1. We bring customers and producers of music back together to a common economic interest Wedelmusic 2002, Darmstadt, 2002/12/09 Juergen.Nuetzel@TU-ILMENAU.deRuediger.Grimm@TU-ILMENAU.de Juergen.Nuetzel@TU-ILMENAU.deRuediger.Grimm@TU-ILMENAU.de Peer-to-Peer Music-Sharing with Profit but Without Copy Protection 4FriendsOnly.com Internet Technologies AG AEMT ILMENAU

2. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 2 At a Glance...  Virtual Goods  Virtual Good „Music“  Life Cycle and Value of Music  Status Quo - Conflicting Interests  The Potato System – Basic Idea  Potato Match  Summary  VirtualGoods.TU-ILMENAU.de - Workshop

3. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 3 Virtual Goods A product or service is virtual if it is freed from its original medium and bound to a new medium and if it fulfills these two conditions: (a) human users accept the virtual image of the product (or service) as a real product (or service, resp.); (b) consumption of the product (or service, resp.) is independent of the producer, it is solely in the hand of the consumer and can be repeated by the consumer whenever he decides so (note, however, that repeated use of a product or service may induce costs and has impact on the reality).  What is a Virtual Good? A Definition:

4. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 4 Virtual Goods  Music Freeing from media (sound waves, record, compact disc) is possible Digital data on storage media or in the Internet Easy handling on every stage of production cycle Modern compression techniques (e.g. MP3, AAC) Reproduction and distribution with almost no costs Loss of media = loss of value?

5. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 5 Life Cycle and Value  What is the value of a Virtual Good? Creation – Production – Value of goods Practical value Consumption – Pleasure Reproduction – Distribution – Producing a lot of copies, the value of goods (expenses of the producer) is almost zero. The practical value is primarily defined by the consumer. It is not in the virtual good.

6. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 6 Status Quo  Status Quo – Conflicting Interests Example Napster. Internet users have the interest and possibility to copy and re-distribute virtual goods like music with almost no costs. Example major labels. Content providers have indeed the interest to distribute, but only for cash and under their full control. The consequences. Providers hinder the users to re-distribute (Digital Rights Management). Having no user-friendly alternatives users will be criminalized. Prosecution and spying on the users. Intervention in the user‘s sphere (computer).

7. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 7 The Potato System ... brings users and providers back together. A user may decide to pay for a virtual good. If he does so, he becomes an active part of the distribution network for virtual goods. He gets additional benefits. No copy protection or other restriction will be imposed on the users! Users are able to – they are encouraged to – re-distribute the files. Providers and users of digital music, e-books or other virtual goods no longer treat one another as enemies! Here is how it works…

8. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 8 The basic idea [1] Fred receives payment Fred adds TAN=21 to file name Fred offers his music to many users (e.g. in the web) Fred music provider Ginny wants to hear Fred‘s music TAN=21 Fred registers MySong Ginny presents Fred’s TAN=21 before paying TAN=53  Ginny buys a song from musician Fred MySong.mp3 MySong4fo21.mp3 Ginny replaces old TAN MySong4fo53.mp3 Now Ginny is the official distribution partner of Fred. If Ginny re-distributes the song to e.g. Harry, she receives commission (e.g. 25%) as soon as Harry pays also. PotatoSystem.com

9. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 9 The basic idea [2] PotatoSystem.com Ginny passes the music on Harry and others (using P2P) Fred music provider Ginny likes the music of Fred Harry presents TAN=53 before paying TAN=71 MySong4fo53.mp3 Harry replaces old TAN MySong4fo71.mp3 Ginny has convinced Harry to pay for the song. Potato System offers a special P2P client to enable easy transfer from Ginny to Harry  Ginny sells Fred’s music to Harry Harry likes Fred’s music also Ginny receives commission Fred receives payment

10. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 10 Community Functionality Potato Match  Ginny wants to contact people who like the same music Who likes the music I bought from Fred? Who offers music to me I like? For every song Ginny has paid for, the Potato System lists those users who have other matching songs. Potato System also lists those users who are interested in getting this song. PotatoSystem.com Ginny, these users have bought music you are interested in: Joe, Peter, George Connect them! They are on-line. The community functionality matches users who like the same music.

11. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 11 SummarySummary  Advantages for users and producers/artists The main (but very low) value of a virtual good is the possibility to copy and re-distribute it. Users are more interested in getting contact to other users. They even pay for it. Music producers support their customers to re-distribute their products. They pay for any re-distributed song a percentage on commission. This allows rapid distribution even of unknown content. Users have the possibility to receive a free copy from other users. If they pay, they get access to users matching this song. They get also access to special fan material and cheaper concert tickets. The system is not limited to digital music only. Any virtual good, such as images, videos or software could be managed by the Potato System.

12. 2002/12/09Wedelmusic 2002, Darmstadt, Juergen.Nuetzel@TU-ILMENAU.de 12 What‘s next? Call for Papers: VirtualGoods.TU-ILMENAU.deVirtualGoods.TU-ILMENAU.de May 22-24 2003 in Ilmenau Potato System (www.potatosystem.com) is a joint work between 4FriendsOnly.com AG and Fraunhofer IIS AEMT (both Ilmenau)www.potatosystem.com