P2P Exchange

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P2P EXCHANGE

P2P, which stands for both "person-to-person" and "peer-to-peer," is a direct online communication between two individuals or personal computers (PCs). Using tools like instant messaging, online auctions, and online classified ads, P2P is a way to share information and conduct purchases between private individuals. A person-to-person transaction happens, for example, when someone in Colorado uses an online auction site to sell an antique vase to a resident of California. Peer-to-peer networks are a major means for conducting person-to-person exchange. These systems, such as the defunct music-swapping service Napster, enable file sharing between PCs. In contrast to traditional client/server networks, which give PCs access to information stored on a server, peer-to-peer networks allow PCs to communicate directly with each other, reducing or eliminating the need for a server.

PEER-TO-PEER NETWORKS

While peer-to-peer networks have yet to gain wide acceptance in businesses, to many analysts this sort of decentralized file sharing is promising. A September 2001 issue of Inc.com gives this example: "Say a New York City manufacturing company is looking to negotiate a new sales contract with its Texas vendors. Instead of relying on e-mail, faxes, or phones to negotiate and exchange information, a company using P2P software can interact in real time, allowing staff to move important documents, communicate with virtual whiteboards, and coordinate calendars, all without ever leaving the office." However, critics of peer-to-peer technology argue that granting direct access to PCs could pose a serious security threat to businesses. In fact, many analysts assert that peer-to-peer networking will not become mainstream until security issues, such as the ease with which hackers can access such a system, are addressed.

Peer-to-peer technology raises legal issues as well. In Napster's case, fears of copyright infringement eventually shut down the music-swapping service after a tumultuous legal battle. For similar reasons, many Napster rivals were forced to shutter their operations as well. However, new peer-to-peer networks have continued to emerge. In April of 2001, a group of investors led by Intel Corp. gave Ian Clarke $4 million to develop commercial applications for Freenet, the peer-to-peer network he launched on the Internet in March 2000. Another entrepreneur, Chris Kitze, used peer-to-peer networking technology to create Yaga in the early 2000s. Unlike Napster and Freenet, both of which bucked conventional copyright laws, Kitze hoped to use Yaga to secure payment for copyright holders. The premise behind the business model is that owners of songs, videos, books, and other digital content will allow Web surfers to download files directly from their PCs. Yaga will provide the portal that brings buyers and sellers together and offer the payment tools to facilitate these P2P transactions. As of early 2002, however, Kitze had yet to convince many big-name content owners to use his service.

PERSON-TO-PERSON TRANSACTIONS

Person-to-person transactions, like those conducted on online auction site eBay, allow individuals to exchange goods and services. Although online auctions also allow businesses to peddle their wares, they were first designed to facilitate sales between two individuals. To make money, companies running online auctions typically charge a commission on each transaction completed. Unlike many other Internet-based business models, the online auction has proven highly successful, due in part to the lower overhead costs associated with operating such a business, particularly for online auction giant eBay. In fact, eBay's success has made it difficult for rivals to create their own viable online auctions. As the June 2002 E-Commerce Times reported, "In the online auction sector, eBay is not just king of the hill, it owns the mountain. Some challengers to the throne have stepped forward in the past few years, but all have been trounced."

Even though eBay is the largest online auction site, it does have a few rivals. Its largest competitor, Ubid, secured 3.6 million unique visitors in April of 2002. While this number pales in comparison to eBay's 24.3 million visitors that month, it does indicate that other auction sites can attract a decent amount of traffic. Some analysts recommend that entrepreneurs who want to create a person-to-person business like eBay target niche markets, limiting themselves either to certain products or to certain geographical areas.

You might consider developing another kind of person-to-person site. For example, Intellibarter, founded in December of 1999, allows individuals to post merchandise they would like to trade. Sellers are able to set values for their merchandise and then use what they earn selling their merchandise to purchase other goods or services listed on the site. Like online auction sites, online bartering sites make money by charging a commission on each transaction completed. They also operate with minimal overhead. However, keep in mind these sites are also susceptible to the same sort of consumer fraud that has plagued online auctions. If you plan to develop this sort of business, you will need to decide whether or not to offer some sort of guarantee to the individuals who use your site.

To complete person-to-person payment transactions, buyers and sellers use P2P transaction technology. While this technology is used most frequently for online auction purchases, individuals also use P2P payments for making charitable donations and sending money to a friend or family member. PayPal is the most popular P2P payment service, handling roughly 50 percent of the payments processed via eBay. PayPal members are able to e-mail funds to any other PayPal account holder via an automated e-mail message titled "You've Got Cash!" The funds can be charged to a credit card via an online form at the PayPal site, or they can be withdrawn from a bank account, once the user is properly verified. If you are planning to create a P2P business that will require payment processing, you can contact a company like PayPal, BillPoint, or WebPay to set up a system on your site.