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Exclusive Reports
From the June 8, 2001 print edition
Countdown is on for serial entrepreneur
Lizette Wilson
Chris Kitze is doing it again.
The five-time time Internet entrepreneur and former NBCi CEO scored $13 million in funding this week for Yaga, his newest company, designed to be a legal Napster of sorts for game, software and other digital content companies.
While the cash is significant for the 30-person Foster City firm -- it had just $6.75 million before -- the money is also a vote of confidence in the so-called peer-to-peer computing model. In the wake of Napster, peer-to-peer has gotten the cold shoulder from investors, who point to shaky legal grounds and failed efforts to turn the technology into a money-maker.
"No one wants to take a chance on it. It's too risky," said Billy Pidgeon, an analyst at Jupiter Communications. "It's good that people are experimenting with this right now, but it's still too soon to say whether it'll make money. Distributed computing is synonymous with piracy in people's minds, and that's a real problem."
Kitze says Yaga's going to change all that.
The goal: Creating the infrastructure for users to license and distribute digital content from the original creators while protecting the copyright.
The deadline: Six months from now.
"We'll have enough cash for two years, but we'll know in six months if this business will work or not," said Kitze. "By then we'll have customers and proof of concept. We'll have files coming in one end and money out the other."
Kitze said his plan is to keep it simple. He and Chief Technology Officer Vijay Vaidyanathan -- whom Kitze worked with at both Xoom.com and NBC Internet -- will spend conservatively and acquire some key technologies within the next few months. They want to keep employee head count below 40 and aggressively experiment with technology and business tactics until they find the winning combination.
As Kitze explains it, the business will go something like this: Yaga makes a deal with a gaming site to distribute game versions. Currently, gamers can jam networks in the rush to get the newest release, frustrating both themselves, because they can't access the new bells and whistles, and the company, which can't maximize sales. If Yaga technology were part of the new game version, the first 10,000 users, for example, could get it immediately from the game site and the downloaded file would become part of a peer network. That means when additional gamers go online looking for the new version, they would have 10,001 sites where they could access it, not just one. The same payment method used on the original gaming site would be imbedded in the file and used to unlock it, so the original content creator could still profit from the P2P distribution method.
Yaga's delivery system could also be applied to software companies, online gambling, adult content sites and any other entity making money with online content, Kitze said.
Investors seem to like the idea.
MeVC Draper Fisher Jurvetson Fund I, Alto Tech II, Beachhead Capital, The Individuals Venture Fund Q LP and Anthelion Capital II LP ponied up seed money to run the company since last September.
And InfoSpace Founder, Chairman and CEO Naveen Jain invested $5 million in the most recent round.
He said several factors went into his decision -- not the least of which was his close relationship with Kitze. Indeed, the two have been intertwined in a variety of ventures.
Kitze was an early investor in InfoSpace, Jain's brainchild which has grown into a leading content syndicator and online tool provider. The Bellevue, Wash.-based company posted $214 million in sales last year and counts Bloomberg, Intel and AOL as customers.
Jain also invested in Kitze's Xoom.com. When the direct marketing powerhouse merged with Snap.com to create NBCi in 1999, Jain was the second largest shareholder -- behind Kitze, of course -- in Xoom.com. The market value of the new entity? In those frothy, Internet-bubble days, about $4 billion. (Today, NBCi as a whole has a market value of just $136 million.)
Said Jain: "We've done very well together. Chris has proven time and time again that he can take a great technology and turn it into a business. Peer-to-peer is here. The trick is how you monetize it."
The ability for PC users to create a peer network and freely search and retrieve files from other users is nothing new. Besides Redwood City's music sharing evangelist Napster, which put P2P in the headlines last year, universities and user groups have long leveraged the technology to decentralize information and reduce system log jams.
Along with Napster, San Mateo-based Quig, Utah-based NextPage and Massachusetts-based Groove Networks are among the long list of companies working to profit from P2P technology. Kitze, who went through a digital content copyright lawsuit once before, says Yaga's business model is different, focusing to distribute legally owned content only.
Kitze says Yaga's got the time, and now the money, to grow with customers in the nascent digital content resale market.
"We're not in a momentum business," said Kitze. "We're in a marathon now -- it's not a sprint."
Lizette Wilson covers technology for the San Francisco Business Times.
Copyright 2001 American City Business Journals Inc.
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