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Commentary: Success of file-sharing services hinges on revenues

Some in the publishing industry wonder whether consumers will ever tolerate having to pay for digital content on the Internet.

By Alan Weintraub, Gartner Analyst

Peer-to-peer technology such as Gnutella allows Internet users to store and share files among themselves without the intervention of a central server.

This approach appeals to many people because it allows unfettered access to content and promotes the development of communities that have similar interests. At the same time, the loss of central control threatens those authors, performers, publishers and others who seek to profit from owning and distributing content such as books, music and videos.

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Nevertheless, some in the publishing industry wonder whether consumers will ever tolerate having to pay for any digital content on the Internet. This uncertainty has given birth to AppleSoup, which will attempt to offer the best of both worlds--distribution controlled by the consumer, with revenues secured for creators and publishers. Other companies will also likely try using peer-to-peer technology commercially.

Can AppleSoup and companies similar to it make a reasonable profit? The question hinges on whether they can reach an agreement acceptable to content providers that protects their rights.

These companies can take two basic approaches to protecting access to digital content. First, they can try to protect rights on the level of policy. That is, a company would require people to read and accept legal agreements that spell out what they can and cannot do once they download the content. Content providers will likely be slower to accept this approach since it relies heavily on the good faith of consumers.

Most companies will likely choose the second approach, based on digital rights management (DRM). DRM technology ensures the trusted exchange of digital information over the Internet. The consumer is granted only the limited privileges that the content sender allows. For example, the consumer may only be able to read the information but not copy it or pass it on to others. The companies would have to employ a server to track and manage DRM agreements and how the content was used.

Besides DRM, companies such as AppleSoup must determine how they will achieve revenues. One possibility is to sell advertisements to run alongside the content. In that scenario, the consumer would not have to pass money directly to the content provider. In effect, the advertiser would pay the content provider for royalties normally expected from the consumer.

More likely, the provider would expect the consumer to pay for the content. If so, AppleSoup or any other company engaged in this business would need to operate an e-commerce server.

Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.