The Business Model of Peer to Peer (P2P) Networks
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The Business Model of Peer to Peer (P2P) Networks
By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"
The recent decision of the Supreme Court of the USA (in June 2005)
was hailed as a victory for the music and motion picture industries.
Peer-to-peer (P2P) networks, such as Grokster, were held responsible
for encouraging and making possible the violation of copyright by
allowing users to download illicit music tracks and films off other
Prior to this seminal ruling, publishers, distributors and some
creators pursued individual downloaders in court, closed down
Napster, an earlier file-sharing network with a central directory,
and introduced digital right management bits of copy-inhibiting
software into their products. They even invested in or collaborated
with legal media download online services, such as Apple's iTunes.
Still, are content brokers - publishers, distributors, and record
companies - a thing of the past?
In one word: disintermediation.
The gradual removal of layers of content brokering and
intermediation - mainly in manufacturing marketing - is the
continuation of a long term trend. Consider music for instance.
Streaming audio on the internet ("soft radio"), or downloadable MP3
files may render the CD obsolete - but they were preceded by radio
music broadcasts. But the novelty is that the Internet provides a
venue for the marketing of niche products and reduces the barriers
to entry previously imposed by the need to invest in
costly "branding" campaigns and manufacturing and distribution
This trend is also likely to restore the balance between artists and
the commercial exploiters of their products. The very definition
of "artist" will expand to encompass all creative people. One will
seek to distinguish oneself, to "brand" oneself and to auction one's
services, ideas, products, designs, experience, physique, or
biography, etc. directly to end-users and consumers. This is a
return to pre-industrial times when artisans ruled the economic
scene. Work stability will suffer and work mobility will increase in
a landscape of shifting allegiances, head hunting, remote
collaboration, and similar labour market trends.
But distributors, publishers, and record companies are not going to
vanish. They are going to metamorphose. This is because they fulfil
a few functions and provide a few services whose importance is only
enhanced by the "free for all" Internet culture.
Content intermediaries grade content and separate the qualitative
from the ephemeral and the atrocious. The deluge of self-published
and vanity published e-books, music tracks and art works has
generated few masterpieces and a lot of trash. The absence of
judicious filtering has unjustly given a bad name to whole segments
of the industry (e.g., small, or web-based publishers). Consumers -
inundated, disappointed and exhausted - will pay a premium for
content rating services. Though driven by crass commercial
considerations, most publishers and record companies do apply
certain quality standards routinely and thus are positioned to
provide these rating services reliably.
Content brokers are relationship managers. Consider distributors:
they provide instant access to centralized, continuously
updated, "addressbooks" of clients (stores, consumers, media, etc.).
This reduces the time to market and increases efficiency. It alters
revenue models very substantially. Content creators can thus
concentrate on what they do best: content creation, and reduce their
overhead by outsourcing the functions of distribution and
relationships management. The existence of central "relationship
ledgers" yields synergies which can be applied to all the clients of
the distributor. The distributor provides a single address that
content re-sellers converge on and feed off. Distributors,
publishers and record companies also provide logistical support:
warehousing, consolidated sales reporting and transaction auditing,
and a single, periodic payment.
Yet, having said all that, content intermediaries still over-charge
their clients (the content creators) for their services. This is
especially true in an age of just-in-time inventory and digital
distribution. Network effects mean that content brokers have to
invest much less in marketing, branding and advertising once a
product's first mover advantage is established. Economic laws of
increasing, rather than diminishing, returns mean that every
additional unit sold yields a HIGHER profit - rather than a
declining one. The pie is getting bigger.
Hence, the meteoric increase in royalties publishers pay authors
from sales of the electronic versions of their work (anywhere from
Random House's 35% to 50% paid by smaller publishers). As this
tectonic shift reverberates through the whole distribution chain,
retail outlets are beginning to transact directly with content
creators. The borders between the types of intermediaries are
Barnes and Noble (the American bookstores chain) has, in effect,
become a publisher. Many publishers have virtual storefronts. Many
authors sell directly to their readers, acting as publishers. The
introduction of "book ATMs" - POD (Print On Demand) machines, which
will print every conceivable title in minutes, on the spot, in "book
kiosks" - will give rise to a host of new intermediaries.
Intermediation is not gone. It is here to stay because it is sorely
needed. But it is in a state of flux. Old maxims break down. New
modes of operation emerge. Functions are amalgamated, outsourced,
dispensed with, or created from scratch. It is an exciting scene,
full with opportunities.
AUTHOR BIO (must be included with the article)
Sam Vaknin ( samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Until recently, he served as the Economic Advisor to the Government
Visit Sam's Web site at samvak.tripod.com