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LOS ANGELES – Can a music company build a profitable business around peer-to-peer song swapping?
In November, a startup called Mercora plans to launch a service that will attempt to answer that question.
Challenging popular wisdom, Mercora Chief Executive Srivats Sampath, former CEO of McAfee.com, is betting that users will jump at the opportunity to trade news, song clips and information about each other's buying and listening habits – while paying for copyright material.
"We want to build eBay for music," said Sampath in an interview at the Digital Hollywood entertainment technology show in Los Angeles. "We want to build a trusted infrastructure where labels, artists and users come together."
Mercora, a derivation of a Latin word meaning "to trade," is designing a site that will allow users to voluntarily open up their hard drives to millions of users. If members give permission, other users can find out what they just bought and what they're listening to at a given moment. Members can send each other clips from songs the labels want to promote, or even entire albums from up-and-coming bands that want their names known.
Sampath said he plans to price songs from big labels at 99 cents initially, on par with Apple Computer's new iTunes store and BuyMusic.com's recently launched service. But labels can opt to price the songs any way they want or even give them away for free.
Mercora will make money by taking an undisclosed piece of the revenue from music sold on its service. It also plans to sell market research to studios about users' listening habits.
Ted Cohen, EMI's senior vice president for digital development and distribution, said in a Digital Hollywood panel with Sampath that he has no problem with Mercora's business model. But he questioned whether it's a true peer-to-peer service, since customers buy music from Mercora's central server, not music they're swapping with each other.
"It's simply friends turning friends on to music," he said.
Sampath said he's in final-stage talks with EMI about contributing music to the service.
Given Sampath's background – he also was an executive at both Intel and Netscape – you'd think he might think twice about jumping into the music business. But Sampath said he doesn't see Mercora as really that different from McAfee.com, which rose to become the No. 1 consumer antivirus company by also selling downloadable software over the Internet.
After all, music is a much bigger market. "We got 4.4 million people who paid $50 a year" for the McAfee.com service, he said. "If you can do that for antivirus software, you can do it for music."
The initial version of Mercora, Sampath said, will incorporate Microsoft's Windows Media Audio, or WMA, software, which file traders will use to encode any songs downloaded or exchanged over the Internet. With Mercora, no one gets a song without paying for it, unless a label or the artist gives it away as a promotion.
Other secure formats, such as RealNetworks' Helix software and formats being developed by Philips and Sony, probably will be available on the service down the road, Sampath said.
Sampath sees the irony in inviting Microsoft to the party. About a year ago, Sampath sold McAfee.com to Network Associates, just as Microsoft was gearing up to enter the antivirus software market itself. Now, Sampath – who readily admits he used to be paranoid about Microsoft – could help cement the dominance of Microsoft in secure music transactions.
But Sampath says he's just being practical.
"The reality of the market is that Windows XP is on 40 million boxes," he said. "If you know a PC has WMA built into it, why wouldn't you piggyback on that?"
