At some point, most successful startups run into this problem: a tech giant moves into their sector and threatens to wipe them out. It’s a sign that the startup is on to something big—but it’s also a major existential challenge.
Meet Gazelle, a Boston-based company that has built a business around buying used smartphones and other devices and reselling them on the global market. Founded in 2006 (originally called Second Rotation), the company got to where it is today on $46 million in venture funding from the likes of Venrock and RockPort Capital Partners.
Gazelle made just under $58 million in revenue last year, and is on pace to exceed $100 million in 2013, according to CEO Israel Ganot.
Not bad for a company that dropped its big retail partnerships because they weren’t working well enough, and focused solely on its consumer business for the past couple of years. Gazelle makes its money reselling devices to wholesale buyers and retailers; many of the devices end up in Asia, Latin America, Africa, and the Middle East.
Here’s the problem: In early September, Apple announced a buyback program in which customers can trade in used iPhones for a credit toward a new phone. This is done in a retail store, and customers must buy a new phone as part of the deal—unlike with Gazelle, where it’s all done online, independent of contracts or new phones.
The competitive message is clear. Apple doesn’t want Gazelle, Amazon, or anyone else to control the market for millions of used iPhones and other Apple devices. The total market for used devices—Apple and others—is about $7 billion in the U.S. alone, Ganot says, and it is projected to double in the next four years.
It’s debatable how much Apple really cares about making money in the trade-in sector, versus just covering its bases. For now, device recycling seems to be a key part of the company’s PR messaging around sustainability and the environment. As for the other big player, Ganot says his company is “three times the size of Amazon today” (presumably in terms of trade-in revenues).
From Gazelle’s perspective, Apple’s move helps validate the whole concept of “recommerce.” Together with other companies like AT&T, Verizon, and Best Buy getting into the business, this should raise awareness and encourage people to think about turning in their old phones for cash or credit. That, in turn, could help Gazelle’s business, in the standard “rising tide lifts all boats” argument.
Indeed, Ganot shoots down the notion that more competition could kill Gazelle. “It’s going to accelerate our growth rate,” he says. “The more competition we’ve seen the last year and a half, the more successful we are.”
But it also means Gazelle is at a critical point where it must
