The peer-to-peer business model started to receive special attention from the business world only last spring, when venture capital firms invested in several startups, an investor said Wednesday at the O’Reilly Peer-to-Peer conference in San Francisco.
According to Larry Chang, an associate with the Battery Ventures, of Wellesley, Mass., Napster Inc. received private funding last May from Hummer Winblatt; Infrasearch was backed by Netscape Communications Corp. founder Marc Andreessen and others the following month; and also in June, Kleiner Perkins Caulfield & Byers invested in Centrata Inc.
It was the interest of established venture capital firm Kleiner Perkins that garnered the most attention, Chang said.
“When Kleiner Perkins made an investment, the door just swung wide open,” Chang said.
In the last 18 months, more than 150 companies have sprung up offering p-to-p systems, winning total investments of $350 million, Chang said. “There are no shortages of ideas, and there are at least a handful of tremendous ideas out there,” he said.
Nonetheless, the financial community is still withholding full support for p-to-p technology, Chang added.
“There is skepticism about whether p-to-p can be successful. People are really concerned about the business model, and there is a real shortage of quality management, with less than five percent of the CEOs in these companies having been CEOs before,” Chang said.
Still, the startups can expect competition from established companies such as Microsoft, Yahoo and AOL, Chang said. In fact, representatives of the established companies actively participated in the conference.
Eric Schmidt, chief executive officer and chairman of the board of Provo, Utah-based Novell, said Novell is examining the technology. “You need a consumer adoption strategy,” Schmidt said during one panel discussion. “If you have a killer app, with no adoption strategy, you won’t get there.”
“[Peer-to-peer] is in the early stages where you need to make sure the technology works, and what people will use it for,” Schmidt added.
The top companies in terms of private funding, Chang said, are Groove Networks, of Beverly, Mass., at US$60 million; San Diego, Calif.-based Entropia, at $29 million; and Consilient, of Berkeley, Calif., at $23 million.
Chang advised startup managers to make sure their model includes making money. “You need to put out a revenue model quickly,” he said. “If you don’t you will see funds drying up.”