The OfferUp Business Model – How does OfferUp make money? [2020]

8 mins read
OfferUp Business Model

Company Profile:

OfferUp is a Customer to Customer (C2C) local marketplace which was started as a mobile first app, available on both iOS and Android. OfferUp allows customers to buy and sell products ranging from used furniture to cars with everything in between. 

  • Founded – 2011
  • Founders – Nick Huzar, Arean Van Veelen
  • Headquarters – Bellevue, Washington
  • Type – Private
  • Industry – E-commerce
  • Competitors – Craigslist | eBay | Facebook Marketplace | 5miles | ThredUp | Poshmark
  • Funding – $393.7 million in 8 funding rounds

How does OfferUp work?

To use the OfferUp app, both buyers and sellers have to download the app and create profiles on the app with details such as Name, location, email, profile picture and phone number.  Sellers can then advertise their products in a few steps by clicking picture of the product and entering a short description of the product. Additional photographs can be uploaded as needed.

Buyers can browse through listings on the app or search the products to find what they are looking for. Once they find an item that they like, they can then interact with the seller over the app. They can ask clarifications about the product or negotiate the price. After a price has been agreed upon, the buyers and sellers meet to buy or sell the products advertised on the platform.

After the transaction, buyers and sellers can rate each other and leave reviews on each other’s profiles. This increases the trust of the buyers and sellers on the platform and as a result makes OfferUp better for everyone on the marketplace.

Currently, OfferUp has become one of the largest marketplaces for buyers and sellers. OfferUp is frequently named one of the best places to sell used stuff because the user interface is visually appealing and easy to use. The app is intuitive and supports large pictures optimized for smartphones and supports infinite scroll, making it easy to browse items for sale. This uncluttered user interface, reviews and verification system has differentiated OfferUp from its competitors and has made OfferUp app one of the top 50 most downloaded free apps on the App Store.

OfferUp’s Background

The co-founders of OfferUp
Arean Van Veelen (left) and Nick Huzar (right) – The co-founders of OfferUp

OfferUp burst into the E-Commerce scene in 2011, primarily as a competitor to Craigslist. The founders of OfferUp are Nick Huzar and Arean Van Veelen and the company is based out of Seattle, Washington.

Huzar had worked as Product Manager with Microsoft and T-Mobile and had co-founded Konnects, Inc, which was the first (SaaS) social media platform designed to assist traditional media companies to better engage and monetize their online audience. He then was in a CEO role with Deal Springer, which allows anyone to share deals instantly right from their pocket. Deal Springer was designed to promote deals to local mobile devices, Facebook, Twitter, emails, search engines and scannable window stickers.

Veelen had worked in product and consultant roles at various companies before he joined as the CTO of Konnects, Inc and subsequently co-founded OfferUp.

The creation of OfferUp stemmed from Huzar’s experience with Deal Springer and from the personal needs of the founders as well. They discovered a lack of mobile options while they were trying to sell their used items to create space for their newborns and they decided to create OfferUp to address this gap.

OfferUp’s Unique Selling Proposition

OfferUp’s USP is its frictionless user experience, trust factor and community based selling and buying experience.

At the time OfferUp was launched, Craigslist was dominating the internet marketplace scene. Craigslist had a minimalistic interface and considerable safety concerns. Users had been murdered while meeting strangers on Craigslist and this received a lot of negative press for Craigslist. Also, this was the time that users were moving over from desktops to mobile devices. The founders were fast to capitalize on this move, whereas Craiglist did not adapt as quickly.

OfferUp soon dominated Craigslist, which had a clunky and outdated interface by going the mobile first approach and creating a delightful app that allowed users to list a product they were selling in seconds. Although the app was designed to buy and sell nationally, it is geared towards ecommerce in local marketplaces.

OfferUp positioned itself as a safer platform compared to Craigslist, by introducing TruYou, a program through which sellers and buyers opting into the program could increase their trustworthiness through the verification of a state ID, a phone number and a validated profile picture. Additionally, users can block and report users exhibiting suspicious or harassing behavior, making the platform safer as a whole.

For people still wary of meeting strangers over the internet, OfferUp has also partnered with businesses and police stations to create Community MeetUp Spots, which are brightly lit and have video cameras, to meet sellers to inspect products and complete transactions. You can see the MeetUp Spots highlighted when you look up a location on the OfferUp app.

Through social validation and validation through traditional methods, OfferUp seeks to allay the safety concerns of its users.

OfferUp’s Growth

Since its launch, OfferUp has had remarkable growth compared to eBay, another major eCommerce marketplace. OfferUp has had as many transactions in the first five years as much as eBay did in its first ten years.

The Average Daily Time Spent per User on the app increased from from 13 minutes in November 2014 to 25 minutes in June 2015,  on par with Instagram and Snapchat and more than Twitter and Pinterest.

OfferUp Meeker slide
via KPCB

OfferUp’s Statistics

How much Funding does OfferUp have?

As of May 2020, OfferUp has raised $393.7 million in funding from investors such as Andreessen Horowitz, GGV Capital, Tiger Global Management, Warburg Pincus, T. Rowe Price, and Allen & Company and others. The latest $120 million funding was raised in May 2020, along with an agreement to acquire Letgo which has been a fast growing competitor. OLX Group, a Netherland based firm led the latest investment round. OLX already had a stake in Letgo and after the acquisition it was agreed that it will have a 40% stake in the combined entity. Existing investors who have a stake in OfferUp, namely Warburg Pincus and Andreessen Horowitz also participated in the funding round.

How many users does OfferUp have?

OfferUp has seen an explosive growth in the number of users since it started. In Aug 2019, the total number of app downloads was 80 million and there were 44 million users, both active and passive. Also, the transaction volume on OfferUp increased from $2.5B in 2015 to $14B in 2016.

With OfferUp acquiring Letgo’s US operations, the OfferUp and Letgo marketplaces have been combined. The acquisition is specific to North America, so Letgo’s business outside of North America will be separately owned and operated as part of the OLX Group. Letgo already had 100 million downloads worldwide, so there will be an increased user base for OfferUp. However, Letgo will not be supported in Canada as OfferUp hasn’t expanded to Canada yet, so some of the user base in Canada will be lost as a result. Additionally, listings such as jobs, services, rental listings, and gift cards that were supported on the Letgo app are not being supported by OfferUp, so there is a chance of losing users for those categories as well. However, the founders are up beat about the acquisition, as OfferUp and Letgo are two very similar marketplaces and would bring about good synergies.

At the time of the acquisition, it was predicted that the combined active user base will be more than 20 million users.

How many Employees does OfferUp have?

OfferUp has 369 employees as of May 2020. OfferUp has acquired the US operations of Letgo and there will be some consolidation as a result.

What is OfferUp’s Valuation?

OfferUp has declined to disclose its valuation. It was reported to be valued at $1.4B after the funding round in August 2018, according to PitchBook.

How does OfferUp make money?

Now that we’ve covered some of OfferUp’s statistics, let’s answer the question about OfferUp’s Business Model: How does OfferUp make money? OfferUp’s Revenue model is interesting. Although the app is completely free for sellers and buyers to download and use, OfferUp has found some ways to monetize its large user base through its services.

Service Fees

Sellers on OfferUp pay a nationwide service fee when shipped items sell. OfferUp allows shipping to 48 states through the US Postal Office. The servuce fee is either a minimum of $1.99, or 12.9% of the item’s final sale price, excluding shipping costs. This rate will be displayed when you’re listing your item and the exact amount will be displayed when you accept an offer. This service fee is deducted from the final sale amount before the money is deposited to your account. Shipping costs are typically paid by the buyer, although the seller can pay for the shipping as well.

Eligibility criteria for Shipping

  • Sellers must use OfferUp’s provided label
  • Items must weigh less than 20lbs and the box size must be no longer than 18 inches
  • Items must be listed at a sale price between $1 and $750
  • Event tickets cannot be shipped
  • Items must be eligible for immediate shipping and cannot be drop-shipped (i.e., a seller cannot purchase items from another retailer and ship to a buyer).

If the transaction is completed by the buyers and sellers meeting in person, there are no service fees involved.

Promotional Fees

OfferUp Promote

OfferUp allows sellers to purchase two options for promoting items that are listed for sale. The Promote option allows sellers to pay a one time fee to promote the items for sale and display them at the featured positions within the first 50 items of search, browse and category results. Promoted items are rotated among these spots so that the promoted items get views. The 1-day promotion is priced at $2.99, the 3-day promotion is priced at $7.99.

OfferUp Promote Plus

If sellers are interested in promoting the stuff they sell on a monthly basis, OfferUp has a monthly subscription called the Promote Plus, which is priced at $19.99 per month after the free 3-day trial period. With Promote Plus, sellers always have the promotion available. Promote Plus comes in two levels: 1 item and 5 items. Swapping is available for the Promote Plus items, which means you can swap the item that is promoted for some other item on sale.

OfferUp’s Verified Dealers Program

OfferUp has catapulted to become the trusted platform for used goods with more than 44 million users. A good number of car sales is done through the app. It was estimated that OfferUp’s car sales accounted for nearly 10% of used car sales in the United States. The Verified Auto Dealers Program was created by OfferUp in order to provide dealers with digital tools to buy and sell cars locally. OfferUp shares data that more than 30 percent of cars sold on OfferUp sell within two days and more than 50 percent sell within a week. These tools would help car dealers to generate leads among the digitally saavy audience and find the right buyers for their cars. Dealers would be able to realize the following benefits by enrolling in the Verified Dealers Program

  • List their vehicles by connecting to their inventory feed
  • Display a vehicle’s Carfax report
  • Connect with car buyers via chat and Click-to-Call
  • Generate Leads via the Top Lead Indicator
  • Use advanced advertising solutions to enhance their exposure and sales

Conclusion

OfferUp with its amazing product design and key features has made transactions between buyers and sellers painless. The company has shown tremendous growth in the last few years.

With it’s acquisition of the North American operations of its key competitor Letgo, OfferUp is rapidly moving towards its vision for expanding the second hand economy with a positive impact on its customers and the environment.

Both OfferUp and Letgo have been admirable in their growth and tech innovation, and have been ranked in top positions in the Apple and Google app stores.

The acquisition is a giant leap for OfferUp in achieving its goals. Letgo has historically been strong in the midwest, where acquisition will create a strong presence for OfferUp. OfferUp would bring its shipping expertise to Letgo. With the COVID-19 crisis still underway, this would provide to be very useful to Letgo’s user base.

However, metrics such as user growth, employee base and leadership for the combined entity remains to seen as the deal is finalized. With its frequent product innovations, there’s no doubt that OfferUp will continue to dominate the mobile marketplace and continue disrupting the way eCommerce for the second hand marketplace operates.

References

38 Views

Leave a Reply

Your email address will not be published. Required fields are marked *