Redeye VC

Josh Kopelman

Managing Director of First Round Capital.

espite being coastally challenged (currently living in Philadelphia), Josh has been an active entrepreneur and investor in the Internet industry since its commercialization. In 1992, while he was a student at the Wharton School of the University of Pennsylvania, Josh co-founded Infonautics Corporation – an Internet information company. In 1996, Infonautics went public on the NASDAQ stock exchange.

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Thoughts on Swap 2.0

RecycledollarOver the last year, I've often been asked my thoughts on the re-emergence of the barter/swap business model.  I thought it might be useful to share my perspective here.

Back in the Web 1.0 days, we saw the rise and fall of the barter/swap business model with companies such as WebSwap, Switchouse,, SwapVillage, Mr. Swap, etc).  These sites received tens of millions of dollars from well known VCs but none of them were able to gain traction or survive the fallout.  It might be my false pride, but I believe that consumers were more attracted to person-to-person fixed price sites (such as and Amazon Marketplace) where they could swap their CDs/DVDs/Books for cash. As Forbes magazine wrote in 2000: “It took humans thousands of years to emerge from the barter system. Does bringing it back online make sense?

It seems that with the emergence of Web 2.0 we now have a rush of companies looking to take up where the others left off.  Over the last few months we’ve seen the emergence of Lala, Zunafish, Barterbee along with  Further support for Om's argument that Web 2.0 is Web 1.0 all over again.  In fact, last week’s New York Times article on Zunafish looks remarkably similar to the one they ran almost six years earlier.

All of these new sites are looking to build a barter/swap-based business model.  However, the Web 2.0 barter sites represent a meaningful advance from the Web 1.0 barter sites.  Rather than force users to conduct a two-way swap (ie, User A has something that User B wants AND user B has something that User A wants) they’ve introduced a point system (or alternate form of currency) to allow users to conduct one-way swaps (ie, User A gives something to User B for 4 points – and User B can get something from user C for those points).  Users pay a standard fee (typically $1) to make a trade.

The currency/point model is a significant improvement.  Users can now get something without having to find someone who wants something from them.  Recent blog posts have compared the efficacy of this new model to the cost of buying/selling used goods.  However, I’m still not convinced that a swap/barter marketplace is as effective as a cash marketplace. 

I spent some time tonight looking at the currency value of DVD’s on Peerflix.  Specifically, I compared the used price of several DVDs on to their Peerbux price – and found the values to be highly disproportional.  (I chose since it is a liquid marketplace that places a dollar value on used DVD’s – and since I founded it – but the analysis holds in Amazon Marketplace as well)

For example, you can get both the Fourth and Fifth Season of the Sopranos on Peerflix for 10 Peerbux each.  However, on you can currently buy the Fourth Season for $29.99 and the Fifth Season for $38.00.   That means that there is an eight dollar price difference between two DVDs worth the same number of Peerbux.  So a user who gives away their Fifth Season Sopranos for 10 Peerbux is not just paying a $1 swap fee – they are leaving another $8 on the table.  Moreover, Peerflix users can buy Peerbux for $5 each.  So, if you wanted to get the Fourth Season of the Sopranos on Peerflix by purchasing Peerbux, you’d be paying $50 – or $20 over market value. Badda bing!

I selected a total a ten DVDs and then computed the implied cash value of a Peerbuck (by dividing the price on by the price in Peerbux).


I was surprised to see that the price of 1 Peerbuck ranged from $0.95 all the way to $9.30. This has two consequences. First, it creates a “winner” and a “loser” in every trade. In a true marketplace, both sides of the transaction get a fair deal.  However, if you “sold” your copy of 24 (Season Two) or Murder by Death on Peerflix you did not get as good as deal as someone who “sold” their Lord of the Rings or Bad News Bears.  By using a point system instead of real dollars, these marketplaces hide the true cost of the trade -- and are always putting 50% of their users at a financial disadvantage.

Second, people will want to keep the good DVDs they have, while they're willing to trade the bad ones (via Techdirt).  This creates a real arbitrage opportunity. I went on Peerflix and listed several of the low value items for trade (Lord of the Rings, The Terminal, Sopranos Fourth Season, Bad News Bears). If I get an order, I’ll go to and have the DVD’s shipped to the Peerflix customer…then I’ll use my new Peerbux to buy Murder by Death or 24 (Second Season) – and then sell those on It should be an interesting experiment – I’ll keep you informed…



I agree.. from a historical point of view, what is 'currency' but just notes & numbers unanimously agreed to represent *real* assets, like gold (which Was the original value yardstick, but that's not the point).

Peerbux and all these points systems just add another layer of 'currency' or try to be a new medium of exchange themselves (?). Though noble in intent, I think the pseudo-simplicity of points systems just makes trading more complicated and as demonstrated so effectively, would eventually create an atmosphere of distrust in the marketplace. Indeed, Occam's Razor applies even in Web2.0. Just my humble .22 cents worth...


However, the market tends to work itself out : you can't actually get "murder by death" for 2 peerbux because no one is offering it- its marked as "long wait" (perhaps because of your post?) And any similar arbitrage opportunities will also tend to be corrected. What peerflix should do is raise the price periodically until someone is actually willing to sell. (This could be a good site to review on my blog, thanks)

Daniele Levy


As usual, excellent analysis! You're absolutely correct that if you are in the market to maximize cash value for your unwanted DVD library, you'll get a better deal on Half, eBay, Amazon, etc, than what you'd get at Peerflix. Peerflix is not set up to maximize your take-home cash. It is, however, attempting to optimize the equation of entertainment vs. hassle.

With 1.6B DVD disks sold in the US last year alone, most households are stockpiling movies that they only watch once or twice. In the past, they've had a choice of 1) let those collect dust in the garage or 2) sell it used offline or online. Peerflix introduces a third option and a new way to get DVDs by recycling what you already have. No selling, no dollar-by-dollar price comparison, no browsing of 100+ similar items priced at $0.01 from one another to pick your desired merchandise. It is just a simple exercise of listing DVDs you want to get rid of and others that you'd like to receive - and sit back and let the system run its course. Personally, if someone wants a DVD I have and that allows me to receive another DVD I want, I would interpret it as 100% satisfaction on both ends.

The breadth of merchandise on the site is constantly increasing as the membership itself grows. For example, you can get Mystic River, Ali, Being Julia and Swordfish right away on Peerflix today. I think those are good movies. Granted, they are not new releases, and Peerflix will never be the most efficient way to get your new release fix every week. But if you're interested in getting the most entertainment out of the entertainment you already own, with minimum hassle and low, low costs, Peerflix is the best option out there.


Great article! Just to add another Swap 2.0 Website to your list above: Hitflip ( ) is a german multi-category barter plattform.


Thank you for the very nice analysis of the swap market.

We set out to create the ultimate internet swap site about 3 years ago for digital media. We added selling for cash as an option, as well as swapping. We added a banking system, and integration with the US Postal Service. We eventually offered the trading service for free, hoping to make money selling the mailers, and through commissions on new media sales. It was logical. “Of course the world should jump on this.” “It is a legal alternative to file sharing.” We ignored the failings of the swap sites of the past. We “had a better model.” It was a very interesting experiment that gave us lots of "experience".

One thing we found is that this is not the sort of business plan that a VC can get a compelling cash out with. It is just fine for a mom and pop internet business that might generate enough to pay someone's mortgage if they live in Toledo. There is not a large revenue base that can be generated, and it is very expensive to build a large installed base of active users. People try it out, and then dump it fast. It is not an Amazon, eBay, or NetFlix killer, and it never will be. The customer acquisition costs are too high to recoup them in profitable business. The VC's that have invested in these companies have done so based on the track record of the founders, not based on the kind of business analysis you have done. Even with a free trading system, it is not very compelling for the end user. Add the $1 transaction fee charged, and the end user will do better shopping for used media on Amazon or using NetFlix.

You are right - the barter points are just a way to hide the real value of the CD or DVD. They compensate for the disparent value of certain media, but if you use dollars for the value, you are fundamentally competing with Amazon. Most used CDs and DVDs are very cheap in the used market on Amazon, and there is much less risk of someone not delivering, based on Amazon's support.

All of these models have generated cheaper ways to mail the disks, which include removing the cases, and often the liner notes. This kills the used market value, and turns the media into nothing but fodder for trading. (That might be their plan.) The only things put into the system to trade are the dogs no one wants anymore. (If they liked it, they would keep it.)

Fortunately, we listened to our customers, and it is cheap to modify an internet business model. We have changed our own business into something far more compelling, far simpler, and far away from swapping. We don't want to be anywhere near it when the swapping business model craters again. We will launch our new product soon --beta tests in our target market are giving us great feedback.

I’ll send you my contact info in an email, not as a solicitation but to cut down on the spam I get from leaving real contact info in a blog.
Thank you again for your frank analysis of this market. It has restored my faith in the business analysis of the venture capital community.


I don't even understand why Zunafish has received so much attention.

I think has a pretty good model going and they have stayed away from VC money which is a good thing.

chief flicker

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I don't even understand why Zunafish has received so much attention.

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