Paperspine expands from online book rentals to book sales

With all the talk about Kindle and electronic books these days, it might seem an odd time to build a business around physical books. But that's just what Dustin Hubbard, CEO of Issaquah startup Paperspine, is doing. Paperspine, an online book rental service that originally touted itself as a Netflix for books, has launched a book buying plan -- and says it can save consumers money compared to Amazon.com.

Hubbard, in an email, said "we have just expanded our service to allow members to select from over 450,000 new titles for purchasing at discounts of 40% or more," adding "The new Bookstore includes all the latest in hardcover, paperback and mass market books." The book buying plan is $19.95 per year. Here's how Paperspine breaks down its cost savings:

My colleague John Cook explored Paperspine and its book-rental model in late 2007. I have a call in to Hubbard, who founded Paperspine on leave as a Microsoft program manager, to find out more about the new book buying plan.

Update: Hubbard, reached by phone, said the move into book sales is "a natural expansion of the business."

"It's clear some people want to rent books and some people want to buy books," Hubbard said. "The publishing industry is a $35-billion industry. The vast majority is made up of traditional books -- the market size of people buying books is still incredibly huge."

He said Paperspine is following a Costco-like model, charging an annual membership fee and selling books at wholesale price.

How is a small startup able to cut deals with the publishing houses to make this happen?

"We've been working with industry for almost two years now," Hubbard said. Once connected to the right people, "I was able to pull this together," he said.

Hubbard declined to talk about Paperspine's shipping and fulfillment, or whether it's partnering with a larger firm for those operations.

Hubbard, who's currently an employee at Microsoft, said he's self-funded Paperspine since it launched in 2007, with some help from local angel investors. In June, Paperspine converted existing debt into equity and raised some additional capital in a $130,000 financing round. Hubbard declined to break out the amount of new capital.

He also wouldn't specify Paperspine's revenue, but said the company did six figures in 2008, and said revenue is up 35 percent year-over-year for the first six months of 2009. The startup has 200,000 titles for the book-rental service (Hubbard wouldn't disclose number of members).

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