Mobile warfare erupts in the US

31 Oct 2016

This article was first published in CIR17.20 on October 31, 2016, a client-only report. To receive the bi-weekly Classified Intelligence Report (CIR), go here.

If you want to track the hottest growth spot in the general classified space, follow the money. That won’t take you to Craigslist, or EBay, but to a furious battle between classified apps for mobile users.

The sparring is happening worldwide, but nowhere is it more intense than in the U.S.. In the past year, the country’s two leading classified apps, OfferUp and LetGo, both raised $100 million U.S. plus.

In July, OfferUp recorded the largest proportion of classified app installs in the U.S., with 5 percent.

They’re joined by up and comers, such as Close5, which is EBay’s entry into the space (after it bought social marketplace Rumgr in 2014) and 5Miles (which is backed by Chinese investors with ties into Alibaba).

And now Facebook has jumped into the fray with its Marketplace app — an entry so new (it launched just a few weeks ago) that we haven’t had time to see its impact. Still, it has a ready-made audience of 450 million users (that’s the number of people who, according to Facebook, visit one of the site’s buying and selling groups each month), a potential reach of 1.7 billion (Facebook’s total number of accounts), and a prominent link on the main Facebook app, taking over where Messenger used to appear.

Classified apps are basically like their desktop older cousins, but built from the ground up for mobile. They usually emphasize more of a casual browsing interface, where thumbing through pictures on the home screen is the main way users interact, rather than choosing a specific category from tiny text links. Some apps have online payments built in. Nearly all require authentication — usually through Facebook.

What the data says

We asked the web and app tracking analytics firm SimilarWeb to run the numbers on the top classified apps in the U.S.. We wanted to look at apps that are either pure-play mobile, or started on mobile and later added a desktop component. We didn’t review apps that have a legacy desktop history (such as EBay’s Kijiji or Gumtree), or “progressive web apps,” which are apps built with HTML, CSS and Javascript, but that still operate within a web browser and can include push notifications, a home screen icon and full-screen appearance.

In July 2016 (two months before Facebook Marketplace launched), OfferUp recorded the largest proportion of classified app installs in the U.S., with 5 percent. (The metric refers to the average daily percentage of users who’ve installed the app. It only tracks Android devices but SimilarWeb said the rankings can be extrapolated to Apple devices too.)

LetGo, installed on 3.5 percent of devices, came in second, but the number was prior to the company’s merger of U.S. operations with fellow Barcelona-based classified app Wallapop, which was installed on 1.26 percent of devices in the time period. If their percentages were simply added together — not necessarily representative of how the combined entity will fare in the real world — that would put the new brand, which is keeping the LetGo name, at 4.7 percent, a nearly dead heat with OfferUp.

Analytics company Comscore finds the top two apps much closer, even before LetGo’s pairing with Wallapop, with OfferUp seeing 12.6 million users in June vs. LetGo’s 12.1 million. App trends tool Apptopia has the numbers reversed, with LetGo slightly on top — 17 million to 15 million.

Research firm App Annie says LetGo’s IPhone app ranked sixth in downloads in the shopping category, behind fourth-ranked OfferUp.

Close5 and 5Miles are neck and neck for third place, according to SimilarWeb, but way behind, with each installed on about 1 percent of devices.

SimilarWeb also looked at usage rank per country — an algorithm that the company says combines “current installs with active app users.”

OfferUp comes in again in the top spot — at 86 — with LetGo trailing at 186. After that, 5Miles does much better than it does in the percent of installs ranking — it’s in position 221, while Close5 and Wallapop are way behind at 1,159 and 1,336 respectively.

The investment landscape

LetGo began an aggressive advertising campaign in the U.S. earlier this year, armed with its Sept. 2015 investment of $100 million U.S. from South Africa-based media powerhouse Naspers. LetGo now has more than $200 million in total funding and an experienced founder in Alec Oxenford who co-founded international horizontal OLX in 2006.

OfferUp has matched LetGo here too: the $119 million it raised just last month from some of the top venture capital firms in Silicon Valley brings its total to $210 million (at a stunning valuation of $1.2 billion).

Unlike LetGo, OfferUp has eschewed paid advertising in the past, preferring to grow organically mostly through word of mouth. CEO Nick Huzar, who started the company in 2011, said that may change now that the stakes are higher.

EBay’s Close5, meanwhile, is so far behind that an analyst on the Seeking Alpha website suggested that the only way for the e-commerce giant to “displace Craigslist” would be to buy a more established company.

That assessment presumes that the emerging classified apps can or should be compared to the lumbering Craigslist and that there is a limited classified advertising pie that is Craigslist’s to lose.

Naspers CEO Bob van Dijk thinks so

In a September interview with The Wall Street Journal on why Naspers got into LetGo in such a big way, van Dijk described Craigslist as “executed in quite a suboptimal way,” and said he believes “a mobile-oriented generation doesn’t really want to interact with a clunky ’90s website. [The] market, I think, is ripe for disruption.”

OfferUp CEO Huzar cautions against considering this a purely apples to apples game.

“We don’t think of ourselves as a classified app,” Huzar told AIM Group. “We don’t think the future looks like what our competitors are doing.”

OfferUp, Huzar said, aims to be something more akin to “Snapchat with commerce.” OfferUp users spend an average of 23 minutes a day on the app, “up there with Snapchat and Instagram.” OfferUp’s goal is to be Starbucks-addictive, so that you browse items on a daily basis while waiting in line for a latte, “find something you didn’t even know you wanted and buy it” on the spot.

This browsable, impulse marketplace “will expand the market, not take away” from existing players, such as Craigslist, he added.

That said, in an interview with the Seattle-based entrepreneur publication Startup Grind, Huzar admitted that the initial idea behind OfferUp was to take on Craigslist by improving the user experience with a Pinterest-like visual home page.

No-one believed taking on Craigslist was even possible, Huzar said, and it took 15 trips to Silicon Valley before the first check was written back in 2011.

Craigslist famously has not updated the look and feel of its website in years and has refused to develop a mobile app. (It authorizes three third-party apps.) Based on its revenue numbers, perhaps it doesn’t need to.

Still, as more and more users rely on their mobile devices to quickly snap photos to post and sell, Craigslist does seem vulnerable.

And the paradigm shifting wave Huzar says OfferUp is riding is echoed by Facebook product manager Bowen Pan, who told TechCrunch on the launch of Marketplace that “we found that the vast majority of people just like to browse. They don’t have a specific item in mind. They are just … scrolling through the feed and seeing if there’s anything that might interest them. It mimics some of the offline shopping behavior of going to a Sunday market or to the mall. You might not know the items you want, but you’re open to seeing them.”

That said, Facebook definitely has Craigslist in its sights

“The prevalence of Craigslist shows there’s a great need for a local commerce product,” Pan added. TechCrunch dubbed Marketplace “a friendlier Craigslist.”

A year ago, when we reported on the U.S. classified app scene, we put greater stock in EBay’s Close5, especially given that EBay had recently divested its stake in Craigslist.

Like OfferUp, Close5 has a “discover” feed that displays the latest posted items for sale according to the user’s location. Close5 — as with all of the new crop of classified apps — encourages buyers and sellers to communicate within the app, and requires users to create public profiles that reduce anonymity and increase trust.

We asked EBay how much money they had put into Close5 but the company declined to answer. TechCrunch reported earlier this year that EBay has a team of 100 people working on Close5, “one-third of whom focus on customer service.”

Meanwhile, 5Miles CEO Lucas Lu knows his app is far behind OfferUp and LetGo, but told TechCrunch confidently last year “we are growing a lot faster and will catch up.” 5Miles has raised $50 million U.S. to date.

Canada’s VarageSale was in the process of reaching across the border, but was knocked off course earlier this year when the company — which has raised $34 million from big-name VCs – such as Sequoia Capital — had to lay off a third of its staff, including its CEO.

It’s now hired a new chief executive, Andrew Sider, who said in August the restructuring resulted from a desire for product-driven growth rather than paid advertising. The company has hired a new head of engineering and Sider told the tech site Betakit, “we’re at the point where our efforts are starting to hit and we’re seeing momentum.”

Sider’s predictions may be premature: VarageSale’s numbers don’t even register on SimilarWeb’s top web apps list.

Which leads us back to the mostly two- (or now a three?) horse race we started with.

With their comfortable financial backing, both OfferUp and LetGo have no fees attached; it’s all about building audience for now. (Ditto for Facebook Marketplace.) Huzar said that OfferUp is “experimenting with monetization”, but nothing is set yet.

LetGo investor Fabrice Grinda told The Wall Street Journal that he thinks LetGo investor Naspers “will spend whatever it takes to win.”

Facebook’s Mark Zuckerberg undoubtedly fits into that same category. The apps, it seems, need to battle it out among themselves before taking on Craigslist.

And that fight has only just begun.

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Brian Blum

Brian Blum covers the U.S., Canada and Israel for Classified Intelligence Report, and contributes to our special reports and research projects. Originally from San Francisco and now based in Jerusalem, he has been with the AIM Group since 2004. He is the president of Blum Interactive Media, specializing in writing and multimedia content development for online, print, video and audio. His clients include newspapers, universities and non-profits. He is currently working on a book about the billion-dollar bankruptcy of a once high-flying Israeli startup.