Say goodbye to the used-car salesman

(Business 2.0 Magazine) -- In late 2005, Stanford student Luke Thomas tried to buy a Land Rover online. After a few frustrating days of trawling Craigslist and driving around the Bay Area, only to find cars that looked better in their photos than in real life, Thomas decided there must be a better way.

As it happens, Thomas was also involved in a computer science project that aimed to compress high-definition video online. And thus was born Hotswap, the first used-car site where sellers post videos of their vehicles.

With video, every extra feature - or dent - is visible.

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Launched in March by Thomas and fellow students from Berkeley, MIT and Stanford, it's now on track to have 11,000 listings by the end of the year. It has also landed about $2 million in funding from venture firm Kinsey Hills Group and enlisted Apple (Charts) co-founder Steve Wozniak as an adviser.

Little wonder that Hotswap is hot: According to CNW Marketing Research, Americans spent nearly $358 billion on used cars last year, with a quarter of the sales taking place on the Internet. "Video is what people want," says Jon Osborn, a research director at J.D. Power, "and it's especially appropriate for used cars." These are no grainy YouTube shorts, as Thomas points out: You can see every scratch, every dent, and the wear on those leather seats.

The video listings are free; Hotswap makes money by licensing video technology to dealerships and car manufacturers. It has deals with AutoNation (Charts, Fortune 500) and Enterprise and is in talks with GM (Charts, Fortune 500) to create a video for every preowned car that GM sells back to a dealership. Oh, and Thomas finally found that Land Rover he wanted - on his own site.