Skyrider’s Demise Shows P2P Spamming Doesn’t Pay

Skyrider, the Mountain View, Calif.-based startup that made headlines early on for its attempts to monetize P2P networks through advertising, has shut its doors, VentureBeat reported yesterday. We’re still trying to get an official word from the company about this, but as of this writing, they hadn’t responded to any of our emails or phone calls. Skyrider raised a total of $25 million, but seemed to run into trouble earlier this year when a round of bridge funding coincided with both the CEO and the V-P of marketing leaving the company. In the subsequent months, a number of other employees left as well, including its CFO in July.

A screenshot from a previous version of Skyrider’s web site.

It’s still unclear what exactly happened in the last couple of months at Skyrider. Co-founder and interim CEO Ori Cohen told us earlier this year that Skyrider was preparing for a web-based offering that was supposed to be launched this summer, and its web site refers to a project that “that will revolutionize the online music world.” Maybe they ran out of money before the revolution started. VentureBeat’s Eric Eldon is hoping that Skyrider’s original P2P technology “has not entirely gone to waste;” he cites an anonymous investor in the company referring to it as both “incredible” and “totally wicked.” But I beg to differ.

Skyrider’s main business used to be P2P marketing. The company experimented with advertising-supported music videos that were distributed through file-sharing networks, and it claimed some early success with record companies. It was also running a search advertising service that made it possible to buy ads against search terms for the Gnutella file-sharing network. The idea was to deliver targeted ads to users of Limewire and other Gnutella clients, so that a user searching for a certain artist would get an ad that would to direct him to, for example, a web site offering ringtone downloads.

Skyrider’s problem was that it didn’t actually have its own P2P client, which meant that it had to place its search ads within other company’s search results. It wanted to be Google Adwords, but it was restricted to the role of an SEO marketer trying to get the top spots in Google’s search results. And just like gaming SEOs, it had to use some not-so-kosher tricks to achieve this.

Limewire by default groups its search results by the availability of a certain file. A file appears at the top of the list if it is shared by a large number of users. Skyrider’s goal was to always occupy the top four or five search spots, something it achieved by artificially inflating the number of users sharing its files. The company marketed these top positions as an “ad bar,” but the term was somewhat misleading. A user just had to decide to sort his search results by name or bit rate, and Skyrider’s “ad bar” was suddenly all over the place.

The “ad bar” wasn’t the only instance of a browser-based concept that didn’t make sense in a P2P environment. Skyrider marketed its search advertising as “text ads,” but the system was in fact based on Windows Media files. Microsoft’s Windows Media Player would automatically open up a web site once a user downloaded and played such a file. That’s the same tactic used by spammers and others that try to spread malware through P2P networks. To be fair, Skyrider did try to clearly label its files as “sponsored links,” whereas most spammers tend to mislabel files in P2P networks.

The final nail into the coffin of Skyrider’s search marketing business materialized when Limewire announced that it would start its own search advertising late last year. The file-sharing company has since started to integrate sponsored results into its search listings. These results appear at the top of the results list, just like Skyrider’s used to, but are easy to tell apart from regular search results and don’t require the download of questionable media files to open up a browser page. Limewire is using these spots to advertise for its own music download store, but the company is working on the launch of a self-serve ad network, thus making Skyrider’s search marketing obsolete.

Maybe Skyrider’s biggest problem wasn’t that its technology was a stop-gap at best, but the fact that its investors apparently didn’t understand what the company was doing.

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