Skype backers make a new call
The VCs behind the $2.6 billion hit are betting that adding file-sharing to Firefox will make AllPeers the next big thing.
By Michael V. Copeland, Business 2.0 Magazine senior writer

SAN FRANCISCO (Business 2.0 Magazine) - The venture capitalists behind Skype are placing a new bet on AllPeers, a startup based in Oxford, England.

AllPeers is preparing a service that will let user share files privately through a Web browser using a "buddy list" of friends and acquaintances. Its founders, European entrepreneurs Cedric Maloux and Matthew Gertner, are hoping to ride on two popular, fast-spreading, open-source technologies: Firefox, the Web browser that's taking market share away from Microsoft's (Research) Internet Explorer, and BitTorrent, a new, faster file-sharing protocol.

Rave Web reviews

While the product, a plug-in for Firefox, has yet to launch publicly, testers who have tried it have raved on their blogs about its ease of use. Unlike most file-sharing networks, AllPeers doesn't require users to download a separate software application. It's a compact plug-in for Firefox, so it runs as an add-on to the browser.

Another key difference: With AllPeers, you set up a buddy list, and files are shared only with the buddies you specify. Most file-sharing networks today are all-or-nothing propositions -- you either share files with the entire Internet, or with no one. Some Internet users have been loathe to use file-sharing services because they dislike the idea of random people taking a peek at the contents of their computers' hard drive.

The venture capitalists behind Skype, which was sold to eBay (Research) for $2.6 billion last year, are now backing AllPeers. Together, London-based Index Ventures and Luxembourg-based Mangrove Capital Partners recently invested an undisclosed sum in AllPeers, believed to be in the range of $1 million to $3 million.

Neil Rimer, a partner at Index Ventures, says that he sees many of Skype's virtues in AllPeers: Both are cheap, fast, and easy to use.

"For consumer Internet companies, a lot of the value in the market accrues to the one player that captures people's imagination," Rimer says. "People become evangelists for it. That's what happened with Skype, and AllPeers could have the same phenomenon going for it."

AllPeers has more than a few parallels with Skype. Like Skype, which was headquartered in the UK but largely coded in Estonia, AllPeers has a development team in Prague, where programmers work for lower wages. It also makes use of its users' bandwidth and computing power, relying on their Internet connections rather than on centralized servers to quickly send files back and forth.

The way AllPeers works is simple. You build a buddy list, and when you want to share a photo, music, or text document, you simply drag it to the people on your buddy list. (AllPeers uses its own buddy list today, but it plans to add support for AOL's AIM and Skype buddy lists in the future.) Those buddies in turn get a notification that a file is coming, and it's downloaded to their computer. The experience is superior to the experience of sharing a file through websites like Flickr or YouTube, testers say, because it's not limited to a specific type of file and it doesn't require remembering multiple user names and passwords.

"We call it drag and share," says Maloux, the company's CEO and co-founder.

AllPeers relies on the open-source BitTorrent protocol, which means it pulls pieces of files from the hard drives of any users who have a copy, not just from the original location. In essence, the more widely you share a file, the faster and easier it is for friends to download it.

While the company has been running an invitation-only test of its software, already 38,000 people have registered for the Beta version of Allpeers, which is expected to start at the end of March. Once the kinks have been worked out a full-blown public version is on tap for late spring or early summer.

New network needed?

Even if a mass audience decides that AllPeers is easier to use than existing software, does the world really need another file-sharing application? Eric Garland, CEO of BigChampagne, a research firm that tracks file-sharing activity, says that most users tend to stick with what they have -- but changes in the industry could give AllPeers an opening.

AllPeers may be easy to use, but that isn't enough, according to Garland. Success in file-sharing tends to be a matter of timing.

"We have never seen a great migration from one [file-sharing] network to another based on features alone," says Garland. But recent legal victories by the music and movie industry against popular file-sharing networks like Grokster have left file-sharing users looking for new software to try, he notes.

And AllPeers has a key advantage over earlier file-sharing networks. Because it relies on a buddy list, it will be nearly impossible for the RIAA and MPAA to detect whether copyrighted files are being shared. Industry investigators won't be able to search privately shared files the way they currently search public file-sharing networks for copyrighted works.

There's just one thing AllPeers has yet to share: a plan for making money.

"We just want to get it out there first, and build as large a community as we can," says Rimer, the venture capitalist. "Then we'll start talking about business model."

That may seem a bit cavalier. But fresh in Rimer's memory is Skype's story of hypergrowth, which ended with a very hefty buyout.

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