Copyright 2005 1 P2P Technologys Strategic & Policy Implications Roger Clarke Xamax Consultancy Pty Ltd, Canberra Visiting Professor at A.N.U., U.N.S.W.,

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P2P Technology’s Strategic & Policy Implications

Roger ClarkeXamax Consultancy Pty Ltd, Canberra

Visiting Professor at A.N.U., U.N.S.W., Uni. of Hong Kong

http://www.anu.edu.au/people/Roger.Clarke/ ...... /EC/P2P-StratPol-0509 {.html, .ppt}

ECOM-ICOM Expert Address

University of Hong Kong, 8 September

2005

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P2P Technology and Its Strategic & Policy

Implications

Themes

• What P2P Is, and What It Does• Who It Threatens, and How• The Business Opportunities P2P

Creates• What Business Models Can Be Applied• P2P’s Broader Policy Implications

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P2P – The Motivation

• “P2P is class of applications that take advantage of resources (storage, processing capacity, content, human presence) available at the edge of the Internet”

• Each participating program is both Client and Serverand hence each workstation is a host as well, e.g.

• your music playstation can be a mixer too• your PDA can host part of a music catalogue• your PC can host part of a music repository

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P2P ArchitectureCooperative Use of Resources at the

Edge

Server & Client

inWorkstation

Server & Client

inWorkstation

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P2P Differentiated from Client-Server

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Why P2P Is Attractive• Much-Reduced Dependence on individual devices

and sub-networks (no central servers)• Robustness not Fragility (no single point-of-failure)• Resilience / Quick Recovery (inbuilt redundancy)• Resistance to Denial of Service Attacks

(no central servers)

• Much-Improved Scalability (proportionality)• Improved Servicing of Highly-Peaked Demand

(more devices on the demand-side implies there are also more server-resources)

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P2P Networks and Protocols

http://en.wikipedia.org/wiki/Peer-to-peer#Networks.2C_protocols_and_applications

BitTorrent network: ABC, Azureus, BitAnarch, BitComet, BitSpirit, BitTornado, BitTorrent, BitTorrent++, BitTorrent.Net, G3 Torrent, mlMac, MLDonkey, QTorrent, SimpleBT, Shareaza, TomatoTorrent (Mac OS X) [2], TorrentStormeDonkey network: aMule (Linux, Mac OS X, others), eDonkey2000, eMule, LMule, MindGem, MLDonkey, mlMac, Shareaza, xMule, iMesh Light, ed2k (eDonkey 2000 protocol)FastTrack protocol: giFT, Grokster, iMesh (and its variants stripped of adware including iMesh Light), Kazaa by Sharman Networks (and its variants stripped of adware including: Kazaa Lite, K++, Diet Kaza and CleanKazaa), KCeasy, Mammoth, MLDonkey, mlMac, PoisonedFreenet network: Entropy (on its own network), Freenet, FrostGnutella network: Acquisitionx (Mac OS X), BearShare, BetBug, Cabos, CocoGnut (RISC OS) [3], Gnucleus Grokster, iMesh, gtk-gnutella (Unix), LimeWire (Java), MLDonkey, mlMac, Morpheus, Phex Poisoned, Swapper, Shareaza, XoloXGnutella2 network: Adagio, Caribou, Gnucleus, iMesh, MLDonkey, mlMac, Morpheus, Shareaza, TrustyFilesJoltid PeerEnabler: Altnet, Bullguard, Joltid, Kazaa, Kazaa LiteNapster network: Napigator, OpenNap, WinMX

Applejuice network: Applejuice Client, Avalanche, CAKE network: BirthdayCAKE the reference implementation of CAKE, Direct Connect network: BCDC++, CZDC++, DC++, NeoModus Direct Connect, JavaDC, DCGUI-QT, HyperCast [4], Kad Network (using Kademila protocol): eMule, MindGem, MLDonkey, LUSerNet (using LUSerNet protocol): LUSerNet, MANOLITO/MP2P network: Blubster, Piolet, RockItNet, TVP2P type networks: CoolStreaming, Cybersky-TV, WPNP network: WinMXOther networks: Akamai, Alpine, ANts P2P, Ares Galaxy, Audiogalaxy network, Carracho, Chord, The Circle, Coral[5], Dexter, Diet-Agents, EarthStation 5 network, Evernet, FileTopia, GNUnet, Grapevine, Groove, Hotwire, iFolder[6], konspire2b, Madster/Aimster, MUTE, Napshare, OpenFT (Poisoned), P-Grid[7], IRC @find and XDCC, used by IRC clients including: mIRC and Trillian, JXTA, Peersites [8], MojoNation, Mnet, Overnet network, Peercasting type networks: PeerCast, IceShare - P2P implementation of IceCast, Freecast, Scour, Scribe, Skype, Solipsis a massively multi-participant virtual world, SongSpy network, Soulseek, SPIN, SpinXpress, SquidCam [9], Swarmcast, WASTE, Warez P2P, Winny, AsagumoWeb, OpenExt, Tesla, soribada, fileswapping, XSC

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P2P Multi-Protocol Applications

http://en.wikipedia.org/wiki/Peer-to-peer#Networks.2C_protocols_and_applications

eMule (Edonkey Network, Kad Network) (Microsoft Windows, Linux)aMule (eDonkey network) (Linux, Mac OS X, FreeBSD, NetBSD, OpenBSD, Windows and Solaris Op Environmt)Epicea (Epicea, BitTorrent, Edonkey Network, Overnet, FastTrack, Gnutella) (Microsoft Windows)GiFT (own OpenFT protocol, and with plugins - FastTrack, eDonkey and Gnutella)

and xfactor (uses GiFT) (Mac OS X)Gnucleus (Gnutella, Gnutella2) (Microsoft Windows)Hydranode (eDonkey2000) (Microsoft Windows, Linux, Mac OS X)iMesh (Fasttrack, Edonkey Network, Gnutella, Gnutella2) (Microsoft Windows)Kazaa (FastTrack, Joltid PeerEnabler) (Microsoft Windows)Kazaa Lite (FastTrack, Joltid PeerEnabler) (Microsoft Windows)KCeasy (Gnutella, Ares, giFT)MindGem (Edonkey Network, Kademlia)MLDonkey (BitTorrent, eDonkey, FastTrack, Gnutella, Gnutella2, Kademlia)

(MS Windows, Linux, Mac OS X, Palm OS, Java)mlMac (BitTorrent, eDonkey, FastTrack, Gnutella, Gnutella2)Morpheus (Gnutella, Gnutella2) (Microsoft Windows)Poisoned (FastTrack, Gnutella)Shareaza (BitTorrent, eDonkey, Gnutella, Gnutella2) (Microsoft Windows)WinMX (Napster, WPNP) (Microsoft Windows)XNap (OpenNAP, GiFT, Limewire, Overnet, ICQ, IRC) (Java)Zultrax (Gnutella, ZEPP)

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P2P Processing Services (cf. Grid Computing)

• Pattern-Searching of Data (cf. SETI@home)• Data-Space Searching, in particular as part of

a collaborative key-discovery process (cf. EFF's DES cracking project)

• Numerical Methods, large-scale / brute-force(e.g. fluid dynamics experiments, meteorology)

• Gaming, multi-player, networked• Message Transfer:

• conferencing/chat/instant messaging• cooperative publishing

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P2P Digital Object Sharing Services

• Software:• Fixes/Patches• Releases

• Virus Signatures• Announcements, e.g. of

technical info, business info, entertainment ‘info’, sports results, promotional messages, advertisements

• News Reports, by news organisations, and by members of the public

• Emergency Services Data• Backup and Recovery

Data• Games Data, e.g. scenes

and battle configurations• Archived Messages, for

conferencing/chat/IM, and cooperative publishing

• Learning Materials, in various formats

• Entertainment Materials,

in various formats

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The Predominant Use 1998-2005

• Consumer Sharing of Entertainment Materials:

• recorded music, in MP3 and other formats

• video, as bandwidths increase

• Copyright-owning corporations assert that a large proportion of those file-transfers is being performed in breach of copyright law

• There is evidence to support the assertion

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Indicators of Scale• Sep 2002 – 31m Americans used P2P to share music• 2003 – FastTrack peaked at 5.5m users and 60% of the

market, then fell due to publicity about lawsuits• 2004:

• P2P data volumes estimated at 10% of traffic (Web 50%, all email incl. spam 3%)

• c. 10m simultaneous users, c. 50 m searches per day• FastTrack still had 4m users (40% of market)

and enabled access to 2m files, >10 terabytes• 50% of files audio, 25% video, 25% other

• 2005:• 10-12m users, 1 billion files, eDonkey, FastTrack

dominate

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Copyright-Owner Perspective – 1998-2005

esp. RIAA, increasingly MPAA• Serious Risk of Loss of Control over © Objects

(‘appropriation’ / ‘theft’ / ‘piracy’)

• Serious Risk of ‘Cannibalism’= killing existing high-margin revenue-lines (CDs) by substituting low-margin revenue-lines (digital)

• Lack of Clarity about ePublishing Business Models

• Exploitability of Market Concentration and Power

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Avenues of Copyright-Owner Fightback

• Political• Copyright Expansionism• Criminalisation / Cost Transfer

• Legal• Lawsuits• Publicity

• Technological• Digital Rights Management• Reduction of the Power at the Edges

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The Action, 1998-2005, ...• Expanded copyright laws; and highly protectionist

US copyright laws imposed in other countries, e.g. AU • Aggressive action by RIAA in the courts• Success against (centralised) Napster• Limited, slow success against (decentralised) others• Some success in dissuading consumers from

usingthe targeted P2P schemes (threats, content pollution)

• But many consumers simply migrate to new schemes

• Limited success to date with DRM technologies• Changes to the Internet infrastructure

(devices, protocols) would be slow and difficult

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Conventional Use of ‘Intellectual Property’

• Exploit the Monopoly through High Prices

• Leverage the Monopoly

• Extend the Brand• Cross-Promote

• Sustain the Monopoly• Very Constrained

Licensing• Technological

Protections

• Lawsuits to stop, and to chill, behaviour:

• Commercial Violations

• Single-Purpose Technologies

• Incitement (‘Authorisation’)

• Multiply-Usable Technologies

• Consumption

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Shapiro & Varian – ‘Information Rules’, 1999

• One-Way Loyalty – consumer to marketer• Lock-in through Switching Costs,

to achieve monopoly space that can be exploited• Ch. 4 pp. 83-102: ‘Rights Management’

• give away (a little of) your content in order to draw them in, and then charge for:

• convenient access • repeat access• other-party access • enhanced versions• searchability/navigation• timely access • archival access

• but recognise when to let the market grow ...

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The Alternative ApproachP2P As Business Opportunity

1. Re-discover sustainable ways to do business

2. Re-discover the capacity to value-add3. Appreciate the diversity of eBusiness

models4. Look for eBusiness Era:

• Revenue-Sources• Cost-Savings• Strategic Advantages

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1. A Sustainable Proprietary Approach• Identify price resistance-points

in the various customer-segments i.e. ‘what the market will bear’

• Set prices accordingly (and hence sustain payment morality)

• Make backlists and new releases available via for-fee P2P channels

• Discourage and prosecute breaches where the purpose is commercial

• Take no action over breaches by consumers (esp. time-shifting, format-change, even sharing?)

The Evidence• Since 2003,

Apple iTunes charges USD 0.99/track!?

• Copyright-Owners get USD 0.70

• In 2005, they’re asking for more

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2. Re-Discover Confidencein the Ability to Value-Add

• Conception• Pre-Promotion• Expression• Copyright Clearance• Preparation for Publication• Quality Assurance• Promotion and Marketing• Logistics• Payment Collection• Contingent Liabilities

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3. A ‘Business Models on the Web’ Taxonomy

Rappa (digitalenterprise.org/models/models.html)• Brokerage

Marketplace Exchange, Buy/Sell Fulfilment, Demand Collection, Auction Broker, Transaction Broker, Distributor, Search Agent, Virtual Marketplace

• AdvertisingPortal, Classifieds, User Registration, Query-based Paid Placement, Contextual Advertising, Content-Targeted Advertising, Intromercials, Ultramercials

• InfomediaryAdvertising Networks, Audience Measurement Services, Incentive Marketing, Metamediary

• MerchantVirtual, Catalogue, Click&Mortar, Bit Vendor

• Manufacturer (Direct)Purchase, Lease, Licence, Brand Integrated Content

• AffiliateBanner Exchange, Pay-per-click, Revenue Sharing

• CommunityOpen Source, Public Broadcasting, Knowledge Networks

• SubscriptionContent Services, Person-to-Person Networking Services, Trusst Services, Internet Services Providers

• UtilityMetered Usage, Metered Subscriptions

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The Interpretation Adopted in this Analysis

An eBusiness Model isAnswer to the Question:

Who Pays?

For What?

To Whom?

And Why?

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Internet-Era Business ModelsLessons from Open Source and

ContentWHO PAYS? For What? To Whom? And

Why?• Customers, for the Good/ServiceDistribution

• Providers

• Third Parties

• Customers, for Complementary Goods/ServicesConsultancy, Training, Installation, Customisation, Integration, Audit

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Internet-Era Business Models Lessons from Open Source and

Content Who Pays? FOR WHAT? To Whom? And

Why?• Goods & Services• Value-Added

Goods & Services• Complementary

Goods & Services• Infrastructure• After-Sales Service

• Data• Information• Expertise / Knowledge

• An Idea in Good Standing

• Timeliness• Quality

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Internet-Era Business Models Lessons from Open Source and

Content Who Pays? For What? TO WHOM? And

Why?Direct Intermediated

• Retailer• Franchisee• Value-Adder• Bundler• Transaction

Aggregator

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Internet-Era Business Models Lessons from Open Source and

Content Who Pays? For What? To Whom?

AND WHY?• Resource Control• Switching Costs

(capture, lock-in)• Perceived Value• Cost Advantage• Quality Advantage

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Lessons from Open Content Business Models

• Reciprocity:• direct and immediate• indirect and/or deferred

• Reputation

• Revenue from Complementary Services

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4. The eBusiness EraRevenue Sources – 1 of 2

• Direct and Immediate Reciprocity• low rates per access or copy for volume

sales• differentiated services for higher prices

(taking into account short ‘shelf-life’)

• Indirect and/or Deferred Reciprocity• donations, sponsorship• advertising• the-artist-pays / vanity press• ‘shareware’ – use now, maybe pay later

(e.g. to trial artists and wannabe genres)

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The eBusiness EraRevenue Sources – 2 of 2

Complementary Services• Installation• Customisation• Education and Training• Consultancy

‘The After-Market’• Accessories• Upgrades• Enhancements• Extensions• Replacements

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The eBusiness EraCost-Reduction Possibilities

• Digital Reproduction and Transmission, esp. via P2P, are hugely less expensive than with Physical Media

• Cost-Transfer to Consumers:• Product Conception (‘prosumer participation’)• Pre-Promotion (fan-zines)• Production (prosumer mixing)• Promotion (‘viral marketing’)• Distribution (P2P shifts transmission costs

away from the corporate server, to theoperators of participating client-servers)

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The eBusiness EraStrategic Opportunities

• Build Consumer Networks

• Search for Network Effects

• Encourage Viral Marketing

• Build Brand Value andSub-Brand Value, through:

• Reputation-Establishment

• Reputation-Maintenance

‘Freeware’ – use it now, become habituated, andbuy something laterEngage Toffler’s ‘prosumers’,cf. market research and focus groups, for:

• feedback, ensuring:• quality assurance• product refinement

• enhancements, extensions

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Broader Strategic Impacts

The I.T. Industry

• IAPs – The Nature of Internet ConnectionsDemand for Relative Bandwidth Symmetrye.g. SDSL not ADSL

• ISPs – ServersDemand is switching from central servers to dispersed devices at the edge of the net

Society

• Non-Commercial LeaksWhistleblowingHypocrisy Revelation Political StatementsReligious Tracts...

• NewsNo longer controlled by the Media, Government, and Big Business