Did you really think arbitrage of used goods could be a business? I think the best thing these types of experiments do is expose pain points and inefficiencies that you can make businesses out of.
When I was in my ramen phase of startup life (and newly married), I used to (among other things) buy clothes at local thrift stores and resell them on eBay for a decent margin. You quickly learn what brands/items sell and occasionally I'd hit gold and find a vintage Hawaiian shirt that fetches $200 (and cost $2).
In the end though, you realize it's just a way to make some extra money. It's not a "business" IMO–and definitely not a scalable business. But you learn what sucks (like dealing with shipping & getting photos from a camera to eBay pre-Smartphone) and realize other people also feel that pain. That's where your business is.
UPDATE: Downvotes, seriously? Read my reply down this thread. Some people on here are, frankly, ridiculous and have no clue how to engage in a meaningful discussion.
Exactly. It's a hobby, but while scaling it up is hard to do, it is not impossible. Two stories.
I wrote a program awhile back that would look for iPod Touches on my local Craigslist and would analyze the price for many different versions. If an individual iPod was available and was below mean price within a given time frame, I'd send the seller a note almost immediately. Then, if I purchased the item, I'd relist it at the mean price. Completely an arb play.
What I learned was that 1) iPods are easy to sell, 2) People who buy on craigslist are flaky and tend not to show up, 3) The time spent waiting around to meet people was obnoxious, and 4) Sometimes sellers see what you did with their item and send you angry emails.
I never made more than a few hundred bucks, but it was an interesting experiment nonetheless.
Second story: For years, my wife sold used books. She'd go to estate auctions and buy boxes and boxes of books. She'd go to library sales and buy hundreds of books. Then she'd sell them on the Amazon marketplace. She would walk into these places with a barcode scanner and would check their price and sales rankings on Amazon. If it was in a decent margin for her, she'd buy the item. This actually did scale, but she quit when it became less of a hobby side income and more like real work. She's a nurse by trade, and the book selling was never meant to be anything more than a hobby.
So, I guess what I'm trying to say is that arbitrage of used goods can be a business, but it depends heavily on the availability of the supply of used goods. Books worked for my wife because she could buy dozens of them at a time and ship dozens of them them all from the post office down the street as orders came in. For me, I was running around town picking up items and dropping them off.
Arbitrage is technically a set of simultaneous transactions where you buy and sell at the same time. Purchasing something and reselling it later for a higher price is not arbitrage.
It is usually used to describe a riskless transaction.
I'm not sure I agree with the description of arbitrage as "riskless". The arbitrageur is accepting the risk that the arbitrage opportunity will go away in between the buy and the sell. This is true whether you're arbitraging salt via caravans across the Sahara or arbitraging currencies in millisecond trades.
It's the idea of simultaneous transactions that makes it riskless. Whether millisecond forex trades can be modeled as "simultaneous" is another question.
If you want to get more precise, the benefit of simultaneous or near simultaneous transactions is reduced risk that prices will fluctuate. Arb is just an exploitation of different prices in different markets.
I've posted this before but I've made half decent money in small batches by purchasing crates of assorted goods at live auctions. Police auctions are sometimes good for this, as they may just load a heap of stuff onto a pallet and sell the pallet as a lot. Most people don't want to buy a pallet full of junk, but you can get lucky if you scope it out before the auction and look for valuable items. Same goes for office liquidations - you might get a bulk lot of 10 LCD monitors or laser printers or something like that. You can sell the first 1 or 2 on eBay, get your capital back and the rest is pure profit. It's also easy if you buy a bulk lot because you only need to write the listing once and just keep repeating it, plus you can get a feel for what days/times bring the most bids.
It's not terribly scalable because you need to have transport and time to attend auctions, plus somewhere to store the stuff. But if you have a decent sized car/pickup, proximity to auctions and a nose for a bargain, you can pick up some good pocket money with this strategy.
Incidentally, I think the market for the pricenomics data is precisely the same as the KBB market - detailed lookup via mobile app for people who are buying/selling regularly. A good pawnbroker/2nd hand dealer/auctioneer will know the price point on a wide range of goods, but allowing people to purchase this information for a reasonable price will help both people starting out, and also professionals stepping outside their bread and butter.
I would suggest a freemium model, where the free version gives you a price range, and the pro version gives you a very direct price.
> 2) People who buy on craigslist are flaky and tend not to show up, 3) The time spent waiting around to meet people was obnoxious, and 4) Sometimes sellers see what you did with their item and send you angry emails.
This is why you buy in the small and isolated market (craigslist) and then sell in the larger market (ebay) where you don't have to find people and waste time and money delivering the item to the person.
Interesting. But wouldn't it be better to buy on ebay and sell on craigslist? That way you don't have to drive around to pick up stuff and people come to your house to get things so you don't have to mail it out.
In places like ebay the sellers are a tad more experienced and they have more exposure to the "market price" so it's harder to get a better deal. You could still get a small deal and try to sell for an inflated price on craigslist, but I'm of the opinion that it's just easier to find buyers who will buy at the market price on ebay rather than buyers who will buy for an expensive price on craigslist. Even more so with specialty / collector style items.
A friend of mine runs a larger-scale version of the used book business your wife used to run. She started out buying books from estates and old people looking to downsize. She'd take anything, paying a flat rate of something like 10 cents a book, and would show up at your house and haul away all the books. Then she'd list all the books on Amazon. Even if the book was selling for one cent she would make money on the shipping, since shipping costs slightly less than Amazon's shipping allowance (unless the book weighed over a certain amount and thus she'd lose money on shipping, in which case she'd recycle it, as she did with books in unsaleable condition). After a while she built bookshelves in her garage which let her store I believe tens of thousands of books, and hired people to do the book listing and shipping for her. She also moved on to more large-scale ways of acquiring books, like arranging with churches and schools to pick up the books that people left in their donation boxes. Every so often there'd be a volume that sold for $100, but the great bulk of the predictable cash flow came from making less than $1 for a large number of books sold each day.
I got a few where people were mad that I simply re-listed their item at a higher price than they sold it for. I'm sure they felt duped for undervaluing their product in the first place. As binarysolo pointed out in this thread, some sellers feel they need to urgently sell their items, so they under-price. I'd could afford to wait for someone to pay my asking price.
Instead of being angry that they didn't maximize their profits, could it be that the sellers were _offended_ that someone would maximize profits with their possessions? I can imagine a couple reasons:
1) The Toy Story 3 plot: people want to find a home for their possessions with people of similar interests. They become angry that you are reducing the consumer surplus that would have gone to the ultimate buyer.
2) They realize that arbitrage on a first-come-first-served marketplace can reduce the value of the marketplace as a whole, since buyers are less likely to find bargains. They recognize your behavior as antisocial and become angry.
The reverse can be true for both of those points. Raising the price to the market-clearing level increases the probability that it gets sold to someone who places a greater value on it.
"The buyer" isn't necessarily constant. Suppose Alice values a widget at $100 and Bob values it at $200, and also that Alice spends much more time on Craigslist than Bob. If you sell a widget for $75 then Alice will probably buy it, which results in less consumer surplus than if you sold it for $150.
Buyers have different motives. As do sellers. Mismatches are common, and when people make a trip to someone's residence to look at product in question (as thru CL), the deal, typically goes through, leaving mismatched feelings about the deal.
err, yes, and I suppose used cars too. Maybe I should have been more specific.
But pawn shops don't get into YC and I doubt Cal Worthington ever raised a series C round on Sand Hill Road. Those types raise money via bank loans (if at all) and most people in the valley would call them "lifestyle businesses".
My point wasn't if such businesses exist but rather if Priceonomics really thought they could form a scalable business doing this. My guess is that they didn't (again, I don't know them and I'm often wrong). Rather, I think it was more of an experiment that would expose real business problems, validate ideas, create a case study, and/or make a little extra cash.
This seems like Silicon Valley echo-chamber thinking at it's finest. If your definition of a scalable business is based on the number of VC rounds raised, or which prestigious incubator it comes from, then no, I suppose it's not a scalable business.
No my idea of a scalable business is correct: grow revenue without costs growing proportionally. Software is the perfect example: you write it once and (potentially) sell it infinity times. (Please don't nit pick my definitions unless you fundamentally disagree)
Buying and selling used goods is absolutely not that. You're talking about searching, inspecting, paying (cash), storing inventory, selling, shipping, etc.
And, no, eBay and Craigslist are not examples. They don't buy things. They are a marketplace and that's not what the original post set out to do.
A scalable business is one where you find things get cheaper as you do more of the process. Software happens to be moreso than many other things (you still have to look at support costs, among others), but that doesn't mean it's the only industry.
Selling burrito franchises, car dealerships, and grocery stores all work very very well at scale, and are very scalable.
> searching, inspecting, paying (cash), storing inventory, selling, shipping, etc.
So Amazon was never a scalable business? Or netflix? You don't have to be sitting around a kitchen table selling nothing but bits for it to be scalable business.
I have no idea whether you have a point that you're getting at.
Amazon wasn't profitable for a long time and only scalable because of massive investments. They don't buy used goods and resell them. Same for netflix.
His main argument is that the acquisition of items for resale is not scalable, because you are dependent on people to supply used goods. You cannot make the market provide more used goods to meet demands. Amazon and netflix can perfectly well do that.
The list I quoted all applies to selling new goods, too. It's very strange to assert that it's not scalable to procure, sell, and ship goods at a profit when the bulk of business growth in the past 20-30 years has all involved those activities. (Apple included--their engineering and design are no doubt important, but their success is built on a strong operations backbone.) His main argument didn't look anything like the argument you paraphrased.
My point is that it's folly to try and argue this particular negative. I'm not so confident it's impossible to scale reselling of used goods when there's been so much growth in optimizing operations processes.
True, it does, but it's entirely different still. "searching, inspecting" are just different with used goods. For one, "searching" involves finding out whether there is anybody who can provide any goods, not whether there is a supplier who can give you as much product as you need. You cannot find a supplier in China to build you more used Aeron chairs. Apple and Amazon have wildly different options in that area.
Secondly, "inspecting" may boil down to a similar process of QA, but I think it should be obvious that assuring quality in a production process of new goods is a very straightforward thing while for used goods, you probably need a new process with every supplier you find.
And I agree that there is an astonishing growth in optimizing any kind of operations process. However, that still doesn't increase supply. This cuts back to his main argument: "grow revenue without costs growing proportionally". If you have a finite supply of used Aeron chairs, acquisition of the remaining chairs becomes increasingly hard - up until the point where there aren't any, anymore.
So yes, I added the argument of finite (if only temporary) supply, but it was only to extend his argument of proportional growth of cost. And yes, there is room for optimization and that may be sufficient to keep a business afloat - certainly if they are flexible with their inventory - but there are still natural limits to such a business, and that makes all the difference in the world.
The entire retail business is already constrained by demand. No one is demanding that "scalable" mean "scalable without bound".
For most durable goods there's a never ending supply of used goods already; the supply of new goods a couple years later. Once you solve the business problem of building a good funnel for used goods to come into your operation, you can probably boost or create resale value for used goods, indirectly pressuring the original suppliers.
Not quite: maybe I just want to put all my stuff in a truck, give it to a guy, and get a check. I don't want to worry about shipping and accepting payment from a hundred different people and keeping my listing up to date and figuring out pricing and not getting scammed.
But that is the pawn business. Anything else is a different business entirely, e.g. being a second hand goods dealer.
Pawn shops can deal in second hand goods and often have the licenses for outright purchase (which may be where some of the confusion that I've seen from people originates), but that is not strictly speaking what pawning is.
That's not arbitrage, neither is buying goods in one location and selling them in a far away location. Arbitrage is a simultaneous purchase/sale in different markets with a trivial amount of work and no risk. If there is risk, it's not arbitrage; if there is work, it's not arbitrage; if there is a lot of time involved (and thus, of course, risk), it's not arbitrage. Antique dealers buy from people who want to get rid of things and sell to people who want to buy things. They make a profit because historically it is difficult to find antiques when one wants to buy them. Even if you managed to be connected to every antique seller imaginable you'd have to be lucky enough to have an item go on sale within the time you want to buy it. Antique dealers serve as a buffer, offering quick cash to sellers and selection to buyers.
Yeah, but that suggests that the success condition is running a pawn shop. Probably not what you're after if you are a software startup that's just taken seed investment.
I'm going to assume that you're not talking about the secondary market for used goods, because that can most definitely be a business. See: ebay.com.
About arbitrage: I agree with you, to some extent. By definition, as more people notice the price differences and take advantage of them, the arbitrage will become less and less profitable. If you intend to build a business that will scale and prosper in the long term, you need to provide value to people and not tie yourself to short-lived arbitrage opportunities. I work in finance and that fact is plainly obvious to a lot of us.
However, there is value added when you give people information. Information isn't free. Someone has to go out there and find all the prices, organize them, and show them to people. The arbitrage differential will grow smaller and smaller as competition grows, but at no point will this information be free. Given the possibility to find cheaper prices, people will pay if it's worth their while. If it's not money, at least page views.
> Did you really think arbitrage of used goods could be a business?
Yes. Some examples (depending on how loose you want to get with the term arbitrage. I'm using it as its used in this article) would include antiques/collectibles and used cars.
It's obviously much better to operate in areas where 1) value is unclear and/or 2) goods may take time to sell.
With those things, you can get an advantage by knowing the value and by being able to hold onto something until it sells for a proper value.
Indeed. What do you people think business is? Plenty of people operate perfectly reasonable used-goods businesses of the same nature at flea markets and the like. The question for Hacker News types is whether the business is scalable (depends on the local supplies of used goods, among other things) and whether there are more interesting businesses for you to be in.
Business needs to be demystified. Look at Princess Kate. Her family's business (worth millions, or billions, I forget) basically started with assembling party supplies into convenient boxes. If that's a business, anything can be a business.
You're right, profit tops out well before you get to "big money," usually due to limits on either supply or time.
In the used clothes example you are either limited by time (I can only hit ten thrift stores in a week) or supply (there are only ten thrift stores in my area.) After that, how do you scale up?
Probably downvoted because 1) Priceonomics of course has never had any intention of actually buying and selling used items and 2) there are actually many examples of good businesses buying and selling used items (and, in fact, office furniture is one of them).
When I was in my ramen phase of startup life (and newly married), I used to (among other things) buy clothes at local thrift stores and resell them on eBay for a decent margin. You quickly learn what brands/items sell and occasionally I'd hit gold and find a vintage Hawaiian shirt that fetches $200 (and cost $2).
In the end though, you realize it's just a way to make some extra money. It's not a "business" IMO–and definitely not a scalable business. But you learn what sucks (like dealing with shipping & getting photos from a camera to eBay pre-Smartphone) and realize other people also feel that pain. That's where your business is.
UPDATE: Downvotes, seriously? Read my reply down this thread. Some people on here are, frankly, ridiculous and have no clue how to engage in a meaningful discussion.