Infrasearch folded into a development deal for $10M
Popular power closes it's doors
Engenia repositions themselves out of hte p2p space.
Groove looking to move the conversation beyond the technology.
"Napster is more of a social than a technical phenomenon" Edward Jung
explaining why you can't recreate the excitement of Napster by tranferring
Napster-style technology to other areas.
LimeWire and BearShare not sure if can survive a record
Flycode deeply into X-rated content or copyrighted material
United Devices only have 3 customers.
April 4, 2001
Peer-to-Peer Party Comes to a Halt
As Companies Morph or Disappear
By Lee Gomes
Staff Reporter of The Wall Street Journal
It's starting to look as if the end may be near for the
Peer-to-peer, or p-to-p, is a decentralized approach to
computing and the Internet whose best-known incarnation is
Napster Inc., the music downloading service. Last summer,
there was an explosion of interest in the new field from Silicon
Valley programmers, entrepreneurs and venture capitalists.
Some said p-to-p -- a somewhat amorphous term that means
different things to different people -- represented nothing less
than the future of the Internet, and would soon be used for all
manner of services, from Yahoo-style searching to eBay-style
auctions. Millions of dollars were invested in p-to-p, scores of
companies were founded and an ocean of ink was spent by the
press to chronicle the burgeoning movement.
Overlooked in all the excitement, though, were a few problems.
No one knew whether p-to-p really worked, at least in the way
some theorists were proposing. Or whether there were many
uses for it that didn't end up violating copyrights, the charge
leveled against Napster. Or if there were, whether companies
could make any money on them.
Now, with technology funding in a funk after the bursting of the
Internet bubble, those problems suddenly don't seem so small
anymore. And the p-to-p party, which once looked like an
exception to the dot-com downturn, seems more like a wake.
Among the recent setbacks:
InfraSearch Inc., a widely publicized Web-search
company whose founders once boasted that p-to-p
would be as big a business as the telephone, was sold
last month at a fire-sale price after it was unable to raise
more money. Last summer, a group of prominent
investors, including Netscape co-founder Marc
Andreessen, poured millions of dollars into InfraSearch,
which quickly became the blue chip of the p-to-p world.
But Sun Microsystems Inc. snatched it up for $10 million
-- a sum that doesn't even register on the Richter scale of
Silicon Valley deals -- and then promptly folded it into an
existing research-and-development project.
Another well-known p-to-p company, Popular Power
Inc., closed completely last month after also striking out
in raising funds. "We got caught in a bad time," sighs
co-founder Marc Hedlund.
And then there are companies formerly known as
peer-to-peer purveyors, which now say they no longer
like the term. "We've listened to the market and
repositioned ourselves," says a spokeswoman for
Engenia Software Inc. A spokesman for Groove
Networks Inc., the company founded by Lotus Notes
creator Ray Ozzie, says, "We clearly rode the p-to-p
wave, but the sooner we move the conversation beyond
the technology, the better."
Silicon Valley watchers say sociology as much as technology is
needed to explain the rapid rise and fall of the p-to-p fad.
"The whole p-to-p hoopla is emblematic of the mad rush to find
the next big thing in technology," says Bill Burnham, a venture
capitalist with Softbank Venture Capital. Edward Jung, a
former top software architect at Microsoft Corp., said p-to-p
boosters were trying to recreate the excitement of Napster by
simply transferring Napster-style technology to other areas. But
since Napster is more of a social than a technical phenomenon,
"a lot of people were led down the primrose path," Mr. Jung
One of the difficulties in assessing the state of p-to-p is
semantic. Most people define the term as a computing scheme
in which information is stored on many PCs, reducing or
eliminating the need for a central repository like a Web server.
In the market, however, the phrase has come to describe at
least three entirely distinct categories of technologies and
companies. None of them, though, are playing out quite as well
as boosters had once hoped.
The first category is Napster and the Napster clones. Purists,
for starters, note that the music service is only partially p-to-p
because it relies on a central database to show which users are
sharing music files.
Napster, of course, has well-known legal problems. A new
crop of Web sites, such as Lime Wire and BearShare, let users
trade free music and other files by using a purely p-to-p
software system known as Gnutella. But it remains to be seen if
these companies can escape a record industry crackdown
down the road, and if they do, whether they can turn themselves
into profitable businesses.
There is another group of Napster-like companies calling
themselves "legal Napsters" that say they are trying to heed
copyright laws and charge for music swapping. But without free
music, it's hard to get anyone to log on.
Flycode Inc., a Napster-like system originally named
AppleSoup and unveiled to great fanfare last July, had just a
few hundred users logged on Tuesday afternoon, many of them
swapping material that was either X-rated, copyrighted or both.
"There has to be a value proposition to get p-to-p members to
aggregate, and other than music, people haven't yet identified a
good one," says A. Joon Yun of Palo Alto Investors, a
venture-capital firm that holds a stake in Flycode.
A second flavor of p-to-p involves what has long been called
"distributed computing," a technique in which hundreds or
thousands of computers work together to solve a big problem,
such as cracking an encryption scheme. That can be a useful
setup, but is a different job than a Napster-like scheme of
passing music or other files from consumer to consumer.
Intel Corp., ever eager to put millions of its microprocessors to
good use, has been using p-to-p in the distributed computing
sense since last summer. Tuesday, the Santa Clara, Calif.,
company announced plans to employ millions of PCs in a
philanthropic cancer-research effort with partners that include
the American Cancer Society, the National Foundation for
Cancer Research and Oxford University. The effort involves
having PCs in homes and offices use their idle moments to
research the cancer-fighting properties of millions of molecules.
A number of companies have also been started in this part of
the p-to-p market. But they are finding it can be slow going.
Popular Power, for instance, folded. United Devices Inc. of
Austin, Texas, has been around for a year but so far has just
three customers -- though co-founder Ed Hubbard promises
that many more are on the way, saying many companies are
interested in it for biotechnology research as well as Web
The final p-to-p category involves companies that want to use
p-to-p to solve problems besides sharing music files, such as
InfraSearch's Web searching. Most of these companies, though,
aren't purely peer-to-peer; instead, they use p-to-p ideas
combined with traditional approaches. A number of start-ups,
for instance, are working on software to let people collaborate
on office projects, or run programs over the Web as well as on
local PCs. These companies include Groove Networks, as well
as Mr. Jung's company, OpenDesign Inc.
But many of these have been labeled "p-to-p" for the scarcely
remarkable fact that their programs will occasionally direct two
computers to talk directly with each other. Executives of the
companies admit they went along for the p-to-p ride for public
"P-to-p is going to be used very broadly, but by itself, it's not
going to create new companies," says Michael Tanne, chief
executive of Xdegrees Inc., a start-up using p-to-p ideas as
part of a way to more easily locate files on the Web. "It's a
technology. But the companies that will become successful are
those that solve a problem."
Write to Lee Gomes at email@example.com
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