Gnarly with Zaarly and unwanted want

MIKE O'DONNELL
Last updated 05:00 13/04/2013
Mike O'Donnell
DONT USE, HE DOESN'T LIKE THIS ONE, USE HAT ONE INSTEAD

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OPINION: One of the blessings and curses of running a relatively successful web business in New Zealand is that you tend to act as a magnet for people with web start-up ideas.

Some of them have potential, some of them don't, and some recur with such regularity that you have to wonder if a practical joker has arranged a conveyor belt of punters who pop up and re-pitch the idea. One of these Groundhog Day ideas is building a classified wanted website (also known as "shop by request").

Intuitively it seems a reasonable idea. Consumers proved pretty quick to latch onto the idea of traditional classified "for sale" listings in newspapers and even more so with their digital cousins, online classifieds and auctions. Given this demonstrable consumer demand, why wouldn't the reverse work: an engine where you list what you want and people offer it up via some sort of peer-to-peer reverse auction?

It's a question that piqued the interest of two American serial entrepreneurs a couple of years ago, prompting them to deliver an online solution called Zaarly. Effectively a reverse version of free marketplace Craigslist, Zaarlylet buyers put up requests for what they wanted and how much they'd pay - from an apple pie to a pair of hiking boots or a pickup truck. It also extended to services, so you could say: "I want someone to wash my dog" or "I want someone to paint my house".

Built at Startup Weekend Los Angeles 2011, a 50-hour incubator event, Zaarly ended up winning first place and the attention of some influential folk including celebrity actors Demi Moore and Ashton Kutcher. It also notched up US$1 million angel investment from some West Coast hipsters.

A few months later Zaarly scored a further US$14m in funding in a round led by three Silicon Valley venture capital firms. The people that bought into this apparent dead cert included Microsoft chairman Bill Gates and former eBay head honco Meg Whitman (who also joined the board).

In 2012 Zaarly got named one of the world's Fifty Most Innovative Companies by Fast Company magazine. In the words of Tom Petty, the future was wide open, and the sky was the limit.

However, a few weeks ago Zaarly shuttered its whole shop-by-request model, and instead is going down the conventional road of ecommerce shopfronts. Meanwhile the core "want engine" concept that sucked in US$15m of seed funding is gone burger and the co-founder is out the door.

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So what happened? And how could this reverse auction model that lured in big name investors go so badly?

I reckon there are four things that spell doom for reverse online classifieds and auctions like Zaarly. It's why Trade Me finally killed its "Shop by request" service back in 2002, and why we ignore all the pitches for want engines. Those four things are content, categorisation, fraud risk and monetisation.

The first problem is about quality content, and that's finite specific content. Human beings being analogue entities can't help but mix and match wanted listings. So when a person puts a listing wanting a pair of jeans, they also say they are after a torque wrench and a shiatsu massage. In simple terms they become shopping lists which are as vague as they are illogical.

The second problem flows directly out of this analogue alphabet soup, and that's categorisation. With the previous example, would you list it under fashion, automotive or health? And without a specific item to link it to, there are no photographs and no way to filter or prioritise content. So they just become long shopping lists of bumbling narrative.

To make sense of this bumbling narrative the two parties need to talk directly. So rather than the listing culminating in a crisp transaction, it ends up as an introduction service - and that's where the third problem comes in.

The final transaction is conducted off the grid, most likely without a secure payment mechanism. That means it happens far away from a well-lit marketplace with fraud prevention tools, risk scorers and back-end trust and safety processes. You're on your own.

This need for parties to negotiate an outcome directly prior to a transaction brings a fourth and commercially terminal problem: how do you make money out of it? A person listing a wanted classified isn't going to pay money for the listing until his/her need is met; and because they need to connect with the supplier directly, there's no incentive to pay after the fact.

Together these four factors kill reverse classifieds dead.

Mike "MOD" O'Donnell is a professional director and head of operations for the Trade Me Group. His Twitter handle is @modsta and he excels at bumbling narrative.

- BusinessDay

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