to engage customers and let them get comfortable working with us,” says Ganot.
And what those consumers invariably found out was that selling to Gazelle is a deceptively simple process. When you first visit the site, you can log in and get a quote on your electronics item, which is based on its age, condition and demand. If you agree to sell the item, Gazelle then mails you a free box which you can then use to Fed-Ex your item to them, after which you get to choose how you get paid: check, PayPal, or gift card. Gazelle then makes its money by selling your gadget on eBay, Amazon, or through wholesale channels around the globe.
Gazelle’s success hasn’t gone unnoticed by the retailers than once shunned Ganot. In fact, Gazelle has partnered up with big-box retailers like Wal-Mart, Costco and Office Depot to run their e-cycling and upgrade programs where customers can trade in their used electronics just as they’re making their in-store purchase. “It’s exciting to see the retail industry finally wake up to the potential of the recommerce market,” says Ganot. “There will eventually be multiple billion-dollar companies in the space and we all benefit when Best Buy buys a Super Bowl ad promoting its trade-in program because the biggest barrier in the market remains the consumer’s awareness of it.”
Gazelle has also taken advantage of the explosion in demand for smartphones, laptops and other high-end electronics in global markets like India and China to fuel its own growth. The company more than doubled its sales in 2010 and Ganot expects to double revenue again in 2011. Yet, since less than 1 percent of all electronics are recommerced, the company’s best days seem to be still ahead of it. “It used to be that you couldn’t get access to, say, an iPhone 3, because people just kept them,” Ganot says. “Now, as consumers have become more educated, we’re seeing supply increase to meet all that demand out there. That’s why we’re so excited about the future of this industry we helped create.”