Business Model Peer-to-Peer Is there a future beyond filesharing?

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1 Business Model Peer-to-Peer Is there a future beyond filesharing? Johannes Hummel*, Ulrike Lechner +, Claus Eikemeier + (**)=mcminstitute, University of St.Gallen [email protected] ( + ) Dept. for Mathematics and Computer Science, University of Bremen, {cei,lechner}@informatik.uni-bremen.de Abstract. The main application domain of Peer-to-Peer (p2p) networks currently is filesharing. It is an open question, whether there are applications beyond Filesharing and whether this paradigm has the potential to succeed in the long run. The paper comprises a model to analyze P2P through a technological, through a content and service and through an organizational prism. A case study of the music industry with its filesharing application shows the potential and inherent drawbacks of the p2p architecture and the study of virtual communities illustrates how to design social networks following a p2p paradigm. The paper discusses how the experience from the design and management of virtual communities eventually benefit p2p systems. 1 Introduction Today, Peer-to-Peer (p2p) seems to be synonym for the popular sharing of music and other kinds of digital data. Consumers obviously like the concept and the technology. Otherwise Napster, one popular p2p application would never have reached the fifty million-user marks quicker than any technology before (cf. Napster.com). There are a number of applications currently under development and there are various frameworks, like e.g., JXTA (cf. sun.com/jxta) to support the development of p2p applications. Yet it is unclear what valid business models can be based on this technology and what kinds of applications are feasible within this architectural paradigm: p2p systems have a huge potential to reorganize value chains and to change markets profoundly. Although consumers flock towards then, they seem to be at least endangered from one inherent danger: the negative feedback effects (cf. Sect. 4). In this article we analyze the phenomenon p2p and its business models. We contribute to the discussion of Peer-to-Peer infrastructures and the impact of the technology on the value creation. This paper is organized as follows. First we begin in Sect. 2 with a review of the term Peer-to-Peer and develop three perspectives for the analysis: (1) the organizational view, (2) the service and content view and (3) the infrastructure view. In the third section, we study current file sharing systems to determine the effects of the technology on the creation of value within the media industry. We also analyze advantages and shortcomings of this technology. In the second main part (Sect. 4) we study virtual communities as a business model. We argue that the architecture and

2 basic value propositions of virtual communities and p2p are similar. We analyze the success factors that make a community work to learn about successful design of social networks and in particular p2p networks. The paper ends with an outlook on the future of p2p in Sect. 5. What does it take for p2p to conquer application areas beyond file sharing? How can virtual communities benefit from the business model? How to design a valid business model on a p2p infrastructure for sharing files? 2 Peer-to-Peer towards a centralized understanding of a decentralized technology Currently a number of applications run under the label Peer-to-Peer. Among then used to be Napster (cf. Napster.com). Still online are gnutella, Kaaza as (mp3) file sharing services and systems as, e.g., Seti@home for performing distributed computations. In a more professional setting The Grid, JXTA, Groove are all labeled Peer-to-Peer (Oram, 2001; Schoder et al., 2002). These systems differ in their architecture, their value propositions and there seem to be no common understanding what characterizes all those applications. Let us review some of the major definitions of the term Peer to Peer to come to a centralized understanding of all those decentralized technologies. The term peer suggests considering p2p systems or networks as networks of equal nodes. Peer-to-Peer describes a decentralized network in which all computers function as equals. (Oram, 1998). Note that this definition excludes the so-called hybrid Peer-to-Peer systems, as e.g., Napster, Groove, Kaaza or edonkey. In all those systems, there are servers that take crucial roles as directory server or for joining the network. Only very few systems, as e.g., gnutella or freenet would then be considered p2p. The term equal also seem to be quite a strong prerequisite, since there are different implementations, different kinds of operating systems, processing powers and bandwidths within such p2p networks. From a technological point of view client-server and p2p systems are considered to be two different architectures. In a client-server architecture, the client requests services from a permanently available server. The server holds all the contents, disposes of computing power and provides all kind of computation or communication services. All interaction between the clients is done via the server. In contrast, in a p2p system all nodes dispose of resources and contribute resources to the network. All nodes have client and server capabilities and the nodes communicate among each other. The nodes are often referred to as servants. According to Schollmeyer, the contribution of resources and the unintermediated interaction between the peers characterize p2p (Schollmeyer, 2001). Shirky considers a dynamically changing network topology with dynamic configuration and, often, dynamically changing network addresses to be the distinguishing properties of p2p (Shirky, 1998). Note that these perspectives are purely technological; the definitions of Schollmeyer and Shirky consider the network properties to be the distinguishing property of p2p. To our opinion, it should not be the technology that should determine what is p2p and what is not. Equally important is the users interface a novel value proposition, implemented, e.g., in a new consumer interface or by a new interaction with

3 consumers, distinguish sustaining from disruptive technology (Christensen, 2000; Schmid, 1999). This perspective is the service and content view what matters to the customer is the value proposition and the interface to the service in terms of interaction and contents. New to the service and its interface is the contribution of resources as well as the unintermediated, direct interaction. The third view on p2p is the organizational view. In peer-to-peer systems all nodes or users would have peer motivation and peer rights and obligations within this system. Note that this organizational view of p2p certainly holds for the entire file sharing networks as Kaaza, gnutella, edonkey or, also, Napster. To sum up this discussion of p2p, we distinguish three views: (1) Beside the technological view on p2p networks there is also (2) a service/contents view to capture peer-to-peer as a property of value proposition and consumer interface and (3) the organizational view that characterizes the organization with coordination and motivation of the community of users of the technology or a service. All three views together would characterize according to Timmers or Stähler the business model of p2p (Timmers, 1998; Stähler 2001). Although those main design principles of p2p can be found in a lot of technology, the term p2p became popular mainly through the file sharing systems. In the next section we analyze the effect of this technology on the media industry. This analysis also shows how the three views are interrelated. 3 Peer-to-Peer in the Music Industry - A Case Study Over the past few years, a variety of new models for content management in the music industry have been implemented on the Internet. Napster.com, and gnutella are early examples for p2p technology. Many more services, as e.g., edonkey or kaaza, which are considered p2p, have followed. Also more traditional models as MP.com or all the servers the music industry is about to establish are models for content management online. Subsequently, we consider first the technological, second the content/service and then the organizational view. We conclude this section with a discussion of strategic advantages and deficits of p2p. 1 Technology view The architecture The changes in the music sector have been technology induced. The format mp3 makes it possible to copy and distribute music independent of a physical carrier, as e.g., a CD or cassette with a reasonable amount of resources (computing power and bandwidth) and without a noticeable loss of quality. The file sharing systems built on this technology a network for storing, copying and distributing pieces of music (as well as other files) in an effective and efficient way. Let us begin with a definition of architecture. Following (Booch et al. 1998), we consider a (software) architecture to encompass the set of significant decisions about the organization of a software system, i.e., the selection of the structural elements and the interfaces by which a system is composed, the behavior as specified in collaborations among those elements, the composition of these structural and behavioral elements into larger subsystems, and the architectural style that guides this organization.

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