After a year long beta period and another year of operation, Peerflix is ditching its barter model of swapping DVDs. Until today, users swapped DVDs in the Peerflix marketplace, and the company took a $.99 transaction fee for the exchange. Any DVD was as good as any other, and the result was that people only put the stuff they really didn’t want on the site, hoping to swap it for a new release. The price for any DVD was effectively the same. You just had to find a sucker to take yours off of you.
In January 2006 Peerflix announced 100,000 trades. In a press release today that number had grown to just 250,000, suggesting that the company has recognized just $250,000 in revenue over the last two years.
This Model Didn’t Work
Money exists, of course, because a barter economy doesn’t work very well. Peerflix won awards at tech conferences for their model, but users didn’t take to it with nearly as much enthusiasm. Peerflix was on a long, gentle slide into obscurity, slowing burning their venture dollars.
Hey, Let’s Use Money
Good companies change strategic direction when the writing is on the wall. Peerflix just did that, creating a virtual currency on the site and putting a price on every DVD. If you send a DVD to someone, they pay you a set price based on an algorithm created by Peerflix. When you receive a DVD, you pay the sender the set price. There is no negotiation, and Peerflix takes a $0.99 transaction fee. You have to have money in your account in order to get a DVD, so you either have to send out DVD first, or add to your account with a credit card. I put $20 in my account to test the system, but couldn’t find a DVD I wanted. Perhaps the new system needs more time to ferment. Users can cash out of the Peerflix currency at any time.
Swapping One Problem For Another
Market economies work (see eBay), but Peerflix didn’t adopt a market system. They ditched a barter economy for a command and control system, where Peerflix uses a proprietary algorithm to determine the value of a DVD. That won’t work – eBay will always have a more efficient system for quickly equalizing supply and demand. Peerflix will constantly be tinkering with their pricing algorithm, while eBay lets its users do all the work.
This is easy criticism to give, but in reality Peerflix couldn’t adopt a market pricing system. If they had, there would be little to distinguish them from eBay to keep users going there. Their solution – adopting an inferior model – does give them the differentiation they need. But in the long run my bet is that they continue to burn those VC dollars.
Speaking of swapping sites, anyone hear any news about Swaptree? They went into private beta in June and I haven’t heard a word out of them since then.