The Next Multibillion-Dollar E-Commerce Opportunity: Reimagining Local Commerce

The U.S. economy pivots around one central fact: Americans are shopaholics. Consumers in the U.S., as well as most people in other developed countries, buy more than they really need. The result is packed closets, stuffed garages, a booming overflow storage space industry, and a best-selling book that advocates throwing away most of your belongings.

Each U.S. household has about $7,000 worth of items they no longer use. Most people hang onto their stuff or simply give it away. You can buy online with one click, but why is selling something so hard? If consumers had an effective, simple and trusted way to buy and sell these goods, this secondary market would generate hundreds of billions of dollars of transactions and reduce waste at the same time. Of course, there’s Craigslist, but posting there and interacting with potential buyers has some major challenges as we all know. In today’s mobile first world, Craigslist doesn’t even offer an app.

At GGV Capital, we therefore believe there’s a huge opportunity to disrupt and expand local commerce, which is why we invested in OfferUp.

Greenfield Opportunity

According to a survey GGV conducted earlier this year, the vast majority of unwanted items are still donated to charity, given away to family or friends, or simply thrown away. Only 20% of consumers reported having sold something online, even though this could generate cash. The OfferUp app makes buying and selling goods from your local community a snap: take a photo of the item, scroll to check bids, use the built-in messaging to communicate with prospective buyers, and pay and collect money directly through the app. Trust remains a major concern for consumers and OfferUp uses data analytics to screen out potential issues and guide users in the transaction process.

This type of seamless marketplace wouldn’t be possible without all the capabilities of today’s mobile phones, which is why it took until now for OfferUp to emerge. The OfferUp app has been downloaded by tens of millions of users all over the U.S. and its user base continues to grow rapidly thanks to the ubiquity of smartphones. According to our study in several cities around the country, buyer-seller liquidity on OfferUp is already equal to or better than Craigslist — and we believe there’s lots more room to run.

Global Learnings

So-called classifieds ads for listing goods and services were once a large and lucrative business, but in the U.S., newspaper classified ads shrunk from a $20 billion annual industry in 2000 to around $4 billion in 2014, primarily because of shifting eyeballs and Craigslist. Around the world, pure online classifieds businesses for both general goods and specific verticals, including jobs, housing, and cars, have generated more than a dozen multibillion-dollar companies, with an estimated total value of over $100 billion.

Globally, there are four “giants of classifieds”, namely Naspers of South Africa, Schibstedt of Norway, Axel Springer of Germany, and eBay of the U.S. Each has expanded beyond its home market. General goods classifieds platforms, whether started on web or mobile, must begin by attracting individual consumers’ listings and buyers interested in those listings. Once a platform reaches mass adoption and sufficiently high mindshare to make it defacto, it can then generate high-margin revenues from listing fees, premium placements, and other value-added services. Reaching critical mass has often involved mergers and acquisitions in many geographies, most recently and notably is in China, where 58.com has become a $7 billion company after its acquisition of Ganji.

A meaningful number of these classifieds platforms have also successfully expanded into vertical markets (cars, housing, job listings) that typically command higher listing fees. Avito in Russia, for example, now leads in all vertical categories after first converting almost 80% of Russian internet users to active buyers on its used goods platform.

After mass adoption, and this next step is key, marketplaces can begin welcoming local merchants to sell used and new goods or even offer services. In some markets, used goods classifieds companies, such as Marktplaats in the Netherlands and TradeMe in New Zealand, have become leading new goods platforms and derive the majority of their revenues from merchants, who are often more willing to pay listing or other advertising fees to drive traffic than a consumer would be. This increases total addressable market size substantially. In the U.S., GGV portfolio company Poshmark also recently expanded its fashion marketplace beyond used goods to welcome new products from emerging brands.

While making buying and selling used goods easier and more fun has multi-billion dollar potential in the U.S., empowering local merchants to reach and transact directly with consumers is potentially an even bigger opportunity. While today it mostly still is a peer-peer platform for used goods, OfferUp is already organically attracting all kinds of merchants from individuals with a small side business to local shops and car dealers. This is why and how we believe OfferUp will reimagine local commerce between both individual consumers and merchants.

Hans Tung is a Managing Partner with GGV Capital. Some of his recent investments include Wish, Musical.ly, Xiaohongshu (Red), AirBnB, OfferUp, Slack, Operator, Poshmark, and Prynt. Hans was previously a seed investor and board member for Xiaomi. Follow Hans on Twitter (@Hanstung).

Mark Pols is a Principal with GGV Capital whose recent investments include Sofi and OfferUp. Follow Mark on Twitter (@m3pols).