TECH: The Hidden Cost Of P2P

From: Chris Rasch (
Date: Mon Feb 26 2001 - 13:50:39 MST

-------- Original Message --------
Subject: The Hidden Cost Of P2P
Date: Mon, 26 Feb 2001 14:56:04 -0500
From: "R. A. Hettinga" <>
To: Digital Bearer Settlement List <>,6061,2689521-35,00.html

The Hidden Cost Of P2P
By Todd Spangler, Interactive Week
February 25, 2001 6:09 PM PT

If peer-to-peer applications become ubiquitous, they could break the
existing business models of many Internet service providers and force
to raise their prices, experts said.

Peer-to-peer computing, which lets networked computers act as both
and servers, is the next great innovation on the Internet, according to
some marketers. Napster is the best-known P2P application, but dozens of
new companies are developing all kinds of P2P applications for consumers
well as business customers.

"The hype around P2P is valid," said Larry Cheng, an associate at
capital firm Battery Ventures. "It's changing the nature of Internet

But observers predicted the rise of P2P could also mean the rise of
Internet service provider (ISP) access fees. Why? Because P2P programs
the potential to radically change the amount of bandwidth the average
Internet user consumes.

The flat-rate pricing of most ISPs is based on the assumption that
subscribers will only intermittently access the Web or e-mail. ISPs
"oversubscribe" their networks by a certain ratio - 40-to-1 is typical -
which means they don't actually have the capacity to handle all of their
users simultaneously.

So, if most computers on an ISP's network stay constantly connected
a P2P application like Napster - chewing up bandwidth by serving up
or otherwise communicating with other peers in the network -- the
ISP usage model will be shattered. And in that case, ISPs may have no
recourse except to raise their access fees, experts said.

"The ISPs are in a tough situation," said Clay Shirky, a partner at The
Acceleratorgroup, an investment firm. "All of their pricing models were
based on everyone at the edge of the network tolerating second-class
citizenship. They're totally unprepared for the idea that end users will
distribute content to each other." Shirky's firm has invested in two P2P
start-ups, Aimster and Uprizer.

ISPs have long had to deal with "bandwidth hogs." From a service
perspective, these are customers who cost money by using an unusually
amount of bandwidth to download large files from Web sites or
or to view streaming media clips.

But P2P applications are different, experts said. They can turn any
computer into an always-on bandwidth glutton because they run
without any user intervention.

There's no shortage of P2P programs available that could potentially bog
down ISP networks. In addition to Napster, start-ups such as Flycode and
OpenCola are developing new P2P file sharing programs. Other file
programs, such as BearShare and LimeWire, are built around the open
Gnutella P2P protocol. Meanwhile, P2P companies such as Entropia,
Power and United Devices are building distributed computing services,
propose to use thousands of Internet-connected computers to process
computational problems.

None of these programs has become as popular as Napster - which claims
have 62 million registered users - but Napster has provided a stark
into the ability of P2P apps to overwhelm networks. Universities were
first to feel severe pain from Napster, which was actively adopted by
college students when it was released in 1999. Many institutions - and
private corporations - have banned the application from their networks,
others are taking steps to limit the amount of bandwidth Napster users

For now, most service providers are monitoring the growth of P2P
application usage on their networks. But ISP executives admitted that if
their customers' bandwidth usage shifts substantially, they may have to
increase their access fees.

"If there's a quantum leap in demand, then we'd have to modify and
our cost model a little bit," said Steve Dougherty, EarthLink's director
systems vendor management. He added, though, that EarthLink's aggregate
bandwidth consumption historically has increased gradually from month to
month. "The growth isn't going to suddenly double one morning," he said.

What's more, ISPs said, their bandwidth costs drop regularly. "We're
greater decreases in the cost of the bandwidth than we are seeing
in individual bandwidth usage," said David Allred, vice president of
broadband services at Telocity, a provider of residential Digital
Subscriber Line (DSL) services.

Nevertheless, some ISPs have adopted restrictive policies regarding the
of P2P applications in order to cut down on bandwidth use. Cox
Communications last year notified Cox@Home cable modem service
that using Napster or other file sharing programs violated their terms
service agreements.

Analysts predicted that if bandwidth-intensive P2P applications become
popular, more ISPs will offer tiered pricing plans. Instead of raising
rates across the board, ISPs "may add an additional tier of [service
high-bandwidth users," said Rob Lancaster, an analyst at The Yankee

Qwest Communications International already offers a $19.95-per-month
for DSL service that requires a customer to log off every two hours for
minutes. The always-on version of the service is $29.95.

While P2P computing evangelists are fond of saying P2P takes advantage
otherwise "wasted" resources, such as bandwidth, the truth of the matter
that bandwidth isn't free.

"The bottom line is that somebody has to pay for it," said Preston
president of Clotho Advanced Media, a small Web consulting firm.

R. A. Hettinga <mailto:>
The Internet Bearer Underwriting Corporation <>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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