The Four P2P Models

Every time I pull up my Google News Alerts on ‘P2P’, there’s yet another P2P start-up getting funded, and yet another big company making some kind of partnership in P2P, and of course some kind of new-fangled P2P killer-app that will “change the world”. Isn’t like every cool app that comes out now powered by P2P? Isn’t Bittorrent the company taking over?. .. oh, maybe that’s bittorrent the technology. . what’s the difference again?? I saw one article that said P2P filesharing was going to help find the cure for cancer ,. . .oh wait, that was me 6½ years ago ;)

There are a few major things going on in the P2P industry, but man, there is A TON of vapor in the P2P industry press, and with it even more confusion. Here’s my attempt at breaking the P2P tech space down into its parts so we all can be a little more informed, and maybe help the pundits and journalists more easily cover the chaos.

P2P Business Model #1 – Illicit Distribution

To date, the only P2P companies that have become popular got their millions of clients distributed (or their 10’s of millions of daily page views) by powering mass piracy. There’s no better way to get your client out there or to get your site in the top 1000 than to help people get their favorite TV, movies, video, music for free. Think Napster, Scour, Kazaa, Azureus, uTorrent,, These guys are easy to recognize, they are providing you with the access and downloads to content you want for free. Almost exclusively, these applications and sites are powered by ads and adware.

P2P Business Model #2 – Content Portal

Conversation amongst two Silicon Valley Entrepreneurs:

Entrepreneur #1: Hey, YouTube is pretty cool
Entrepreneur #2: But the quality sux
Entrepreneur #1: True, but I can get anything I want with a click of a button
Entrepreneur #2: Maybe, but all the clips are super short, like 3 minutes long
Entrepreneur #1: True
Entrepreneur #2: Hey, bittorrent is cool
Entrepreneur #1: Yeah, but the downloads are slow, unreliable, and how do you make any money delivering illegal stuff for free
Entrepreneur #2: Yeah, but iTunes is pretty cool, pretty decent quality and they sell stuff for $$
Entrepreneur #1: Maybe, but the bandwidth bills must be killing them, there’s no way they can scale that for video
Entrepreneur #2: Hey, what about YouTube meets iTunes, with a little high-performance bittorrent underneath the hood??
Entrepreneur #1: Muahahahah. . . .we’re going to be RICH!!

The P2P content portal is the flavor of the month. Bittorrent Inc. is pitching their own content portal where they are PAYING the studios for licenses to their content . Look at Joost . . . the Kazaa/Skype guys are at it again, redefining TV by trying to create an online Cable Co. of sorts powered by P2P. . .and again, Joost will need to pay content owners for access to licenses and content, and then will create a branded channel/player where they sell the content and ads around it. Look at Azureus , Inc. (primarily an illicit distribution background) with their legit site Zudeo paying BBC for access to content. . .

The keys to success are going to be licensing a broad library of content while marketing to and acquiring a consumer base. They’re going to have to compete head to head with Yahoo!, Google, AOL, MSN, and iTunes to do this. That’s a tough fight. In addition Azureus, and Bittorrent Inc. are going to have to turn illicit piracy products into legitimate commerce brands. Didn’t work so well for the folks that have tried before: Napster, and Scour come to mind. They’re going to need to deliver the content for cheap, and P2P is necessary, but P2P won’t be a strategic part of the business if/when they’re successful getting the marketing and licensing right (P2P won’t matter until they have lots of users).

They’ll ultimately compete with the other portals, and ultimately want the best technology out there to make the economics work, and it won’t matter whether it’s their P2P tech or not, the same way most Internet co’s lease bandwidth instead of laying their own fiber (who wants build the power plant?). Regardless, there have been couple of big gambles with 10’s of millions of dollars put into this space, and only time will tell if they play out.

P2P Business Model #3 — Infrastructure

Websites pay BILLIONS for bandwidth every year. We’re entering the video era of the Net, television and video will be delivered over IP networks. . . bandwidth expenses are going quickly to 10x what they are now. Why should people pay for bandwidth?? Can’t data transfers of popular content be localized to ISPs? Commercial-grade P2P infrastructure definitely makes better use of scarce existing bandwidth on the Internet.

Furthermore, the only difference between a webpage with a bunch of links to content, and a P2P app is that the P2P app delivers the same links with no bandwidth costs. Bottom line is that the only unique technological benefit to P2P is the substantial efficiencies of data transfers. Sounds like a no-brainer to become the new architecture and infrastructure for the Internet?? The main challenge for P2P Infrastructure companies (Red Swoosh included) is their ability to get their clients distributed in a massive fashion. Once the clients are out there in a major way, the rest will be a slam dunk. If 20% of the users have the Red Swoosh client, then any website can save 20% on bandwidth using Swoosh p2p infrastructure.

P2P Business Model #4 – Device licensing

Any of you guys seen DivX’s business model? DivX has been the video codec of choice for p2p pirates since the last decade. Because pirates want to play their “acquired” content in their living rooms on their big tv’s and with their great sound system, DivX is making brisk business by getting paid $1 for every box deployed that is “certified” DivX.

Bittorrent is now trying the same thing, except they are trying to license the Bittorrent name to boxes that want do download torrent files . Granted bittorrent was initially open-sourced under the MIT License , so it’s unclear if it’s even possible to enforce that trademark or if it’s the new Kleenex, but we’ll have to watch and see. Regardless, there’s lots of content going to boxes, and P2P will most definitely make it there.but we’ll have to watch and see. There’s lots of content going to boxes, and P2P will most definitely make it there.


So there’s a lot of activity in the P2P space, but in the chaos there is so much more more hype. Good news is that it can all be broken down into these four basic business models. Journalists should use these to parse through noise and find the goods. Who is blowing smoke, and who's got something real that they bring to the table.
There's still a lot of work before the land is grabbed, and the winners chosen. This is the map for the P2P business battles to come.

This entry was posted on January 28, 2007 at 6:18 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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