A skeptic might call it a business idea doomed to fail: Take advantage of the Internet age by lending a monthly stack of books to customers who place their orders online, and charge a fee for the service.
That may sound like a market that libraries have covered, but a Vienna-based company called BooksFree.com Inc. has found a way to get in on it. It will never be a Fortune 500 company, but the small firm has loyal customers and is providing steady employment for its 14 workers.
The implosions of thousands of Web retailers compounded by the rise of Internet giants like Amazon.com Inc. and Overstock.com Inc. could suggest there is no room online for the little guys. Success stories of eBay merchants abound, of course, but less heralded are the local tales of companies like BooksFree.com and District-based firms Gratis Internet LLC and Varsity Group Inc., which found sustainable business models offering goods through their own sites.
"The ones who have stayed around and succeeded are the ones who have followed business precepts that have worked in small businesses for a century," said Allen Weiner, who studies online retailers for the market research firm Gartner Inc. "They created a product or service that resonated with the marketplace, they were careful with their money, and they were lucky."
The objective for these businesses was always to make money, not attract eyeballs or accrue page views, he said.
At BooksFree.com, for example, the books are not really free. The company's model is similar to that of Netflix Inc., which delivers movies to a customer's doorstep for a monthly subscription fee. BooksFree.com charges customers $8 to $30 a month to have up to 12 preselected books delivered to their homes at a time. Once the customer returns a set of books, a new batch is sent out.
The universe of people who speed through books at a pace that makes buying them too expensive, but are not willing to go to the library, is not a huge one. Even so, more than 10,000 people have signed up for BooksFree.com memberships, and the company's revenue should top $2 million this year, according to chief executive W. Douglas Ross.
"Books are so popular we always had interest," said Ross, 63, who ran a small government contracting firm for 23 years before starting BooksFree. The company raised $1.5 million from angel investors to get off the ground but relied mostly on word-of-mouth advertising.
Housed in a warehouse in Tysons Corner, BooksFree's walls are lined with more than 70,000 novels and biographies, almost all of them paperbacks. Aside from the Internet ordering system, the operation is decidedly low-tech. Employees wheel carts around the aisles, picking books off the shelves to fill the 700 to 900 orders each day, which are packed up and handed over to the delivery service.
The scene inside Gratis Internet's Chinatown office is equally not flashy, though a visitor might be tipped off to its dot-com bent because all of the employees are in their twenties and early thirties. The company is a classic dot-com case study -- except that it has survived.
Robert S. Jewell and Peter A. Martin had just graduated from college when they started an Internet company out of their Adams Morgan apartment in 2000. The two bought rights to the domain name Freecondoms.com and began shipping condoms to people who agreed to sign up for promotions with companies such as PayPal and Visa, which paid Gratis for the customer referrals.
The business snowballed from there. Gratis launched sites that give away handbags, digital cameras, video games, flat-screen televisions and iPods. The firm makes money because companies such as Blockbuster Inc., BMG Music Publishing and Discover will pay $1 to $75 for each customer who enrolls through Gratis's sites. So to receive a free iPod, for instance, a consumer would have to sign up for one promotion -- like a music club membership -- and get five friends to do the same. Since the iPod site was launched in June 2004, Gratis has shipped more than 19,000 of the gadgets.
Jewell and Martin, both 28, maxed out their credit cards to get the company off the ground and have never received venture capital funding. The two say privately held Gratis, which has 30 employees, is profitable and generated $20.1 million in revenue last year.
There are few reliable statistics about how many Internet retailers exist, but most experts say there are hundreds of thousands, if not millions, of businesses on the Web. In 2004, U.S. e-commerce revenue totaled $117.7 billion, up from $94 billion in 2003, according to research firm eMarketer Inc.
But Patti Freeman Evans, an analyst who covers online retail for Jupiter Research, said that just as in the traditional retail world, 80 percent of the market is controlled by 20 percent of the companies.
The small companies that remain competitive, Freeman Evans said, either had realistic business models or "the flexibility to adjust their business plan once they figured out their original plan wasn't going to work."
That was the case for Varsity Group, a District company that started out trying to revolutionize the college textbook industry by selling titles through the Internet. That plan turned out to be much too costly, so the company refined its vision and now acts as an online bookstore for private high schools -- a market that requires less advertising and a less comprehensive inventory.
"The fact that we were able to move on a dime, make bold decisions quickly and were able to be very flexible is the reason we survived and are growing," said Eric J. Kuhn, Varsity Group's chief executive.
The company -- which lost money in its first four years of existence and was temporarily delisted from the Nasdaq Stock Market in 2001 -- earned $6.9 million on $37.7 million in revenue last year.
Ross of BooksFree.com says he expects 2005 to be his company's first year of real profit. Some credit for the firm's success, he said, goes to the popularity of romance novels, which make up the meat and potatoes of BooksFree.com's business.
Holding the top spot: "Black Rose," by Nora Roberts.