Rebellion in the marketplace: Why vertical eBays are springing up and gaining traction

By Carmel DeAmicis , written on November 19, 2013

From The News Desk

Ebay is facing a long, slow death by a thousand cuts, as vertical marketplaces are pulling its business out from under it. Although verticals might not work for social networks -- no one uses a "Facebook for dog lovers" for example -- it's working for resale sites.

Case in point, after nine years of sleepy growth, Etsy almost doubled its merchant sales numbers from early 2012 to early 2013. Worthpoint's GoAntiques for collectibles has been chugging along for almost a decade. Old timey StubHub proved it could be done for tickets then got snatched up by eBay. Videdressing is a buyer-seller marketplace for fashion that raised its $6 million Series A in March. Glyde for electronics has been making a go at it for six years. ThredUP, Shop Hers, Poshmark, Twice, and Threadflip have sprung up for fashion in more recent years.

It's no coincidence that as these marketplace startups are picking up traction, eBay is moving more and more into general e-commerce, not just auctions. It spent $26 million just to restructure the company to that effect, laying off 900 people globally.

The new vertical sites don't seem to be hurting eBay's business much, given its auction market revenue grew 12 percent from 2011 to 2012. But if the new sites have staying power and start to expand their offerings the way Etsy has, it could hurt eBay in the long run.

The latest new auction place, instrument resale site Reverb, announced a $2.3 million Series A today from Eric Ries, Lightbank, and a few rock stars: Rick Nielsen of the band Cheap Trick and David Lowery of Camper van Beethoven.

Reverb has come on the scene with three-times growth in revenue and transactions its first few months of business. It has kept a low profile since its launch in January. The founder, David Kalt, sold two previous software companies and used the funds to pursue his passion: music. He bought the Chicago Music Exchange, a well-known music shop that celebrities frequent on their way through the Windy City.

The Chicago Music Exchange does a healthy resale business, and Kalt frequently came up against the problems of using eBay as a marketplace. The high 10 percent commission cost and eBay's horizontal system frustrated him. He wanted better search options, more music-specific categories, a cleaner layout, and other features catering to music lovers.

He decided to start Reverb to rival eBay's music section. Since its recent inception, Kalt says it has grown three or four times month over month in transactions and revenue, and listings are growing 50 to 60 percent month over month.

Given that Kalt told us in August the company was on target to hit $330,000 in sales, we can estimate Reverb's seeing $2.97 million in sales per month if the sales rate is tripling like revenue and listings has. Like most founders, Kalt is now close-lipped about specific numbers so he couldn't confirm or deny that estimate. 

Of course, it's early days, so there's no guarantee the growth will continue.

Reverb fits squarely in the e-commerce 2.0 world, where vertical companies with curated selections are starting to carve out consumer followings in various categories. From Fab to Nasty Gal, fashion in particular has been dominated by the rise of the vertical brand. None of these startups are as big as Amazon, but where they might lose out on product range or pricing, they can offer customers a tailored experience.

In addition to regular e-commerce, marketplace and auction sites are falling squarely in that category. Etsy, Glyde, Threadflip, Reverb, and all the others are attracting customers with their unique selections, clean user interface, community elements, and symmetrical buyer-seller relationships.

Navin Chaddha, managing director at Mayfield Fund, explored these marketplace 2.0 features in an article for TechCrunch. He called them by the acronym ACCESS: accessibility, curation, community, efficient commerce, simplicity, and symmetry.

These are the reason that niche vertical marketplaces are able to steal some of the pie from a bigger player like eBay.

We won't go into all the details, but Reverb fits many of these characteristics. As Pando covered a few months ago, Kalt has spent a good deal of time refining the design aesthetic of the site so that it delights the user. The site prominently features big images of the instruments, with minimal text.

Compared to the clutter of an eBay auction, the Reverb experience is downright luxurious. There's no sponsored advertisements, and on each item page Reverb pulls in similar items so users can compare prices. It has nailed curation, with detailed category lists like "Japanese Vintage Guitar" or "Weird Gear" that you would never find on eBay.

"The vertical that I'm in, musical instruments, this is an obsessive community," Kalt says. It has released a mobile app, making selling and buying more efficient for users, and it has symmetry -- an even mix of people using the site both to buy and sell. Series A investor and Lean Startup author Eric Ries explained his reasons for investing. "Their strategy for solving the traditional 'chicken and egg' problem of marketplaces is genius," Ries says. "They've taken a rapid experimentation approach. That's why I invested."

Wannabe vertical marketplaces take note: You might want to adopt these best practices.

Reverb has a long way to go before its reaches sustainable success. One conflict it might hit that companies like StubHub or Etsy wouldn't is customer retention rate. How often does someone buy a really sweet guitar? Probably not as often as they might shop for artisan goods or attend an event. Reverb is tackling what is in some ways a very narrow market, more so than most vertical resale companies.

Its success might come down to just how obsessive musicians really are.

[Image via Wikimedia]