My Thoughts on Ztail

Last week I came across a TechCrunch piece on a new compnay, Ztail.  From TC:

Today Ztail is introducing an innovative new service that may be exactly what online stores need to bolster sales during the recession. The service revolves around eBay, acting as a pseduo-insurance policy that guarantees that customers will be able to resell the items they are purchasing right now for a substantial amount a year down the line. Even better, the service is totally free for the customer. It’s a bit confusing at first, but it also has a chance to really take off.

Here’s how it works (see the video below if you’re still confused):

  • Visitors go to the Ztail store, where they can browse a variety of items including electronics, sports, and baby gear. They’re presented with the item’s normal price from a number of partner retailers, as well as its ‘Ztail price’
  • When you purchase an item through Ztail, the site will guarantee that a year down the line it will retain its value and you’ll be able to resell it on eBay for a certain amount. For example, Ztail will guarantee that a $900 stroller sold through Giggle will sell for at least $359.60 on eBay.
  • After purchasing the item, Ztail will Email you a link that you click whenever you’re ready to sell it (you can also access it through your Ztail account).
  • Using an eBay auction wizard that was part of Ztail’s previous products, Ztail will post your item on eBay, auto-configuring all of the auction settings to maximize your return (you basically just need to enter your account information and ship the item once the auction ends)
  • If the auction ends with a final selling price below the Ztail guarantee, Ztail will refund the difference. If it ends higher than the guaranteed selling price, you get to keep the extra money.

Coming from yoonew, I find Ztail to be an fascinating company.  Essentially what they are doing is packaging together a retail product, such as an ipod, with a one year put option on spot ipods.   Whats interesting is if Ztail is selling naked puts on spot ipods, they have a synthetic position that is short the call option and long the futures.  While I understand that they don’t really have that position, but it is an interesting position nonetheless and their guaranteed price should be a good (albeit hopefully low) guage on what a 1 year out ipod futures are trading at.

A few years back on my Typepad blog I posted about Best Buy as an insurance company.  This post basically showed how much money Best Buy makes on all its warranties.  A 2-year warranty on an ipod is essentially 2 year put option on an ipod where the buyer puts up the premium.  Best Buy wasn’t selling electronics but selling puts on electronics.

I think Ztail will benefit from two trends…

One trend that we are going to see in an deflationary environment is a reluctance to hold inventory of any sort.  When prices are rising and inventory can get turned over quicker, holding inventory isn’t so bad.  But when prices are falling nobody wants to hold anything.  This can have an awful impact down the supply chain so someone like Ztail by getting active in the secondary market will bring value to the market as a whole (and should be rewarded for that).

Another one is a shift from” Buy Now – Pay Later” (or credit) , to “Pay Now – Get Later” (Reserving things).   Buying an ipod 1 year out should be much cheaper than buying it now.  Since we are a consumer economy, and alternative to saving is reserving that which you want to buy in the future by putting up less now.   Retailers would be wise to adopt strategies that take advantage of this and Ztail is in a great position to put themselves at the center of the trade.

While Ztail is not without risks and will undoubtedly have to find a way to explain it to the masses (something that we have found difficult at yoonew), I find it an exciting company and wish it the best of luck.  It also plays into my next big idea, which is Consumer Electronic Futures and gives me a reason to further develop the plan.

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  1. Tom

    I have to say, your synthetic options bit doesn’t make a whole lot of sense. Presumably you realize that short puts DO NOT equal long call/short future.

  2. zerobeta

    Thanks, good pickup, has been fixed. With the synthetic options I simply think its interesting because it could allow a futures market to start up in commoditized consumer electronics. I think a Jan 2010 ipod nano’s would be an interesting product to offer. The fact that Ztail has these “positions” means that should an exchange pop up, they could be a natural market maker (and profitable one at that). At the very least I would think they could play an important role in the market.

    Anyways, thanks for the pick-up. I’ve tried to get blog posts out much quicker lately and worry more about getting ideas out than explaining myself as thoroughly and its taking some time to get the format and precision down.

  1. 1 Supply Chain Insurance & Finance 2.0 « zerobeta

    […] in my post on Ztail, I mentioned the reluctance to hold inventory as a trend that Ztail could step in to help take […]

  2. 2 The News before The News » Commodity markets for the 21st century

    […] also came across Zerobeta’s blog recently (via Park Paradigm). An interesting insight into Ztail (TechCrunch): Whats interesting is if Ztail is selling naked puts on spot ipods, they […]




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