
Adventures in Aeron Chair Arbitrage - omarish
http://blog.priceonomics.com/post/14876257862/adventures-in-aeron-chair-arbitrage
======
callmeed
Did you _really_ think arbitrage of used goods could be a business? I think
the best thing these types of experiments do is expose pain points and
inefficiencies that you _can_ make businesses out of.

When I was in my ramen phase of startup life (and newly married), I used to
(among other things) buy clothes at local thrift stores and resell them on
eBay for a decent margin. You quickly learn what brands/items sell and
occasionally I'd hit gold and find a vintage Hawaiian shirt that fetches $200
(and cost $2).

In the end though, you realize it's just a way to make some extra money. It's
not a "business" IMO–and definitely not a scalable business. But you learn
what sucks (like dealing with shipping & getting photos from a camera to eBay
pre-Smartphone) and realize other people also feel that pain. That's where
your business is.

UPDATE: Downvotes, seriously? Read my reply down this thread. Some people on
here are, frankly, ridiculous and have no clue how to engage in a meaningful
discussion.

~~~
zecho
Exactly. It's a hobby, but while scaling it up is hard to do, it is not
impossible. Two stories.

I wrote a program awhile back that would look for iPod Touches on my local
Craigslist and would analyze the price for many different versions. If an
individual iPod was available and was below mean price within a given time
frame, I'd send the seller a note almost immediately. Then, if I purchased the
item, I'd relist it at the mean price. Completely an arb play.

What I learned was that 1) iPods are easy to sell, 2) People who buy on
craigslist are flaky and tend not to show up, 3) The time spent waiting around
to meet people was obnoxious, and 4) Sometimes sellers see what you did with
their item and send you angry emails.

I never made more than a few hundred bucks, but it was an interesting
experiment nonetheless.

Second story: For years, my wife sold used books. She'd go to estate auctions
and buy boxes and boxes of books. She'd go to library sales and buy hundreds
of books. Then she'd sell them on the Amazon marketplace. She would walk into
these places with a barcode scanner and would check their price and sales
rankings on Amazon. If it was in a decent margin for her, she'd buy the item.
This actually did scale, but she quit when it became less of a hobby side
income and more like real work. She's a nurse by trade, and the book selling
was never meant to be anything more than a hobby.

So, I guess what I'm trying to say is that arbitrage of used goods can be a
business, but it depends heavily on the availability of the supply of used
goods. Books worked for my wife because she could buy dozens of them at a time
and ship dozens of them them all from the post office down the street as
orders came in. For me, I was running around town picking up items and
dropping them off.

~~~
fanboy123
Arbitrage is technically a set of simultaneous transactions where you buy and
sell at the same time. Purchasing something and reselling it later for a
higher price is not arbitrage.

It is usually used to describe a riskless transaction.

~~~
quanticle
I'm not sure I agree with the description of arbitrage as "riskless". The
arbitrageur is accepting the risk that the arbitrage opportunity will go away
in between the buy and the sell. This is true whether you're arbitraging salt
via caravans across the Sahara or arbitraging currencies in millisecond
trades.

~~~
philwelch
It's the idea of simultaneous transactions that makes it riskless. Whether
millisecond forex trades can be modeled as "simultaneous" is another question.

~~~
fanboy123
Yep. Also have counterparty risk. Just because you have a contract for a
purchase and a sale doesn't guarantee that the transactions will go smoothly.

------
binarysolo
As a fellow data scientist and former Craigslist/eBay item flipper and deal
site (SlickDeals, FatWallet) hobbyist, my tidbit of experience and
Sidebusiness 101: profit comes when sellers don't care to maximize due to
circumstance.

Those circumstances include lack of product knowledge, urgency to move item,
and value for their own time/convenience.

For the first problem, people have tackled it with eBay/Craigslist listing
misspeller searches or just manually emailing for more info. I once bought a
new sealed copy of a collector's game, Panzer Dragoon Saga (eBay price ~$500+
back then) for $20 from a seller who was liquidating an old stash of games and
listed the item as "Panzer Dragoon Saturn" and couldn't get any hits.

The problem of illiquidity has some fun implications assuming you're willing
to take some product risk. Back when I was in grad school in the Bay Area, I
was flipping Fujiiryoki massage chairs (MSRP 5k, buying around 1-1.5k,
flipping around 2.5-3k) and there are plenty more items out there. This
requires either good product knowledge (tons of old Chinese people who I knew
wanted these) or a data-driven way of identifying high-price-point items
without much/any historical pricing data. This is a rather solvable problem
that hasn't been tackled (that I know of) and can be a value point for your
site I'd think.

As for buying liquid items low, subscribing to CL RSS feeds with the right
search terms _can_ do the trick, though I neither confirm nor deny that I may
have once written a CL page refresher to buy Burning Man tickets at cost
(instead of from scalpers who were charging hundreds more). Back when I didn't
really value my time, offering to pick up at a time of their
location/convenience and pay cash.

Misc selling tips as an enthusiast: and legit work/school email or
Googlestalk-able email establishes you as a "real" person. A phone number is
almost a must-provide these days too. Pay low(er) and always in cash (or cert.
check at bank) but assure the buyer that you'll be there and make the
transaction convenient and easy.

It's an addictive hobby, I know... :/

~~~
binarysolo
Seems like I missed the edit deadline. More free advice: Most flippers derive
market price by using pre-existing marketplaces data like eBay/Terapeak and
Amazon new/used to figure out where the market roughly sits. These venues have
strong incentives to regulate listings into consistent item buckets to make
sure people can't (CL)SEO listings like CL spammers ("2011 Macbook Pro" vs
"2006 Macbook Pro with Office 2011", or the giant paragraph of hot items in
small text and white font to catch your search attention). Once you get that
magical price point/band, you can pretty much go to town with some basic
clustering analysis. [Disclaimer: worked on a few private, weekend projects in
this specific niche.]

------
nomadomatic
_It’s unlikely Priceonomics could build a massively successful business
arbitraging used goods if we have to take possession of them._

Did you consider letting the buyers and sellers do the leg work?

Setup a distribution center. Sellers who want to offload stuff scan the items
and their details to you and you give them instant, fair quotes. If they like
your offer, they bring the items to your center, and you check to make sure
everything is as it was stated.

You put the items, their details and their new prices (with your margin
markup) online for buyers to peruse. If interested, they'll come by and pick
up whatever they want.

Like an online pawn store w/ local centers, except there's no pawning, just
selling & buying.

~~~
stinkytaco
This sounds more or less like a consignment store and pretty much what the
amazon marketplace does, but with the work done by a middle man instead. The
question is, would people be willing to put up with the higher price or
reduced profit required by adding a middleman, or would someone always
undercut you because they were willing to go straight to the consumer? It
reminds me of all those "ebay shops" that popped up 5 years ago and just as
quickly disappeared, though this could be as much about ebay changing their
focus as any business pressures, I don't know enough about it to say.

With a consignment store the model works because you are willing to take the
reduced profit to not have to put in the actual leg work it would require.
People are also willing to pay the slightly higher prices because consignment
tends to be in things like clothes that are difficult to buy online.

------
codenerdz
I still dont get what priceonomics provides that craigslist or ebay doesnt.

Craigslist:

* Listings have "ASKING" prices and can easily negotiated down 5-20%. So even if you provide a historical information of "Asking Prices", its still not a 1-1 relationship to how much you expect to sell your item for or its "BUYING" price

* I do question the value of historical information on CL: Its never been available, therefore neither buyer nor seller expect it and their view of the marketplace is limited to the time they hit search. And it is this view that they will use to determine a good price for an item. When I need to buy something that I need NOW, I try to choose the nearest, cheapest item, satisfying my requirements that is CURRENTLY available. Historical information doesnt come into play.

Ebay:

* Since I already have access to historical information(completed items) and I can use it to figure out how much to sell my stuff for, I dont see what Priceonomics bring to the table here.

Again Im trying to figure out where you guys are going with this. From
technology standpoint, all this content scraping, indexing and searching is
interesting, but what problem are you solving and how do you plan to make
money with it(short of arbitrage of aerons)

~~~
nlh
You sort of answered your own question -- in both examples you specifically
pointed out work that you have to do in order to calculate a price -- you need
to sift through Craigslist items, keep track of what you find, apply a
calculation, and come up with an estimate. Same for eBay.

The work you're doing there takes time and has value, and Pricenomics is
trying to capture that. I'm not intimately familiar with the company nor do I
know if they'll figure out a viable business model, but I do see the intrinsic
value in what they're proposing.

~~~
codenerdz
effort wise, it looks like search craigslist == search pricenomics, with
craigslist being smart enough to limit my last search to the geographical area
where I last searched, whereas pricenomics showed me the results around the
country(with option to filter it down to location later).

All things being equal, the effort is the same in my opinion

------
dotBen
Right now eBay is already sitting on this data. In addition to the sale/non-
sale price data, recently they've began to encourage (and sometimes force) you
to very specifically categorize the item you are selling.

Combine with geolocation data for the buyer and the seller and they probably
have a greater trove of data then you could get even with a biz dev deal with
Craigslist -- main issue is that you have no idea whether an item in a given
post was actually sold, and if so for how much.

I fear Priceconomics.com, as interesting as it is, will just work hard to
prove a business model for this data that if successful will just be exploited
by some engineers working at eBay who spin up a product to compete.

------
rohin
One additional point not mentioned in the post (written by me). If you buy a
used Aeron chair, it's very likely you can sell it for the same price a couple
of years later. Essentially you can lease the chair for free.

~~~
whatusername
This point also applies to the $1 chair.

~~~
georgemcbay
The $1 chair is very unlikely to still be a chair in a couple of years if it
is sat upon for ~4160 hours. Perhaps you could still sell it for $1 as
firewood, though.

If you're happy with a "doordesk" and a metal or wooden folding chair, more
power to you. I bought my own personal Aeron years ago, I've used it at
multiple different companies and at home when I was freelancing. In the
approximately 10 years I've been sitting very comfortably on that ~$800 chair
I've gone through dozens of thousands of dollars of now obsolete computer
equipment (desktops and laptops). From that perspective combined with the fact
that the chair is still in very much like-new condition, even paying $800 for
it was well worth it, IMO.

I'm also quite fond of the Ikea Galant height adjustable desk I also bought ~6
years ago, and that one doesn't have the premium price of the Aeron. I do like
a good value... IME, the Aeron actually is a good value despite the high
price.

~~~
whatusername
Granted. There is completely a place for good tools that make you more
efficient and work better/longer/etc.

My point was more that you could replace Aeron Chair with X (where X is
anything that doesn't have a steep depreciation curve -- ie - something that's
not a car or PC)

If you buy a used "X", it's very likely you can sell it for the same price a
couple of years later. Essentially you can lease "X" for free.

------
brador
Any news from craigslist RE:bot policy update?

That low altitude you're flying at can only keep you off radar for so long and
you're building your entire business on shaky ground.

~~~
krschultz
Can't you just get everything through RSS feeds? I don't think Craigslist
would be able to even tell if you were doing it that way.

~~~
binarysolo
You used to be able to easily scrape through CL RSS -> Yahoo! Pipes. Dunno if
you're able to these days though.

------
ew
You do realize that by having your buyer PayPal you the money you basically
lost $50 on PayPal deposit transactions. I would have had him send me a
corrected cheque instead.

------
mkag
The variance you are exploiting in this arbitrage setup is a result of the
inherent variance in information about the chairs, i.e. uncertainty. Since
they are used, there is lemon's principle at work. You can argue that Aeron's
don't really depreciate in quality that much though over time so that variance
in unjustified and in fact there should be some exact market price (perhaps as
a function of time used, or more simply just dependent whether its used or
new). But the thing is, more likely than not, that variance IS justified. Some
of the chairs may be less broken than others. Some of the sellers may be less
dependable than others. You can of course condition on this stuff - pick the
low price chairs and mark them up by being the most dependable supplier, vouch
for the chairs, become an expert in the chairs and be better at out the
lemon's, but those things all add cost, so NOT doing all that work is already
priced into the market. But cool experiment nonetheless! I have also found
that I can buy a used Aeron, use it for a few years, and sell it back for like
the same price. Not really a quickly depreciating asset .... maybe better than
the stock market the last few years ...

------
jpiasetz
I see two problems with estimating price off craigslist.

1\. List price is not the same as selling price 2\. The averaging is being
moved by "accessory items" i.e.
<http://priceonomics.com/computers/apple/macbook-air/> shows a lot of things
that aren't MacBook Airs in the low price bracket. Maybe tossing out anything
that is a few SD away from the average would fix that.

------
lambtron
there have been stories of people who scavenge for used/old/rare books and
resell them for an exhorbitant mark up
([http://www.slate.com/articles/arts/culturebox/2010/10/confes...](http://www.slate.com/articles/arts/culturebox/2010/10/confessions_of_a_usedbook_salesman.html))

some arbitrage of used goods can be a business; but it ultimately depends on
the effort required and sustainable the income generated.

~~~
brc
Someone I know runs a very profitable business that is essentially a rare book
finding/agency business.

They provide a 1800 phone number + internet site. People who are looking for
an out-of-print book give them the details. They search for the book. When
they find it, they add 20% the price, charge the buyer, purchase the book at
the list price and have it shipped to the buyer, and keep the 20% without ever
touching the book.

Essentially it's an agency business - I've often wondered why people don't
find the books themselves, but it's a time/doing business
internationally/inexperience type of thing. They would rather pay the extra
20% and have someone else deal with it.

The true value of the business in in the dealers database which allows them to
find a book very quickly by drilling down into who is most likely to have a
copy, plus they have an exclusive deal with point-of-sale booksellers, whereby
anyone who wanders into a bookstore looking for an out-of-print book can be
given somewhere to go.

------
kenjackson
My roommate in grad school did this. He'd buy toys on clearance from local
toystores, and then sell them on EBay for twice the price. He wasn't selective
at all w/ respect to the actual toy. Just looked for large markdowns.

He made decent money, but said that putting stuff in boxes and going to the
post office was a hassle. He eventually stopped -- he was finishing med school
at the time.

------
wycats
It's worth noting that $300 for a day of manual work is considered a good
salary in many parts of the country (and even in San Francisco).

~~~
parfe
$300 for three guys.

Once you factor in the girlfriend subsidy, they would have made better money
with far less risk by getting shifts at local fast food restaurants.

~~~
FelixP
He said they only worked for about 3 hours.

Even if you take out $75 for the GF subsidy (being generous and assuming she
gets an equal share), each guy made $25/hour, cash (i.e. ~$30-$35/hour pre-
tax), which is >3x what they'd get at a fast-food joint.

Now of course, one does need to take into account the fact that they're
restricted in spending their loot on beer, which they are obligated to share.
From a short-term economic standpoint this is probably a significant hit on
their profits (i.e. unlikely that the three gentlemen will consume the
majority of the beer). However, from a longer-term/more holistic view,
purchasing beer for the group will surely lead to fun, team building, general
goodwill, and so on, which is arguably more valuable than the $300 cash at
this point in the startup's lifecycle.

tl;dr startups should use aeron-chair arbitrage to fund investment in beer,
it's science.

~~~
ultrasaurus
Wouldn't the $25/hour still be taxable? (I understand that nobody pays taxes
on small cash amounts, but if we're considering its viability as a business it
seems unfair to compare one option with tax evasion and one without.)

~~~
FelixP
Definitely true, but the tax evasion is made possible by the nature of the
work (i.e. it's not an option at all in the fast food job)

------
abhimir
While making a sweeping statement about such business models not working, I
guess the op failed to take notice of Gazelle.com, which has been in operation
for 3 years now, has raised $46.4M in total with the last round being a series
D of $22M. And guess what their business model is, arbitrage on used
electronic products. So safe to say, such models can and do work.

I also believe that these models will increasingly become more mainstream,
because they save people 'time', time which is increasingly becoming the most
precious resource that we have. You save 2 hours of time for someone, and pay
him $40-50 dollars less than craiglist or ebay, and I am sure you can find a
large percentage of people for whom the opportunity cost of 1 hours is more
than $20-25, and voila, you have customers.

------
jroseattle
Maybe an interesting exercise, although the acquired "learning" of
difficulty/challenges in shuttling large bulky items around without owning
transportation...seems like maybe you should have seen that one coming?

------
fookyong
Great post. I think this is one of the fundamental lessons that all startups
going through an incubator should learn: have a product, find a customer.

The most basic, lowest-common-denominator example of this is arbitrage. Buy
one product for X and sell it for X + 10%. If you can't do that with one
product successfully that you know there is already a market demand for (e.g.
chairs) then how on earth are you going to do it for your startup?

~~~
borism
_If you can't do that with one product successfully that you know there is
already a market demand for (e.g. chairs) then how on earth are you going to
do it for your startup?_

umm, by building something new, not reselling existing stuff?

------
the_cat_kittles
The most fun I've had doing this sort of thing is going to goodwill outlets
(aka "the bins" ...of crap) and looking for stuff to flip. You pay by the
pound, and the more you buy, the better the per pound rate. And your helping
out goodwill with landfill costs. And your reusing something that would
otherwise be trash. Everyone wins!

You would be astounded at what you can find there... things worth well over
100 dollars show up regularly.

------
kev009
I can't tell if this is a joke or not? Some frail guys can't hack lugging
chairs around so it's not a viable business model for anyone? This is a very
viable business that you guys feel too entitled for.

Open your eyes and guess what a pawn shop, antique store, used office
furniture dealer, or IT equipment reseller do. It's not far off from this, but
they aren't bitching about it and plugging a silly website.

~~~
zem
it doesn't scale as well in terms of profits versus man-hours as the business
models they're used to.

------
jrvarela56
How did this make it to the top of the page?

~~~
mturmon
The abiding fascination of HN for Aeron chairs?

[http://www.hnsearch.com/search#request/submissions&q=aer...](http://www.hnsearch.com/search#request/submissions&q=aeron&start=0)

------
leoalmighty
You could combine priceonomics data + taskrabbit work force to scale the
arbitrage business on high value items. ;)

------
omegant
Are you scanning craig list manually?. If done with a crawler, how you mannage
to keep your site unbanned?

------
ImaBauss
Just out of curiosity what language is priceonomics written in?

~~~
midas
We use all kinds of cool tools (maybe we should put them all on the site
somewhere?), but we use python mostly. We love python!

