One of the best parts about being a tech reporter is that you get to see the startups that you wrote about when they were wee baby embryos turn into legitimate companies. When you do followup interviews mere months later, you wind up feeling like that aunt you only see at Christmas, crowing over how big the baby startup has gotten in such a short period of time.
That’s certainly the case with Reverb. The online auction site for musical instruments — an eBay for guitars if you will — has turned from a small experiment to a thriving company growing 30-40 percent month over month in revenue.
When it started, founder David Kalt considered it a side project — one that he started because he hated eBay so much — to his day job running the famous Chicago Music Exchange instrument shop. But then he managed to raise $2.3 million from Lightbank, Eric Ries, and others, and is now doing $2 million in transactions per month compared to the $330,000 when we wrote about it in August.
As a natural part of its evolution, Reverb has just rolled out its preferred seller program. In other words, the company has gotten big enough it wants to start bypassing PayPal.
Although Reverb is designed to suit musicians’ needs with specific features like a Japanese Vintage Guitar category, the real reason the site is seeing such growth is because of its fees. Reverb charges 3.5 percent and eBay charges closer to 10-12 percent. “What I’ve learned is when you’re selling bigger ticket items like a guitar or an amp, the ten percent is substantial,” Kalt says. “It’s a big tax.”
What winds up happening is that some of the regular eBay users find ways to transact outside the platform. Obviously, not enough to hurt eBay which hit $4.5 billion in revenue last quarter. But it’s enough to make Reverb a better option for some instrument sellers.
“At 3 1/2 percent the friction is so low people actually want to transact on the platform,” Kalt says. Reverb offers buyer security on all transactions, making sure listings are what they say they are. “I think we hit the sweet spot as a comfortable level to pay for some protection,” Kalt says.
The preferred sellers program is one step further for Reverb in detangling its sellers from eBay fees. Instead of having to use PayPal and the 3.5 percent charge that comes with that, sellers with 4.5 stars or higher can conduct transactions directly through Reverb’s new payment system. It costs 2.5 percent, and it’s one click checkout for the buyers once they’ve input their credit card information once.
“We’re the PayPal,” Kalt says. “We’re trying to make it all easier.”
[image via Danny T on flickr]