Sunday, April 21, 2013

Strategies that Sam Yagan could have implemented to salvage eDonkey

On September 13, 2006, MetaMachine Inc., the developer of the eDonkey2000 client, agreed to pay $30 million to avoid potential copyright infringement lawsuits brought by the RIAA, eventually shutting down eDonkey. We rewind back in time at that point in time and see what strategies Sam Yagan, the owner of eDonkey could have implemented instead of shutting down eDonkey. 

Considering that shutting down eDonkey or not, is an obvious decision that Sam Yagan can make, we can go beyond the scope of a plain yes-no situation, to explore some more options that he might have at hand. Also, we can figure out the options that he can explore if he goes with shutting down the venture or carrying on with it. Figure below shows the basic decision tree structure, as introduced in the Game Theory to strategically explore the options with Sam

Permanent Shut-down - Not an option
Novel Technology - eDonkey, like other p2p services, employs a next generation technology, which is changing the face of how various systems communicate with each other across different networks. They have a strong IP value. Such novel technologies mark the beginning of a new high-technology era, and hence, they should be encouraged.
Huge User Base - eDonkey boasts of large user base of 30 million people. As in the words of an interested VC firm, “With 30 million users, you have valuable assets”. Shutting down eDonkey means losing base with 30 million people at one go.
Other Usages - The p2p file sharing networks offer more than single usages. They can be used for personal file sharing,

such as, videos, images etc. eDonkey file sharing network can find many industry usages. For example, Blizzard uses P2P technology to allow faster more reliable download for their users while reducing the load on their servers[2].

The options in hand, as deduced by the decision tree are as follows -
Temporary Shut-down
If at all needed, eDonkey can shut down temporarily. It can restart its business operations again using same IP but with a new and legal file sharing system. It can also customize its software to cater to industries. It can also implement Snocap, a content registry and clearinghouse that allowed P2P services to block the transfer of a file if a user tried to download it without paying for the track.

Fight the Case
Another option, although less feasible, for Yagan is to keep fighting the legal battle. As mentioned in case study, the legal proceedings would take 3 years and $5 million. Yagan can generate this amount by seeking user-donations, starting paid services and expanding eDonkey business.

Yagan can also comply with RIAA. The options with him after that, are as follow:
Shutting down – It is already ruled out.
Selling Off eDoneky – As mentioned in the case study, Yagan had already received a number of calls from venture capital companies. Therefore, he can sell off eDonkey to one such firm on a buy-out price as deduced in the previous problem.
Abide by Infringement Law – Another option with Yagan is to curb the illegal file sharing at once and reach for an out-of-court settlement with the RIAA or MPAA.

Change Geographical Location
One practical option with eDonkey is to move out of U.S. to a country where there are laws on illegal file-sharing are not so stringent. In his testimony to U.S. Senate Committee on the Judiciary on September 2005[3], Sam Yagan stated that seven of the top ten major P2P software companies have chosen to locate outside of the U.S. 
In Europe, where broadband adoption has steadily outpaced the United States, and upstream traffic represents up to eighty-five percent (85%) of all bandwidth consumed on broadband provider networks and downstream P2P traffic represents about sixty percent (60%) of all bandwidth consumed, provides a favorable ground for eDonkey to relocate its business.

Revamp Business Model
Final option with eDonkey is to revamp its business model completely. The ways to revamp the Business Model are as follow:
Legal Sharing – eDonkey should strictly stick to sharing of only copyrighted content. Yagan can engage owners or license holders to collaborate with p2p networks. He can try to acquire licensed content from the major rights holders. eDonkey can continue participating with the nine other companies in the Distributed Computing Industry Association's (DCIA) P2P Revenue Engine (P2PRE) project, which focused on providing a robust solution for major entertainment content rights holders to securely market their copyrighted works via a P2P distribution channel.
Collaboration with Independent Artists - eDonkey can begin to license audio and video content from small, progressive, independent rights holders directly and through innovative new companies that have begun to emerge, such as INTENT MediaWorks, Shared Media Licensing, and Altnet. Previously, eDoneky had worked with Rock and Roll Hall of Famer Steve Winwood to promote the release of his new album About Time. They promoted a video of Mr.
Winwood performing the song at a live venue as well as a video of him recording the track in his studio. They also worked with a band called Bishop Allen, which they promoted very heavily in the eDonkey application, contributing to its sales of tens of thousands of CDs as well as its brief appearance on Amazon's top ten in sales. eDonkey can plan to carry such business strategies forward.



Other Readings:

“A Crisis of Content”, Time Magazine,
Tom Zeller, “Trying To Tame An Unruly Technology”, The New York Times, June 28, 2005,

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