The value of LetGo was estimated at $1.5 billion just in three years after its foundation, so its success story sparks the interest of many entrepreneurs. The owners of this startup knew that they had to compete with experienced players like Craiglist and eBay, so they relied on powerful ad campaigns to win over the audience. With the focus on marketing, the company founders started searching for the reliable funding source and plan the revenue strategy. They had created an entirely free platform for buyers and sellers, which then was gradually transformed for providing a bigger profit. So, a general question that arises around this platform is: “How does the Letgo app make money if it’s free?” The purpose of this article is to analyze Letgo’s revenue models to answer this question.
Contents:
What Is Letgo?
Letgo is a free-to-use marketplace website and an application that helps people buy and sell used products locally. It makes money by combining three revenue models:
- an ad-based model that lets advertisers use this platform as a place for displaying ads to a massive audience;
- a freemium model that allows users to post a premium or featured listing of items;
- two subscription plans that offer advantages for people who frequently sell goods via the platform.
Created by a former co-founder of OLX – Alec Oxenford, Letgo uses a business model similar to that of OLX. Both marketplaces source funding from the same investment group and have the same purpose – providing a customer-to-customer platform for selling second-hand products. However, several features distinguish Letgo from its direct competitor:
- All products are tied to a specific location because users must meet in person to make a deal. Meanwhile, OLX operates within a country, so its users can agree on a product delivery between cities.
- Besides posting photos on the marketplace, sellers can also add video listings to show their product from all angles and make it more attractive to buyers.
- Letgo is an app optimized primarily for smartphones, so it uses camera capabilities and image recognition to a great extent. For instance, the Letgo Reveal feature is based on artificial intelligence and the recognition technology to let sellers point the phone camera at the item they want to post and immediately see the average cost and time they’ll need to sell it on the platform.
The previous experience of Alec Oxenford with OLX left an imprint on how Letgo makes money. The main goal of both platforms was to quickly gain massive user traffic and achieve the network effect – i.e., make more people join the marketplace to increase its value. To figure out how the Letgo company expanded its user base and started making a profit, let’s discover its business model.
Letgo Business Model
Although a business model has a wider sense than monetization methods, the focus of this article is on the revenue strategy of Letgo. At the very beginning, the platform provided services entirely for free as a part of the company’s strategy for faster growth rather than profit. So, a lot of efforts were put into finding investors and marketing.
Funding
Letgoreceives funding fromthe Naspers international investment group that also provides support to such companies as OLX, Avito, Udemy, DeliveryHero, and others. In September 2019, Naspers created a separate company for Letgo investments – Prosus.
Ad Campaign
A great deal of investment was put into marketing to attract the audience to the platform. Letgo cooperated with the Crispin Porter + Bogusky agency to create a series of advertisements for television. The agency also made a series of video ads with pictures and descriptions of real user items for sale promoted by celebrities.
The ad campaign was a success, and as the number of users increased, the Letgo owners changed the strategy for profit. For now, this marketplace has a mixed revenue model that combines advertising, freemium, and two subscription plans. Each model has its advantages and disadvantages:
1. Ad-Based Model
Marketplace platforms often serve as high-traffic spaces for various advertisers, and so does Letgo. When users are in the app or on the website, they see different banner ads from local companies. The more users interact with advertisements, the more revenue Letgo gets as a publisher.
Advantages: People love everything that’s free. By showing ads, the marketplace doesn’t risk losing users because it doesn’t require them to put any money into the platform.
Disadvantages: Making a profit out of ads works only on platforms with a high traffic load and user engagement. Even if a platform has no troubles hosting a great number of users, most people find advertisements annoying and choose to ignore them. Thus, the ad click-through rate can be low, and so can be revenue. For this reason, Letgo has two more ways of making money.
2. Freemium
Afreemium model of Letgo includes theitem “bump up” & featured listings. The “bump up” feature allows sellers to make their product visible on the top positions of product lists for seven days in a row. Users can also add a feature to this item for sale to attract a specific audience. The cost of a single in-app service ranges from $0.99 to $3.99, depending on the item.
Advantages: Freemium allows marketplaces owners to “play safe.” They can avoid the risk of losing users who don’t want to pay for services because the main functionalities remain free, and the time to use them is unlimited.
Disadvantages: The main problem here is a relatively low conversion of free users to paying ones. Most users can keep selling successfully with only basic features, so they won’t need additional functionalities if they don’t need to sell an item immediately. Still, the Letgo freemium plan isn’t expensive; the price is lower than $4 for an item, so some people have no trouble using this plan.
3. Subscription Plans
There are two types of monthly subscriptions offered by the marketplace. A user can choose from:
- The Super Boost mode. By buying a Super Boost mode, users get one of their items featured automatically by the system every day. Based on the data gathered on products and sales in the marketplace, the platform identifies a product on the user’s list that will have the highest probability to be sold quickly.
- The Letgo Pro plan. As the platform matured, its team issued a new subscription plan available only to professional car dealers to provide them with more leads for money. The company priced the Pro plan at $99 for 30 car deals, $399 for 70 vehicles, an $599 for 150 car sales monthly, but included a 30-day free trial of this plan as well.
Advantages: Subscription plans generate the highest revenue compared to advertising and freemium models. Besides, they are the source of recurring payments, which makes them the most stable model as well.
Disadvantages: To make people want to pay for a subscription, the company must explain to the users that the features coming along with the plan are unique and advantageous for them. Letgo makes its services valuable for people by using advanced technologies to analyze various data and provide a user with the best choice to sell. Also, the Pro subscription targets a profitable car dealing business offering car dealers a small price compared to earnings they can get out of the platform.
Comparison with Other Models
Apart from business models used by Letgo, there are several more ways of how free apps make money that we uncovered previously on our blog. By following the link, you will also discover valuable insights and statistical data on the free mobile app market as well. In this part of our article, you’ll find out other efficient methods to monetize a marketplace that Letgo doesn’t use.
- Commission. The platform takes no interest out of sales from sellers or buyers because such a model doesn’t fit the Letgo strategy for growth. However, charging sellers a commission from each sale is one of the most efficient methods for marketplace monetization. Amazon, eBay, and Etsy are examples of commission-based platforms that take at least 3.5% from sellers depending on the item.
- Listing fees. Many platforms, similar to Letgo, can charge a fee from users for posting items to their platforms. As an example, the Etsy handmade marketplace charges $0.20 per listing and makes the posted item visible on the shop page for four months or until somebody buys it.
- Shipping service fees. Letgo doesn’t provide delivery or shipping services. No transactions are possible on the platform because the marketplace owners encourage buyers and sellers to meet in person and pay for items in cash. In contrast to Letgo, the more mature companies like Amazon make additional money by handling product delivery instead of a seller and charge a fee per shipment, depending on the product category.
Conclusion
As you can see, the current revenue models used for the Letgo platform are freemium, advertising, and subscription offers. This marketplace owes its success partially to the previous experience in managing OLX by Alec Oxenford and partially to the Prosus investment group. Aiming at fast growth, the platform owners made their marketplace free, and only after pushing efficient marketing campaigns and getting a desirable traffic load, they focused on profit-making strategies. As the buyer and seller base expanded considerably, the company introduced the AI-powered features to the platform and provided users with an opportunity to sell their products faster.
Many marketplace startups want to repeat the success of Letgo or even outrun it. If you have an idea of a similar product, contact us to make it real using our expertise in advanced technologies.
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