Friday, April 25, 2008

Rise of the P2P Economy

Peer to Peer (P2P) systems, where computers (or nodes) are linked up within a network into a mesh like configuration, have its beginning in newsgroup for spread of news. Subsequently P2P is used for sharing of music, video, and even voice data in real time. There have been many controversies involving P2P, where companies are sued, and network providers like the ISPs decide to 'manage' traffic for P2P. This even resulted in some suggestion of a legislation just for P2P, i.e. the P2P Bill of Rights.

Interestingly, the evolution of P2P has reached a new level, and now the concept has even evolved to include direct e-commerce. We have the Havard Business Review listing P2P Economy as one of the breakthrough ideas for 2008. The HBR listing feels that P2P economy has come, when consumers become consumer-producers that transact on a micro-scale with micro-incomes for individuals.

Personally I feel this trend has existed before 2008, since we have already heard of the term 'pro-sumers' sometime back. The only addition is the use of P2P concept, and the direct involvement of micro-income streams. Micro-income stream as a business model, is made more popular with Zilo. Zilo allows individuals to easily add a shop front on their blogs and websites, and essentially acts as the middle man between the actual goods manufacturers and the 'pro-sumers', i.e. retailers. Individuals are now retailers, with their own peers, e.g. blog visitors,as the consumers. Zilo offers over 6 million products for 'sale' and each sale results in about 10% commission for the 'pro-sumer'. Not bad, I bet the 10% commission paid is cheaper than what an actual shop rental would have cost.

Is this trend going to continue? I bet it will, and I think the industry knows this as well. Seems like Amazon banned Zilo. Not too surprising. Would this invite more 'protest' and barriers from those who feel threatened or who want to have a share in this new revenue pie? Yes again I think.

At least I think the ISPs who want to 'manage' P2P traffic will have greater justification now to charge more for P2P traffic, since the P2P traffic is used to generate income by the subscribers. Since ISPs generally charge different broadband rates for consumers and businesses, they will want to charge some 'P2P rate' in-between these normal rates for the 'pro-sumers'. If they cannot charge the individuals directly, they will want to charge the service providers, i.e. Zilo.

Next would be the tax authority. Individuals selling small items online at auction sites are not big worries for the tax authority, since how much could they make? A few thousands per year for the minority of successful sellers? If the amount is significant, the authorities can easily track the individuals down. However, using such P2P economy concept, the manufacturer of goods / products could be overseas, while the 'local' shopfront of 'pro-sumers' are technically not subject to any tax. Traditionally the wholesale providers who bring in the good have to declare and pay tax. The retailers who sold the products have to pay corporate income tax. 'Pro-sumers' belong to neither categories, and it is almost impossible to track the transactions of 'pro-sumers' nor are the 'pro-sumers' require to maintain accounting books. This would be an interesting mess.

Despite these 'barriers', I still think P2P economy is the way to go. Maybe Zilo wouldn't be the most successful case, but there will be others. Napster failed (in a way) but Bittorent came along and now it is a mainstream activity. There is no way for any corporates or government to stop Internet development driven by the whole of Internet users. They can stop one or two, but others will spring up. Internet users would embrace such P2P concepts for the simple reason that they can participate in these activities, and also cut down the middle-men (for the commerce part) for better profits. Since there is a demand from the Internet users, someone will come in to fill the gap.

As for how far such a concept of P2P economy would go, and what forms it will take in the years to come, it is anyone's guess. Those who ride this tide early will be the next successful Internet icon. :)

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