BitTorrent

In 2002 I was fortunate enough to have developed a product that would have competed directly with BitTorrent. We had met with WB, Sony, MGM, Disney, (even MovieLink). It was for many reasons outlined in the case that we were unsuccessful , not the least of which was their requirement that our revenue model not be a profit sharing model. Our hope was that we could keep our initial investment costs down by convincing the studios to give us all of the digital content for free and we would pay them "royalties" for each view. The network itself was going to be extremely expensive to build (we had designed a content distribution network as opposed to a P2P like BitTorrent) so we were had to include the upfront costs for a lot of infrastructure and when you added in the cost of content, and the risk of a large percentage of that content having to be available but not generating any revenue (being purchased), the model broke quickly.

OK so why was BitTorrent successful in inking this deal with WB? It comes down to one simple business principal, understand the environment in which you are competing.

Architecture and ability to scale - BT knew that the Content Distribution Network (CDN - when the content is stored in locations close to the end user so that when they purchase the digital asset it doesn't have to travel a great distance thus improving the end users experience) wasn't the best design. This is the design I have experience with and the cost models broke when you expanded geographically or scaled the content up. And to be successful you had to do both; expand your geographic footprint (eventually to include the entire world), and scale your content (eventually to have every piece of content ever created available to your customer). That's a tall order and I think BitTorrent identified that issue and addressed it thorough the P2P design (if I understand that architecture correctly, P2P would elevate the infrastructure costs b/c assets would be stored on customer resources and not corporate...like Napster).

Security - I can remember that this was the number 1 issue for every single producer. Not much to say here other than BT took the time to understand the #1 issue and how they could build their product on a platform that would remove that issue from preventing their success.

Competition/Channel Conflict - This was also a very big deal for the studios. They were very conscious of release dates, and in 2002 were not exactly sure how they were going to manage this new channel. At that time they were concerned about Blockbuster and Retail distributors. In the case (which was set a few years later) Blockbuster wasn't mentioned; by that point in time I think the studios realized that the Netflix model was going to crush the brick and mortar model that Blockbuster had built. That meant that the internet could replace the blockbuster release date, but it seemed they were still concerned about how this new channel would disrupt the retail outlets like Wall Mart which accounted for a large volume of sales. I don't think the case adequately discussed the conclusions of the studios on this issue, other than to say that the retail outlets would have to develop an online presence and could use a white label version of the BT platform. I guess the point is moot once you come to the conclusion that very few people will be purchasing "disks" in the future. All content is digital and can be delivered over a network connection.

I found this case very interesting given my personal involvement in the industry, and I think the lesson here is that you must take the time to really understand the landscape of your competitive environment, especially in a new industry...