Brown Paper Tickets Takes On Ticketmaster

| FROM THE PRINT EDITION |
 
 

Brown Paper TicketsPhotograph by Hayley Young

In many ways, what Brown Paper Tickets CEO Steve Butcher and CTO William Scott Jordon are attempting is a Sisyphean affair at best.

Dethrone Ticketmaster? Fat chance. It grossed $372 million in the fourth quarter of 2009 alone, providing tickets on a global scale for just about any major act coming to a town near you. Ticketmaster is so huge now, it focuses only on big game: the U2s, Rolling Stones and Kenny Chesneys of the world. This is the same company that practically doubled in size in 2009 when it announced a merger with its closest contender, Live Nation, making it the largest promoter/ticket-seller in the world.

Unseat the leviathan? Never happen.

But that’s not what Butcher wants. While Ticketmaster, in the wake of that megamerger, zeroes in on Mick Jagger’s lips, Brown Paper Tickets, a company of close to 70 employees, is gleaning the remnants and launching a creative online offense.

“When the Department of Justice was doing research for allowing the merger, they called us and we spoke to 35 lawyers at one time,” Butcher says from his office in Fremont. “They asked what we thought, what we anticipated. At first, we thought it would be a big, powerful company, but on the other hand, it was a strategic retreat for them.”

Ticketmaster’s decision to merge actually helped shape Brown Paper Ticket’s business plan. Butcher knew that if the merger went through, his company would have the selling advantage with club owners using Ticketmaster’s competition for ticketing. The angle? Charge a smaller service fee, which would leave “millions of dollars a year in the pockets of ticket buyers and event producers,” Butcher explains, embracing the notion that ticket buyers would use that leftover cash to pay for more shows.

While Ticketmaster locked up the regnant stadium events, Brown Paper began scooping up smaller shows. Lots of them, ranging from shows in midsize theaters to, quite literally, home events. One customer on Long Island went through Brown Paper to service regular dinners for eight. That range, Butcher says, has allowed Brown Paper to open up a market that didn’t exist before, where smaller venues are afforded a platform from which they can broadcast their events—without having to attach excessive service charges.

One of Brown Paper’s priorities was to reduce those sizable service charges most customers have simply gotten used to—ironic, considering it now takes a nanosecond to produce a ticket for a customer online. Yet the charge is still there and increases in accordance with the price of the seat. Want a floor seat to U2 at Qwest Field next summer? That’ll be $253.50, please, not including Ticketmaster’s $23.55 service charge. Nosebleed seat? Add $5.95 to the $33.50 ticket. Watching the Broadway smash Wicked in an orchestra seat at the Gershwin Theatre in New York City will set you back $262.25; the service fee is $11.

Brown Paper, in fact, got into the ticketing game in 2000 because of what it considered high service fees. The new firm wasn’t alone. Six years prior, Stone Gossard and Jeff Ament of rock giant Pearl Jam tilted against the Ticketmaster windmill, speaking before Congress and labeling the ticketing giant a monopoly. Pearl Jam even went so far as to attempt the ticketing for its own shows at venues where Ticketmaster had exclusive deals, such as KeyArena. By controlling those venues and associated promoters, Ticketmaster had “left most bands without any meaningful alternative for distributing tickets,” Gossard told Congress.

But it didn’t work. Pearl Jam ultimately relented. Butcher appreciated that David vs. Goliath effort.

“I loved what they tried to do,” he notes. “It was especially risky for a band to come out from behind the curtain and say, ‘This part of the business isn’t working for us. We want to improve it, especially the services fees.’” Brown Paper charges a 99-cent flat fee (plus 3.5 percent of the face value of the ticket) for all events it tickets. Though the figure is comparatively small, it’s a revenue stream that continues to grow. In the company’s 10-year history, it has averaged 250 percent growth annually, discounting the first two years when it saw almost four-digit growth, according to Butcher.

“Up until this year, we’ve kept ourselves right on the line of profitability,” Butcher says. “Now that we’ve crossed the line of profitability and we’re scaling much more efficiently, we expect to see about 200 percent growth in sales for 2011 and profits climbing fast.”

Compared to the flash of Ticketmaster’s website emblazoned with dynamic features and the faces of the famous, Brown Paper is subdued and simple. There are no ancillary ads or pop-ups. Instead, it has a utilitarian Craigslist feel, which, Butcher says, makes it easier to use with a smartphone—which is what he’s is counting on. “You get a lot more clicks per purchase and efficiency of checkout,” Butcher explains. “We don’t want to get in their [customer’s] way.”

And so far, the company has steered away from apps. Butcher says Brown Paper didn’t want to create something people would have to download to use, hoping the simplicity of the site itself would suffice. Still, in January, the company unveiled the most extensive upate to the website interface in ten yeas—making it more socially interactive and with added server capacity to handle on-sale spikes.

The next phase of the ticketing industry, Butcher says, is event discovery, making those who might be interested in attending something aware of an event in the first place.

That aspect, he says, will be achieved through linking to social networks, such as Twitter and Facebook so that producers can create communities around events, which can lead people to Brown Paper.

Mobile ticketing is on Brown Paper’s radar, too. It’s possible for event producers to use a smartphone as a ticket scanner and for buyers to distribute purchased tickets by smartphone through Brown Paper’s Transfer-to-a-Friend technology.

“The whole point is to get the tickets into the hands of the people who will be the loudest earliest,” Butcher says. “That’s your best marketing.”

But Ticketmaster isn’t taking any of this competition lying down. The giant has overhauled its website, adding more social networking capability and individualized tables, such as a Facebook gadget, seat-specific ticketing so you can sit near friends (you know they’re attending because the Facebook gadget informed you), fan reviews and previews.

While Brown Paper is determined to incorporate social networks into its growth strategy, Butcher was quick to add he doesn’t want to do anything that would compromise customer privacy, an activity that might lead to a viral exodus.

“There are lots of things that allow people to be touched by the producer, but we’ve always wanted to honor people’s privacy—more than people even wanted, which is a little old-fashioned in that respect,” Butcher says. “We give ticket buyers the power.”

OfferUp's Mobile Marketplace

OfferUp's Mobile Marketplace

Building a better Craigslist: OfferUp quietly makes its move.
| FROM THE PRINT EDITION |
 
 
OfferUp cofounders Nick Huzar, left, and Arean Van Veelen.
 
We all know the mother of invention. Nick Huzar’s necessity was finding a way to clear out a room for his soon-to-arrive baby girl.
 
“My wife and I were at a spot where we wanted to have kids and when she said she was expecting, I kind of went into dad mode,” Huzar explains. “I remember standing in the doorway of this room, which was about to be my daughter’s room. It was just full of stuff and I’m thinking, ‘There’s got to be a better way to sell this stuff.’ It would take forever to sell it through existing channels.”
 
Having moved on from his previous startup — Konnects, a social media platform for magazines and newspapers — Huzar was ready for his next challenge. Still, he confesses, “I had no plans on doing another startup right away. It’s a lot of work.”
 
But the idea of streamlining the buying and selling process wouldn’t go away. “I was looking at my phone and just kept thinking, ‘Why can’t buying and selling be as simple as taking and sharing a photo?’” he says. “That was the spark for OfferUp.”
 
OfferUp is a Bellevue company that runs a mobile platform for buyers and sellers. Looking for a pair of size 12 Nike Richard Sherman trainers worn “only a few times”? In mid-March, Joey in Kent was offering them up for $150. Stephen in Renton offered up a 2014 Tesla Models S with 12,141 miles on the odometer for $76,000. Martin in Federal Way offered up a pogo stick “in good working condition” for $30.
 
Huzar says he and cofounder Arean Van Veelen did a lot of homework before launching. They talked with friends, family and around 100 local merchants. 
"There's a long history of companies that tried to compete in this space and failed,” says Huzar. “Keep in mind this was 2011 and the economy wasn’t that strong, so they gave me a lot of time. I learned a lot about what they do and how they promote their stores.”
 
Huzar’s research led him to distinguish his business from Craigslist by focusing on smartphones. Virtually everyone has a smartphone on his or her person most of the time. This lessens the “friction” involved in buying and selling things.
 
“Why do we have underutilized assets at all around us?” Huzar asks rhetorically. “Because there’s a ton of friction in the process. We look at those golf clubs sitting there, and we maybe move them out to the garage and then eventually they end up in the junkyard or somewhere else.”
 
Huzar realized smartphones offer an easy point-and-click way to photograph unwanted goods and offer them for sale on the spot. A computer-based option like Craigslist, which does not have its own app, requires you to photograph the product, transfer the picture to your computer, sign in to your account and finally post the item for sale.
 
OfferUp was designed from the beginning to be a mobile app. Available for iOS and Android, the app reads a user’s location and offers tiled photos of items for sale in the local area. Users can set the app to show items within a specified range of miles and to put either the newest items or the closest items at the top of the display. Buyers click a button to make an offer or to send questions to the seller. For those wishing to sell items, it’s as simple as snapping a photo and keying in a price. “You can easily post an item and offer up in less than 30 seconds,” says Huzar.
 
Huzar also realized that, especially for internet and mobile apps, trust and safety were critical issues. So Huzar’s team decided it was important to have a real-time presence in the OfferUp app. “In the chat system we are adding more tips,” says Huzar. “If we see things that we think are questionable, we are happy to engage. We are very proactive in that.” 
 
Even with the best of application design and management processes, of course, getting a marketplace up and running is a lot different from simply offering a product. There needs to be a critical mass of buyers and sellers. Building that critical mass was the next major challenge for Huzar and his team, which officially launched with a total of four employees, including the two founders.
 
“There are a lot of challenges in getting the gears moving,” says Huzar. He started by having his friends and family try the new platform.  But that wasn’t enough, so Huzar explored an array of marketing strategies.
 
“There were a lot of failed things for sure, a lot of experiments that didn’t bear a lot of fruit,” he says. “But we persisted to figure out the right mix.”
 
While not willing to give details about what the “right mix” turned out to be, Huzar says that his team tried pretty much everything. “Any way you could try to target an audience, we tried,” he says. “We even had a booth at the Bite of Seattle. We did experiments handing out fliers. We did print. We did digital. We did everything except skywriting.”
 
While offerup is still privately held and has flown pretty much under the radar of media coverage, its growth — at least as measured in terms of transactions and employees — has been somewhere between “strong” and “spectacular.”
 
Huzar says OfferUp has been downloaded 18 million times. It recorded $3.9 billion worth of transactions in 2015. And from a staff of four in 2011, it has grown to nearly 80 today. The staff has more than doubled in just the past year. “It’s hard to speculate where we will end the year,” says Huzar, “but we are hiring aggressively.”
 
Those numbers are impressive, but the company has yet to generate revenue. The service is currently offered free to buyers and sellers and there is no advertising on the site. The business also has plenty of competitors offering many of the same mobile-based conveniences. They include 5miles, an app developed in China that has its U.S. headquarters in Dallas and has already raised $50 million after just one year in operation. While far younger than OfferUp, 5miles, which places a strong emphasis on local service, already has six million downloads and $2 billion in transactions. It also operates in many international markets, including London, Manila, Mexico City and Sydney. Spain-based Wallapop is another company with a global footprint, and then there are niche players such as Canada’s VarageSale, which focuses on providing a safe market for moms, and Poshmark, which focuses on fashion.
 
Craigslist remains king of the hill, with 45 million unique visitors in January alone. But the company has done little in recent years to improve the site and its unique visitor number is actually down 12 percent from a year ago, according to Millward Brown Digital’s compete.com website. 
OfferUp, meanwhile, has raised $93 million in venture capital and keeps finding new ways to grow. “We don’t spend a lot of time worrying about our competition,” adds Huzar. “We are singularly focused on creating the best possible experience for our users, and our traction in the market reflects that.”  
 
The venture capital community, which reportedly values OfferUp at up to $1 billion, certainly seems to believe. “It’s obviously a little scary — big valuation, no monetization,” Josh Breinlinger, managing director of Jackson Square Ventures, told GeekWire. “It’s easy to throw up the bubble flag.” But Breinlinger insists OfferUp is no bubble: “We own all of the usage, we own billions and billions of dollars of transactions. We can monetize that.”
Huzar feels the same way. “There are many different monetization initiatives we’re exploring,” he says, though he declined to be specific about those initiatives or when the company plans to implement any of them. “We feel like we’re still in the first inning as a company. We just want to make sure when we roll out things that they really add a lot of value.”