Disrupting Digital Marketplaces

How Reverb is changing eCommerce

When eBay first arrived on the scene, it was hard to contain the excitement that the company brought to the internet community. It was the first mainstream online marketplace to open up ecommerce to the average American. It’s hard to overstate the importance the company played in introducing internet users to the concept of eCommerce, as it allowed virtually anyone to set up a business from the comforts of their home and easily find a customer base.

However, in its rapid growth, the company lost a bit of the magnetic appeal that it had to its user base. In its pursuit of monetization, eBay made it increasingly difficult to do business as a seller. Fees were increased, additional constraints to ratings were added, and most importantly, sellers lost the ability to reply to negative comments. The company also got in the habit of charging a percentage on the sale, shipping, and (until recently) on the transaction itself through its ownership of Paypal.

For many sellers, this would end up being nearly 12% of the total sale, which significantly cut into the margins for mom and pop operations. Sellers also became disgruntled with the refund system, as the dispute resolution overwhelming favored the buyer. Most became increasingly frustrated with the platform, but continued to work with it due to a lack of viable alternatives. While buyers weren’t as heavily affected, the increasingly unfavorable terms of sellers lowered the quality of listings, which decreases the overall experience on the site.

Investors became aware of these problems, as much of the force behind the recent spin-offs at eBay came due to the underlying belief that more profitable entities in the company (such as Paypal and eBay Enterprise) were being held down by the core eBay business. This weakness in the core business has invited increased competition to the market in the form of startups competing in niche markets where massive companies like eBay would be too slow to respond.

These companies are rapidly positioning themselves as an alternative to eBay through the use of a two-pronged approach: creating a community around the market niche and addressing many of the issues long-time users of eBay experienced. Reverb is one of these companies, billing itself as the “ultimate marketplace for musicians”.

Positioning itself as a music-themed eBay, Reverb creates a home for musicians by not only allowing for product listings, but creating targeted content for users to engage with regardless of whether they intend to make a purchase. The underlying belief is that engagement through content will garner user loyalty and eventually lead to a purchase using the platform, regardless of when that purchase actually comes. Furthermore, by offering price guides and other useful tools, it generates goodwill from sellers and buyers alike.

Investors have taken notice, as the company managed to raise a massive $25 million Series B round in late December. The company projects it will handle nearly $125 million in transactions in 2016. PrivCo estimates have shown the company has increased its transaction volume by nearly 75% each of the last two years, meaning the company’s offering has gained real traction within the music industry.

More importantly, companies such as Reverb demonstrate that eCommerce is not doomed to be dominated by massive marketplaces as those presented by Amazon or eBay, and serves as an example that through deft use of content marketing and a deep understanding of a market niche, lean startups can both thrive and survive.