TOKYO • Mr Yusuke Mitsumoto had a hunch: what if you paid people instantly for their used goods over the Internet, with no guarantee they would hand them over?
The 36 year-old e-commerce entrepreneur launched an app in June to test the idea. It worked better than he imagined; after 16 hours, he was stunned to find he was on the hook for 360 million yen (S$4.3 million) and shut the service down.
A day later, truckloads of clothes and electronics gadgets started to arrive at his start-up's tiny office in Tokyo. All told, fewer than one in 10 second-hand goods sellers did not deliver as promised. That was good enough for Mr Mitsumoto, who relaunched the service, called Cash, in August as a new way to gather inventory for an online flea market.
"It was a social experiment," said Mr Mitsumoto, who started selling goods online in 1996. He later launched Stores.jp, Japan's version of Shopify, which he sold and then bought back. Second-hand sales are a big business in Japan and a market worth 1.6 trillion yen, said the Reuse Business Journal.
What Mr Mitsumoto discovered was a way to remove the last bit of friction for sellers to get rid of stuff, unlocking value wasting away in people's closets. He tapped into a market of people who lacked either the time or the patience to take nice pictures, write product descriptions and haggle with buyers.
He also knew it was only a matter of time before bigger rivals followed suit. So when Mr Mitsumoto got a Facebook message on Oct 4 at 1:58am, "Hi! This is Kameyama! Sell Cash to me! No?" he saw a way to stay ahead of the competition.
Mr Keishi Kameyama is one of Japan's richest people and the founder of DMM.com, a media and technology empire with US$1.6 billion (S$2.2 billion) in revenue. He started with pornography but has grown his company into a vast collection of enterprises that spans a currency trading platform, video games, an online English school and solar farms. Mr Mitsumoto agreed to sell Cash to DMM for 7 billion yen and still run the business.
What Mr Mitsumoto discovered was a way to remove the last bit of friction for sellers to get rid of stuff... He tapped into a market of people who lacked either the time or the patience to take nice pictures, write product descriptions and haggle with buyers.
"For people doing Internet businesses in Japan, DMM is a scary presence," Mr Mitsumoto said. "You never know when they may launch their own business and become a tough rival."
Mr Kameyama said his team recognised the potential of the market uncovered by Mr Mitsumoto, but admits the eye-popping valuation for a company of six people that is not even one year old was also partly an "acquihire" - an acquisition based on hiring.
"Doing business on the Internet is not all capital and equipment, you need a certain intuition, a design sense and ability to get a service going," Mr Kameyama, 56. "I can also appreciate a bold play. There aren't that many audacious people in this world."