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The same fear now surrounds the music industry. If Napster can give music away, why would anyone buy a CD? It's a good question. But the answer for the music industry is not to rely on the courts to solve their problem. Instead, they should follow the route taken by the full-service brokers, who have attacked their online rivals head-on by cutting prices and expanding their products and services on the Web. The result has been soaring assets and profits. The music industry may soon have potent new ammunition to compete. Record moguls should look closely at the latest development in the world of online finance. New e-payments technology being developed by Silicon Valley startup Dynamic Transactions Inc., which runs the Web site www.PayPlace.com, potentially offers a valuable solution to the industry's problems. PAYMENT TRIGGER. How? By linking file-sharing technology with e-payments technology. Any file that can be shipped on the Net from one computer to another can be attached to an e-payment system requiring recipients to pay money via e-mail before the file can be executed. That means anytime a file transfer is made, record companies get paid. Copyright protection would be ensured through the use of separate encryption technology, such as that used by Liquid Audio. This person-to-person payment system is similar to that developed by PayPal (www.paypal.com), a unit of X.com (www.x.com). PayPal is now widely used by eBay customers to make payments via e-mail. Dynamic Transactions uses a similar e-mail payment system, but adds the ability to link e-mail payments to files. If Dynamic Transactions' technology works as advertised, it could be a potent Napster buster. Or it could be Napster's savior. Consider the possibilities. Britney Spears comes out with her next big hit. Her record company, BMG Records, releases only an MP3 version on the Net encoded with e-payment technology that requires anyone who downloads it to pay BMG $10, or whatever. The song can sit on Napster or Gnutella or anywhere else on the Net, and any file transfer triggers a payment. If Napster is shut down by a court order, Dynamic Transactions' technology might offer it a way to stay alive. Napster could use the system to collect a small payment for each file transferred through its site. Napster might even make a buck or two. "MISSING LINK." The technology opens a new source of profits for the music industry and gives marketers something to drool over as well. Top Web sites would pay big money to get exclusive rights to the Internet launch of a new hit by a top artist. There's also potential for e-commerce spin-offs and advertising. The launch of a new Britney Spears hit could include videos, goodies such as Britney Spears dolls, and whatever else can be pawned off on prepubescent teens and their accommodating parents. E-pay files would not be a permanent cure for the music industry's free-file-sharing woes. Once a song is released on a CD, it will probably still make the rounds on the Web without money changing hands. It's highly unlikely that free file-sharing will disappear. Even if the courts shut down Napster, dozens more sites will take its place. Dynamic Transactions CEO David Beckwith, a former Netscape and Hewlett-Packard executive, claims there's broad potential for his technology throughout the file-sharing world. The technology can be used with any digital file, not just MP3 files, he says. "This will allow anyone who owns content to collect funds," he says. "This is the missing link for peer-to-peer networks." That assumes the technology actually works. No one has the system up and running yet. Dynamic Transactions plans to release a software developer kit next month that can be used to build the technology into any peer-to-peer Web site. And Beckwith says he's in talks with potential partners to build copyright protection into e-pay-enabled files. Beckwith also hopes to sell his e-mail payments engine to banks and other financial-services firms. THE HUMMER HUB. Jupiter analyst Jim Van Dyke thinks the Dynamic Transactions technology has enormous potential. "It has a chance of reaching PayPal status," he says, referring to the 2.7 million customers PayPal has signed up in less than a year, making it a rare hit among financial startups on the Web. The music industry, and any other industry that worries about free file-sharing on the Net, needs to come up with new ways to compete online, much like Merrill Lynch and other full-service brokers. Dynamic Transactions' new payments technology could be part of the solution. A footnote: Dynamic Transactions' leading financial backer is Hummer Winblad Venture Partners in San Francisco. Hummer partner Hank Barry is Napster's CEO. John Hummer, co-founder of Hummer Winblad, is a director of both Napster and Dynamic Transactions. The firm is also an investor in Liquid Audio. John Hummer was on vacation and could not be reached for comment. If you have any thoughts or opinions on this topic, please send an e-mail to the address below. Smith covers a wide variety of topics, including personal finance issues, from Business Week's Boston bureau. Have a question or a comment? Let him know at geoff_smith@ebiz.businessweek.com. |
