MONTREAL -- Entrepreneur Tony Mastronardi changed the industry 20 years ago with TouchTunes, the first commercially practical digital downloading jukebox. He attributes much of TouchTunes' success to its decision to partner with operators rather than compete with them. Now he'd like to do it again, and help to save the planet at the same time.
Mastronardi, who founded TouchTunes in 1993 and managed it through 2004, has started A La Carte Media Inc. in Montreal to develop and manufacture a "reverse vending" machine that enables consumers to get immediate cash for their used smartphones. Called the BuyBack Booth, the system makes use of kiosks that invite consumers to sell their old phones, on the spot, for an immediate cash payment. This service presently is being offered by Outerwall Inc.'s ecoATM, but A La Carte Media has relocated the task of appraising the phone to remote servers, thus removing most of the complexity and much of the cost from the kiosk.
A La Carte's machine gives operators an emerging role in the $421 billion smartphone industry. An encounter with a New York City-based used phone dealer and exporter, who sells about one million units overseas, inspired Mastronardi's machine. The dealer asked Mastronardi if he could design a machine to automate used phone trade-ins, and build it inexpensively. The BuyBack Booth arrived three years later.
To help get it off the ground and energize vending operators about a new opportunity, Mastronardi has assembled an elite team of industry experts, beginning with Dan McAllister, who is president and chief operating officer of BuyBack Booth USA. McAllister was part of the original TouchTunes organization. TouchTunes alumni Ed Tuhkanen and Kyle Peppard are also on the sales and marketing team.
Humans toss millions of cellphones each year in favor of newer technology, and those discarded devices may be taking a toll on the environment. Electronics scrap accounts for a majority of the overall toxic waste found in landfills in the United States. According to the U.S. Environmental Protection Agency, 141 million mobile phones were discarded in 2009, and only 12 million of those were collected for recycling. Since then, recycling programs have popped up in retail and online. Smartphones can be traded in at Best Buy, Amazon, GameStop, Gazelle and Apple's Brightstar, among other outlets. EcoATM is the first kiosk solution. BuyBack Booth is the first kiosk for operators.
$17 Billion Market
The market opportunity for operators is enormous. Accounting giant Deloitte estimates that the worldwide used smartphone market in 2016 consisted of 120 million units, generating more than $17 billion in trade-ins for their owners, or $140 per device. This is a 50% increase over the 80 million smartphones traded in 2015, with a value of $11 billion, or $135 per unit.
Deloitte predicts that the used smartphone market growth rate will be four or five times higher than the overall smartphone market. It expects the practice of selling and acquiring secondhand phones to accelerate through 2020. About 10% of premium smartphones ($500 or higher) that were purchased new in 2016 will end up with three or more owners before they are retired, according to Deloitte. They will still be active through 2020 or beyond. About half are expected to be traded in to manufacturers or carriers in exchange for credit toward new models. The remainder will likely be sold online privately, to retail shops or to secondhand device specialists.
In the U.S., McAllister estimates that this year's used phone market is as large as 75 million devices with a trade value of $8.4 billion. The incentives to sell a device -- rather than keeping it as a spare, giving it to a family member or throwing it away -- could include the ease of doing so. Where ecoATM proved that automating the process can work, BuyBack Booth is designed to do it better, McAllister claims.
EcoATM was founded in 2008 in San Diego by serial entrepreneurs Mark Bowles, Seth Heine and Michael Librizzi. After connecting a phone with an appropriate cable, the machine scrutinizes its condition, offers to erase data and dispenses cash based on its resale value. Since 2013, the machine has been owned by Outerwall Inc., which also owns Coinstar and Redbox. Like the Coinstar coin-recycling machines and Redbox movie-rental venders, ecoATM is self-operated. Outerwall resells 75% of the devices to refurbishers; the remainder goes to e-waste recyclers.
EcoATM has demonstrated that a kiosk destination, and the technology and robotics to enable it, is feasible, but the business model is not without challenges. The state-of-the-art machine works brilliantly, McAllister pointed out, but it costs around $35,000 to build. The Outerwall division also requires nationwide partners for installation and service, and cash and inventory handling. "It's an expensive machine, and it's costly to operate," McAllister said.
Bellevue, WA-based Outerwall bought ecoATM for $350 million when it had just 700 machines in the field. Cellphone-recycling kiosks seemed like a logical extension of its Redbox and Coinstar self-services. Outerwall expanded ecoATM's footprint nationally to more than 2,500 kiosks. However, the division has struggled to make a profit. In 2015, ecoATM lost $137 million. As a result, some investors have been pressuring Outerwall to sell the division. The ecoATM parent also acquired Gazelle, an Internet company that buys used phones, which helped to offset kiosk losses. A year ago, ecoATM reduced its workforce (full- and part-time) by about 100 at its San Diego headquarters; it reportedly was planning to hire more people in other states.
A La Carte Media's BuyBack Booth differs in two major ways. First, it's app-driven, removing a lot of the technological and mechanical weight from the kiosk. Second, the company is bringing the machine to market through independent vending operators.
The mobile app, once loaded on a phone, can relay to the kiosk and BuyBack server certain information about the device. The information required to make a proper evaluation consists of model and version numbers, memory capacity and hardware condition. Before visiting a kiosk, the phone owner is asked to back up photos, addresses and messages; turn off Find My iPhone and iCloud Lock features, if applicable; and make sure the phone is charged. A valid ID is required at the kiosk because only citizens of legal age can make a trade.
While the app conducts most of the evaluation, the kiosk still photographs the device; agents at A La Carte Media's technical center in Montreal analyze images. "Even the smallest crack on a screen or a tiny dent in a case can be discovered," McAllister said. The kiosk is equipped with seven 12-megapixel cameras and pattern-recognition software. There will be times, not often, however, that damage could be undetected, McAllister cautioned.
"The BuyBack Booth knows exactly what a phone is worth," he said. Agents confirm the evaluation and make an offer. To prevent stolen phones from being traded in, the booth takes a photo of the seller and requires a thumbprint to complete the transaction.
Not every phone has trade value, but the BuyBack Booth will process any phone. A "value" phone is usually one that can run the BuyBack app. "You won't get cash for a flip phone, but you could turn it in at our booth and we'll dispose of it properly," McAllister said.
BuyBack Booth's processing time is around two minutes, compared with ecoATM's eight minutes. And its app-based design has allowed A La Carte Media to price its first-generation machine at $10,000, which vending operators could find to be an attractive investment.
Where Outerwall manufactures and operates its own ecoATMs, A La Carte Media is seeking to partner with independent operators. The industry is "promotion-oriented," McAllister pointed out, which can help push placements of the BuyBack Booth. The average ecoATM processes about 50 phones a week, but only 23 of them may have value on the used market. McAllister believes 23 value phones is the floor, not the ceiling, for the BuyBack Booth.
Operators make $10 per value phone. A phone appraised at $67, wholesale for the used market, might pay the owner about $50. Operators purchase and maintain the machine, load it with cash, collect the phones (usually weekly) and ship the inventory to BuyBack Booth's return center in Philadelphia. BuyBack Booth's revenue is generated by equipment sales to operators and used phone sales to dealers.
BuyBack Booth is also ideal for independent cellphone resellers who don't have trade-in programs. In this scenario, machines could print a coupon, instead of dispensing cash, which can be applied to a purchase at a store. The company would rely on operators to service this potentially large segment.
McAllister, who joined TouchTunes in 1997, entered the digital jukebox business on the ground floor. The early days of Internet businesses were exciting times for the jukebox and vending industries, and McAllister sold a lot of jukeboxes. "But while the digital jukebox was new, the jukebox market was mature, and declining," he observed. Its core market, independently owned bars and taverns, declined by about 40% since he started at TouchTunes. "Automated phone recycling is very new, serving a young and growing market. And we have an opportunity to help environmental and humanitarian causes."
A La Carte Media considers itself a "greentech" company. This is an entrepreneurship that helps solve environmental problems through innovation. While electronic waste represents a small amount of America's landfills, 70% of heavy metals in landfills come from discarded electronic devices, according to the EPA. Rapid technology change, low initial cost and planned obsolescence will add to the trash heap. "The life of a mobile phone can be extended in the used market, or be recycled at the end of its life," McAllister noted.
Most cellphones contain precious metals and plastics that can be removed. When placed in a landfill, these materials can pollute the air and contaminate soil and drinking water. Phone coatings are typically made of lead, which is toxic. The circuit board on cellphones can be made of copper, gold, lead, zinc, beryllium, tantalum, coltan, and other raw materials that otherwise require significant resources to mine and manufacture.
McAllister plans to build a corps of BuyBack Booth ambassadors on college campuses. Eco-conscious universities will embrace the phone-recycling concept, he predicted. Vending operators forced to remove their bottled water vending machines from many campuses in recent years might appreciate that.
"The electronics recycling market is not just phones," McAllister said. "Think VR gear, tablets, home automation devices. Phones are the starting point."
Being a greentech company is also about social responsibility. While A La Carte Media's green technology is mostly the result of the BuyBack Booth's business purpose, the company's humanitarian involvement is proactive. It supports Thirst Project, which brings safe drinking water to communities around the world where it is not readily available, and Eden Reforestation Projects, which rebuilds natural landscapes in developing countries. And the BuyBack app can be used for other fundraising projects.
The consumer electronics recycling business is still very new, and many people may not yet see a need for it. The BuyBack Booth enables vending and amusement operators to get involved early on, and reposition their companies as greentech. Specialty vending machines, while not widely deployed, already sell new phones and other electronics. A reverse vending machine that handles unwanted assets completes the cycle, and offers a much greater opportunity for professional vending operators.
Visit BuyBackBooth.com for more information. Dan McAllister can be reached at (267) 784-8195.
FIRST LOOK: BuyBack Booth USA president and COO Dan McAllister demonstrates automated phone recycling for operators at Amusement Expo. Kiosk was also on display at recent NAMA OneShow.
1 Tony Mastronardi demonstrates BuyBack Booth process. Touchscreen user interface guides sellers through trade-in process; kiosk connects to phone by Wi-Fi.
2 BuyBack Booth components are minimal, since much of the trade-in evaluation is handled by an app. The kiosk performs a 360° scan and information is sent to agents.
3 Phones are placed on a tray, through an automatically opening door, for scanning and final collection. Kiosk is equipped with ID reader and fingerprint scanner.
4 Once the seller agrees to terms, the phone is collected and cash is dispensed. Operators maintain the machine's return funds ($1,200 is recommended).
5 During weekly or biweekly service cycles, operators remove collected phones, place them in special box and ship box to BuyBack Booth's return center.