When Jon Bischke bought an iPod about six months ago, he knew that he might not be keeping it for long.
Since Apple frequently introduces new versions of its digital music player, the 32-year-old executive decided to try a new service offered by a Los Angeles-based startup that will allow him to upgrade more easily.
Bischke purchased a “guaranteed buyback” agreement from TechForward Inc. that allows him to sell back his used device at a set price in two years.
“I tend to turn over electronics items fairly quickly,” said Bischke, chief executive of language tutoring Web site Edufire.com. “This seemed to me to be a way to get some more value out of the purchase.”
TechForward, a nascent business started a couple of years ago by a pair of UCLA Anderson School buddies, has partnered with some small retailers to offer the unique program for a variety of electronic devices, including computers, televisions and digital music players.
Under a typical transaction, a consumer would pay a $49 fee when buying a laptop computer that retails for over $1,000. Then, if it is sold back in good condition within three months, the refund might amount to $700. The price drops as the device gets older with buybacks halting after two years based on rates determined by a proprietary software program designed to forecast depreciation values.
“We’re giving (customers) guaranteed value for the future,” said Marc Lebovitz, co-founder and vice president of operations for the company. “We want to take all the guesswork out of how and when they can upgrade and make it really easy for them to do so.”
TechForward later resells the items on secondary markets including online auction sites, liquidators and international retailers. The company also arranges to recycle broken equipment. The customer is under no obligation to sell the device, but the original fee is not refunded if the customer keeps the product.
For customers who do choose to trade in, the company has simplified the transaction. TechForward offers free shipping, and provides boxes and other packing materials to customers who purchase gadgets online. Those who buy their products in-store can return to the retail location.
Bischke, who expects to sell his iPod back in another year or so, said the convenience was a big factor in his decision to use the service. He said he has sold stuff on eBay in the past, but TechForward’s process is much simpler.
“It’s getting rid of the hassle factor,” he said.
But the foundation on which the company is based the rapid advancement of technology and the assumed durability of electronic devices is also the factor that makes the business precarious.
George Whalin, president of Retail Management Consultants in Carlsbad, said the company might face many of the same challenges that electronics warranty providers have in the past given that TechForward is a twist on the warranty business. “You’re essentially betting that this product is going to continue to work.”
However, dozens of warranty companies have gone bankrupt because devices broke down at a faster rate than projected. “The number of warranty companies that have gone out of business has been staggering,” Whalin said.
But Whalin also admitted that he has never seen anything like a guaranteed buyback service, so it’s bound to garner attention. Still, the company has to show that it can consistently make money to attract more partners.
“This is rolling the dice in the biggest way possible,” said Whalin. “There’s no way of knowing whether the economic model will work pricing is all over the place. Betting on the electronics business is pretty iffy.”
Co-founder and Chief Executive Jade Van Doren first came up with the idea for the company while traveling in Asia and observing a culture of people who embrace technology and strive to have the latest gadgets.
Van Doren has even started a blog called “The Temporary Ownership Lifestyle,” where he expounds on the rapid advancement of technology and depreciation of obsolete devices. The site links to a number of companies, including his own, that offer some kind of product rental or resale service.
“We’re encouraging people to look at the total life cycle of their product,” he said. “We see ourselves as providing an alternative to throwing these devices in a drawer and letting them depreciate.”
Van Doren and Lebovitz founded the company in 2005 and began bringing their idea, along with the financial models to back it up, to potential investors.
First, though, they began selling the buyback option online in 2006. Customers were free to purchase devices from any retailer and then come to their Web site to purchase a buyback plan. After that initial run proved successful, TechForward began partnering last summer with small regional electronics retailers to offer the service at the point of sale. It now has eight retail partners. The buyback program also is offered with select Amazon.com purchases.
Funding received
TechForward, which operates out of a small office in the Howard Hughes Center just off the San Diego (405) Freeway, has since received investments from two venture capital firms, including First Round Capital LLC of San Francisco.
“We liked the entrepreneurs and we liked the business proposition,” said First Round partner Howard Morgan. “They had thought through most of the key issues.”
The way the business model is now constructed, retail partners typically receive little or no cash when they sell the program to customers. TechForward is counting on attracting retailers by making it easier for consumers to sell their old devices back, thereby making upgrades more frequent.
“It’s an excellent program,” said James Shipp, government and commercial sales manager for MicroLeague Inc., a computer retailer in Santa Monica. “I’m in the technology business and after two or three years, you normally want to upgrade. So you’ve got this PC equipment that you want to get rid of and if someone is willing to give you 50 percent or 60 percent of what you purchased, it’s a great deal.”
According to TechForward, its retail partners are selling the option on about 12 percent of electronics. However, the company will not disclose revenues or employment statistics.
Lebovitz said the company is currently in talks with “large national retailers” about offering the service. The company exhibited at the influential Consumer Electronics Show in Las Vegas in January, garnering some attention. It’s also moved into a wider variety of electronics, including flat-screen televisions, GPS devices and computer printers.
Whalin warned that big-box retailers might be wary of TechForward’s service because they could have a difficult time selling it on top of the extended warranties that are aggressively offered to customers after a big-ticket purchase.
However, for MicroLeague, which began offering the buyback service within the past few months, the benefits of the program are very straightforward and immediate.
“It really helps us sell,” Shipp said.
TechForward Inc.
Founded: 2005
Core Business: Consumer electronics
buyback program
Goal: To partner with major retailers to offer its buyback service nationwide
Driving Force: Increasing frequency of
consumer electronics upgrades due to rapidly advancing technology
