Chris recently hinted me to hitflip.de a DVD and media trading platform in Germany. While Peerflix made headlines with financing rounds, hitflip.de tries to build the business from the bottom-up. Apprently that works pretty well for them. Co-Founder Jan Miczaika was so nice to answer some questions for me shedding more light on this business model:

Q: For the uninitiated - what is Hitflip? What is the background of the founder team?

Hitflip is a social media trading site. Our members list the media they have and the media they want, we organise safe and efficient trading. Currently, we have active trading in DVDs, games and audiobooks. The music category is being tested by select members, while we are currently finishing books. We have reached a liquid market in each segment and do not seed the market anymore.

We started as a trading platform, but discovered that for many people the media products (DVDs, CDs etc.) define their identity. Just look at what a large role music plays at mySpace. We are working on helping people build an online identity, find other people with similar interests, create groups, etc. Hitflip will become a lot more open and integrative.

Hitflip was started by a team of three - one engineer and two MBAs. We met while doing our PhD at WHU, a German business school.

Q: Hitflip seems a lot like Peerflix.com - coincidence?

Well, several sites exist working on the trading angle, including Peerflix, lala.com and titletrader. Obviously, we closely looked at each of these while building Hitflip, and continue to do so today. In fact, I am responsible for monitoring Peerflix and lala. In regard to Peerflix, I would say that we made some different design choices when building the core Hitflip processes.

A small example: Peerflix has put a lot of work building a (patent-pending) PeerMailer. We found our users prefer to pay slightly more postage and receive the DVD cases, so that's what we implemented. Our processes are also designed to provide faster turnaround time.

Additionally, Peerflix has focused on DVDs, while we try and fulfill all the media necessities a member may have.

Q: Why do we need Hitflip? Isn't Netflix good enough? I personally better spend $10 a month for great guaranteed DVD delivery.

Well, the lack of a central warehouse and logistics means Hitflip will always be cheaper than Netflix. Additionally, we have opted for pay-as-you-go fees, and not subscriptions. Netflix charges between $ 10 and $ 18 per month. $ 18 gets you 3 DVDs at a time. For $ 18, you could get 18 DVDs at Hitflip.

Plus, our media catalog will be larger than Netflix. Since we don't have to buy and hold a huge number of different media products, we can offer rare or specialty items. For example, we have a group of people very active in trading Hong Kong eastern movies. Not many people are interested in these movies, but those who are have congregated on Hitflip.

Because of the asset cost of inventory, I don't see Netflix expanding to other media categories in the future.

Q: Who actually does send the DVD the individual or Hitflip? What happens if I do not receive the promised DVD?

The DVDs go from member to member directly, we don't handle the inventory. Should you not receive a DVD, the Hitflip guarantee covers your loss and we will reimburse your flips and cash. Additionally, you will be first in line for the product again.

The reason we can afford to do this is our sophisticated rating system which scores users, weeding out freeloaders and thieves. In fact, our problem rate is way below 1% of transactions.

Q: How does the company generate cash and how is the company financed right now?

We receive € 0,99 (about $ 1.20) for each transaction from the person receiving the products. For the more valuable games, the rate goes up to € 1,99. Additionally, we generate marginal revenue from advertising, promotional deals and additional, paid services. We are looking to increase the number of these services.

We just raised our second round of financing from business angels. The total amount is mind-boggingly small compared to what Peerflix and Lala have raised. Thanks to the strong revenue coming in, our need for external funding is not really very high right now.

Q: How should the business model evolve in future?

There are tons of directions we can take this. Trading other products is a given, perhaps even digital goods. We have started to operate trading platforms for others, and may expand on this. We could switch from our internal point system to real currencies, leading to a fully integrated trading environment (what eBay is trying with Paypal). We could include other pricing mechanisms, such as auctions. We have started in the direction of a Web 2.0-style community, and may expand our efforts in this area. We are a social network, currently implicit, which just needs to be "brought to the surface". We have a number of ideas, and some of the above are being implemented. Let me keep the smokescreen up just a bit longer.

Q: Finally - what is your most important lesson as an entrepreneur?

Create value for everyone around you! If you strive to create an excellent service for your customers, a lucrative investment for your angels and a fulfilling place to work for your employees, great things will happen. And you'll have a lot of fun doing it.

Jan thanks a lot for your time!

Here are all three founders - from left to right: Andre Alpar, Gerald Schoenbucher and Jan Miczaika. :