Sendspace's strategic response to cyberlocker market disruption

E-Business Presentation

Sendspace Consultancy Report

Current Situation

Competitors Review

In the last decade there has definitely been an increasing trend of online file sharing (Cisco, 2011). While in the beginning users mostly downloaded files from basic P2P systems, over the years these systems have evolved in response to user requirements, faster internet connections, and mounting legal pressures to curb illegal copyright infringement. BitTorrent files became a popular alternative after direct P2P sharing systems began being systematically shut down by litigation. However, more recently, systems known as Cyberlockers have effective replaced BitTorrent sharing systems (TorrentFreak, 2011) (Lee, R., 2007).

In a Cyberlockers system, the illegal distribution of copyrighted material occurs by the users themselves and the webhosting service technically has no liability (Envisional, 2011). However, Megaupload, the industry leader, has been inundated with an overwhelming array of criminal charges and their site has been shut down. This creates an interesting position for companies like Sendspace. On the one hand, there is a considerable amount of market share up for grabs. However, on the other hand, if they continue operations in a cyberlocker system it will likely only be a matter of time before the company faces the same fate as Megaupload. Therefore, it is recommended that Sendspace begins to diversify its product lineup immediately so that it can hedge its future risk.

Current Situation

Various C2C e-commerce models were analyzed and applied to the Sendspace business model (Rayport, J.F. And Jaworski, B.J., 2001). In a C2C model like the one Sendspace uses transactions can occur in one of two ways. Transactions can take place either when:

1. Users (C) upload files to Sendspace - storage of contents

2. Users (C) download files from Sendspace - distribution of contents

Furthermore, financial transactions can occur either when users click the ads banner or subscribe premium account.

Sendspace acts as:

1. One of intermediates of online file sharing

2. Response for file storage and distribution

Figure 2 - Sendspace Business Processes

In 2011, global monthly internet traffic was estimated to be 1.78 Exabyte's (4.5 billion DVDs), 33% of the traffic or 6,000 petabytes (1.5 billion DVDs) were generated by file sharing (Cisco, 2011). According to a report launched in Jan 2011 (Envisional, 2011): 7% of global internet traffic was contributed by cyberlockers and of that traffic the follow breakdown was registered:

Figure 3 - Cyberlockers Traffic Usage Breakdown

Competitors Review

Sendspace has three major competitors that, when considered together, account for most of the market share. Megaupload was the leading industry competitor up until their site was shut down because of their alleged involvement in copyright infringement issues (Future of copyright, 2011). Hotfile is another industry leader that is based in Panama and accounts for a large percentage of the total market share (Reuters.com, 2011). Rapidshare is based in Switzerland and is the only one who does not provide an incentive for file up-loaders; similar to Sendspace. The following chart was prepared to illustrate the main attributes of the competitor's sites:

Figure 4 - Competitor Review

Conclusion

The demand of sharing copyrighted content is considerably large and, even without Megaupload, the industry is booming (BBC News, 2011). Given the history of file sharing, users and designers will undoubtedly keep evolving their platforms well into the future to work around the various obstacles they face. With that being said, Cyberlocker itself is considered a legal service (Smith, E., 2011). The company's themselves are not directly advocating or participating in copyright infringement. Yet cyberlockers run their business at the expense of copyright holders' benefit (Turban, E., 2009) (Jelveh, Z. And Ross, K., 2012). Furthermore, some of these sites offer incentives to up-loaders in order to encourage them to upload content. From the perspective of many legal authorities, this form of participation of distribution of copyrighted content may be liable for copyright infringement. As a result this will bring a high legal risk to cyberlockers sites and the industry in general.

Recommendation

As a result of the volatility in the industry, Sendspace must act now to diversify its product line up. It is recommended that the organization begin development of an online video sharing subpage. By looking at the data about traffic usage, a pornography channel would like generate the most traffic that could either click on banner ads or possible join the site as a premium member. The subpage could be modeled after Youtube, however only contain adult videos. In order to drive traffic, the following incentives would be offered users:

Uploader

1. Users that upload original videos (for premimu account only) should get an incentive or award for their participation; possibly a premium account for free if their content is popular.

Downloader

1. Free watching with limitations such as low resolution videos, several ad banners, and access to preview only or selected videos.

2. Subscribers may purchase a premium account or upload original video to full access the other original videos.

The primary justification for such a diversification is that there is large demand on pornography content (Envisional, 2011). With such a big market for adult content, a site such as Sendspace could easily tap into market share with an innovative design. By focusing on original content and motivating uploaders by offering them incentive, the company could easily carve out a market niche. Furthermore, such a diversification would require no extra investment in infrastructure; only slight website modification. Furthermore, since there is less risk from individual copyright claims in this industry, especially compared with corporate copyright claim from the movie and music industries, it is reasonable to suspect that Sendspace could easily reduce its exposure to any future legal liabilities.