PeerFlix is leveraging a peer-to-peer network to facilitate DVD trades. Learn how their focus on the DVD market is key to their success.
Interview conducted by Nathan C. Kaiser on Wednesday, November 9, 2005 in Menlo Park, CA.
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<a name="QA002384"></a><b>What was the origin behind <a href="http://www.peerflix.com" target=blank>PeerFlix.com</a>?</b> </div> <div class="IntACont"> The company has been around for 18 months and was founded by both myself and Danny Robinson. We had worked together at the company SpinWay, which was a private label ISP targeting marketed to large brick and mortar retailers. SpinWay grew to become the second largest ISP in the United States, with from 9 to 8 million subscribers in 8 months. We eventually sold the company to Bluelight in 2000, which was the ecommerce division of Kmart. Danny moved back up to Vancouver, British Columbia and I stayed here in the Bay Area. We kept in close contact from 2000 through 2004 discussing many different ideas and PeerFlix is the idea that really stuck. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom">
<a name="QA002385"></a><b>Why did the idea for PeerFlix survive?</b> </div> <div class="IntACont"> We both have children, and one day I mentioned to Danny that I needed to get some DVDs for my daughter and he laughed and mentioned that he had bought the same DVDs a year ago for his daughter who has since outgrown them. To which I said "Why don't you save me a trip to the store and send me those DVDs? </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002386"></a><b>How did you take that idea and identify a potential revenue model?</b>
</div> <div class="IntACont"> At that point in early 2004 all we had was a concept and idea. We recognized that not only did we have a large number of DVDs, but friends and colleagues did as well. As we started delving into the business and market opportunities we found that there were ample grounds for a business. There are 4.5 billion DVDs in US households. Not only is there an explosion of the number of DVDs, but that people are watching them less and less. More than half of DVD owners only watched their DVDs once or twice. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002387"></a><b>So the model developed out of this resource that you identified.</b> </div>
<div class="IntACont"> We felt that if we developed a business and community where people could join the network and contribute the DVDs they have and no longer want to receive the DVDs that they do want to watch then there is a compelling offer for us to provide. In launching with a peer-to-peer model; we don't have distribution centers, we don't handle fulfillment, or handle any merchandise we can offer our service extremely cost effectively for consumers. Our job is to facilitate a transaction that works for both parties. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002388"></a><b>How does the pricing work? Do you charge a monthly subscription fee or per transaction?</b> </div> <div class="IntACont">
We have priced the service at 99 cents per trade and don't require our members to be locked into any sort of monthly subscription. They simply have to join the network, make a list of DVDs they own available on the network and make a second list of DVDs they want to receive. PeerFlix then steps in and matches up members. Members then pay 99 cents per DVD received. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002389"></a><b>What services does each member receive with the 99 cent fee?</b> </div> <div class="IntACont"> Once each member's two lists are created, their DVDs and the DVDs they want, we match up a member that have a DVD available and the member that wants that specific DVD. The member that is offering the DVD is presented with the opportunity to send the DVD or not to. If they choose to send the DVD then they are taken to a page that has all the relevant information; shipping information, contact, etc. The 8.5x11" paper that is printed is then folded and becomes the envelope for the DVD with the recipients address already included. </div>
</div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002390"></a><b>Is the sender rewarded for sending a DVD?</b> </div> <div class="IntACont"> When they send a DVD they are rewarded with PeerBucks, which is an internal credit for the value of their DVD. That member may then utilize his PeerBucks to receive a DVD on his wanted list. </div> </div>
<div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002391"></a><b>A customer may or may not actually contribute DVDs to the network, and instead can purchase PeerBucks directly from PeerFlix.</b> </div> <div class="IntACont"> There is no direct cash exchange between the users. A user who wishes to place their DVD collection on the network may never need to purchase PeerBucks. However a customer who does not wish to place their DVDs on the network, or who may not own any may purchase PeerBucks in order to receive different DVD titles. Members are essentially trading assets they don't want for assets they do want. The revenue model for PeerFlix is based upon members purchasing PeerBucks so that they may receive DVDs within the network. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom">
<a name="QA002392"></a><b>How are you looking to grow your membership?</b> </div> <div class="IntACont"> We are looking to provide a robust community where people can come in and interact with one another. We have built a system that allows members to optimize the site for their individual DVD collections. A key strategy for our growth is to remain focused on DVDs and become the leading company in the DVD trading arena. At our core though, we are a trading platform. Just as we are trading DVDs today, in the future our members could be trading just about anything. We have architected a platform not a DVD trading service. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002393"></a><b>You plan to leverage your success within the DVD space to launch into other verticals?</b>
</div> <div class="IntACont"> This platform is completely extendable to other products and services and will do so. However, our focus is to secure the DVD market before branching into other verticals. We want to nail down this service before we extend it into other areas. It is very important when establishing a community like this to reach a critical mass within one category. We have looked at other trading networks historically and their key flaws were to try and expand too soon before they had a critical mass in any one key vertical. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002394"></a><b>You decided to keep focused on DVDs.</b> </div>
<div class="IntACont"> If we had launched PeerFlix with the ability to trade books, skis, tennis racquets, DVDs, and so on then I would never have the critical mass in any one area necessary to be successful as a company. We would be 3 miles wide and 1 inch deep instead of being an inch wide and 3 miles deep. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002395"></a><b>Do you expect to be able to cross market different verticals once launched to your current community?</b> </div> <div class="IntACont">
We can easily extend the platform to other forms of media, whether that is video games, audio CDs, etc. The demographic of our user base and these other media are highly correlated. On a logistics side, these different media all comprise the same form factor, which makes it much simpler. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002396"></a><b>When a community member initiates a trade on the network for a DVD do they perceive the value of the DVD than it was when they purchased, as they are receiving a lower amount in exchange the PeerBucks? Or am I mistaken, and they see it as receiving a reciprocal value with the new DVD?</b> </div> <div class="IntACont"> It is the latter. People are trading assets of like values on the network. PeerBucks are simply the means to facilitate the transaction. You can't trade in low value older DVDs for the higher value new releases, because the associated PeerBuck values are different. </div>
</div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002397"></a><b>Why trade versus sell older DVDs?</b> </div> <div class="IntACont"> The average US household purchased a staggering 19 DVDs last year. The asset base is accumulating and prior to PeerFlix there is no viable secondary market for these assets. You can sell them on <a href="http://www.ebay.com" target=blank>eBay</a> and <a href="http://www.amazon.com" target=blank>Amazon</a>, but that is a fairly difficult process. Sellers do not want to set up the sales page, hand the transaction, and pay transaction costs for a return of $3 or $4. Most people aren't going to do that much work for such a small return. Our platform enables people to receive DVDs of equal value very easily. </div>
</div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002398"></a><b>What types of community feedback mechanisms do you have in place that regulate or ensure that different members are participating fairly?</b> </div> <div class="IntACont"> We have what is called the PeerSafe protection program. PeerFlix as a company stands behind and backs up every trade that happens on the network. It is essential that our members can execute a trade in a risk free way, knowing that if there is a problem with a transaction or a transaction is disputed that PeerFlix will make the parties whole. We monitor a number of metrics that help us understand what is happening. One key metric that we monitor very closely is breakage rates, which is well under 1% through the Postal Service. If we see that a certain account has a breakage that is consistently more than our average, we will watch that account closely. If the behavior continues we will take the appropriate action to correct the issue, whether is suspending that account or some other action. </div> </div>
<div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002399"></a><b>What are the key metrics that you are looking to hit that enables you to say, we have reached critical mass and are ready to expand to other verticals?</b> </div> <div class="IntACont"> There are several. Some are quantifiable and some are qualifiable. There are now over 100,000 DVDs available on our network, which was a huge milestone for us. There is a lot more that we need to do. It is my goal and expectation that 100,000 will become 500,000 and 500,000 will become 1,000,000+. Our growth within the last 6 to 7 months was from thousands of DVDs to the 100,000 today. So the growth has been phenomenal. One is sheer volume of DVDs available in the network. On the qualitative side, we're an early company and think that there is a lot of opportunity ahead of us. Before we move forward, we want to build out our current feature set and make sure that it is strong and robust enough to handle our expected growth rates. I am a firm believe in executing as close to perfection as you can. We have to make sure that the user experience is as good as we can make it. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom">
<a name="QA002400"></a><b>You had mentioned that you took a deep look at other competitors within the space. What differentiates PeerFlix from WebSwap and SwitchHouse are now defunct and minor players such as iSwap and MyDVDTrades?</b> </div> <div class="IntACont"> In comparing us against the trading networks that were established in the late '90s a key factor was simply market position and market timing. The DVD market today is completely different from when those companies were launched. There were a total of 1 billion DVDs sold between 1997 and 2000. Today they sell at a rate of 4.5 billion per year. It is simply a function of a trading environment where there is a much larger penetration of DVDs and total quantity available. The market is simply so much larger than it was. We are also focusing on DVDs exclusively, whereas the other networks didn't focus on one media over another. They either started as a generalized trading platform or expand to other areas very quickly. Some were also based upon direct one-to-one swaps, whereas we are a peer-to-peer system. It is very difficult to connect two people each have something that the other values of equal or similar value. Our system doesn't have that limitation. We also facilitate the transaction with envelopes, labels, etc. Many of these other systems required their users to figure out how to ship the product. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002401"></a><b>You have repeatedly mentioned your core focus on the DVD vertical. In your case focusing on the DVD market. Are there any other insights into entrepreneurship that you are bringing to PeerFlix?</b>
</div> <div class="IntACont"> We are vigilant in looking out for the members within our community. It is essential that we provide them with the tools and features that enable them to transact trades as easily, conveniently and cost effectively as possible. We are committed to making sure that everything we do impacts our users in a positive way. It is also invaluable to have previous experience under your belt. You can keep from making the same mistakes and apply general experiences to the new organization. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002402"></a><b>What are your insights into hiring?</b> </div>
<div class="IntACont"> It is one of the key things, if not the most important thing in the first stages of a startup. Hiring and bringing the right people to the team is critical. People who share the passion and vision for the business and have the experience and background required to succeed in the business. You want to hire people who hit the ground running and are ready to roll up their sleeves to make the business successful. Hiring at the early stages is critical to every business and we have been very fortunate to get the people that we have. </div> </div> <div class="IntQCont"> <div class="Bold StepFrom"> <a name="QA002403"></a><b>What is one common trait that you are looking for in new hires?</b> </div> <div class="IntACont">
The common thread for everyone at the organization is an enthusiasm and passion for who our members are and what PeerFlix is trying to provide them. </div> </div>
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