Ride P2P tsunami or risk being swept away

For all the talk in North America these days about the downloading of free music, there has been little attention about how peer-to-peer technology is evolving and moving into new business markets.
Perhaps the most intriguing is the use of P2P networks in the online gambling industry. While online gambling is already a multi-billion dollar business — despite intense opposition from the U.S. government — it is beginning to adopt P2P technology to give gamblers even more tools to make “transactions”.
At the forefront of this emerging trend in North America is Toronto-based 1x Inc., which will launch new software called BetBug in the next few weeks.
Much like P2P software lets people exchange music online, BetBug will make it a snap for gamblers to connect with each other without using a middleman — otherwise known as a bookie.
Let's say, for example, an ardent Portuguese soccer fan wanted to place a bet on his team winning the recent European championship. Rather than use a bookie, the Portuguese fan could have used a service such as BetBug to find gamblers who wanted to back Greece. After finding the best price, the Portuguese fan could have made a P2P bet with the Greek backer.
When the game finished, the winning party would have paid a small commission to the e-commerce payment provider, which in turn, would have paid a royalty to the P2P exchange.
“This is a natural evolution for sports betting,” said Anthony Novac, 1x's president. “The interesting thing is the more tech-savvy people are fascinated with taking P2P to the next level, whereas gambling experts see it as a phenomenal product that adds value to the user; while legal experts say 'wow you have taken it around the [U.S.] Wire Act'.”
For online gambling houses, P2P technology is a threat and an opportunity. As middlemen, they do not want to see customers migrate to other services. At the same time, they will have to be flexible and offer P2P tools as complementary services.
Another benefit for gambling houses could be reduced expenses. Instead of having to handle transactions on their own or leased computer servers, they can simply provide branded payment services to generate commissions and build relationships.
This model that could also be adopted by auction giant eBay Inc., which has to operate and maintain large server farms to handle millions of transactions. If eBay decided to incorporate P2P technology, it could expand its offerings and lower costs.
In many respects, the gambling and pornography businesses are online vanguards that capitalize on new technology to bolster business. It was the pornography industry that jumped on the VCR, the Web, e-commerce and DVDs. As a result, it should not be a big surprise that it is the most profitable online sector.
Given how effectively the gambling and pornography industries have gravitated to the Web, there have to be important lessons for the music business. So far, P2P has savaged sales, while services such as Kazaa continue to thrive despite legal campaigns launched by groups such as Recording Industry Association of America.
Is there a way the music industry can take advantage of P2P technology rather than fall victim to it? This is a daunting question, given the music industry still has plenty of work to do when it comes to traditional e-commerce transactions. The simple fact a super site with millions of titles and an easy to remember name such as www.music.com has yet to materialize is evidence of the industry's inability to get its act together.
There are, however, indications P2P is gaining a little traction within the music business. Kazaalite.com, an off-shoot of Kazaa that became popular because it did not contain spyware, is offering a $5 a month service that gives subscribers unlimited access to music, movies, software and television programs, as well as unlimited technical support.
Kazaalite also has a premium version of its software for $25 that lets subscribers download and view DVD-quality movies. All of this downloading, Kazaalite offers, is apparently 100% legal.
Kazaalite is far from perfect and likely far from legal but Intercosmos Media Group Inc. does deserve credit for trying to create a P2P business model by setting itself up as a software middleman.
Perhaps the music industry could establish itself as the P2P clearinghouse for music by offering a service that ensures files are legitimate, high-quality and virus-free. Instead of fighting the P2P trend, the industry should try to exploit it, and find ways to encourage consumers to purchase other products, including CDs and DVDs.
Maybe this proposition is not doable and/or not viable, but it is time for the music industry to experiment with new tools and services to stem the P2P tsunami. Perhaps senior music executives should come to Toronto and spend some time with the 1x management team, which seems to have discovered a way to make P2P pay.