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Reverb Bought-Out By Etsy

Well… this isn’t the video I wanted to make today. Sorry Slash, your birthday video will just have to wait.

Welcome back troglodytes to your daily dose of guitar information – the Trogly’s guitar show. Current Event Time!

Reverb announced today that they will be handing the keys of ownership over to Etsy in the following months in exchange for $275m dollars. Wow! Nice job, guys. This leaves me worried, confused and hopeful because Reverb is a huge part of my business, both as an affiliate partner of and as just a guy that nearly exclusively sells on the platform. Let’s take some time to discuss and understand what is happening. First, some history.

Reverb.com was first founded 6 years ago in 2013 by a guy named David Kalt. I first started selling with them 5 years ago – here is my first listing, a 3-Pickup Les Paul Custom in Natural – wasn’t even my photos haha

I eventually took a trip to Chicago Music Exchange to sell that guitar to them after receiving an offer – which is kind of funny now that I look back.

Why is that funny? Well, to help you understand why this great site even came about, Kalt sold his online brokerage company called OptionsXpress in 2011 for $1B (with a B) netting him a cool $50m in profit. Instead of calling it quits and retiring like many would dream to do – he decided to pursue his other passion in life – music. He purchased a store in Chicago from Scott Silver – THE Chicago Music Exchange.

Chicago Music Exchange

So yes, CME and Reverb were owned by the same guy, but they were separate companies that were very close. A better-than-eBay online gear exchanging site just seemed like a natural thing for Kalt to develop to help the community and most importantly, his new business – buying and selling instruments. A 3.5% seller’s fee vs eBay’s then 10% made made it a clear choice for many. They shook the market up so much, that eBay ended up matching their fee structure for instruments, but by then it was just too late. Reverb provided a much better way to buy and sell gear. My favorite features of the site were always being able to get ahold of someone via chat and now their private Reverb Shipping Protection program. It was a gear exchanging site ran by people that understood gear. What -A novel idea.

Kalt understood that there was more to a successful shop than just having inventory on the wall or on the site. You need to take care of your customers and provide an experience. In order to do that, he hired videographers and musicians to write articles and make videos about musical instruments, news topics and more with both of his companies, CME and Reverb. I know from experience that quality videos work to grow a business – I make my living in a very similar way.

From a seller’s standpoint, Reverb started off slow. There wasn’t a lot of traffic on the site, things didn’t sell too fast, but since the fees were lower, you’d list there on top of eBay just in case. Reverb has now grown so much that many people complain about dead-beat/uneducated buyers, scammers, and “inflated” watchers on listings – it has become the go-to place for instruments in my opinion. Some argue it has gotten too big.

Bought Out

So now that we understand the history of Reverb a little better, let’s talk about the future parent company, Etsy. Etsy is an e-commerce website focused on handmade or vintage items, art, craft supplies, fashion, jewelry, clothing… just a whole bunch of stuff. A Boutique eBay if you will. Kinda sounds familiar, eh?

They first started in 2005, based in New York and are now a publicly-traded company. That’s right – a big business with shareholders to respond to. They have been friendly with Reverb in the past years and Kalt feels this is the right future home where Reverb can continue to flourish. Afterall, he took inspiration from this site at Reverb’s birth. He wouldn’t want anyone else to take the reins.

As of now, Etsy’s intentions with Reverb are to keep it a standalone business. No, your Reverb shop isn’t going to now become an etsy shop. An Etsy isn’t new to this business either – they won’t destroy Reverb overnight. They have been bringing buyers and sellers together world-wide for quite some time now, so Reverb should be in good hands and stands to continue to grow.

Worries

However, in times of change it is natural to have some concerns – especially when there are no public answers. So now, let’s talk about the worries I have with this acquisition. In just the few hours since this has been released, I’ve seen mixed feelings posted about it online. Let’s start with the big one.

Fees

Nowhere in this press release did they state that the fees will not be changing. I wouldn’t really expect them to talk about this either. Currently, Reverb still charges 3.5% with a variable 2.5% + 25 cent processing fee for Preferred Sellers that use Reverb Payments and 2.7% for regular sellers – or if the buyer uses PayPal, 2.9% + 30 cents. With Reverb being the payment processor, this also gave them the final say in disputes (outside of a chargeback claim.) Etsy charges a 20 cent fee for each listing with a 5% seller’s fee and has a 3% + 25 cent transaction fee. This is clearly higher than Reverb’s structure at this time, however, Reverb also has a “Bump” program that seller’s can choose to pay an extra percentage of the sale price in exchange for more exposure on the website to make up for their lower selling fees. It will be interesting to see if the Reverb Payments program gets cancelled or expanded upon into the Etsy side of the business as well as seeing if the base fee gets changed for Reverb. With eBay offering a matching 3.5% for musical instruments, I think we will be safe here, but who knows, eBay and Reverb might collaborate to match Etys’ 5% for instruments.

Etsy Current Fees – 2019

Affiliates

This next one isn’t probably something most viewers are worried about, but did you know Reverb helps directly support my show? Everytime you click one of my Reverb links in my video descriptions for a WYRON or Review and Demo episode, Reverb will track your purchases on the site for 1 week and provide me a 1% commision on any sale – it costs you nothing to help support me while buying what you’d already buy and I advertise Reverb organically. Reverb helps me to make content.

eBay’s Partner program offers a higher percentage rate, but only tracks purchases for 24 hours. I was scared a bigger company like Etsy might have a similar program, but I was pleased to find they have a 2-4% commision rate with a 30-day cookie tracking system. This calms my worries because even if we do see an increase in fees or a change in affiliate programs, it might balance itself out and not affect my show and other people who advertise Reverb.

No Longer Run by Musicians

That’s not entirely true. At this time, most of the Reverb staff seems excited about this acquisition – or at least that is how the emails are written. A relatively small company being bought out by a larger company can sometimes lead to great things since they can fix issues that have experienced already in the past to them and bring faster growth. It can also lead to staff changes, but it seems many of the same people will still be making the site ‘run.’ Will the video styles change or be discontinued? Might we get different articles written? That is all up in the air at this point, but as long as they still police the site for scams, provide great customer service and keep the access to a Customer Service Agent in a Chat Bubble, I think we will be safe.

CME / Reverb Breaking Up

This news was shocking, because David Kalt is still in the musical instrument business and is directly affected by any changes that might occur with the site. I don’t think he would just sell this to anyone if he thought they were going to destroy it. Etsy must have a great plan. However, CME and Reverb have gone hand-in-hand for quite some time. I’m pretty sure CME helps Reverb with some of their operations when it comes to their restock shop. I’m curious to see if CME will now start producing more video content and if Reverb will undergo a stylistic change in their content since both are rather similar. An updated site layout maybe?

Why Did This Even Happen?

Here is the biggest question. Why would Kalt sell Reverb – a growing, money-making machine that directly affects his business too? The first thing that came to my mind was something that is effecting online selling sites everywhere and giving me quite a headache.

Marketplace Facilitator laws have recently gone into effect in many states that holds sites like eBay, Reverb and Amazon accountable for collecting state sales taxes on behalf of the sellers that use their platform. This means when you sell to a Marketplace Facilitator states, Reverb has to collect and remit sales taxes on your behalf. That might not sound like a huge deal – taxes at a store are nothing new. But – this is something new for the private seller market that I see will hurt it between individuals – especially for used and vintage instruments. Now, Joe can no longer just sell Billy his guitar for the agreed upon price, a tax has to be charged. When it’s a $3,500 Les Paul Custom, that tax is around $250 extra that usually comes as a surprise to the buyer. This is going to kill agreements and might lead them to do a back-door deal, cutting Reverb Commissions from the sale too. Or, the buyer might have to negotiate a further 7% discount that the seller cannot offer. This is essentially de-evolving the system that eBay and Reverb have built. People will go back to the private sales, guitar shows or checks in the mail. I definitely see this as a huge bump in the road towards growth and a potential headache for Reverb to overcome.

Whether this is the exact reason, we’ll never know. It is all just speculation at this point, but I would love to hear your thoughts, comments, worries and hopes in the comments section below! Thank you for watching and we will see you tomorrow on the next episode.

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