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Skype founder Niklas Zennström recently named AllPeers among Europe’s four most innovative tech start-ups - and you can't really argue with him.

Launched at the end of August after four years of development work, AllPeers’ private P2P platform allows users to share videos, photos, webpages and other paraphernalia with their family and friends.

But next year, it also intends to expand its technology to allow files to be shared publicly, and to offer content creators a chance to earn money through micro-payments, rather than through advertising.

We met up with CEO Cedric Maloux and CTO Matt Gertner to find out more.

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Why do you feel the P2P approach is better for file-sharing than the model adopted by sites like Flickr and YouTube?

Matt: If you want to do things like build communities online, then the infrastructure costs at some point become a real barrier. You just have to look at Friendster – one of its problems was it wasn’t able to scale with its huge success.

This was a discussion we had about four years ago. We set out to build a P2P platform that would allow us to deploy this kind of community-style application, without having all the centralised infrastructure.

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Are you in competition with these sites?

Cedric: No, not really. Flickr is really a public gallery – I know you can make photos private, but it’s a little bit cumbersome. The goal of Flickr is to be a public photo album, and people we talk to say they don’t want photos of their kids on the web.

Plus you have the uploading and all of that. With YouTube, once you put your videos up you lose your rights to them, and the issue of intellectual property around YouTube is growing.

Matt: I think today, that’s true, and it would be misleading to say we are competing with YouTube. In the longer term, though, certainly there are use cases for YouTube that you could use AllPeers for instead, and vice versa, particularly when we start to offer types of public content and not just private content, which is something we are planning to do.

YouTube has a fantastic community aspect to it and people feel like they are participating in something that is bigger than the individual videos and I’d like to think in the longer term we could duplicate that.

In the meantime, there are cases when you want to share a video with ten friends and you could put it on YouTube, but it’s not private. And one of the worst things about YouTube is you only get that grainy video in that small window.

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What are your marketing and distribution plans?

Cedric: Right now, it’s a Firefox add-on, so the download is on the Firefox add-on site, and we have plans for next year to work with other environments than Firefox. We have to do a little bit of work on the platform for that.

We also are putting in place a partner programme, and have been talking to some websites – a good example would be a website that does podcasts.

Podcasts are quite big, and people allow you to stream or download them, but that has a cost, so we want to allow an owner of a site to set up their own sharing community. We are solving a very common problem, so we’re getting some good feedback from the early discussions we have had.

Matt: We are also planning to release an open API, so that’s another path we can follow. People could launch a version of AllPeers for small company workers, for example, and that would be another distribution channel for us, getting our technology onto people’s desktops.

Cedric: As a young company, you have to make choices. We have the technology, but do we go after the consumer market or the business market? We could have done both but we didn’t think it would be a good move, initially.

We decided to go after the consumer market first, but nothing stops us from partnering with a company that specialises in workflow and collaboration, for example. But right now the focus is on file-sharing within family and friends.

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What kind of community features do you plan to add onto the platform?

Cedric: The main problem that we are trying to address is that email was invented for text, and no-one really has innovated yet for large files. First, we’re trying to solve that problem and build community features around it.

If you look at the real world, if we were looking at my photo album, we would start to socialise and make comments about the pictures. These are the types of features we want to introduce. Then, after that we want to introduce micro-payments to allow e-commerce, so if you are a photographer, you would be able to share photos with friends and sell them to strangers.

But right now, we are focusing on solving that basic problem, which no-one has solved yet.

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How would the micro-payments system work, and who specifically would it be aimed at?

Matt: The idea is not set up a marketplace - we don’t believe in that - but to allow people who have content to more easily monetise it.

A very good parallel is with Google Adsense. You have all these people with blogs who are striving to find a way to make money, and Google comes along with a way to exploit economies of scale and find all the advertisers.

The issue is that advertising is not what everyone wants to have on their site, there are concerns about what types of ads are running alongside what content, and with Adsense there is a very big click fraud issue, which I think they are managing but not eliminating.

The way we imagine it working is instead of running ads on your site, you use AllPeers as a type of server to sell the content you have on your site.

So if I am a writer and have written a longer report or essay, I need a way to put that up for distribution and to create the storefront on my site or blog, and to track downloads so I can create the best pricing and incentives.

Having a download link and a Paypal link is not enough really – and the issue is aggravated when you are musician or producer and the files are larger, you pay the price of your success because people aren’t going to be able to access them any more.

The plan is to create a real turnkey solution, very much like Adsense, which is very easy to install.

Cedric: Right now, what we are doing is turning Firefox and our desktop into a server, and what we will do is to turn Firefox and our desktops into a back-end selling solution.

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How big a market do you think there is out there for this type of content?

Cedric: Well, we know the size of the online digital content market, which in the US was $2bn in 2005, and is growing about 15% every year.

Matt: That’s also miniscule when you think about it. It’s perhaps a leap of faith, but we believe there is enormous potential for it to grow. When you think that the ringtone market alone did twice that in 2005 – and the reason for that is it’s too hard to buy and sell content on the web right now.

Cedric: There is too much friction to sell and buy content online, and our goal is to make it dead simple. 

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When do you think the pay-per-download approach will work, rather than subscriptions?

Matt: There are different models for different types of content. The pay per download approach will be more applicable to things of more substance.

There’s a thought-provoking article by Clay Shirky, where he says he doesn’t think micro-payments will ever work because of what he calls mental transaction costs. There’s a cost to society when you want to buy something. Let’s say something is worth $0.01 - even if it’s economical for the producer, maybe it’s not worth your time thinking about it.

While I don’t really agree with his conclusions, I do think he has a point that at a certain point it makes sense to have subscription style models where you attenuate those mental transaction costs, in the same way that cellphone companies will provide you with a bundle of minutes so you don’t have to think about the costs everytime you want to make a call.

But there are certainly other types of content where it absolutely makes sense. iTunes is one great example - there was a lot of scepticism about that but we owe a lot to Steve Jobs for proving that.

Another good example is to imagine Flickr, but a paid Flickr, where it’s something like what Flickr is today but if you see a photo that’s professional quality, you could buy a 2MB or 6MB version of it, with the reproduction rights.

That could be a huge success, but people haven’t yet put together all the pieces to do it right. It won’t be a $2bn market, it’s going to be a $100bn market or more.

Cedric: Licensing is also very important – the creative commons approach is very attractive – but it’s a mixture of friction, price and licensing. People love to create content and we have the tools to do it now.

People will be creating content from scratch, but people will also want to do compilations, re-mixing and so on and that will rely on the media companies.

Matt: Things like YouTube have certainly proven that the traditional configuration, where the large media companies who are vertically integrated and taking care of the entire production chain, is coming to an end.

Those companies will continue to play a role, but the amount of time you spend consuming media that’s produced and distributed by smaller producers is increasing. I spend a lot of time reading blogs now, and a lot less time reading books.

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Do you plan to integrate the platform with editing software?

Matt: I think that’s an area that is going to be very useful for us. We could go to an Adobe, for example, and try to get some kind of integration into Photoshop. I don’t know anything about Photoshop but I presume they have some kind of plug-in architecture. 

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When do you aim to break even?

Cedric:
I’ve stopped making predictions, but we plan to introduce the payment mechanism by the summer of next year. Then it will be a numbers game.

One of the good things is, being based in the Czech Republic, our costs are lower than other start-ups in Western Europe, and our ability to last is one of our main strengths. Reaching breakeven should not be that difficult. That’s not what I’m worried about.

Matt: For our type of business, the really important thing is getting as many users as possible as fast as you can.

Cedric: We are also going to based on a distributed network system, so our costs will be lower. 

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How difficult was the decision to accept VC funding (from Mangrove Capital Partners and Index Ventures )?

Cedric: When you have a vision, and you set up a team, you have to pay them somehow, so they work for you. Is it a necessary evil? I don’t know, but there’s money, experience and contacts that they bring you.

Matt: We were certainly concerned about what kinds of sacrifices it would mean for us, but we were lucky to find two fantastic investors, and they’ve been very supportive and they believe what we are doing.

Cedric: They have given us a lot of very good advice as well.

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Cedric and Matt talked to Richard Maven. Questions, comments and concerns to  blog@e-consultancy.com .

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Published 15 November, 2006 by Richard Maven

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