Daniel Nissanoff is an internationally recognized and accomplished expert in secondary market economies, technologies, and businesses. A Web entrepreneur who founded one of the first and most successful online B2B exchanges, PartMiner, which he grew to a market value of $500 million, Nissanoff more recently co-founded Portero, the online facilitation company specializing in the resale of luxury goods. He has consulted to several Global 500 companies about business strategies for coping with the challenges of online secondary markets, and he was a 2001 finalist for the coveted Ernst&Young Entrepreneur Of The Year Award. We are talking to him about his book FutureShop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell, and Get the Things We Really Want.
Nissanoff introduces himself this way: "Currently, I'm concentrating my resources on building the FutureShop platform to help individuals and companies understand and embrace the new 'auction culture' paradigm, which is about to rewrite the rules of shopping and owning things as we know them today."
tompeters.com asks ...
What is FutureShop all about?
DN: FutureShop is a first look at how the Internet, and more specifically sites like eBay are beginning to impact our society, particularly our consumer culture and our economy, in ways that are very different from what one might expect. It is accelerating the evolution of our consumer culture.
I believe that you say in the book, "We'll soon vigorously adopt a new lifestyle, one predicated on the norm of temporary ownership and marked by the continuous replacement of our personal possessions."
DN: Right. The central thesis of the book is that we've grown up as an accumulation nation, a society that was taught to buy things and accumulate them, but never to purge those items.
Sites like eBay have begun to create levels of liquidity in our everyday goods. For those items, they are essentially creating value that never existed before. As consumers, we're beginning to become more aware of that value, as well as the deterioration of that value, if we continue to behave the way we did in the past.
As the market becomes more liquid, as our everyday goods become more valuable, and as new solutions facilitate access to these markets, we will begin to evolve as a society of consumers and recognize that being temporary owners of the things we buy, of our possessions, becomes the more efficient way of living.
When the online system becomes more liquid, this puts yard sales out of business?
DN: They were out of business a long time ago.
I still see signs for them all the time.
DN: It's interesting, because I can draw the same analogy with eBay. There are a lot of people who enjoy selling things there as a hobby. Yet drop-off stores have opened up all over the country—all over the world actually—that charge you to sell something on eBay. They do all the work for you, for a fee. I concluded that you had to earn less than $15 an hour or place less than $15 an hour of value on your time to want to sell something on eBay yourself, unless you're selling something extremely expensive.
Because of all the time involved with signing up at eBay, then schlepping the item to the Post Office?
DN: Right. eBay is a great model. It's a great company. But the reality is that very few people are really selling things on their site. Yes, eBay did $44 billion in business, but less than 5 percent of all the people who bought that $44 billion worth of goods actually ever sold anything on the site.
When this entire inventory that has not been available to the market suddenly becomes available with seamless access to the market, things are going to dramatically change.
One of the statistics that I reference in the book is that an average of $2,200 of goods is sitting in the average American's home, unused, gathering dust. That's made up of everything from an old set of golf clubs, to old clothing that we no longer wear, to technology that we thought was cool a year ago that we bought on an impulse and don't use anymore, to art and furniture that's sitting in the garage because we don't like it anymore.
But there are plenty of people that would get value from that stuff. When you aggregate the value of all these unused items, it's in the hundreds of billions of dollars.
We have to make that fundamental shift from the idea of owning everything forever to, "I'm going to own it for a year and then get rid of it"?
DN: It's actually a shift we already make. When you buy an automobile, the minute you buy that car, even before you buy the car, you know you're going to sell it one day. You know that even though that's your baby, even though you take the time to pick and choose all the little gadgets that you want inside it, all the extras, the colors, the fabrics—you know that at some point in the future, well before the end of its useful life, you will no longer own that car. You'll sell it in order to buy something better.
Not me. I take a car and drive it into the ground.
DN: You haven't evolved from the last iteration of consumer culture. So you'll take an even bigger leap.
Reading your book made me think about all the stuff I have in my basement. I have this old pair of K2 skis. They were top of the line when I bought them, but of course now they're worth about $25. I think the big shift in thought here is usefulness. I considered selling them when I purchased a new pair, but I thought, "On those spring days in New England when there are more rocks showing than snow, I'll use this old pair of skis." But that never happens.
DN: Right. When you buy a car, if you're worried about getting a scratch on it, it takes away a lot of the pleasure of owning it. Many people have opted to lease cars for that very reason—because they don't want to worry about a dent or a scratch. They want to enjoy the car.
Going back to your skiing analogy, one of the first things that will happen for most people is that they're going to realize they've already held on way too long to many things. Those items are really not valuable anymore. They're bad examples of things to sell on eBay because, guess what? Junk is usually junk.
I noticed that. I went to one of the AuctionDrop storefronts and looked around. There must be eight of them within walking distance of my house. But for sporting goods, golf clubs seem to be the only renewable item. They didn't even mention tennis rackets as something that they're interested in.
DN: The high brand of tennis rackets will do just fine; bowling balls will probably do well; skis that are more current. A lot of these places actually allow you to do local delivery as well, or local pickup. So theoretically, you don't have to incur a shipping charge. Shipping costs have come down dramatically and will continue to, so that's becoming less of an obstacle. Look, it's not going to happen to everything right away, but a very large percentage of the things that you engage with, that you call your possessions, fit into this category. From jewelry to watches to designer clothing, especially women that are into handbags, shoes, and accessories, to collectibles to furniture to art to sporting equipment, anything from a treadmill that you thought you would use to a set of golf clubs.
I'll give you another category that's really interesting—luggage. If you own high-branded luggage that you no longer use, Tumi for example ...
I have one of those in my closet even as we speak!
DN: That piece of luggage will get you a couple hundred dollars online.
That makes a lot of sense. I guess there are people who really like to have very up-to-date luggage.
DN: Yes. Look, a lot of us consume. We buy on impulse. We think we want something. We're not good forecasters of our needs and desires, so we make mistakes. Musical instruments are a great example. An interesting phenomenon that somebody shared with me was that, as eBay began to grow, people began to buy musical instruments, especially guitars, much more frequently, because they weren't as worried about taking up the wrong instrument or buying the wrong instrument and getting stuck with it.
It's beginning to empower the consumer to reach because they can afford better items since they're not paying the whole ticket for them. They know there's going to be residual value at the end of the day and they're willing to take more chances because they know there's an exit if they made a mistake.
That's interesting. I noticed that Michael Silverstein, the coauthor of Trading Up with Neil Fiske, has a back cover blurb on your book. He's one of our Cool Friends. His book clearly ties in with our discussion. He wrote about aspirational needs, that people would skimp in one area of their budget to afford something in another. Like buying cheap food for a month so they could afford the high-end stereo system.
DN: Right. His theory is that everybody will have some item of luxury that they aspire to own. The luxury may be a bottle of Grey Goose vodka which sells for $60 versus a $50,000 car. But people will indulge in the areas they want to, and trade in one area to get something better in another area.
But you've leapt ahead and now what you're saying is that this new temporary ownership system can fund more aspirational buying.
DN: Absolutely. You have a variety of elements working. One is that you can buy better things because in reality, the better things retain their value more, and as a result don't really cost you what they appear to cost you. Thirty years ago, the Mercedes-Benz was a car that only wealthy people would drive. But today, people have recognized that a Mercedes-Benz depreciates much slower than, for example, a Ford. As a result, the finance companies stepped in and said, "Hey, even if you, Mr. Average Consumer, don't realize that, we're going to make it affordable to you because we realize it. We're going to create this product called a lease that's only going to charge you for the difference between the purchase price and the residual value."
Suddenly, all you have to do is to be able to write a check for a couple hundred dollars a month and you can afford a Mercedes-Benz that was once unreachable. That's the first thing.
The second thing is that we're beginning to see a culture that's accepting as mainstream the purchase of previously owned items. Historically, that was not the case. Today, buying a used book on Amazon.com, for example, is something that many people won't think twice about, yet most people wouldn't dream of buying a book from a street vendor in New York City, where I'm located. So we're seeing a different perception and acceptability of secondhand goods.
You seem to posit the secondhand car market as the birth node of all this.
DN: I refer to this culture as the auction culture, largely because it was the auction platform that essentially ignited it. The car market was the first market to do that, for obvious reasons.
At the turn of the last century, everybody wanted a car. You bought it. You used it. It was a very expensive purchase and it was a very bulky item. So when it came time to replace it, it wasn't something you could just throw away. It was too expensive and it wasn't something you could just leave lying around. It was too big. You had to get rid of it. There were people willing to buy it because the masses couldn't afford a new car. So, a burgeoning market developed and became very efficient in the middle of the century.
Yes. Now, it's no big deal to buy a used car. You're benefiting from the guy who drove it off the lot and lost all that value in that moment.
DN: Right. It's not actually losing that value. It's trading that value for the emotion of buying a new car. Anybody that buys a new car is paying a premium to have that rush.
I think we've been trained for quite a while now to accept used cars. Click and Clack have been saying for years, "You're crazy to buy a new car." I wouldn't ever buy a new car now, just because it seems like a waste of money. We're suddenly realizing that a car that's been leased for two years isn't a clunker; it's simply been broken in. It has taken a long time for us to get to that point with cars, but perhaps it won't take as long for the next shift.
DN: Right. The premise is that, in the car market, you were dealing with a segmented and fragmented society with limited organization in getting these products to market, moving them from one person to another person. Eventually, the auctioneers ended up creating a fairly efficient system. But it doesn't compare to what eBay Motors, for example, is doing, where somebody in Florida can buy another person's car in California, sight unseen. That happens every day to the tune of tens of millions of dollars.
The efficiency and transparency that these markets bring are going to dramatically accelerate this notion as well as the corresponding behavior that it manifests in all of us.
Yes. You spend a bit of time in your book discussing one downside of purchasing a used car online—the fake issue.
DN: I talked about cars and buying them sight unseen. With a commodity like a car where you can bring it to life online and the industry is regulated, there's a lot of trust there and people aren't worried about it. The more expensive something is and the smaller the object is, the more likely it is to get knocked off. It's a big problem.
One of the great things about this new facilitation industry, the drop shop, is that these companies are now becoming a legitimate proxy for the consumer. When I buy something from a drop shop, I know that a professional organization, or at least a legitimate business, received the goods, looked at them, and did some basic inspection. If they sell me something that isn't what it is supposed to be, at least I have recourse, a legitimate place to go.
Historically on eBay, the transaction was only as good as the people you were trading with. You were dealing with people you didn't know, people who could hide themselves behind an anonymous handle. It's a different story now. As a result of these companies consolidating thousands of sellers, a new level of accountability is being created that I think will help solve many of these problems.
I've always had a belief that a community would police itself to a large degree. Is that possible at eBay?
DN: We use the word "community" very loosely. eBay surpassed any notion of what we would consider a community a long time ago. To me, community has intimacy. eBay has 180 million users.
That's a universe.
eBay has been sued many times, and they seem to direct the fallout to the manufacturing company of the item. If it's a fake piece of Tiffany jewelry, they say it's Tiffany's problem.
DN: eBay's theory is that it is a platform, very much like a newspaper is a platform. If a newspaper was liable for every classified ad that was put in it, they'd go out of business. If a magazine was responsible for the quality or authenticity of any item advertised in it, they'd go out of business. That's eBay's argument, and they've been successful so far. I don't believe that things are going to change.
On top of all that, they've developed some incredible tools to empower brand owners with the ability to shut down these auctions and control the market. Many online auctioneers have adopted the tools and they're effective. Unfortunately, like anything else, a platform that is so seamless and so easy to transact on will attract unscrupulous people.
I believe you mentioned that Tiffany started shutting down auctions. You think a number of these companies have the wrong attitude about how to deal with this secondary market versus their primary markets. How do you think these folks should approach the issue? It's a whole new landscape for the executive suite to consider, right?
DN: Yes. I view the coming auction culture to be as significant for the retail community and for the brand consumer products community as the Internet was ten years ago. The ability to control the flow of your goods and the consistency of experience attached to your brand went out the window when people became able to buy or sell on a platform like eBay, and reach so many others. You can't ignore that.
Many of these companies have taken an attitude of choosing to ignore and essentially de-legitimize the very existence of this platform as a legitimate channel. They think it's going to go away. Unfortunately for them, it's not. I faced this at my last company in the semiconductor industry with an archaic group of leaders who would never accept the fact that things were going to change. Eventually they had to.
The consumer products industry, especially the luxury space, has been very resistant, even today, to embracing the Internet, let alone companies like eBay. The reality is that they must embrace it because their customers are going to measure their products and the value of their brand based on how well the customers are able to resell their products. It is one big phenomenon if you think about it.
Would we be buying a Mercedes-Benz if Mercedes decided tomorrow to limit our ability to resell our Mercedes-Benz when we wanted to? It would devalue the brand. That's the very risk that companies like Tiffany take when they try to stop the transacting of their goods on eBay. What are they telling their consumers? They're selling on one hand, an investment-value product, an heirloom. What's the essence of an heirloom? That it will retain value and desirability throughout the generations. Well, if there isn't a liquid market for the product, then it really isn't an investment. So they're contradicting themselves.
But they're still living in a world of command and control. They're not even thinking about the liquidity of the object, the heirloom. All they're reacting to is that they're not controlling it, right?
DN: Correct. They think they are still able to control it. The reality of branding is that you don't own your brand. The consumer owns your brand. You can merely try to influence what it means to the consumer. But at the end of the day, brand is a perception that the consumer has. In this new world, perception will become reality as we can now quantify the value of a brand based on how well it trades relative to its peer group, and how well it retains value.
This whole esoteric attribution of quality and integrity and what brands stand for will be thrown out the window as consumers begin to measure it with much more quantifiable ...
Yes, we're going to be much more interested in things lasting longer. We'll get doubly upset about short iPod battery life, right? Doesn't that cut down on the secondary market value if somebody's had their iPod for a year? You don't know how long it's going to last once you get it.
DN: Interestingly, all kinds of new companies are cropping up to support this new market. One company, called PartSearch.com, will sell you a brand new iPod battery so that when you resell your iPod ...
Oh, you say, "including new battery."
DN: Correct. Because there's such a disparity in value between an iPod that doesn't have a good battery and one that has a brand new battery, there are companies cropping up all over the place to begin to address the damages to a product: a scratch on a watch or a tear on a piece of clothing or a battery that's no longer functional.
So we won't be giving our clothes to The Salvation Army any longer?
DN: It depends on how you choose to embrace auction culture. You mentioned Trading Up and their philosophy of how you're going to choose. Just like you choose to engage in luxury in one area and be cheaper in another area, it will be the same with the auction culture. You will find things. You will decide, "I'll buy these things, knowing I'm going to resell them. So I'll buy the better versions. These other things, I don't want to bother with. For example, I wear one pair of shoes. I change them once a year. I beat them up. Nobody's going to want them. In that case, I may choose to buy a lesser brand knowing that I don't care about the resale value." You'll see a divergence of behavior where you'll choose between disposability and resaleability. It'll be personal and different for everybody.
As I read in the book, you bought a soldering iron. Why was that?
DN: I fly radio controlled airplanes. I build them. It's a very cool hobby.
That's fun. I grew up near a small airport in northern New York State. Guys used to come out every weekend and fly those planes there. It was great.
DN: It's a lot of fun. I saw an advertisement for a solder that you don't have to heat up, you just touch it and it works, so I bought it. It didn't work as well as they described it. You have to get the perfect balance and touch to make it conduct, so it's very frustrating.
Did you start your company, Portero, and then write this book? Or did they happen simultaneously?
DN: I actually started the book before I founded Portero. I'm not involved on a day-to-day basis anymore with the company. I'm an investor. A lot of the ideas for the book were developed over time and tested through the evolution and maturing of the company.
Portero is referred to as eBay for the affluent. It's probably the most active luxury goods marketplace. It sits on top of eBay and other venues.
You pluck the higher-end goods out of eBay?
DN: We actually pluck the higher-end goods out of the customer and we allow them to be traded on eBay in a way that makes sense. Last year, eBay did $44 billion in transactions. The average price of an item sold on eBay was $50. The reason is that the more expensive something is, the riskier it is for somebody to buy it.
Historically the higher-end items have not fared so well because of fraud and counterfeit. At Portero, we partner with companies that provide a guarantee and a Good Housekeeping Seal of Approval, so that the consumer has a place to go if what they purchased wasn't real. Portero merchandises the product consistent with the brand. Portero means "gatekeeper" in Spanish. Essentially, Portero proxies as the gatekeeper for the brand owners, allowing their goods to be traded on sites like eBay in a manner that's most consistent with their brand. The company carved out a space in the luxury goods market to do that.
Is there anything we haven't covered that you'd like to say?
DN: Well, FutureShopBook.com has a blog that I update about twice a month as I see the theories that I discuss in the book becoming applicable. I've heard people refer to FutureShop as Freakonomics for eBay: the hidden side of eBay and what it's doing to our society and economy.
You're going to have a hard time getting traffic if you're only posting a couple times a month.
DN: I know. Can I tell you the truth? Here's another example of how things are changing. With RSS feeds today, traffic is becoming a secondary thing. Check out the blog. It's really interesting. There are some great articles there, just subtle things that you wouldn't think of. This is all stuff that is not in the book.
I'll give you one example. Look at the history of our society in terms of personalizing things. We used to take pride in personalizing our shirts, our china, and our pens. If you gave a gift to somebody, you might personalize it. What's very interesting is that people are beginning to realize that personalizing items or possessions actually devalues them. We're going to begin to see our culture shift away from personalization.
It can't happen a moment too soon as far as I'm concerned. If I see one more French cuff with three initials on it, it'll be way too soon. I'll definitely check out the blog. Thanks so much for your time.
Book site: www.auctionculture.com or www.futureshopbook.com
Email: dan (at) - futureshopbook.com