October 1, 2003 1:20 PM PDT

McAfee founder joins chorus of music sellers

With a pitch that evokes the heady days of 1999, digital music start-up Mercora is planning to launch a distribution service next month, inspired in equal parts by iTunes, Friendster and eBay.

Headed by former McAfee CEO Srivats Sampath, the upstart will edge into terrain that has already been staked out by the likes of Apple Computer, with iTunes, Musicmatch and Napster. But the newcomer is putting a twist on digital music sales, hoping to spur the creation of like-minded, music-loving minicommunities that can help sell new bands and artists to each other.

The self-funded company even plans a smidgen of peer-to-peer distribution, according to Sampath. Songs bought through the service will all be wrapped tightly in Microsoft copy-protection technology, but people may be able to download them from each other's computers in order to save on bandwidth costs and download times, he said.

Analysts have said Sampath's model of a music marketplace could be a welcome addition to the influx of companies that are in the business of selling digital songs. But competition is likely to be fierce, analysts said, making Mercora's long-term survival a chancy prospect.

"Nobody has figured out the perfect business model on how to make money from digital distribution, so we need to have as many experiments as possible," said Michael McGuire, an analyst with GartnerG2, a division of research firm Gartner.

Mercora's new approach to the online music business stems from the rush of activity that has prompted others to respond to Apple's iTunes introduction. After years of failing companies and industry malaise, the excitement generated by iTunes helped catalyze new business models and optimism.

By the end of this year, more than half-a-dozen competitors are expected to be selling 99 cent songs online--with more on the way. Musicmatch launched its Microsoft Windows-based service earlier this week, and sources say Dell plans to launch its own branded version of Musicmatch's store soon. Apple's Macintosh-only download service sold more than 10 million songs in its first four months, and a Windows version is due by the end of the year, according to the company. Napster will launch its own service next week, corporate parent Roxio said on Wednesday.

Mercora is adding a community element to simple downloading that it hopes will help it stand out from the pack. It's drawing on the "social networking" idea that has Silicon Valley aflutter: Mercora users can group themselves together based on what kinds of music they like and then use these rough groups as sources of content and recommendations.

Sampath said the software--which bears a striking resemblance to iTunes--will show people songs and music choices based on what other people in their listening groups are tapping into that day.

"Music is so personal. There's no way to quantify it, no way to pigeonhole it," he said. "Music will lend itself perfectly to being marketed on social networks."

The marketplace model is also designed to let anyone sell music through the service, he added. Record labels or individual artists will be able to add songs to the service and will get paid when listeners find and download the files. Individual users will be able to offer used CDs or concert tickets through another transaction feature.

The company, based in Santa Clara, Calif., plans to launch a preview version of its service in early November. It's still negotiating with major music labels for the rights to distribute music through the Mercora network, Sampath said.

Sampath came to the digital music business after selling McAfee.com--the antivirus and security company he helped set up--to Network Associates a little more than a year ago. He previously worked as vice president of marketing at Netscape Communications. Both company experiences have allowed him to provide virtually all of the funding for the music start-up, he said.

 

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