Gazelle Leaps Past $35M in Revenue, Pushed by iPhone 5

10/10/12Follow @gthuang

Which local consumer-facing tech company is benefiting the most from the new iPhone release? It just might be Gazelle (fka Second Rotation).

The six-year-old Boston startup, which has raised roughly $46 million in venture funding from Venrock, RockPort Capital Partners, and other investors, is starting to turn the corner on the “re-commerce” market—buying used smartphones and other devices from consumers and reselling them to wholesale buyers, insurance and device-warranty companies, and online retailers.

The iPhone 5 release is a big deal for the company, because new iPhone owners can sell their older models to Gazelle and get money for them instead of putting them in a drawer, or giving them away. Gazelle says its number of device trade-ins in 2012 has been about four times what it was last year, and in the past few weeks, more than 3 million offers to sell old iPhones have come in. (Apple sold about 5 million iPhone 5s in its opening weekend, by comparison.)

“It’s a huge inflection point for us,” says Israel Ganot, Gazelle’s co-founder and CEO. “What’s changing is market adoption of re-commerce, and consumer behavior.” As Ganot puts it, the smartphone “ownership cycle is going from three to four years, to two years now, and sometimes one year.” Another change is in the startup’s marketing and advertising strategy: Gazelle has invested a lot in national TV ads and billboards in high-traffic places like subway stations and Copley Square.

“Our biggest challenge continues to be awareness, for the entire concept” of re-commerce, Ganot says. “Our biggest competitor is inertia.” Only about 3 percent of U.S. consumers trade in their devices, he says, and another 3 percent sell them on eBay and the like, though those figures are increasing. (Numbers are higher in the U.K., where some 21 percent of consumers trade in or sell old devices, he says.)

Yet Gazelle has been growing steadily over the past three years. Its revenues have gone from $8 million in 2009 to $21 million in 2010, and $35 million last year, Ganot says.

Before Gazelle, Ganot worked for Goldman Sachs, Amazon.com, PayPal, and eBay in Europe. He learned a key lesson from eBay: how not to handle customer relations. “eBay did an awful job over time, and I believe this brought it to its knees over the last few years,” he says, referring to a “lack of focus on the customer and customer experience.”

By contrast, Gazelle follows a Netflix- and Zappos-inspired model of “crazy awesome experience,” Ganot says, trying to “make sure you delight the customer.” To be fair, consumers could probably get more money for their used devices on eBay or Craigslist, but Ganot says they get a more pleasant experience and “honest value for their device” through his company. (Right now, Gazelle is offering $159 for a 32-gigabyte AT&T iPhone 4 in good condition.) “There’s value in those devices and an easy, convenient way to get value,” he says. “We make an upgrade more affordable and sustainable.”

And how does Gazelle make its money? The old-fashioned way, Ganot says: “Buy low, sell high.” Most of its resold devices end up in emerging markets in Asia, Latin America, and the Middle East.

As for operations, Gazelle has about 65 employees in Boston. It outsources its electronics processing operations—shipping, consumer packaging, and inspecting and wiping devices—to a facility in Texas.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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  • http://twitter.com/Qibbly Qibbly

    The reason I love my line of work. Wholesale iPhones is the way to go!