Redefining smartphone CtoC with a fixed price: founding Mercari (2013)

A founding designed for speed and the number-one spot, not size

The heart of this founding decision was not a response to constraints of capital or technology, but the recasting of the very form of consumer-to-consumer trade on a smartphone-first basis. Japanese CtoC since Yahoo Auctions had assumed the auction; President Yamada discarded the bid-up format and chose a flea market where the seller sets a fixed “buy-it-now” price. A settled price speeds the buyer’s decision, raises the turnover of listing and buying, and moves person-to-person trade from a special act toward an everyday one. Prioritizing a “snappy,” practical smartphone experience over polish — even rebuilding from HTML5 to insist on native — shows a founder placing market fit above all. Rather than fighting existing players for share, Mercari set out to launch a whole new category; there the character of this decision shows.

That said, this founding design was also the prototype of the later growth model. The stance of prioritizing the number-one position led on to aggressive fundraising that accepted dilution and to large-scale advertising including television. In network-effect CtoC, the side that takes scale first gains the edge; but a high fixed-cost structure that pours most of revenue into advertising narrows the room for adjustment once growth slows. That the US business — which carried the smartphone-CtoC model established in Japan — booked cumulative write-downs exceeding $91.1M (¥10bn) also points to the problem lurking behind the “take scale first” idea chosen at founding. The 2013 choice to bet on speed and scale and open a new market was a starting point that prepared, at once, both Mercari’s later strength and its later difficulty.