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Company Background

Ganot and co-founder Rousseau Aurelien independently conceived of the idea that became Gazelle based on their personal experiences of dealing with their used electronic devices. (See Exhibit 1 for biographical information on Ganot.) For Ganot, he did not want to throw away a used Blackberry (smart phone). He visited a local retailer that offered an electronics recycling service, but was surprised to learn they were going to charge him to recycle it. Having worked at eBay, Ganot knew the phone had value and could be sold. He walked away thinking, “this is never going to work, consumers are not going to pay to recycle.”

Ganot continued to think about the potential value in used consumer electronics and over time he developed a motivation to build a business around rewarding consumers for smart consumption. A few years later he moved to Boston and connected with Aurelien who had begun to develop a similar plan. The two entrepreneurs launched Gazelle in early 2006 with the vision to redefine the consumption of consumer electronics.

Together, Aurelien and Ganot launched under the name “Second Rotation.” The founders’ early plan was to approach major retailers, such as Best Buy and Wal-Mart, and convince them to offer a trade-in service that paid customers for turning in their used, but still working electronic devices. Second Rotation would buy the devices from the retailers and sell them on the used market. The first year was difficult. Ganot and Aurelien approached retailers, but the retailers were not ready to move.

At the time, both believed that a green movement was underway and some consumers were beginning to question their overall impact on the environment and might consider ways to reduce it. They came to realize, however, that few business services aimed at taking advantage of this movement had evolved. The idea of Second Rotation seemed to be ahead of its time.

In 2007, after returning from yet another meeting with a major retailer that rejected their idea, Ganot and Aurelien decided to strike out on their own. They decided to go directly to consumers: develop a website to solicit used electronics from them and then sell those devices themselves on eBay. Second Rotation launched the website later that year and soon had products coming in the door. In mid-2008, Second Rotation created the name “Gazelle” for branding and operational purposes: its legal name remained “Second Rotation” while customers only saw “Gazelle.”

Gazelle had initially launched with funding from angel investors. In 2007 and again in 2008 the company had received venture capital funding totaling $12 million.

The Business Opportunity

In recent decades there had been a significant increase in the number of consumer electronic products sold. Devices such as computers, cell phones, and digital cameras which essentially had not existed in earlier generations had become ubiquitous by 2010. (See Exhibits 2 and 3 for historical sales data on consumer electronic devices.)

Historically, consumers used their electronic devices for a period of time, but when they finished using them they either threw them away in the trash or stored them in their home. Very few devices were recycled or transferred to another consumer to use. Gazelle had identified four major macroeconomic forces that were leading consumers to look for other options for the disposal of the consumer electronic devices they no longer needed.

Financial The downturn in the general economy which began in 2007 and accelerated in 2008 had caused consumers to be more careful about how they spent and managed their money.

Unemployment levels in the U.S. increased significantly and many employed individuals feared losing their jobs. This led to an environment of belt tightening in which it did not make sense to store or throw away a device that could be sold for cash. Further, the acquisition and use of used products was increasingly seen as socially acceptable. Online retail businesses such as eBay and Amazon had developed channels through which consumers could more easily estimate the value of devices they owned and also buy and sell used goods.

New Product Introductions Technological advances following Moore’s Lawa and developments in broadband wireless communications infrastructure enabled manufacturers to introduce a wide variety of new consumer electronic products at an ever increasing pace. These latest generation products came with new features and faster performance. At the same time, the previous generation products remained highly functional with significant remaining useful life. Consumers who valued owning the latest devices looked to upgrade soon after new product launches. Other consumers were content to use nearly new products that could be purchased for a lower cost from consumers who upgraded earlier.

Environmental The idea of a “green movement” seemed to be taking hold in the consciences of consumers as they were increasingly concerned about the environment and with making sustainable choices in their lives. Consumers, for example, wanted to know what happened to their old products when they recycled them or threw them away. It also made trading in an old product more desirable because doing so might eliminate the need for a manufacturer to make a new one.

Space Requirements Finally, consumers simply had too much stuff. The increased variety of consumer electronics products available on the market, the higher household penetration of those products, and the shorter time interval between purchases of new products left consumers with significantly more unused devices in their homes. A decade ago, a household might have one cell phone. By 2010 many households had a cell phone for every family member. Where there was once one old, no longer used, phone in the drawer there might now be four or more plus a camera, a camcorder, a laptop, an MP3 player, and maybe a GPS device. Consumers were reaching a tipping point where they could no longer store unused electronics. (See Exhibits 4 and 5 for data on consumer electronic devices that were no longer used by their owners.)

No Easy Options for Consumers to Sell

While Gazelle believed that consumers were increasingly willing to consider selling their old devices, there were no easy options for them to do so. Perhaps their best option was eBay. eBay was an Internet-based entity that was the world’s largest marketplace for used goods. It existed as a marketplace in that it did not own any products and did not directly buy or sell them. It provided a means by which independent sellers and buyers could connect and conduct their own transactions. Ganot explained, “eBay opened up the global marketplace for used goods, and we take advantage of that. There are plenty of people looking to buy used goods.”

eBay got its start in the mid-1990s as a way for individuals to sell a few items online. In its early days, many of the goods sold were collectibles or otherwise used items that were not readily available in retail stores. In some ways it was similar to an online yard sale and many consumers used the site as much for the experience as for seeking out bargains. eBay operated as an auction site where items were sold to the highest bidder. Sellers tended to be individuals or small operators who were not looking for a primary source of income. Buyers and sellers were nearly anonymous to each

other and it was a fairly level playing field. The site’s success depended largely on the honesty of sellers and buyers.

To help improve the site, eBay introduced a feedback system through which buyers and sellers could write feedback and rate each other on their transactions. The rating system also included information on how many transactions individual sellers had completed, the dollar volume of those transactions, and whether the seller was in compliance with eBay’s policies.

eBay’s rating system enabled some eBay sellers to grow beyond the individual operator phase to become full-fledged businesses. eBay referred to large sellers with high rankings and good feedback as PowerSellers. PowerSellers enjoyed premium listing placements and discounted transaction fees compared with ordinary sellers on the site and they came to dominate many categories of products on the site. In 2009, Gazelle estimated that approximately 3% of eBay users were active sellers while the rest were buyers.

As a consequence of the rise of PowerSellers and corresponding concentration on the seller side of the market, individual sellers were increasingly at a disadvantage on eBay. Individuals could still try to sell their devices through eBay, but Gazelle believed it had become more difficult for these one-time sellers to find willing buyers. Ganot explained:

Imagine you want to sell you iPhone on eBay so you register with eBay and list your phone for sale. You have a brand new eBay account, you have no customer feedback, you have no rating from eBay, you are just some guy with a phone. The customer comes on, searches for iPhones and finds he can buy from you, or he can buy from us. We have hundreds of phones for sale, we have 100,000 customers that have said we are a trusted seller, and we have a five-star rating from eBay across different categories of measurement. Who will the customer buy from? It is hard for a single person to compete with PowerSellers.

Beyond difficulties of selling on eBay as a non-PowerSeller, individual sellers faced other hurdles. One significant hurdle was erasing personal data from their devices. Personal computers and cell phones in particular frequently held data that sellers would not want to turn over to buyers. It was not easy for the average user to effectively erase all this data and the news media frequently ran stories describing the recovery of data that owners presumed to have erased. Another hurdle was making it all happen. An individual seller needed to figure out how to sell on the site, how to arrange payment and shipping, even finding a box could be problematic. These hurdles led many potential sellers to just put the device into storage.

What Happened to a Used Cell Phone

Gazelle believed that the macroeconomic factors it had identified were creating an environment of change in consumers’ behavior and a desire to obtain more value from their devices. That, combined with the difficulty individual sellers had in selling used devices, created the company’s business opportunity. Gazelle estimated that while consumers were upgrading their products more quickly, few of their old products were resold. Cell phones provided a clear example.

Gazelle estimated that average cell phone users began thinking about upgrading their phones only 12 months after their initial purchase and that by 18 months only 21% of consumers were still using their phone. While this meant that 79% were no longer used by the original owner, only 13% had been resold. Over time, the percent of original owners still using their phones declined. (See Exhibit 6 for Gazelle’s estimates of the lifecycle of a cell phone.) Gazelle’s opportunity came from gaining a share of the “resold” segment, but more importantly, convincing consumers from the “idle” category and potentially the “trashed” category to instead resell their devices through Gazelle.

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Other consumer electronic devices followed similar lifecycle patterns. Gazelle estimated that product lifecycles varied by product category. These upgrade lifecycles ranged from 18 months for cell phones to five years for flat panel televisions.

Gazelle's Business Model and Operations

Acquiring and Selling Goods

Gazelle purchased over 20 categories of widely owned consumer electronic products including cell phones, computers, MP3 players, digital cameras, camcorders, GPS navigation devices, calculators, satellite radios, flat panel monitors, external drives, video gaming consoles, video games and movies. It regularly considered adding new categories. With different models in each category Gazelle was willing to purchase more than 250,000 different types of devices. Gazelle did not purchase all types of devices. For example it did not deal in cathode ray televisions or monitors, due to their heavy weight and low resale demand, nor did it carry printers or fax machines. In 2009, cell phones made up roughly 40% of the inventory bought by Gazelle, followed by laptops (10%).

Device sellers wanting to trade-in or sell a used consumer electronic device visited the gazelle.com website and entered their device into a search feature. An iPhone seller, for example, could either enter the exact model number or search through a list of iPhone model descriptions with pictures. (See Exhibit 7 for a section of Gazelle’s search page.) Once she identified her phone on the website, the seller then answered a few questions about the condition of her phone and any accessories she was including. The website then quoted a price that Gazelle would pay to buy the device. (See Exhibit 8 for a section of Gazelle’s offer page.) Site users could easily and quickly enter several products without needing to enter any personal data or complete a registration process until they decided to actually sell the phone to Gazelle.

Gazelle had created a “pricing engine” to determine what price to offer the seller. This pricing engine consisted of software that scanned secondary markets such as eBay and Amazon to determine what the item might sell for. It also looked at Gazelle’s own selling data. Ultimately, it determined a price that Gazelle thought was high enough to entice the seller and low enough to enable a profitable resale on eBay. Ganot added:

Right now the engine calculates what we call the "accurate price." We know what we can sell the item for, we know what all our touch costs are (Gazelle’s internal handling costs), and we know how much margin we want to make, so we offer you a single price that flows into the P&L in such a way as to give us what we need. When we make you an offer we have tremendous visibility into what that item will sell for and when.

In some ways, the pricing worked similar to that of used cars. In both cases, consumers paid for convenience. Ganot explained:

With cars, car owners know they can sell their old car for more than the dealer will give them as a trade-in, but by trading their old car to the dealer they get cash right away and don’t have to deal with the hassle of selling it themselves.

After a seller decided to accept an offer, Gazelle made arrangements to help with the shipping process. For some products Gazelle sent customers a free box through the U.S. Postal Service and for other products customers needed to provide their own box. In all cases, Gazelle provided a pre-paid shipping label to attach to the box so the customer did not have to pay for shipping. Providing a box, Gazelle believed, increased fulfillment rates—a higher percentage of customers who received a box actually sent their items to Gazelle than customers who did not receive a box.

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In early 2010, Gazelle employed approximately 100 people. Its entire operation resided on parts of two floors the company rented in an office/light-industrial building in a mixed residential-business district in the city. When a product arrived at Gazelle it first went to receiving where a receiver spent 3-4 minutes to review the contents of the box and log the item into Gazelle’s tracking system. This process automatically generated an email to the seller to confirm receipt.

The item next went to a technician who performed several key functions. The technician inspected the product for physical condition, ran several functional tests to confirm operation, and gave the item a quick cleaning. During this process the technician entered data into the tracking system regarding the product’s condition and any included accessories. (This data later formed the basis of what Gazelle posted on eBay when it came time for Gazelle to sell the item.)

The technician also erased any personal data the original owner had stored on the item. While many items did not store such data, phones and computers could contain many personal data files. Gazelle’s trained technicians used a variety of methods to erase data including the use of software developed for the U.S. government for erasing classified data from its own systems. As they gained experience, Gazelle technicians specialized in the erasing techniques required for various models of harder to erase devices. Gazelle’s promise to erase data made some product owners more willing to sell devices through Gazelle that they might not sell on their own. The entire inspection and data erasing process typically took anywhere from five minutes to 20 minutes depending on the device. Following the inspection/erasing process the item went to the packaging area where it was readied for shipping.

When it came to employing technicians, Gazelle benefited from its Boston location and the high unemployment caused by the poor economy. Gazelle had hired technicians, and other personnel, from local colleges and universities, including MIT and Boston University.

Boxes arriving at Gazelle from sellers often included several items and Gazelle could mix and match items from different sellers to increase the value of the products it sold or make otherwise unsalable goods into salable goods. For example, one seller might send in a laptop computer with no battery while another seller might send in an iPhone along with an extra laptop battery. Gazelle knew that it was difficult to sell a laptop without a matching battery and that it could sell a laptop with a battery for significantly more than one without. In its warehouse, Gazelle had a ready supply of used batteries, battery chargers, and cables to combine with devices as necessary.

Part of the inspection process involved verifying that the item received from the seller matched how the seller initially described the item on the gazelle.com website. If it matched, Gazelle paid the seller the quoted amount through one of three seller selected payment methods: check sent by mail or online payment using PayPal or Amazon.com Gift Card. Roughly 80% of the items received by Gazelle matched the seller’s description closely enough so that Gazelle paid the quoted amount. Occasionally, sellers sent in items that were in poorer condition than indicated or failed to include an accessory that was included in the description. When this happened Gazelle informed the seller and offered a lower price. If the seller accepted the lower price the deal went through. If the seller chose not to accept the lower price, Gazelle returned the device to the seller at Gazelle’s expense. Somewhat rarely, customers send an item to Gazelle that was worth more than the original estimate. When this happened, Gazelle simply sent the seller the higher value payment.

Much of Gazelle’s efforts to date had focused on the acquisition side of their business (gazelle.com) – developing the pricing engine and operations to receive and inspect product — and not on the selling side of their business. “The channels to sell used goods are well established. eBay remains a great innovation for selling high quality used goods,” Ganot stated. “We believe that the innovation really needed to be made on the buy side to move consumers from a state of inertia to

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action.” By leveraging eBay to take care of the sell-side (the average inventory life of an item at Gazelle was 11 days and approximately 90% of items sold within 30 days), Gazelle was able to start by focusing on innovations in the buy-side.

Gazelle’s brand is driven by a customer-obsessed culture providing the premier experience in the industry. Ganot explained, “We have put a huge amount of effort into building a customer experience that we are proud of.”

In early 2010, Gazelle still sold the bulk of the items it acquired from individuals on eBay. As an eBay PowerSeller, Gazelle paid reduced listing and selling fees. Gazelle sold its products using eBay’s “Buy it Now” pricing method through which it listed a set price for each item. It generally shipped items it sold within one business day. Buyers of Gazelle products received a 30-day money back guarantee, generally free shipping, and an opportunity to purchase a third-party warranty.

Ganot further explained:

Unlike the used car market, consumer electronics do not have the equivalent of a Kelly Blue Book. There are no commonly accepted or established prices and there is little transparency around values of used goods. This puts us in the position of operating in a very inefficient market on the buy side. Things are different on the sell side: there is a lot of transparency and a lot of price information is readily available. On that side of our business we are in a very efficient and competitive market.

The frequent use of the used car analogy at Gazelle was at least partly due to the presence on its board of Austin Ligon, founder and former CEO of CarMax, the largest car dealer network in the United States. Referring to his tenure as CEO of CarMax, Ligon had once said: “we have always made money on the buy side”. Ganot thought the same was true of Gazelle.

Expanding Inventory Sources and Sales Channels

Gazelle bought nearly all of its inventory from individual sellers and sold a large majority of it to individual buyers on eBay. It occasionally made other deals, however, and it looked for opportunities to do so.

For example, in spring 2010, when Apple announced its 4th generation iPhone, the iPhone 4, Gazelle was offering up to $300 for consumers to trade in their used iPhones (previous models). As a result, Gazelle acquired more than 15,000 iPhones in a 60 day period. Selling such a large quantity of devices one by one would have been a daunting and expensive task. Instead Gazelle leveraged the demand from wholesalers to buy iPhones in bulk and was able to sell large quantities at once while avoiding listing fees and shipping costs, resulting in overall higher margins.

Opening up new distribution channels led to a virtuous cycle, which Ganot called a “compounding effect”. Broader distribution channels allowed Gazelle to extract more value from the products it was selling, which in turn allowed it to offer higher prices (and better service) to its sellers, thereby attracting more inventory, which then made Gazelle more attractive as a source of supply for distributors. And so on and so forth. An instance of the compounding effect occurred when Gazelle started selling to companies which offered extended warranties for electronics products. This new channel enabled Gazelle to sell broken items (e.g., laptops) for a positive price: extended warranty companies placed value on such items because they typically needed just one or two functioning parts in order to refurbish the items that made the object of their customers’ claims. In turn, Gazelle was able to start offering positive prices to sellers of broken items (previously, these items had no value).

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Retail Partners

Ganot never gave up on his original business idea of partnering with established retailers to have these retailers offer their customers a trade-in service for their old electronics devices when they purchased new devices. The green movement was increasing in people’s consciousness and by 2009 more businesses had taken notice.

Online partnerships

In July 2009, Gazelle signed a partnership agreement with the warehouse club Costco. Gazelle followed this with partnership agreements with walmart.com in October and with Sears/Kmart in November and Office Depot in April 2010. The three partnerships worked roughly in the same manner. For example, Costco customers went to the Costco website to purchase a new electronic device. Costco placed a link on their site saying “Costco.com Trade-In Program powered by Gazelle” near the place where customers would purchase a new product. The link led to a trade-in program site (http://costco.gazelle.com/) that looked similar to gazelle.com but was branded “Costco powered by Gazelle”. This site performed the same functions as the gazelle.com website through which customers could sell their unwanted electronic devices. There was one important difference however: at costco.gazelle.com customers received a gift card valid only at Costco, instead of cash at gazelle.com. Items were shipped to Gazelle, who inspected them, reported the price at which it acquired them to Costco and could then sell them right away. At the end of each month, Costco sent an invoice for the reported value of all products traded in that month and Gazelle paid Costco.b

While it was still early, the partnership agreements held great potential to increase the number of devices traded in to Gazelle. Wal-Mart was the world’s largest company, Costco was one of the largest retailers in the U.S., and Sears/Kmart remained a major retailer. Each had a customer base that dwarfed that of gazelle.com.

Gazelle’s partners also benefited from the arrangement. First, the partners, at a very low cost, were offering a new service to their customers to help those customers get value from used devices and be part of the green movement. Second, while device sellers that went directly to gazelle.com received a cash or cash equivalent payment from Gazelle, sellers that entered Gazelle’s site from one of the retail partners did not receive cash. Instead they received a gift card valid only at that retailer. Thus the customers Costco sent to Gazelle remained Costco’s customers. The partners knew that, as with many gift card programs, a customer with a gift card often spent significantly more than the value on the card. They also knew that a percentage of gift cards were never used. As explained by Ganot: “When customers come to us directly, we pay cash. The customer might use that money to go out to dinner or buy gas for their car. But when customers come to us through one of our partners, our partner receives a guaranteed payment of at least the value we pay for the device and potentially much more.”

In addition, although Gazelle processed the transaction, and had all the customer data, the agreements prohibited Gazelle from marketing directly to customers who came to them through a partner. Finally, the partners had little operational involvement or financial risk in the process. Gazelle collected the used device and sent the seller a gift card on behalf of the retailer. The partners never saw the device or directly paid for it. Gazelle got paid only when it sold the device on eBay.

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In-Store Experiments

Ganot believed that Gazelle might obtain further growth opportunities by getting its trade-in program into retail stores. He envisioned a plan whereby a retailer’s customers would enter the store to buy a new electronic device and trade in their old device at the same time to get an instant price reduction on the purchase. While the details of how such a program could be implemented had not been worked out, it would likely involve existing aspects of current Gazelle programs plus new processes. For example, an employee of the retail store, rather than a Gazelle employee, would receive the product and give it some level of inspection. That store employee would then look up a price using Gazelle’s pricing engine. If the customer accepted the deal, payment was immediate—in the form of a store-issued gift card. The store might then collect devices for a period of time and then send them all in bulk to Gazelle.

Gazelle had conducted several experiments to get a sense of how this business might work and what challenges it needed to address. In 2009, the company opened a Gazelle-branded kiosk in a large shopping mall not far from its headquarters. In this four-month experiment, the kiosk accepted a reduced set of electronic devices. Gazelle only accepted devices that it felt it could inspect quickly, in about five minutes, at the kiosk while the customer waited. Laptops, for example, were not accepted. Sellers were paid using a Visa gift card that Gazelle created on site. Ganot explained that one lesson learned through the kiosk experiment was the importance of staffing:

The kiosk showed us that training will be one of the big challenges for us when we go into stores. Originally we tried hire and train outside staff. That was a disaster. We next handpicked our very top inspectors who had been with Gazelle for a year or more. All these inspectors had been technically trained across multiple product categories. With this staff, the performance of the kiosk improved.

Gazelle had also formed a partnership with a small chain of discount consumer electronic retail stores. In this partnership, the Gazelle brand was not included. The store employees ran the program which accepted nearly any used electronic item and paid customers with a store gift card. The store gave items a basic inspection to determine payment and then shipped the items to Gazelle. Gazelle, however, had built a buffer into the price it would pay for a given item. Customers received roughly 20% less in these stores than they would if they went directly through the gazelle.com site. Gazelle did this in order to cover the higher risk of paying customers before fully inspecting the product. Through this experiment, Gazelle hoped to learn how high to set the buffer and whether the buffer percentage should vary across products. Early results indicated that 20% might be too high. Ganot also noted that the employees in these stores managed to operate the program at a proficient level. He suspected that the technical expertise the store staff had developed through selling electronics gave them an edge over the outsourced staffing Gazelle had initially used at the kiosk.

Finally, in the spring of 2010, Gazelle ran a three week program with Office Depot, a chain of over 1,000 office supply stores. Under this program, Office Depot employees would accept trades of used laptops and digital cameras towards the purchase of new laptops or digital cameras. These products would be accepted and priced using less sophisticated criteria than the gazelle.com site due to the limited technical skills of store employees and a lack of test equipment in the stores. For example, testing might be limited to turning the product on and doing a quick function check such as taking a picture with the camera. No effort would be made in the store to test a product’s full range of functions. The program hit some speed bumps, but was overall successful and Gazelle was planning a second promotion with Office Depot for late summer 2010.

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Competition

Ganot believed that Gazelle was the largest player “by a good margin” in the reCommerce business. The industry was however still in its infancy and its evolution was uncertain. (See Exhibit 9 for data on competitors.)

Looking Ahead

Ganot was happy with how far the business had come. Gazelle was arguably the strongest competitor in the industry and well positioned to continue its rapid growth. The success of its last round of funding seemed to suggest that investors felt the same way. As he thought about his company’s future evolution, however, Ganot identified two strategic issues which required careful analysis: the relationship with retail partners and the economic model of the business.

Working with retail partners (online and in-store) provided instant access to the huge customer bases of those retailers – Gazelle would be hard pressed to achieve the same level of customer reach through its own direct marketing efforts. On the other hand however, Ganot recognized that relying too much on large retail partners involved some significant risks. Indeed, partners’ priorities might shift over time or they might attempt to extract too much value out of the partnership. For instance, after the implementation of the joint program, a large retailer asked Gazelle to start paying for placement on its home page, arguing that all brands paid for the privilege and that their home page was sending traffic to the Gazelle co-branded page (this argument failed to take into account that the joint program with Gazelle generated increased traffic and consumption by the retailer’s customers). Moreover, retail partnerships had implications for Gazelle’s brand: the more it depended on partners, the more difficult it became to control its brand image in the eyes of consumers. With these considerations in mind, Ganot had to find the right balance between investing in further developing the retail partnerships and investing in Gazelle’s own consumer-facing efforts (building its own brand and enhancing Gazelle’s proprietary pricing technology).

While the retail partnerships essentially extended Gazelle’s initial model of buying products through Gazelle.com and selling them on eBay, Ganot was wondering whether he should envision more radical business model changes in the medium to long-term. In particular, should (and could) Gazelle aim to move towards a different intermediation model, in which it would no longer take inventory of goods, but instead connect individual sellers with third-party buyers? How exactly would such a model function and what would be the implications for Gazelle’s respective relationships with eBay, wholesale buyers and retail partners? How would the economics of this model compare with Gazelle’s current model? (See Exhibit 10 for a stylized economic model of transactions originating on Gazelle.com, i.e., not through retail partners.)

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Exhibit 1 Biographies

Israel Ganot

At age 18, Israel enrolled in NYU planning to join the ranks on Wall Street, but upon graduation, professors suggested he instead pursue a PhD. He applied to Harvard's DBAprogram and began working, writing business case studies for a Harvard professor. His first assignment took him to Seattle to visit an emerging company and its leader, and to study the business' future potential. The company? Microsoft. And the man? Bill Gates. This meeting changed Israel's career path and precipitated his passion for technology.

Israel now brings 19 years of e-commerce and offline retail experience to Gazelle, having spent six years at eBay and PayPal, where he was instrumental in the company's international expansion in Europe, Latin America and Asia. Israel also served as Director of Finance & Operations at eBay UK Ltd., where he helped scale the local business to $300 million. He began his career as a retail analyst with Goldman Sachs.

As a leading authority on e-commerce and reCommerce, Israel has been interviewed by top news outlets, including The Wall Street Journal, Forbes, New York Times, CNN and FOXNews. Israel holds an MBA from Harvard and a Bachelors degree from New York University's Stern School of Business.

Source: Company documents.

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Exhibit 2 U.S. Unit Sales of New Consumer Electronic Devices, 1980-2007

Source: Adapted from company documents and CEA (Consumer Electronics Association), Trends in CE Reuse, Recycle, and

Removal, March 2008.

Exhibit 3 Number of Consumer Electronic Devices Owned per U.S. Household, 1975-2008

Source: Adapted from company documents originally from CEA (Consumer Electronics Association), Trends in CE Reuse,

Recycle, and Removal, March 2008.

0

50

100

150

200

250

300

350

400

450

500

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

Computer Products Cell Phones TVs

Mill

ions

of U

nits

0

5

10

15

20

25

30

1975 1980 1985 1990 1995 2000 2005 2008

Uni

ts p

er H

ouse

hold Households spent an

average of $833 onCE gadgets in 2000

Households spent anaverage of $1,407 onCE gadgets in 2008

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Gazelle in 2010 711-446

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Exhibit 4 Percent of Unused Consumer Electronic Devices in the Home

Source: Adapted from company documents and CEA (Consumer Electronics Association), Trends in CE Reuse, Recycle, and Removal, March 2008.

Exhibit 5 Number of Unused Consumer Electronic Devices in the Home (millions)

Source: Adapted from company documents and CEA (Consumer Electronics Association), Trends in CE Reuse, Recycle, and Removal, March 2008.

0%

5%

10%

15%

20%

25%

Cell Phone Desktop Laptop Monitor TV VCR

2005 2008

0

20

40

60

80

100

120

140

160

2005 2008

VCR

TV

Monitor

Laptop

Desktop

Cell Phone

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711-446 Gazelle in 2010

14

Exhibit 6 Gazelle’s Estimate of the Lifecycle of a Cell Phonea

Source: Adapted from company documents.

a Graph estimates the progression of cell phones over a 4-year period, based on company analysis of the 2008 used cell phone market. Eighteen months after first sale, 13% of cell phones had been resold, 36% were still owned by the original owner, but were not being used (idle), 10% had been recycled, 20% thrown away, and 21% were still being used by the original owner.

Resold

Idle

Recycled

TrashedNew: 1st use

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 6 12 18 24 30 36 42 48Months from 1st sale

13%9%

100% 44%

20%

10%22%

36%

25%

21%

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Gazelle in 2010 711-446

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Exhibit 7 Gazelle’s Search Page

Source: Company document.

Exhibit 8 Gazelle’s Offer Page

Source: Company document.

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711-446 Gazelle in 2010

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Exhibit 9 ReCommerce Competitors

Key Partners Web Traffic

(Aug 10)

Gazelle Walmart.com, Sears/Kmart, Costco 286,686

Best Buy Trade In Powered by Dealtree 115,315

NextWorth Target 121,699

CEXChange Radio Shack, Amazon 104,583

Trade Ups HP 20,238

Flipswap Nokia, AT&T 36,040

Source: Company document.

Exhibit 10 Stylized Economic Model for Gazelle.com Transactions

Revenue – Gazelle’s sale of used devices 100% Product Cost – Purchase price Gazelle paid sellers 50% Processing Cost – Shipping costs and all product touch costs (operations) 25% Gross Margin 25% Transaction Cost 10% - variable merchandising, eBay fees, and financial processing (credit card fees) Direct Marketing 10% - the cost to acquire product sellers, marketing, search engine advertising, public relations Contribution Margin 5%

Source: Based on company document (actual numbers have been disguised).

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17

Endnotes

1 Marc Gunther, “Cash for (Electronic) Clunkers,” Greenbiz.com, August 18, 2009, accessed March 23, 2010.