Tuesday, July 29, 2003

The Next Step for Open Source and Peer-to-Peer Software

This article in FastCompany magazine contains a remarkable statistic:$15 billion is an amazing amount of money (approximately equal to the total worldwide music industry), and $1.2 billion is a startling amount of revenue. If you assume that there are 10 million people selling stuff on eBay on a regular basis, it means they are spending $120 per year on average to access eBay's services. And eBay isn't the only big auction site. Amazon and Yahoo both have auction sites as well. The three of them together likely extract billions of dollars every year.

My question is this: could the "open source" and "peer-to-peer" mindset of systems like gnutella replicate all these auction sites and provide auction services to a worldwide community for free? It might be called FreeBay.

A big auction site can generate a huge amount of traffic. For example, according to this article, eBay processes 800,000 transactions per minute. That's a heavy load, but the idea would be to spread the processing and storage requirements of the system across thousands of user machines in the same way that gnutella and kazaa do. Because the load is completely distributed, there are no server costs or bandwidth costs for the service, and the service can be offered for free. Sellers save billions of dollars every year.

Another site ripe for this sort of treatment is NetFlix. NetFlix has over one million subscribers and they pay $240 per year each. That's a lot of money. Smelling that money, Wal-Mart and Blockbuster are both jumping in with systems of their own built on the NetFlix model.

The open-source/peer-to-peer version NetFlix might be called FreeFlix. FreeFlix is a more advanced problem than FreeBay because NetFlix actually carries inventory. One way to handle the inventory is to create a completely distributed warehouse, where people are holding all the inventory in their homes. When you sign up for FreeFlix, you tell the system about the DVDs you have in your collection that you would be willing to share with other users. Every user must contribute at least five DVDs in this way to the system. When you want a movie, you log into the system and request the DVD you want. At the same time, you mail a DVD to someone who needs one at the request of the system (it can be a DVD that was mailed to you previously by someone else, or a DVD from your collection). Every year the system also asks each user to specifically buy and mail out one DVD. This is how the system handles new releases and really esoteric stuff that no one owns. There is no particular reason why this has to stop at DVDs -- it is possible to imagine the same system working for books, CDs, etc. Each user of FreeFlix would save $240 per year.

You could do the same thing with Match.com, which charges users a $25 per month fee. Instead of paying Match.com, FreeMatch.com creates an open-source/peer-to-peer network that distributes the load and data across users' machines and charges nothing for the service.

The open-source/peer-to-peer movement has had a significant effect on the music industry. Linux is having a similar effect on the OS market. It is interesting to think about other industries that would change if open-source/peer-to-peer models focused on them. In the case of FreeBay, FreeFlix and FreeMatch, there are no copyright issues as with file sharing. Instead, there are a few very interesting distributed database concepts to implement.

[See also my July 8 post]

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