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…