Tapping into rich market for used iPhones
Startup Orchard capitalizing on ‘fertile’ ground as it aims to be Airbnb of smartphones
In the never-ending cycle to own “the latest” iPhone, a Toronto startup sees billions to be made. Not in the slick new model, but in the castoffs that waste away in drawers.
While brainstorming ideas for his first startup last summer, Bruno Wong was intrigued by how the highly successful home-rental accommodations site Airbnb took an idea that was already happening on online marketplaces such as Craigslist and Kijiji, and made it more safe, secure and reliable.
“That really kind of lit a light bulb in my head and I started thinking about what else on Craigslist could be improved,” says Wong.
At the time, the iPhone 5 had just been announced, and Wong was looking to sell his 4s online, but felt that existing online marketplaces made such transactions “sketchy,” with no way to truly verify the value of the used phone or the legitimacy of the buyer.
In mid-2013, Wong — along with co-founders Alex Sebastian and Hamza Javed — launched a beta version of Orchard, a free application that runs a thorough diagnostics test of the used device and provides a detailed report, including the device’s value based on real-time market demand.
Users can download the free report and use it to sell their phones on traditional online marketplaces or through social media sites. They also have the option to take the hassle out of finding a buyer and sell the phone directly through the Orchard marketplace for a fee.
The app has been well received, with over 3,000 downloads in its first 12 months, but when it comes to the revenue-generating marketplace, Orchard has learned that it’s far easier to find sellers than buyers.
The company has their sights set on the U.S. market as well as facilitating the sale of a wider array of devices, but they’ll need to attract more buyers if they ever hope to expand beyond the Canadian iPhone market.
According to a study by Consumer Intelligence Research Partners, 80 per cent of people who upgrade smartphones do not sell their old device, representing an untapped market of about $9 billion. The application they’ve built makes the transaction more dependable than anything currently available. Upon downloading the application, sellers are taken through a series of steps to test the functionality of every individual component of the phone. Tests vary from pushing the buttons to drawing any scratches on the screen and turning on Bluetooth, Wi-Fi and GPS. Users are also required to provide the phone’s IMEI number, a unique serial number given to all mobile devices, which is verified against global databases to ensure the phone hasn’t been reported stolen. “We’re extracting high-level metadata from your phone, so we know for example that it’s black, a 4s, with Rogers or unlocked. We have an algorithm that takes average selling of that particular model at that particular condition and we’d be able to tell you objectively what the fair market value of that device is,” says Wong. Upon completing the test, users have the option to download the free diagnostics report or sell their device directly through Orchard. Those who take advantage of the online marketplace are sent a box with a prepaid shipping label. “You drop the phone in there, you throw it in the mailbox, we get it back and we’re in constant communication with you,” says Wong. “We notify you when it’s sold and you get an e-transfer or a cheque.” For their part Orchard takes a 15 to 35 per cent cut of each transaction, depending on how quickly the seller wants to make the sale. The model has thus far been successful, with the company overseeing more than $16,000 in used iPhone transactions this past May alone. But as the company continues to grow at an average rate of 75 per cent each month, any slight variance between the number of buyers and sellers — which is currently one buyer to every 1.7 sellers — will only get more significant. “We’re trying to understand what the buyer archetype looks like, and it’s really broad,” says Wong.
“We need people who are on a budget, we need people who lose or have had their phone stolen, we need people who love to travel and need an unlocked phone so they can pop in a new SIM card in Europe, we need parents of destructive teenagers or even a consultant that makes decent money but isn’t too techy and just wants something that works.”
With a minimal marketing budget, Wong says the company can’t afford to reach all of their buyer archetypes at once.
“It’s a relatively new concept, and one of the things they have to highlight is the point of pain using traditional channels right now,” says Mark Evans, principal of ME Consulting, a marketing firm that specializes in startups and entrepreneurs.
“The idea of show and tell is going to be important for them.”
Evans adds that though they may struggle to find buyers now, he believes that there is a lot of potential for Orchard moving forward.
“It really is like buying a used car and having a 50-point checkup before taking it for a test drive. That in itself gives Orchard a lot of credibility and injects a lot of confidence into the buying process,” he says.
“It’s fertile territory. All they have to do now is execute in terms of the marketing perspective.”