Peer 2 Cash

Peer-to-peer computing might be the hottest technology brewing on the internet, but can it put food on the table?

Hotline Communications launched its file-sharing and chat software in 1997 — well before Napster achieved celebrity status. Hotlines peer-to-peer (P2P) software, which allows anyone to set up a PC as a multipurpose Internet server, became a geek-underground smash hit: The company today claims to have about 3 million registered users.

But Hotlines advertising revenue model just wasnt filling its coffers. Now the 50-person Toronto company is revamping its business strategy, embarking on a plan to license its P2P software to other Internet companies.

The new strategy was crafted by Jack Kay, a 54-year-old computer industry veteran who joined as Hotlines president and chief executive in May. Previously, Kay was president and chief executive of Phoenix Technologies, a major developer of the code that boots up PCs. Kay draws a parallel: Phoenix licensed its software to PC manufacturers, just as Hotline wants to sell private-labeled versions of its P2P application to Net companies.

Kay has identified three types of potential applications to sell to customers on Hotline. The first is a "direct-to-consumer" model, in which a portal site would give its users Hotline to build online outposts hosted on their own PCs. Another area is online auctions, which would let "power sellers" build and maintain their own P2P-based auction sites. The third target is a business-to-consumer model, with the idea that Hotline provides Internet companies a direct link to interact with their customers.

There are two reasons Kay believes Hotline will pique the interest of major Internet players. First, a Web site operator would need virtually no new networking infrastructure because Hotline software operates P2P — bandwidth and storage are provided by the users machines. More important, Hotline is an extremely sticky app, Kay said. Hotline users spend an average of 90 minutes per session, according to the company, and Kay is betting that Net companies will jump at the chance to hang onto users eyeballs that long.

"Internet companies are all paranoid about keeping users longer on their sites," Kay said. "Hotline has the best peer-to-peer technology to help them do that."

The cornerstone of the companys new licensing model is an upgraded version of the Hotline software. Hotline expects to release version 2.0 — which combines the previously discrete Hotline client and server programs — in the second quarter. Privately held Hotline, which has received $8.3 million to date from individual investors, doesnt disclose revenue, but is not currently profitable.

Whether or not its strategy pans out, Hotline will bump into plenty of competition. The emerging P2P industry is flowering very fast: Last week, Groove Networks — the brainchild of Lotus Development founder Ray Ozzie — trumpeted the signing of its 100th development partner for its P2P collaboration platform. And San Diego start-up FirstPeer, which calls itself a P2P application service provider, released a beta version of its Gnutella-based software.