Friday, May 13, 2011

The reuse phenomena

I am a big fan of internet startups that help us improve our efficiency. Now efficiency is a pretty broad term, and people typically associate efficiency with time efficiency. Thus an application like Toodledo, designed to help manage tasks, falls into that category. Others, like Kayak, Yelp and The Class Guru, help people find the right things faster.

Another form of efficiency that interests me is 'material' or 'stuff' efficiency. There are so many things that we buy, which we use for a limited amount of time, but then, they just lie, gathering dust. What if we could reuse them for someone else's good, and perhaps make some money in the process? Following are some of the recent web startups that are working in this field:

1. - run by a friend of mine, this startup provides a peer to peer video game rental service. Video games gathering dust on your shelves? Rent them out. Or get new video games title for a price much lower than what you would pay for buying them new or used.

2. is an online exchange for children's clothes, works on a simple premise. Children grow up. Clothes don't. So rather than throwing away clothes, why not sell them to someone for a minimal fee?

As I look at these different examples, several critical success factors emerged:

1. Usability is at the top of the list. There is not much money to be earned by renting video games or selling old clothes, so using the site must be effortless.

2. The effortless piece extends to logistics; the sites provide pre-paid and printed shipping envelopes/packages, so that there is not much effort on part of the user.

3. Targeting of a product that loses use after some, but is useful to someone else. Old movies, video games, clothes work well. However, there are some behavioral issues that one must take into account. Let's consider video games; typically video games have several levels to conquer, and in most cases, video gamers love to go up to the advanced level, which could take several weeks. If that were the case, would it really be cheaper to rent the game vs. buying it? The answer is unclear.

4. Low shipping costs, which might eliminate books

5. Ability to transfer ownership of the product, which eliminates e-books.

6. A fraud proof system, which includes storing the credit card number of people renting the goods, in case they do not return it

7. Probably the toughest part comes from network effects. Growing the business initially is really hard, as you need parties from both sides of the platform to make the network a success. Sellers have no utility without buyers, and buyers have no utility without sellers. Businesses need to use some strategy to kick-start the network. Let's take the example of Thredup. I am not sure what the owners used, but one strategy would be to convince 50 to 100 of their closest friends and families to create clothes packages online; even give them incentive to do so. An excellent paper about two-sided markets can be found here (purchase required, but just google the title - there are a lot of free downloadable PDFs available online).

Good luck to these businesses!

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