Peer-to-Peer Searches for Business Model

  |  July 20, 2000   |  Comments

Venture capitalists are eternal optimists, God love 'em. Rather than spend time moaning over the e-tailers they're closing, they're looking instead for the Next Big Thing. Today, that's peer-to-peer. These are file-sharing programs like Napster, which have apparently hit the third stage of fame. This could turn into something, but it could also turn into nothing.

Venture capitalists are eternal optimists, God love 'em. Rather than spend time moaning over the e-tailers they're closing, they're looking instead for the Next Big Thing.

Today that's peer-to-peer. These are file-sharing programs like Napster which have apparently hit the third stage of fame.

(For those not in on the joke, the first stage of fame is an agent asking, "Who's Napster?" Stage two is "Get me Napster!" Stage three is "Get me someone like Napster!" And, since you've followed the joke to this point, know that stage four is "Get me a young Napster!" and stage five is "Who's Napster?")

Like President Clinton, caught between the implacable demands of Israeli and Palestinian negotiators, VCs are looking for a middle ground between record companies (and movie studios) on one side and users on the other. A former Napster executive named Bill Bales is getting most of the play his AppleSoup claims to do what Napster does without the copyright problems.

This could turn into something, but it could also turn into nothing for two reasons. First, programs like Napster are protocols, not services. Second, there's no business model here.

Nothing about the Internet's design mandates that servers talk only to clients and clients talk only to servers. Scaled sites already have multiple servers for specific tasks application servers, email servers, database servers, and firewalls, to name just a few. Clients have also communicated with clients since the days of Telnet and how do you know that system you're doing an anonymous FTP session with is a client or a server?

On the Internet, no one knows if you're a dog, and they don't know if you're a client or a server either. In a world of always-on connectivity (DSL and cable modems), what's the real difference? Today's high-end Dell client would have been a perfectly good server just a few years ago.

The business-model problem, however, is more important. I don't care whether files are "protected" or not. What I care about is whether you can package them in such a way that folks will buy them.

There are lots of things you could do. You could sell subscriptions to specific artists, or to a collection of artists, who would offer their latest demos and tracks as they're developed and answer their email. You could use advertising to back specific formats of music that's how radio works. You could bundle files, offering 75 minutes of whatever you want for a set price.

Right now new artists are being discovered, because they're offering their best stuff free. Right now programs like Gnutella are helping college kids expand their musical tastes from the Backstreet Boys to jazz, blues and reggae. What are the Internet and music industries doing in response? What else? They're going to court.

Everyone's being naove, and no one is doing the job they're supposed to be doing. The music industry's job is to develop and exploit the market's tastes. The Internet industry's job is to enable new forms of commerce. That's OK, though. For once it's the audience getting its money for nothing.

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Dana Blankenhorn

Dana Blankenhorn has been a business reporter for more than 20 years. He has written parts of five books and currently contributes to Advertising Age, Business Marketing, NetMarketing, the Chicago Tribune, Boardwatch, CLEC Magazine, and other publications. His own newsletter, A-Clue.Com, is published weekly.

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