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The swap meet joins the age of algorithms

Online start-ups see big future for ‘social commerce,’ but some say the process is too much work

By D.C. Denison
Globe Staff / May 24, 2010

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As soon as Linda Crasco finishes reading a book, it becomes worthless. “It no longer has any value for me,’’ she said.

Frequently, Crasco, who lives in Norwood, trades her books for ones she hasn’t read, using an online service called Swaptree. In the past year, Crasco has swapped 150 books.

Alison Blanchard of Medford has also been swapping online. She packs up clothes her two children have outgrown and exchanges them for clothes big enough for them to grow into. Blanchard uses thredUP, which specializes in children’s clothes.

“My kids are growing so fast,’’ she said, “they don’t have a chance to wear their clothes out. My daughter is already on her third size.’’

Swaptree and thredUP, both in the Boston area, are based on the premise that swapping, a skill most of us learned at the primary school lunch table, is overdue for a comeback. But this time around, the trading is aided by sophisticated algorithms that enable three-way swaps, and it’s powered by technology that can calculate the relative values of a wide variety of items.

This new generation of swap-enablers is hoping to attract consumers who are newly interested in services that will help them cut costs and embrace a “greener’’ lifestyle. Reusing products, swap advocates say, reduces the amount of new packaging, taking pressure off of landfills. ThredUP cites a study by Goodwill Industries that found 23.8 billion pounds of clothing and textiles end up in US landfills every year.

“We feel we’re on the cutting edge of a swap movement,’’ said Jeff Bennett, chief executive of Swaptree.

Both companies have similar business models but target different customers. Swaptree specializes in books, DVDs, CDs, and video games. ThredUP is aimed at parents of fast-growing children.

Swaptree, the older firm, has been fine-tuning its model since 2005, fueled by more than $8 million from private investors and a Pennsylvania venture capital firm, Safeguard Scientifics Inc. Its 15 employees work at a brick warehouse in Boston’s South End.

Carl Schwartz, Swaptree’s vice president of marketing, said the explosive growth of social-media sites such as Facebook, LinkedIn, and Twitter will pave the way for online bartering. Now that people are comfortable sharing pictures and videos between large groups of online “friends,’’ he said, it’s only a small step to get them sharing CDs and books.

“It’s laying that same social graph on top of things you have,’’ Schwartz said, adding that he considers online swapping as a variation on trendy social media. He calls it “social commerce.’’

A new Swaptree member starts by listing all the items he is willing to swap. By adding UPC or ISBN numbers (usually displayed next to a product’s bar code) the user enables Swaptree to tap into databases that describe the products. Swaptree’s algorithms then figure out how much they are worth in trades. The member can then browse for items of similar value that other members have made available.

Swaptree enables swaps by providing prepaid mailing labels that save members a trip to the post office. The fee, typically around $2.50, includes about 50 cents of revenue for Swaptree.

In 2009, Swaptree recorded a million swaps, up from 300,000 the previous year. In addition to the handling revenue, the company may eventually explore advertising and retail opportunities.

When he discovered the service a year ago, Bryan Leahy, 28, had a collection of more than 200 DVDs, most of them thrillers and action movies he bought “back when I was single.’’

Now married with two children, Leahy has been using Swaptree to trade his bachelor movie collection for DVDs that his daughter, 3 1/2, and son, 1, would find entertaining. The family library now features 23 children’s DVDs, including “The Little Mermaid,’’ “Mary Poppins,’’ “Toy Story,’’ and “Cinderella.’’

“I remember giving up a pretty good Mario Puzo movie, ‘The Last Don,’ for a brand-new, special-edition ‘Lion King,’ ’’ said Leahy, of Canton.

At thredUP, which opened to the public in mid-April, the unit of trade is a box of children’s clothes that contains about 10 items. Swappers start by browsing boxes of kids clothes by size, brand, sex, and other variables. Once you pick a box, you pay for shipping, generally around $13, and agree to list a box of your children’s clothes. Members use standard boxes available for free from the Postal Service.

ThredUp generates custom postage and mailing labels, which users can print at home. The price includes about $2 of revenue for thredUP. The company also offers a “pro’’ version that bundles a number of enhanced features, such as detailed box descriptions, into an annual $30 membership. In its first month of operation, thredUp said, it attracted 6,000 members. The company, which is based in Cambridge and has eight employees, hopes to supplement its handling revenue by converting a significant number of its members to “pro’’ status.

The two swap companies are part of a larger trend toward such online trading. Craigslist hosts a wide variety of swaps, and Paperbackswap.com, which has been around since 2004, has nearly 2,500 members. Web-based entrepreneurs have also launched sites for swapping video games (goozex.com) and fashion (swapstyle.com).

Sucharita Mulpuru, an analyst with Forrester Research in Cambridge who covers e-commerce and retail business, said it is going to be difficult for swap sites to sign up a lot of customers.

“The challenge is that it’s quite a bit of effort to participate in online swaps,’’ she said. “First you have to find the books, for example, then pack them up and ship them. It’s almost like you’re an eBay seller.

“It’s a small niche of people who are willing to do that,’’ Mulpuru added. “For all that work, you could just go to eBay.’’

But James Reinhart, cofounder and chief executive of thredUp, said a number of factors could make swapping worth the trouble.

For example, he said, the sour economy over the past few years “has definitely helped us.’’ Reinhart said the company is also seeing a shift “toward more sustainable consumer patterns.’’

“People are more conscious of what they buy,’’ he said. “It’s a green thing: psychology-related more than wallet-related.’’

Reinhart, who along with one of his cofounders is a 2009 graduate of Harvard Business School, said classmates are often surprised that he is working with secondhand children’s clothing.

“It’s definitely not sexy,’’ he admitted. “But I like to remind them that the market for secondhand children’s clothing is a billion dollars a year.’’

D.C. Denison can be reached at denison@globe.com.

BY D.C. DENISON | GLOBE STAFF