Even young people can't buy mobile phones.
Recently, foreign media have exposed that Apple has begun to cut orders in the supply chain, and the iPhone 13 has begun to reduce prices on mainstream e-commerce platforms. Not only are high-end machines affected, but even the most "cheap" 5G iPhone SE3 is considered by analyst Guo Mingchi to have limited appeal.
Consumers don't buy new phones, partly because the phone features haven't changed much; on the other hand, it's also possible that the drawers are already stuffed with old phones and tablets. According to the Ministry of Industry and Information Technology, there are more than 2 billion old mobile phones in China silently eating ashes in the corner. Even if the domestic large-scale second-hand resale platform Idle Fish and Zhuan has been entrepreneurship for many years, it is impossible for people to take out these old equipment to "return blood".
In Europe and the United States, the situation is very different. By "reselling" used electronic devices alone, a startup called Back Market became the biggest unicorn in France.
Over the past three years, the number of customers on the Back Market platform has grown by 300%. At the same time, the speed of funding surprised CEO Thibaud Hug de Larauze himself. In January, Sprints Capital, which was locked out of Series D and is known for investing in technology companies, launched a new offer, leading a $510 million Series E funding round with a post-investment valuation of $5.7 billion.
What is the magic of the Back Market, making used devices the first choice for users when buying electronic devices?
The "circular economy" is timely
While large companies were under pressure from the COVID-19 pandemic, Back Market was still able to grow at a very fast rate, doubling sales. This has to mention the encounter of the founder Thibaud: the track selected in advance hit the pulse of the times.
Back Market's three co-founders, Thibaud, founder and CEO| source: Business Insider
As a "third generation", Thibaud planted the seeds of entrepreneurship at a young age, and his father, grandfather and two brothers are entrepreneurs. They're always talking about entrepreneurship, which makes Thibaud think it's a cool and enjoyable thing to do. At the same time, this family atmosphere told him: just do it, it doesn't matter if you fail.
But for Thibaud's inner entrepreneurship to sprout, we need to find a specific good project.
For two and a half years, from 2012 to July 2014, he worked as an account manager for a company called Neteven. The company mainly uses ERP systems for market integration. By connecting global manufacturers, retailers and markets across industries, Thibaud is able to observe industries.
The business model of Thibaud's former owner Neteven | source: the official website
In this position, Thibaud sees a lot of opportunities to make money, but he wants to do meaningful and positive projects. Until he saw the market trading of second-hand commodities, he found the first entrepreneurial opportunity that he identified with in his heart. He sees the entire value chain and how it operates; more importantly, he sees both sides of the supply-demand mismatch in second-hand transactions.
On the one hand, he found that people's demand for second-hand goods: "When customers want a device, they will choose to buy a new one at the original price, which is guaranteed; or they will buy second-hand because the price is more attractive, but there is no guarantee, and once they encounter a problem, they will 'lose'."
On the other hand, the current "refurbishment" technology of used equipment has been greatly improved compared with the past, and after visiting some refurbished factories, Thibaud realized that these refurbished machines are not simply "used mobile phones", they are as well protected as new machines. All users need is a platform to find a reliable "refurbished".
At the same time, refurbishment is more of a thing to do with less than to make a new product. At the time, Thibaud was fascinated by the circular economy.
Thibaud calls the linear economy when people buy new products directly from manufacturers or operators; refurbished equipment that is mainly recycled does not have to exhaust the earth's resources compared to the manufacture of new products, which he calls circular economy.
And the reaction on this side of the market, until recent years, the circular economy is no longer just a concept, it is happening. This also makes Back Market into more people's vision. So, what points did the opportunistic Back Market step on?
On the supply side, the rapid renewal of technical equipment, the global surge in "electronic equipment waste", and the supply of refurbished equipment is sufficient. According to statistics, Americans discard 416,000 mobile phones every day, and more than 100 million devices in the United States are placed in drawers.
On the demand side, multiple factors are at play. In addition to saving money, the bottleneck of innovation in manufacturers and the concept of sustainable consumption have contributed to the rise in demand for refurbished equipment.
Price factors
The first is the price factor. As inflation pressures continue to rise, demand for discounted goods expands. At Back Market, 40 percent of customers are likely to be in a financially disadvantaged situation, either as students, currently unemployed, or part-time.
Taking smartphones as an example, consumers can buy the latest generation or two at a much lower price.
In fact, most customers buy smartphones when they first come to Back Market, because they find that on Back Market, refurbished vendors sell smartphones that are up to 70% cheaper than normal retail prices. After that, customers become regular customers and come back to buy computers or household appliances.
The back market purchase page | the Back Market website
There are fewer and fewer surprises for new phones
The reason why consumers choose to buy mobile phones on Back Market is not only to save money, but also to the bottleneck of innovation of manufacturers: there is no disruptive technology iteration, there are fewer surprises and leaps, and the price is getting higher and higher.
"Back Market has clearly benefited from the soaring prices of high-end smartphones, with the iPhone 12 Pro starting at $999 and high-end Android devices priced similarly," Thibaud said.
"Consumers have historically been price-sensitive, especially for new devices that may cost more than $1,000. More and more consumers are weighing the differences between new and used devices and finding little reason to buy new devices, especially when they can buy refurbished equipment for the same generation at 70% cheaper prices." Lauren Benton, general manager of Back Market, said.
Consumers are beginning to pay attention to environmental protection
In addition, as people become more aware of climate change and the importance of reuse, recycling and the circular economy, the startup offers the opportunity to reduce waste, fight e-waste, and make money at the same time.
Thibaud says sustainability is becoming increasingly important for buyers. "When we launched Back Market, only about 3 percent cared about sustainability, but that percentage has risen to 25 percent."
In addition, other devices such as smartphones and laptops have led to a surge in e-waste. According to the Environmental Protection Agency (EPA), the world generates 50 million metric tons of e-waste each year, heavier than all commercial airliners combined.
Henrik Persson, managing partner of investor Sprints, said: "The growing sales of new electronics and the increasing pressure to move these devices out of landfills have created a huge opportunity for Back Market to win more business."
Through recycling, repair and refurbishment, Back Market can maximize the use of resources already developed (during the manufacturing process) while reducing e-waste.
Consumers are becoming aware of the environmental costs of electronic devices and wanting to avoid additional waste, which has contributed to the growing refurbished electronics industry. In other words, consumers subscribe to Back Market's values and choose to break the "linear economy" of the electronics industry. "Over the past two years of the pandemic, people have realized that we need to do better for the planet and be more responsible in the way we live and consume," Thibaud said.
Back Market is creating a trend to reuse products rather than buy them. According to Edelman, the world's largest prying firm, 65% of the market is "belief-driven" consumers with sustainability in France, and 59% in the Us, where buyers will choose, switch, avoid or boycott brands based on their position on political or social issues of concern.
Building a "Trust Machine"
Back Market is a 100% platform model. Platform businesses are no stranger to us, and they have penetrated into all aspects of people's food, clothing, and housing. Platforms such as Uber, Airbnb, Meituan, and Taobao have solved efficiency problems by integrating stakeholders and the industrial chain.
The question is, what kind of efficiency should the second-hand e-commerce platform solve? Thibaud, founder of Back Market, believes that in the second-hand trading scenario, the most important thing for the platform is to create trust. In other words, for used trading platforms, trust is efficiency.
Thibaud said: "Our goal is to make refurbished products the first choice for users to buy electronic products." In other words, whenever consumers go shopping, they know there are refurbished alternatives and, in the end, people can buy used electronics as confidently as if they were new ones.
"We intend to do this by continuing to improve the quality of the products sold on our platform."
Based on this, Back Market has gradually formed a quality-oriented platform model, and consumers and capital who "vote with their feet" respond to this unique business model with real money and silver.
Refurbished machines purchased from the Back Market | iMore
In a business of consumers, refurbishors and platforms, Back Market has set up a platform for buying and selling second-hand electronic products, allowing consumers and refurbished vendors to "communicate with each other". Available publicly available data shows that there are 1,500 refurbished vendors and 6 million consumers on the Back Market. The circulation of buyers and sellers feeds Back Market.
On the one hand, users provide a source of supply, sell old equipment to refurbishors, and bid between refurbishedrs to obtain it, and give users a competitive bid.
On the other hand, the user is both the seller and the buyer. After the refurbisher inspects and renovates, the refurbished equipment is sold to the user, and is fully responsible for after-sales and warranty.
As a result, the old devices "circulate" on the Back Market platform, and the Back Market takes a commission from each transaction. Back Market is not responsible for warranty and after-sales, but rather reviews and rates merchants who sell refurbished equipment and intervenes in customer disputes.
The reason why it can "lie down to collect rent" is that Back Market must ensure that the platform can attract enough consumers to attract refurbishedrs.
To this end, Back Market has made a series of efforts around the biggest pain points of consumers, trust and quality. Throughout the closed-loop process of second-hand electronic goods circulation, Back Market plays a role in creating trust.
When selecting a refurbished, Back Market has a rigorous screening process that takes into account all relevant criteria: quality diagnostics, responsiveness of customer service, lead times, etc. Each new refurbished plant is required to answer a review questionnaire about its overhaul procedures and quality assessment and is asked to produce a certificate.
At the same time, sellers promise to carefully test each device's 100 features, each product going through at least 25 quality checkpoints. Also, the seller offers a 1-year warranty and a 30-day money-back guarantee. Under these requirements, on average, only one in every 3 refurbished manufacturers has access to Back Market.
Screenshot of a promotional video of a refurbished manufacturer overhauling the Back Market platform | Source: Back Market official website
Second, Back Market's buyback program and bidding model open up another supply channel for refurbisheds. Unlike the manufacture of new products in the linear economy, factories can produce as much as they want; in the circular economy, the supply of goods is limited, and the supply of second-hand equipment depends on the recycling capacity.
On the Back Market, in just a few minutes, customers can complete an evaluation of their device (answering questions about make, model, storage capacity, features, and screen and body condition) and get the best offer in refurbished bidding bids. Once the customer mails in the equipment and the refurbisher confirms that the equipment meets the description in the assessment, they receive cash in their bank account.
When buying back old equipment, the dimension of the questionnaire evaluation | source: Back Market website
"Our buyback program is a win-win for everyone," explains Lauren Benton. For customers, Back Market provides a simple, fast and efficient way to sell used products and get competitive quotes. For refurbishedrs, this is a supply channel for obtaining used electronics. Moreover, this saves old equipment from becoming e-waste, but continues to circulate and feed back to the market as a source of high-quality refurbished equipment.
Third, as a platform, Back Market controls the supply quality and service level of refurbished suppliers in real time through various means. Customer reviews are a big channel for platforms to master the performance of refurbishedrs. In addition, the platform's in-house experts, as "mystery shoppers", place anonymous orders every week to personally inspect the quality of refurbished products. If a merchant's quality rating drops, they immediately enter a probation period and the platform customer service begins to take over.
Last but not least, Back Market doesn't send customer orders to all refurbished merchants who have inventory, but matches them to just one merchant like Uber, even though all sellers list their inventory.
To that end, Back Market has its own recommendation algorithm that ensures that for any product identifier or SKU (model, variety, storage, color), only the best of all options offered by all refurbished vendors, rather than an endless list of items on Amazon or eBay.
The "best" product is a decision that takes into account a number of different factors related to quality and price, including the merchant's quality and customer service history. This set of recommendation algorithms guides refurbishers: there is quality, there is traffic.
"Even if we have 40 merchants in stock, we will only push the one with the lowest failure rate," Thibaud says. This means that its price may be higher than that of its competitors. Other platforms sell second-hand products in a price war, but this can destroy the value and profits of sellers. We're doing the exact opposite, and our absolute priorities are high quality and low failure rates."
"The products on the platform can sell for 40 euros (about 277 yuan) more than the competition, but our low failure rate ensures that the ecosystem can work and the profits can be used to continue to improve quality. That's why Back Market is capturing the market, winning customers, growing, and we've changed the dynamics of the supply chain."
"It's a win-win for both customers and sellers: for sellers, it means more profits, sales and turnover rates; for customers, it means higher quality, lower failure rates, and ultimately more trust." This creates a virtuous circle because the only way to grow is to make sure the customer experience is good even after the sale is over."
On the Back Market platform, an important metric is the mean failure rate. The defect rate of devices sold through the Back Market platform is about 4%, which is almost the same as the average unofficial non-performing rate of new devices (3%).
Business model determines scale
In fact, the platform model of second-hand items, Back Market is not original, the real originator is the American used car e-commerce Carmax.
In the United States, the unit price of cars is high, but people have the need to travel by car. Driven by demand, the business model that makes second-hand transactions run through takes precedence in the second-hand car market.
However, there is a difficult "game" in the used car market: in the face of uneven quality used cars, sellers are always better than buyers. Therefore, the buyer only accepts the asking price below the average market price, and the seller knows that the buyer's psychological price is not high, and must withdraw the higher quality used car from the market, and the bad currency drives out the good currency.
Under this game, both sides will stagnate, and the market will collapse. That is to say, when the information between the buyer and the seller about the quality of the goods is extremely asymmetrical, a transaction cannot be generated.
Carmax's solution is to recruit a large number of repairmen and inspectors. Anyone who brings an old car here just needs to watch TV and have coffee in the comfort of the parlor. Within 40 minutes, Carmax used professional equipment and first-class overhaulers to give a maintenance report and valuation, allowing buyers and sellers to figure out what was wrong with the car, what accidents had occurred, how long the life expectancy was, and other quality issues. The seller agreed to sell to Carmax at this valuation, and did not agree to go on and look elsewhere.
After this model worked, many people sold the car to Carmax, and the company asked the mechanic to renovate the old car, add the Carmax brand, provide insurance and sell it to the second-hand car market.
Under this model, Carmax's business is getting better and better, reaching a turnover of several million vehicles a year at most. Carmax has also opened chain stores on both the east and west sides of the United States from its birthplace, and has been listed in the top 500 companies in the United States many times.
From the practice of Carmax to Back Market, it can be concluded that non-standard products such as second-hand goods, as long as the quality of the goods becomes easy to figure out and guaranteed, the market can operate, and even roll bigger and bigger. In second-hand commodity trading, trust is efficiency. Making it easy to assess and ensure quality has become the key to facilitating the transaction of second-hand commodities, and to a certain extent, it also determines the size of the market.
Carmax changed the "deal dilemma" of used cars | Richmond Times-Dispatch
Regarding the prospects of Back Market, founder Thibaud said, "We expect similar developments in the electronics market, just like the rise of the US used car market."
"In the U.S., the used car market accounts for more than 70 percent of sales. By comparison, annual sales of refurbished equipment ($80 billion) account for only 6 percent of annual global consumer electronics sales ($1.3 trillion)."
Back Market wants to reverse those numbers and allow refurbished electronics to replicate the boom in the U.S. used car market.
Compare with several domestic second-hand trading platforms. Idle fish is a C2C model, and anyone's transaction with anyone makes quality assessment not so easy, so the unit price of idle fish has not been high. Of course, in recent years, the introduction of Taobao one-click resale and other functions is very popular.
The transfer is mainly based on the C2B2C model, and it does the recycling, quality inspection and sale of 3C electronic products by itself. Love recycling is based on C2B2B, relying on shopping mall stores and Jingdong old-for-new scenes, quality inspection and recycling of old mobile phones, and then sold to B-end manufacturers. In the heavy mode of turning around and loving to recycle their own quality inspection, the performance is mediocre, which is also related to the trust basis and consumption habits of Chinese users in second-hand goods.
In contrast, Back Market provides a good model, whether it is to gather high-quality refurbishors, or to focus on quality-oriented algorithm recommendations, or to require refurbished vendors to provide warranties and services to consumers, making buying second-hand electronic products more reassuring and becoming a consumer habit that can compete with new products.