Start-up to fuse file swapping with e-commerce

The company, called Lightshare, is preparing a service that will allow individual computer users to sell digital goods directly from their computers rather than going through centralized servers from companies like eBay or Amazon.com. It is staffed largely with former Netscape, America Online and Time Warner engineers and is funded by executives from Microsoft, Netscape Communications and Google.

"We're taking the service of eBay but making it point-to-point," said Clarence Kwan, chief executive of the young company. "None of the information actually resides in our computers. All we do is facilitate the process."

The Mountain View, Calif., company will be Web-based, in the sense that anyone who wants to sell or buy something will go through the Lightshare site to make the transaction. But the products themselves--initially digital files like songs or software--will actually be traded between individuals' computers, the same way that songs swapped through Napster never actually touch a Napster server.

Analysts have yet to see the service in action. The company will not launch for a few weeks at best, but will probably wait longer while it completes a first official round of funding, its executives say. But some analysts are retaining a high level of skepticism.

"It's got its good points, and it's got its scary points," said Alan Alper, an e-commerce analyst with Gomez Advisors. "It seems like it could be opening up a Pandora's box of fraud and piracy."

The idea is one of the most innovative to have come from the nascent "peer-to-peer" world, which is suddenly beginning to sprout dozens of investors and companies desperate to find a way to make a profit from the huge successes of Napster and Gnutella.

The peer-to-peer, or file-sharing, model is based on individual computers opening their hard drives to gain access to others. Thus, instead of downloading files from a Web site, surfers can actually search other computers' drives and connect directly to these other machines for downloads.

But while the idea has certainly grabbed headlines and investors' attention in the past few months, it has yet to show any signs of profitability. Even Napster, which claims 20 million individual accounts, has had trouble figuring out how to turn them into a significant revenue stream.

An enormous question mark looms over Lightshare. Tens of millions of computer users have turned to file-swapping networks for free goods, most often for such things as copyrighted songs they would otherwise have to pay for. No one has yet established that these networks are strong and secure enough--or that individual people actually trust each other enough--that surfers will risk spending actual money.

Lightshare says it is working to soothe those concerns, however.

"We're trying to develop a long-term sustainable and secure business," Kwan said. "We're focusing on a lot of the problems that make peer to peer unstable."

The company is explicitly building technology that will address concerns about outsiders hacking into computers on the network, viruses, and the ability to block the sale of unauthorized copyrighted files on the service, he added.

Kwan also said the company has a way of tracking content that is sold daisy-chain style, so that the original owner or producer of a software program or music track can get paid even when someone resells it down the line. As long as all the buyers and sellers conduct their business through the Lightshare site, the company can track a file being sold repeatedly down a line of resellers and channel a cut of the downstream sale to the original seller.

But what kind of content is likely to be sold in a world where much digital content is already available for free, if not entirely legally, through programs like Napster or Gnutella?

Kwan says the service will initially be geared toward anything digital. The company will not take any commission on individuals' sales, so unlike eBay, ordinary people can sell their products for free. The company will help small and medium-sized businesses--small record labels or software companies, for instance--set up shop through the file-sharing network and charge those clients a fee.

Down the road, the site will also support real-world, tangible products, Kwan said. If somebody wants to sell a bicycle, for instance, information and photos can be stored on a home computer and indexed through the Lightshare site.

Whatever the attention now being paid to Napster, Gnutella and other file-sharing ideas, the company will have a steep climb in attracting a critical mass of people for the service--a necessary piece for a successful commerce company of this kind, analysts said.

"You can say lots of nasty things about eBay, but they have lots of traffic," Alper said. "The chances of selling or buying something there are much better."