The failure of Beepi
Beepi fell from being the Top 10 hottest e-commerce firm to closing up shop in just 3 years. How could it be played out differently?
Beepi, the digital car buying and selling platform, was launched in California in 2014. It had an ambitious goal to transform the traditional used-car industry by providing the convenience of buying/selling a car with a touch of a fingertip. Beepi was on Forbes’ list of the top 10 hottest e-commerce startups in 2015 and had been valued as high as $546 million. Despite its brilliant idea and booming business at some point, it eventually failed in 2017. Beepi is a classic example of a startup with a good idea at its core but runs into the ground due to bad execution.
Beepi was a peer-to-peer marketplace. Instead of buying the car outright, Beepi sent one of its 100+ inspectors to the seller and run a 240-point two-hour evaluation. If the car passed the inspection, the car was listed on the Beepi site. Once it’s bought, the money would be transferred to the seller and another Beepi employee picked up the car and delivered it to the buyer. Beepi took up to a 9% commission. If the car did not sell in 30 days, Beepi would buy it, and continue to list it until it sells. While buyers did not personally inspect or test drive the car before purchase, they had a 10-day return window after delivery and a warranty. Buyers had the option to pay Beepi in bitcoin, direct debit, financing or credit cards.
Disruptive Strategy
Beepi’s goal was to fundamentally change the way people buy and sell used cars through digital transformation. Its strategies were disruptive in nature, through real-time data and analytics platform and disrupt used car market to become a dominant marketplace. Their disruptive strategy can be characterized by:
- Customer: With the disruptive strategy the customers were on two fronts, the buyers and the sellers. Beepi had to coordinate with individual car buyers and sellers, this would in turn create extra customer acquisition costs.
- Technology: Beepi was able to leverage big data and analytics to support their platform but their website was the primary gateway for their services.
- Identity: The brand that Beepi becomes, their imagery, their identity was critical to their success. They had to be perceived as dependable and a service that users would be able to trust and believe in. Creating both the internal and external competencies of support staff and the external awareness were monumental towards their success.
- Competition: Beepi faced competition from the incumbent players such as CarMax, Autotrader and Craigslist, and similar upstarts like Vroom, Shift and Carvana.
Challenges and Opportunities Beepi had Faced:
As Beepi chose to be a marketplace player, they chose to be a disruptive force as a new entrant that needs to focus on execution and competition with traditional incumbents. The challenges and opportunities include the following.
Opportunities
- Beepi had the control of their destiny. They were not dependent on strategic partnerships and value chain customers. Though the fact that dealers can post on their website may be an inconsistency as they potentially are collaborating/competing with their direct brick and mortar competitors. They also provide service in making it seamless, easy to use, and on-site delivery, services that are not offered by current players.
- Creating a brand and a dominant platform is at high risk at the beginning, getting traction is very difficult, but if they succeed the payoffs are huge as they’ll be able to tap into a fragmented market with potentially high margins as a result of the disparate prices and value systems in the car market.
- The fact that they created a network of buyers and sellers reinforced their business for potential repeat customers, word of mouth spread, and increased traffic. Sellers could also be buyers of cars and Beepi’s platform could be the dominant stop for car transactions as they are seamless and may become the preferred way of buying a car.
Challenges:
- The disruptive strategy was risky and may not be able to gain traction. People may not recognize the Beepi brand and they may not have enough buyers and sellers using the platform.
- People may not find the tech nature of Beepi to be beneficial, they may adhere to the traditional comfort of test drives.
- There are also large operational risks as well. Beepi had to make sure they hire the right talent to make sure the 10+ point checks are safe and high quality. Beepi also faced high customer acquisition costs for buyers and sellers of cars in the inventory.
What Went Wrong?
Beepi’s disruptive strategy was highly contingent on the value creation and value capture hypotheses. Its value creation was dependent on the fact that it’s painful for buyers to buy a trusted car (potential for lemons) and people are willing to buy a vehicle without a test drive. Unlike other industries, digital transformation in the used-car industry is hard to succeed. As said by Alan Haig, president of buy-sell advisory firm Haig Partners, “Everyone who has been successful has realized that used cars are unique, depreciating assets, and the margins are shrinking because the Internet allows consumers to choose more freely between vehicles, you have to be a good retailer, not just a software developer .”
In addition, according to Collapsed.io, Beepi’s poor organizational management was the main contributors that caused the company to shut down in 2017. A majority of Beepi’s burn went to “grossly high salaries” and the leadership also mismanaged funds. Beepi had massive funding or “overfunding”, but was unable to manage them well.
What could Beepi have done differently?
Beepi’s disruptive strategy was attractive at first as the market was very fragmented, and the top player only represented 3% of the market for used car sales. The problem was that they had to create a platform that could be adopted by both buyers and sellers, and they had to develop a strong brand and identity that consumers are associated with. They also had to execute against large competitors with significant resources. I would recommend that Beepi do the following:
First, I would utilize the financing and potentially expand through acquisitions or investments into teams on the East Coast that have seemed to gain traction (acquihires). Eventbrite approached this similar strategy as they expanded. Some local markets had online event players that had already broken local threshold, which Eventbrite then acquired. Similar to this, Beepi should identify which players are gaining traction and then look to strike a deal with local teams that are doing well. Beepi could observe and monitor certain cities and create an active list of potential targets. This list would also be used for competitive tracking purposes as well. Beepi had invested into technology and algorithms on its platform so it would be able to add value to local players that don’t have technologically deep platforms. Ideal M&A targets could include local dealers that have strong local knowledge but lack technology, a vertical integration play into new geographic expansions.
Additionally, I would recommend Beepi test out new markets by taking a simple test step of attempting to sell 2-3 cars on current marketplaces such as eBay motors on behalf of local car owners based on their value creation hypothesis of seamless transactions and technology/data-driven sales. They could try selling 2-3 cars with online eBay posts that offer value points of their guarantee, utilizing their tech and data platform to identify which cars are most popular to sell, and offer value add services such as notes on a 10-point professional check and concierge delivery services. This approach would be an MVP approach leveraging existing market platforms to test their value hypothesis of seamless transactions and great service. Another form of this strategy could be collaborating with local mom and pop car dealers that don’t have a web presence. This would be a value-chain to disruptive strategy. Beepi could initially work with mom and pop dealers to sell their inventory online in the Beepi way, if the local test markets go well then Beepi can be reassured that customers perceive value from Beepi’s value hypothesis (10-point checks, concierge services, etc).
The digital innovation had reshaped every aspect of our life. Buying and selling used cars, unfortunately, hasn’t changed for decades. Beepi’s failure was a good reminder that not all digital transformation would gain traction, and companies need to be thoughtful towards aligning its value creation strategy and organizational management.
Reference:
Lee, Evan (July 22, 2017). https://collapsed.co/startups/beepi
Burke, Katie (December 12, 2016). http://www.autonews.com/article/20161212/RETAIL04/312129946/beepis-demise-shows-perils-for-used-car-startups
Del Rey, Jason (April 15, 2014). “Beepi Could Be the Car Buying Site We’ve Been Waiting For”. Re/Code..
Lawler, Ryan (September 5, 2014). “Peer-To-Peer Auto Marketplace Beepi Adds A ‘Prime’ Option, Now Shipping To 140 Cities”. TechCrunch. Retrieved February 12, 2015.
Hi Gloria – great overview of the rise and fall of a disruptor! Beepi seems to have struggled with the common “chicken and egg” problem of platforms: which side do you focus on first? Here, it sounds like Beepi focused on the seller side. This is especially apparent in their guaranteed sale (if the car doesn’t sell in 30 days, Beepi buys the car and continues to list it until sale).
But I see a big problem with that guarantee. Beepi’s operating model reminds me of edaixi (eWash), the pickup and dropoff dry cleaning service. In a similar way, Beepi has a model that is asset-light. It avoids one of the biggest fixed costs for used car companies: the large commercial real estate needed to showcase cars.
By offering a guarantee, Beepi runs the risk of incurring inventory holding costs. It also takes on inventory obsolescence risk, in that it bears the cost of not being able to sell the cars. But most damning is the impact of the guarantee on Beepi’s cash conversion cycle. With normal sales, Beepi doesn’t have to pay anything. But if it’s guarantee is triggered, Beepi has to pay the seller the full sales price of the car! This will really drain Beepi’s funds, and might slow Beepi’s ability to acquire new customers.
This is a great example of how digital innovators must consider the cash flow implications of giving away products for free to acquire customers (in this case, a free guarantee).
Thank you for the post, Gloria. I think the used car market creates tremendous friction but until recently there haven’t been effective platform businesses that have developed. Beepi seems to be a good example of a failure in the space. In reading your post, it seems like the two issues with Beepi were how logistically intense their business model was (i.e. high cost) and the value proposition they offered to sellers was relatively weak. Two businesses that seem to have done a better job of creating platforms in the space are Carmax and Carvana. Carvana has created a business model built around reducing friction for sellers that has allowed them to scale quickly.
Thanks for covering this interesting story, Gloria! Call me old-fashioned, but I think one of Beepi’s big mistakes was not letting customers “experience” the car before purchasing it through their platform. A car purchase is a big decision: made once only every 3-7 years(ish), potentially tens of thousands of dollars on the line, and your choice will likely effect your quality of life every single day of your life as you transport yourself through life. As a result, many customers still want to trial a car before buying it. This can involve a spectrum of trial-ability, from just “seeing and feeling” the machine, sitting inside and imagining yourself driving, all the way to live test-driving on the road. This would obviously have been an costly feature to add to Beepi’s customer experience, but I think could have helped them succeed.
I think this is an interesting case of more money doesn’t equal more success. In class we’ve seen many examples of well capitalized incumbent firms (ex. GE, Nokia, etc.) struggle to get their digital innovations off the ground because (1) they were late to the game and (2) there was so much pressure for them to make radical changes and to grow these efforts dramatically across the large enterprises. Even though Beepi was a disruptor, I wonder if taking on so much money from VCs had a similar effect and pushed them to grow dramatically before they figured out the right value proposition for both sides of the platform. To Austin’s point, did they ever consider test driving? To Hans’ point, did they need the guarantee? It feels to me as if they failed because they were in a rush and tried to scale the wrong model.