BookRenter Takes In $40M, Seeks to Overtake Chegg in College Textbook Rentals

2/23/11Follow @wroush

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study the preferences of its members, predict which movie titles will be in greatest demand, and figure out how many times it will be able to rent and re-rent the same discs before they wear out or go astray. BookRenter does something similar with textbooks. Through its network of bookstore rental sites, it gauges demand in real time for all manner of college textbooks (5.5 million titles in all). It also has a real-time picture of which publishers have the books in stock, and how much they’re asking for them. It buys copies only when it knows it has enough trustworthy renters lined up to enable a profitable series of returns and re-rentals. It arranges for publishers to ship the books directly to campus bookstores, where students pick them up and bring them back, so there’s no need for a central warehouse.

Say you’re a student who needs a $220 biology textbook for the semester, but you don’t want to shell out for a new copy. BookRenter might offer it for $60 for a 90-day rental. “I am effectively loaning you that $220, without you purchasing the book,” says Maghsoodnia. “I am taking the financial risk, and doing some computing to make sure you’re a legitimate student and you have a track record and you’re going to send it back. I’m making a real-time purchasing decision based on your credentials, and I’m doing that hundreds of thousands of times a month.”

Sometimes students don’t return the books. Sometimes the books come back damaged and can’t be rented out again. Sometimes titles get dropped from course syllabi and no one wants them. Those are among the risks BookRenter’s platform is programmed to hedge against. “We have exactly the same profile as a financial lending company, where a percentage of the loans get paid back and a percentage doesn’t,” says Maghsoodnia. “The genius of the model is in how you do e-commerce without having a warehouse or inventory, and how you take inefficiency out of [the textbook market] without taking a huge risk position.”

(Actually, the model is a little more complex than I’ve been describing. For one thing, only 30 percent of the books sent to BookRenter customers are purchased by the startup for rental circulation. The other 70 percent of the time, the publishers retain ownership of the books and simply use BookRenter as a platform for renting them out; BookRenter collects a percentage of each transaction. Maghsoodnia says publishers like the idea of earning recurring revenues on their textbook inventories. He compares the arrangement to loaning your car to Hertz, then collecting 80 percent of the fee every time they rent it out.)

The original idea for BookRenter was developed by founder Colin Barceloux, a 2003 graduate of Santa Clara University who worked for Google, 24/7 Real Media, and Decide Interactive before founding the startup in 2008. Barceloux got the idea for the company when he was still at Santa Clara, according to the company’s website. Seeing stacks of discarded textbooks at around campus, Barceloux thought it was wrong that objects that had cost students so much just a few months earlier could lose their value so quickly. For beer money, he started collecting unwanted textbooks and sold them online to … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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