Now nearly 16 years into the new millennium, we must acknowledge that yesterday’s music products industry is gone and today’s MI industry has arrived. That doesn’t mean that brick-and-mortar music products retail is dead…far from it. Brick-and-mortar stores are still finding ways to survive, and to thrive, by focusing on low-cost/high-margin sales, selling services and monetizing their expertise. However, the most successful brick-and-mortar stores are also acquainting themselves with the digital age, integrating e-commerce and online marketing into their portfolio of skills. Reverb.com, which launched in January 2013, is at the cutting edge of the modern music products market, and its rapid growth underscores the power the Reverb platform is likely to have over the next decade.
The question on many people’s minds is whether Reverb aligns with and boosts brick-and-mortar retailers, or whether it’s yet another competitor on an already-difficult landscape. Who better to discuss that topic, and myriad others, than David Kalt, Reverb’s Founder/CEO? In this wide-ranging discussion, Kalt illuminates what Reverb is, where it’s going and how its ascendance will affect your business.
The Music & Sound Retailer: Let’s begin with your background. Trace your personal history with musical instruments, music products and making music. Touch on what initially captured your interest. How has your career progressed from those early days, encompassing your experience both in the music products space and outside of it?
David Kalt: I kind of got a late start as a musician. I picked up the guitar as my primary instrument in college…around 18 or 19. I just fell in love with it. At the start, I just wanted to learn pop, rock and classic rock songs. I played in a couple of small bands, but we didn’t do too much gigging. Through that, I got into recording. I developed a passion for recording engineering, in particular. So, I started to do that on the side during my college years and then, when I graduated from the University of Michigan, I went full time into the studio as a recording engineer.
I started with a short apprenticeship in Los Angeles, and then I moved to Chicago. I’m from the Midwest, and my then-girlfriend/now-wife was from here. I started working in a great studio called Chicago Trax Recording. After a couple years of that, I realized I was not going to be the next Jimmy Iovine. Although I loved it, I was not great at it. It was a lot of work, and the path to success would be more strenuous than I had the talent for. So, I shifted to software.
Working in the studio got me inspired by technology. This was 1990 and, being surrounded by digital equipment, I became fascinated with software. I actually taught myself to start writing code. I eventually got a master’s in computer science, and I started my first company, ClientBASE, in 1994.
That company and my next were both successful. During that time, I started to collect guitars casually. I never considered myself an avid, hardcore collector. I just wanted a half-dozen or so instruments that meant a lot to me and that would inspire me to play every day.
The Retailer: Since Reverb.com’s creation in 2012, it’s obviously risen to considerable prominence. Tell us about Reverb.com’s history, founding, evolution and maturation. Is Reverb.com markedly different today as compared to at the time of its creation? If so, in what ways?
Kalt: Reverb.com was spawned from my experiences in retail music. In 2010, after about 20 years in technology, I acquired the Chicago Music Exchange, the iconic guitar and gear dealer on Chicago’s north side, near Wrigley Field. (Go Cubs!) Through my experiences there, learning how to create growth in a stagnant retail business, it became evident to me that there was a pain in the market. The pain was eBay, namely its high fees and poor experience. It was just so cumbersome and expensive. It lacked good service and attention to detail. After dealing with it over and over again, and experiencing it firsthand as a major buyer and seller, I felt I could leverage my technology background and entrepreneurial talents to build something that would resonate with this industry. Hence, “Reverb.com.” Once I made the “go” decision, we started writing the software in the summer and fall of 2012, and we launched the business in January 2013.
Where is it today, relative to how we had envisioned it? It’s growing very, very quickly…faster than even my own aggressive projections. The vision for the product, however, is just as we intended it. We weren’t going to dramatically create a whole new way of buying and selling. What we wanted was to enhance and innovate around what we saw were existing limitations and pain points buyers and sellers were having.
We devoted a lot of our effort to content: building a price guide, writing good articles, etc. We focused on the design and usability of the platform and our technology. We spent a lot of time on customer service and training to be able to have knowledgeable people who can resolve any issue, and make both buyers and sellers feel like heroes on our platform.
So now, after two-and-a-half years, we’ll transact around $130 million on the platform. And that’s just our second full year in business. We should do almost two-and-a-half times that next year, or close to $300 million. So, it’s growing really quickly. We have around 65,000 sellers. Probably around 200,000 people have bought. And, we have around five million unique visitors a month.
The Retailer: When you look at Reverb.com right now as an overall organization, what would you say you’re the proudest of? What makes Reverb.com stand apart from other organizations in the music products industry? What’s the “secret sauce” at Reverb.com?
Kalt: I’m a big, big believer in culture. I believe in empowering people to push themselves to do big things. So, this is an organization where everyone is totally transparent. Everybody knows exactly what his or her ambition is. Everybody knows exactly what we’re trying to accomplish. Everybody’s empowered to do what he or she needs to do to move the needle, so that the whole business keeps growing.
And we don’t like to micromanage. We prefer to encourage creativity and to hire musicians who love this space. When we hire them, they might not have all the skills firsthand, and they don’t necessarily have the management skills yet, but we like to develop that within our culture, so that’s actually good. What they do have is raw talent: the drive and determination. Whether they’re in customer service, in content, in marketing or in coding, we try to guide them and make them really productive in our environment.
I also think the key is transparency…being really straight with your people. Telling them where we’re going and what we need from them to make it happen. We make it really clear, and then give them the tools and resources to do it themselves. They can’t feel like just a cog in the machine. These are creative people with a voice.
The Retailer: Describe how Reverb.com interacts with, or sits alongside of, the brick-and-mortar music store channel. Does the existence and success of Reverb.com serve as a boon to dealers with physical storefronts? If so, in what way? Does Reverb.com siphon off any business that brick-and-mortar stores would otherwise be getting? Detail the relationship between brick-and-mortar and Reverb.com.
Kalt: As a marketplace, we have to be fair to everyone—from big dealers to individuals—but I’d say we’re 95-percent aligned with brick-and-mortar retailers. Whether you’re a brick-and-mortar retailer, a collector or a musician, we think we can help you in the same way. That said, we have a variety of services and features developed specifically for brick-and-mortar stores. We integrate with their retail management software, we have promotional tools and we help promote shops on our site. So, yes, we’re very, very brick-and-mortar-dealer friendly in our platform.
But we don’t stop there, because what makes a good marketplace is variety. If it were just dealers and customers, it would look like just another dealer or any other platform. What makes it interesting is that we allow individuals to sell right alongside dealers. Some of these individuals are running their own mini shops. The fact that sellers can interact with people who aren’t just tied to their locality is really, really powerful. And that’s the community we’re trying to build globally. We’re connecting brick-and-mortar dealers, individuals, flippers and professional musicians, and we’re bringing them to a place where they can congregate and transact safely.
The Retailer: Clarify the 95-percent alignment you referred to at the beginning of your answer. How is Reverb aligned? How is it not aligned?
Kalt: When I talk about 95-percent alignment, I’m saying some dealer out there could perceive five percent of what we do as competition. But it’s a very small percentage. If you’re relying on the trade-in business—people coming to you and selling you their instruments—those customers now have an alternative at Reverb.com. That’s the only thing that anybody would really have an objection to. The 95-percent alignment is everything else. We’re helping dealers sell more gear online, and to a much broader audience.
The Retailer: This past August, Reverb.com announced completed integrations with leading e-commerce platforms Shopify, BigCommerce and Magento. Explain what went into finalizing this integration, and detail why it’s important. How will this development enhance Reverb.com and its brand value?
Kalt: It’s a lot of work for dealers to seamlessly maintain inventory online. You have your own Web site; you might have eBay and Amazon; you could have a Reverb.com shop. So, we want to remove as much of the pain as possible and make it effortless for our dealers to maintain their inventory across multiple platforms. Therefore, we integrate with BigCommerce, Shopify, Magento and many others. We also have a very robust API, with the philosophy that if we give people access to the Reverb.com platform—our listings, content, price guide, etc.—then programmers and software developers will go out there and develop lots of apps and functionality to make our ecosystem more accessible to more people. We’re finding that to be very, very true, and we’re investing more and more time and money into building up that ecosystem.
The Retailer: This past September, Reverb.com announced the launch of Reverb Lessons, which will connect aspiring musicians with experienced music instructors for online and in-person lessons. Describe the complexities of launching Reverb Lessons, along with detailing why it’s an investment of time, money and resources that is worth making.
Kalt: There’s a wealth of instructors out there with immense talent, but one of the things that they’re probably not super focused on is marketing themselves and getting new customers. So, what we envisioned with Reverb Lessons is the idea of offering a platform for some of the best instructors that would make them available locally, just like in your hometown, or online through a Skype lesson. The idea is, there are tons of resources online for people to watch videos and be educated. But we all know that, as with exercise, for which you could have a personal trainer or a coach, having a personal mentor in musicianship is really what determines success. So, that follow-through and accountability plays into Reverb Lessons.
In addition, there’s a longer-term reason for Reverb Lessons to be successful. Long-term growth in this market will increase if amateur musicians turn into really good, lifelong musicians. We want to nurture people who love playing their instrument. They’ll then want to buy and sell more instruments as they grow as musicians. It could be as an amateur, as a professional, with their friends and family…it doesn’t matter. When music stays in people’s lives because they have the skills to make great music, it’s good for our industry and it’s good for our society.
The Retailer: Can a brick-and-mortar music store offer its lessons services through Reverb Lessons, or is the initiative really focused on individual, unaffiliated instructors?
Kalt: Right now, it’s more about the individuals, because everyone’s dealer lessons program tends to be unique. We don’t have the resources to promote a school, per se, as we do to promote an individual who teaches. The online consumer wants to see whom they’re getting their lesson from. We have standardized pricing across the board. So, at this moment, I feel it’s not a fit for most retailers that offer lessons. Instead, it’s for the individual freelancer who is maybe doing this part time, doing it on the side or doing it full time, and who basically want to book two or three days of their schedule. That said, for retailers who do not offer lessons, we do have an affiliate program, so they can indeed profit by sending people our way.
The Retailer: Your answer began with, “Right now.” Is it possible that, in the future, you’d want to open Reverb Lessons to brick-and-mortar dealers?
Kalt: Once we have critical mass—a strong brand and students coming to us looking for different skills and offerings—if there’s a dealer in south Chicago that has great capabilities, we’d probably want to add them, just as we’d want to add a qualified individual instructor. It’s just that we’re focused on filling our “inventory” of instructors and regions. It’s something we definitely think will exist down the road.
The Retailer: Are there any other business initiatives or major rollouts that are either imminent or you’d like to hint at?
Kalt: Right now, we’re still focusing on the basics: growing our user base, growing our dealer base, getting more inventory listed on the platform, getting Reverb Lessons off the ground and so on. We don’t have any major product initiatives in the next two to three months, other than what I call “a lot of littles”…the enhancements and improvements that make people love Reverb.com.
The Retailer: Looking out over a one-year, three-year, five-year and 10-year time scale, what do you anticipate the future holding for Reverb.com? Do you have very clearly delineated goals for the next several years?
Kalt: We have extremely ambitious goals in terms of our gross merchandise sales and the volume that we intend to run through the platform over the next three to four years. I think the numbers we’re projecting would make us the largest online music marketplace on the planet, and we see those as very, very viable numbers.
Part of that centers on big, global expansion plans, handling multi-currency and multiple languages, and making inventory from overseas more fluid. Right now, there’s a lot of friction between Europe, the U.S. and Asia in terms of instruments, taxes and duties, and there’s a good degree of scarcity. The U.S. is the epicenter of a lot of music, but we want to break down some of those barriers and some of those walls. There’s no reason why an American-made Stratocaster should be that much more expensive in Europe, especially with the decline of the euro. So, those are some of the opportunities where, traditionally, there have been barriers to getting instruments in and out of consumers’ hands.
Any marketplace is best when it’s as close to frictionless as possible. So, one of the other visions we have for Reverb is capitalizing on a very low fee structure with a very easy to use platform, where everyone feels equal regardless of budget or experience. This has instruments changing hands more times than they would have before Reverb.com existed. So, we’re seeing an instrument go from the dealer, to an individual—who might play it for a month or two—and then that instrument goes on Reverb.com and it’s sold to another individual. Then, it might make its way back to a dealer. Once again, all those transactions are happening, but, what’s cool about it is, that guitar in the old world might have been sitting on a hook for six months. Now, we’re seeing that guitar change hands three or four times in that six months. It’s very exciting to see the velocity of instruments floating around.
All of that said, in order for us to get $1.5 billion in transaction volume on the platform, the used marketplace has to grow substantially. We’re looking to grow the used marketplace in general. There’s certainly a fair amount of new inventory on Reverb.com, and that’s fun and exciting. But dealers who understand used, and who can really make used a competitive option alongside the new inventory, are going to love what Reverb.com’s about. People who really just want to push the newest, greatest, latest instruments only, without regard to the power of used instruments, might feel that we’re more of a threat. A 2007 Fender Stratocaster has another 40 years of life in it. To many people, it’s just as good as the 2015 Stratocaster that Fender’s producing today. So, among our biggest initiatives over the next three to four years is how to move $1 billion or $1.5 billion in used instruments across the globe, when it’s not happening at all today.
The Retailer: What is it about the music business in general, and Reverb.com in particular, that keeps you motivated, inspired and eager to get out of bed and head to the office each day? Is there anything, in particular, that your inspiration springs from?
Kalt: It’s the people. When you’re working with musicians, everyone’s got the common goal of spreading this gospel of great instruments. You feel a sense of usefulness; you feel a sense of purpose. And I’ve always been in businesses where purpose was my driving motivator, more so than money and more so than growth for growth’s sake. If you don’t have purpose, you can’t build a great company. We have that sense of purpose in what we’re doing. Our purpose is to bring a smile to someone’s face when he or she picks up a new instrument, or when he or she can sell something in order to buy the next instrument. And, I’ll tell you, that’s the inspiration for the entire team…and for me, in particular.
The Retailer: Is there anything I’ve forgotten to ask about that you’d like to discuss?
Kalt: We’re still relatively young, but our goal is 100 percent to grow the market. And, as the market grows, dealers will only find more opportunities. We’re going to have a big presence at NAMM this year, and we’ll just continue to spread the word.