Start-up to offer CD-swap network
By John BoudreauMercury News
LALA.COM -- A CO-OP FOR MUSIC LOVERS
A Palo Alto start-up is launching a service that is a mix of social networking, Internet swap meet and music store.
It's MySpace.com meets eBay meets iTunes.
The company, Lala.com, is open for business now on a limited basis. It goes fully public this summer. (The company is offering 1,000 early memberships at
www.lala.com/invite/sj beginning at 6 a.m Tuesday.)
Lala.com, which has $9 million in venture backing from Bain Capital Ventures and Ignition Partners, presents itself as an online music co-op that allows members to trade in CDs in exchange for those they want from others. Those who want to obtain the used CDs must be willing to trade CDs from their own collection. Members pay $1, plus 49 cents in postage.
But the site is more than a CD swap meet. Consumers will also have the option of buying new CDs, and, eventually, digital music. Members are encouraged to write reviews of CDs and join an online community of like-minded music lovers.
Based on a member's music tastes -- music listed in their catalogs and want lists -- Lala.com will provide music suggestions gleaned from others who like similar bands.
Lala.com believes its model enables it to tap into a nearly endless source of music, assuming it attracts enough members. Theoretically, it could have a catalog of $1 CDs that far surpass what is stocked by retail giant Wal-Mart Stores, the largest music reseller in the United States that sells about 1 percent of the available music, said co-founder Bill Nguyen.
He points out that Apple Computer's iTunes online music store does not sell music from such rock giants as the Beatles or Led Zeppelin. ``How can you be a record store and not have Led Zeppelin or the Beatles?'' Nguyen said.
It's not Napster says Nguyen, who also founded mobile e-mail software company Seven, stresses that Lala.com is no Napster, the peer-to-peer music sharing service that allowed people to share MP3 format song files across the Internet, triggering the music industry's charges of copyright violations.
When using Lala.com, people trading CDs do not violate the U.S. Copyright Act, which allows the owner of a CD to transfer it to someone else, he said. Lala.com will funnel 20 percent of revenue from the trading of used CDs back to the artists.
``It's completely legal,'' Nguyen said.
This is how the service works: Individuals provide a list of their CD collection, which is open to other Lala.com members. They also compile a private want list. When a user spots a CD they desire in another member's list, he or she makes a request for it by clicking the want icon and adding it to their want list.
Lala.com will then query all the members who have that CD. The first member who agrees to ship the CD is presented with the address of the requesting member and mails it using Lala.com prepaid shipping envelopes, which the service provides in a welcome kit. Upon reception of the CD, the receiver confirms the CD is in good condition and is charged $1.49.
Nguyen said his dream is to create the online version of the quickly disappearing music store where shoppers could get recommendations from clerks or other music lovers.
He also hopes to reverse the trend in which consumers purchase their music in individual song downloads, as opposed to entire CDs.
``It's a great way to discover new music,'' said Ben Bajarin, analyst with Creative Strategies. ``It's sort of like Netflix with CDs.''
The key to Lala.com's success will be offering up a catalog of millions of CDs, which requires a large membership willing to trade away their music collection, he added.
Bajarin questions whether those in the targeted demographic groups -- late teens to thirtysomethings -- will have enough CDs to trade. In this era of digital music, music lovers are increasingly buying their songs as digital files. Apple's iTunes recently celebrated its billionth song download sold in less than three years.
No enforcement
Bajarin does not think the music industry will like the idea. Though Lala.com encourages members not to keep digital copies of the CDs they trade, there is no way to enforce that.
``If this takes off, it could steamroller the copyright protection on CDs the labels are pushing,'' Bajarin said.
Nguyen, though, said talks with the music industry have been positive so far. He sees future relationships with labels that enables them to send targeted marketing messages to users of Lala.com for music they have already expressed an interest in.
``We are going to be working with the labels to sell more music,'' he said.
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