For the second day of our tour of up-and-coming Digital Coast companies we take a look at WorldWinner, a "skill gaming" company that gets consumers to bet real money on games like checkers and chess. WorldWinner launched last November, and is already making $1 million per month in revenues. But, big competitors loom on the horizon...

by Ben Fritz 

Think you're a good checkers, or chess, or solitaire player? Want to bet a few bucks on it?

WorldWinner sure hopes so. The "skill gaming" company, which allows users to bet small amounts of money on games of skill, is growing quickly and making a stake in a space which, so far, has few competitors.

Although there are a number of players in the free gaming arena, like Jackpot.com and iwin.com, WorldWinner faces both a harder and an easier challenge. On the one hand, it has to convince people to enter credit card information and bet money on any of the fifteen games it offers. Once that is done, though, WorldWinner takes a cut-as high as 25 percent--of these bets, making for a direct and easy-to-collect revenue stream that avoids the vagaries of the advertising market.

"The WorldWinner model is so much better, it's a no-brainer," says CEO Zorik Gordon, who was one of the founders of Jackpot.com. "There's no cash-flow problem. We deal with real customers, with whom we have direct relationships. We simply get the money, take our cut, and disperse it."

WorldWinner at a Glance Business: "Skilling": online pay-for-play games of skill. Founded: December, 1999; Site launch: November, 2000 CEO: Zorik Gordon Offices: Corporate HQ: Los Angeles, Calif.; Development Center: Boston, Mass. Employees: 35 Contact information: www.worldwinner.com; 818-649-7667                   Funding: Over $6 million in one round Investors: Zero Stage Capital Revenue Streams: Commissions on users' bets; ASP services; and some advertising. Revenue: Approx. $1 million per month Profitability expected: End of 2001 Competition: Upcoming skill games service from Disney Little-known fact: CEO Zorik Gordon was a student in dental school before starting Jackpot.com with idealab.

And an increasing percentage of that money comes not from visitors to the WorldWinner site, but to WorldWinner's growing list of affiliates. A key part of the business plan is building skill gaming services for other sites, like Vivendi Universal's Flipside network. WorldWinner provides the service and takes a cut of the bets without having to spend its own money on branding or customer acquisition.

For Gordon, who joined the company last year, an important move was taking the company's corporate offices out of Boston, where WorldWinner started, and into L.A. "We're a media and entertainment company with some tremendous technology," he explains. "If you're an entertainment product, this is where it is."

WorldWinner faces some unique challenges apart from other entertainment companies, however--such as dealing with the different gambling regulations in separate states and countries, and securing a network that could pay off quite nicely for the right hacker.

Currently, WorldWinner's offerings are available in only 42 states, due to regulations, and in 24 countries. And while Gordon admits that hacking is an inevitable threat for his business, regardless of how tight security is, he notes that the small bets WorldWinner allows-rarely over $15-wouldn't be that worthwhile of a score for a successful cheater.

The biggest trial, it turns out, may not be legal or technical, but practical: namely, turning visitors into bettors. Gordon grants that the majority of WorldWinner's visitors try out its games for free, using a $5 credit allowance, and never actually put down their own money. Over time, though, he expressed confidence that skill gaming will become more prevalent as users become comfortable betting a few dollars over the Internet for a fun game.

Since the site launched last November, the company has experienced significant growth, so that it now has 35 employees and approximately $1 million in monthly revenue. Gordon says WorldWinner could be cash-flow positive now, but his goal is to build the company up to profitability on $1.5 million in revenue per month by the end of year. Along the way, he is looking to raise a second round of financing to fund more marketing and business development initiatives.

"I believe we're past proof of concept and are ready to blow it to the next level," he says. "We're going to bring in some major dollars to direct marketing … and we still want to scale it up to a certain level of capability."

Expanding now, while it has first mover advantage, is clearly the strategy for WorldWinner, and could turn out to be a smart one, as it won't have the space to itself for long. Disney is reportedly planning its to launch its own online skill gaming service, although no date has yet been set. "It's our market to lose," Gordon says of his oncoming big name competition.

With time on its side, that seems like a bet WorldWinner has a good chance of winning.

Day One:  LoudEnergy

About Around the Digital Coast in 30 Days

by Xeni Jardin

Carrying signs that read, "Know too much, go to jail" and "Programming=Speech, DMCA=Censorship," a group of programmers-turned-activists gathered outside the Los Angeles Federal Building Monday to protest the imprisonment of 27-year-old Russian security expert Dmitry Sklyarov. 

An employee of Moscow-based software company Elcomsoft, Sklyarov is being held without bail under charges that he violated the controversial Digital Millenium Copyright Act of 1998 (DMCA) by developing and distributing an application that unlocks e-book encryption technology from Adobe Systems (Nasdaq: ADBE). FBI agents arrested Sklyarov in Las Vegas on July 16 at the DEF CON Internet security conference, after Adobe brought his planned U.S. appearance to the authorities' attention.

Vladimir Katalov, Sklyarov's Elcomsoft colleague who also attended the conference at which the arrest took place, told the Daily today that Sklyarov remains in Las Vegas, awaiting extradition to California. According to Katalov, Sklyarov has been able to speak with the Russian embassy, and with legal representatives--but, apparently, not with his family. "Unfortunately, right now he can make calls only to the Russian Consulate, and to his attorneys," Katalov explained in an e-mail to the Daily. "On Sunday, he was able to exchange just a few words with Alexander Katalov, the president of ElcomSoft Co. Ltd., who is also [currently] in [the] U.S. As far as I know, in California the situation with the calls will be much better." Katalov declined to provide further details.

Sklyarov denies wrongdoing. "I wrote the program to demonstrate security flaws, not to violate copyright law," he told a Las Vegas TV station on July 18, adding, "It's not illegal in Russia."

"His only crime is understanding the Adobe product's flaws, and demonstrating those flaws in a program," said "Hackhawk," one of the L.A. rally organizers. "The arrest is scary to me, because part of what I do as a computer programmer is to try and uncover flaws in similar products. Am I going to be jailed next?"

The detainment quickly sparked a wave of "Free Dmitry" web sites, listservs mailing campaigns, boycotts and, on Monday, street demonstrations in over ten cities--including New York, where around 30 protesters gathered in front of the New York Public Library.

Yesterday's largest protest took place in San Jose, where over 100 people gathered outside of Adobe's headquarters while, inside, company executives held talks with the Electronic Frontier Foundation (EFF), an online civil liberties organization that supports Sklyarov.

The dozen or so sysadmins, IT engineers and self-described hackers outside of the FBI's Los Angeles headquarters--at the intersection of Wilshire Boulevard and the 405 Freeway--received honks of support and thumbs-ups from many passing cars, as well as perplexed gazes from others. The demonstrators were, no doubt, pleased when late Monday afternoon, Adobe abruptly reversed its position on the case and issued a statement calling for the release of the jailed programmer.

"We strongly support the DMCA and the enforcement of copyright protection of digital content," said Adobe General Counsel Colleen Pouliot in the statement. "However, the prosecution of this individual in this particular case is not conducive to the best interests of any of the parties involved or the industry."

Since the case is a criminal matter, not a civil one, Adobe's about-face doesn't free Sklyarov. Regardless of whether or not the company supports prosecution, Adobe is not a party in the legal action, so the programmer's fate is now in the hands of federal law enforcement agents.

The DMCA outlaws the creation and distribution of technologies that bypass copyright protections. The law's detractors argue that it unconstitutionally restricts fair use and freedom of speech.

"It's like they arrested him for the Adobe software's shortcomings," said L.A.-based technical writer Mark Bilbo at the L.A. demonstration. "I've made my living writing about software. If Sklyarov's prosecution goes through, I can imagine a future where people who do the kind of work I do would feel nervous about writing critical analyses of products for fear they'd be violating the DMCA or some other obscure license restriction they may never have heard of."

"This takes away our right to do research and talk about it, and education shouldn't be a crime," agreed L.A. protester Bob Smart, a computer programmer. "The way law enforcement is approaching Sklyarov's case reminds me a lot of the Kevin Mitnick case--whenever the alleged violator you're talking about is perceived as a 'hacker,' it seems like they operate with a completely different set of rules."

If the continued heavy traffic on the "Free Dmitry" listserv is any indication, Sklyarov's online supporters know their fight isn't over, and plan to direct their next campaign to the attention of the FBI and the Department of Justice. "Thank[s] for [your] support," read one Tuesday morning post on the list, from an organizer of supporter site freesklyarov.org. "Please be patient while we get our act together for Round Two."

The Daily made several attempts to contact the Russian Embassy and the FBI for further information on Sklyarov's status. Neither organization offered comment.  

Xeni Jardin is Rising Tide Studios' VP of Conferences and a Senior Writer.

by Ben Fritz

CenterSpan Communications (Nasdaq: CSCC) this week revealed a key part of its plan to build a business with the Scour P2P network, which it purchased late last year. C-star, the platform which will help power its upcoming Scour.com consumer network, is being offered to entertainment companies as an alternative to streaming or downloading audio and video content on the Net.

CenterSpan is selling C-star to what VP of Marketing Andy Mallinger calls “big players,” meaning entertainment companies offering destination sites for audio and video content. Instead of downloading or streaming content directly from a server, C-star offers companies the ability to manage and move content on a P2P network. Thus, instead of downloading a song from a server in L.A., users might be getting it from their neighbor who downloaded it yesterday, with neither of them aware of it.

“The whole idea of a P2P network is that content is distributed out on a network rather than on central servers,” Mallinger observed. “Because it’s out there, the work the server has to do is much less. The amount of bits we have to push is lower and we can direct searches to the closest and cheapest source.”

Digital rights management on C-star will be implemented using Windows Media technology. The service will be primarily managed by CenterSpan, which plans to encode content and insert it into its network. It would then collect fees based on usage.

Given the growing interest of big Hollywood players in legitimate online content distribution, from Sony's Moviefly to the major music labels' Pressplay and MusicNet initiatives, CenterSpan is clearly getting into a popular business. It remains to be seen, however, whether any major content players will adopt C-star, and whether this platform, or the upcoming consumer P2P network Scour.com, will become the bigger part of CenterSpan’s business.

by Karen Thompson

Xdrive Technologies, an online information management software and services company based in Santa Monica, acquired San Jose-headquartered push technology firm Yopa in a deal that CEO Karl Klessig characterized as "mostly equity." Further financial terms of the purchase were not disclosed.

The acquisition gives Xdrive a new line of products, a customer pipeline, and the ability to integrate Yopa's technology into its own online data storage product, Xdrive Intelligent Data Platform. Yopa's offering allows users to request and receive information, such as a stock alert, onto their PCs, pagers, telephones or wireless devices and then act on it.

"Yopa's push technology adds three additional capabilities to Xdrive's offering. It makes accessing information much easier, has a very sophisticated notification capability and also has a business rules engine, which allows you to decide what to do with the information that you receive through the notification feature," said Klessig. The combined technology will enable users to e-mail or fax such information from any wireless device.

Yopa's San Jose office will remain in operation as the Xdrive Mobile Business Unit, and gives the company a presence in Northern California, noted Klessig.

"We were definitely looking to build and to partner with other companies, and in Yopa we saw an opportunity to do it quickly," Klessig explained.

The acquisition comes only two weeks after former CEO Paul Gigg resigned and Xdrive laid off half of its employees.

by Wendy Mitchell

In her address to the annual Plug.In digital-music conference, Alanis Morissette avoided uttering the word "irony," but the sentiment was there. While the Internet was once seen as a way for musicians to break from the bonds of the establishment, Morrisette said, it is now very much a part of the Old Guard. "[The industry] has been litigated, vilified, and consolidated-- the opportunity has been lessened," Morissette said, pointing to the squashing of Napster, Vivendi Universal's recent acquisitions of MP3.com and EMusic, and the AOL Time Warner merger.  "The same conglomerates are applying the current business model to the Internet." And that means less room for nurturing artists, she said.

That didn't stop those conglomerates from being the belles of the ball at the sixth-annual Plug.In conference, presented by Jupiter Media Metrix and Billboard at the Sheraton Hotel and Towers in Manhattan. Much of day one's conversation steered towards MusicNet and Pressplay, the subscription music services that will be launched by the major labels and technology leaders later this summer.

A majority of attendees were from major players like AOL, Bertelsmann/BMG, Yahoo, Microsoft, Viacom, Vivendi Universal, rather than from start-ups looking to break into the business. The non-conglomerate voices were still heard, of course. On the legislative issues panel, for instance, Napster VP Manus Cooney bemoaned the fact that "established companies don't want to see competition in the marketplace. They are cross-licensing each other instead of competing." KnitMedia CEO Michael Dorf joked that the industry is in such a "wait-and-see" mode awaiting the debut of MusicNet and Pressplay (and Napster II), that he suggested postponing this year's Plug.In.

Still, there was much to discuss. Speaking for those conglomerates, Kevin Conroy, the head of AOL Music, said that smart businesses cannot just coast on their existing brand names and properties. "It's not as simple as taking assets offline and making them available online," he said. "We have to find a way to create value, to create a stronger value proposition than what exists online."

He also warned that there is a danger in assuming that there is one uniform solution for all consumers. Online properties should offer more options to consumers, with the hopes that some music fans that don't buy CDs will find some form of online music that is attractive to them. Conroy said that MusicNet, which AOL is aligned with, would be "a great starting point, but it's not a finishing point."

EMI VP of New Media Ted Cohen steered the conversation away from the two major players for a moment. "We're working with a lot of third parties--Uplister, Liquid Audio, Rioport--it's not just Pressplay vs. MusicNet." For instance, startup subscription service FullAudio recently made waves by announcing licensing deals with EMI's music and publishing arms. He said the industry isn't "going to find out [who the victors will be] until it gets out to the music fan."

With Napster all but dead at the moment, it wasn't as hot of a topic as it had been at recent digital music conferences. However, the controversial file-swapping service was examined in hindsight. "The prosecution and persecution of Napster presents a huge road block in the digital revolution," said Steve Gottlieb, founder and president of TVT Records. "It has driven [all that consumer activity] underground."

Later, a panel of teenage consumers echoed that sentiment, saying that Napster's recent shutdown has pushed them to services like Morpheus, Limewire, and AudioGalaxy Satellite. Juan, an 18-year-old, even bragged that he had 3,500 MP3 files on his hard drive. But the teen panel also expressed some willingness to pay for future forms of online music, perhaps exclusive live tracks, rare concert webcasts, or for material from their favorite artists. Dan, a 17-year-old, said that he had "no reason" to buy CDs if he can burn them at home instead, but he amended his statement to show that he hasn't lost all concern for artists' rights: "My friends and I made a pact not to burn Weezer CDs, we want to support the artist."

ArtistDirect's Marc Geiger agreed that this special bond between artists and fans is something that should be boosted on the Internet. He said that we still need to see some online success stories first though. "The shot heard round the world--we're still missing that," Geiger said.

However, Warner Music Group senior VP Michael Nash responded that there might not be an "online-only" success story. "Online and offline [promotion] is not a dichotomy," Nash said. "We have to understand what online promo efforts are good at, and use it with offline efforts."

[Press Release]

Lakewood, CO, July 25th, 2001 - HutterFleming (H&F;), a boutique management consulting firm, today announced their partnership with Cervalis, the next generation IT outsourcing and managed hosting services provider. .  H&F; will leverage this partnership to provide its clients with an opportunity to reduce their IT operating costs, and allow them to focus on revenue-generating functions of the business.    

"This partnership confirms H&F;'s commitment to meet the dynamic needs of our clients during this difficult period", said Gabrielle Hutter, CEO and co-founder of HutterFleming.  "In working with our clients to implement their business strategy, the action plan always includes opportunities to realize cost-savings.  Partnering with Cervalis, a company with a proven management team, advanced solutions, and excellent customer service, will enhance our abilities to quickly and efficiently implement these cost-control initiatives." 

Complementing their consulting services, H&F; boasts an innovative Digital Media Solutions team providing Corporate Branding and Imaging services.   The partnership with Cervalis will supplement their web design services, and allow them to effectively coordinate the hosting of sites within Cervalis' fully redundant Internet Data Centers.  There, customer environments will be secured and proactively managed by Network Operation Centers 24 hours a day, 365 days a year.  

"Cervalis is dedicated to offering high-level managed solutions to e-businesses of all sizes - and to showing the business community how outsourcing can actually help increase their profitability, by allowing them to focus on their core competencies," said President of Cervalis, Michael Boccardi.  "H&F; shares our vision, and we've partnered with them in order to advance that value proposition to our customers."
 
About HutterFleming

HutterFleming, a privately held company founded in January 2000, provides complexity management solutions for companies worldwide.  H&F; specializes in Organizational Design Services to align people, process, technology, and information with the business strategy; and Program Management Office implementation to effectively allocate resources to project-driven initiatives.  For more information, please contact us at:

HutterFleming, LLC.
Contact:  Jennifer Casson
Toll-free:  866-480-0764
bd@hutterfleming.com
www.hutterfleming.com

About Cervalis

Cervalis provides outsourced IT infrastructure and premier managed hosting solutions that redefine the way companies conduct mission-critical business on the Internet. Through its state-of-the-art, fault-tolerant Internet Data Centers in Dutchess County, N.Y. and Stamford, Conn., Cervalis offers world-class customer support with the technology needed to scale complex environments reliably and cost effectively. Cervalis' comprehensive approach to Internet hosting and pre-architected solutions provides customers with the ultra-secure high-availability and high-performance infrastructure they need to keep critical e-commerce applications up and running 24 hours a day, 365 days a year. To learn more about the Cervalis advantage, please visit www.cervalis.com or call toll-free 866-602-2020.

CONTACT: 
Austin Lawrence Group Inc. 
Rebecca Woitkoski @ 203-391-3024    r.woitkoski@austinlawrence.com 
Jason Kannon @ 203-391-3002    j.kannon@austinlawrence.com

[Press Release]

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For all other advertising inquiries, contact Director of Online Sales, William A. Alena at bill.alena@siliconalleyreporter.com or Jay Chicoy at jay.chicoy@siliconalleyreporter.com

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Rising Tide Studios LLC (RTS)

Editorial

Jason McCabe Calacanis, Editor & CEO
editor@siliconalleyreporter.com

Anna Dorfman, Managing Editor
anna.dorfman@digitalcoastreporter.com

Ben Fritz, Staff Writer
ben.fritz@digitalcoastreporter.com

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Advertising

William A. Alena, Director of Online Sales
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Rising Tide Conferences:

(Please check www.siliconalleyreporter.com/calendar.html for updates and additions)

Wireless 2001: June 13-14, 2001, NYC 
Digital Coast 2001: September 11-13, 2001, LA
Silicon Alley Venture Capital Summit: October 23-24, 2001, NYC

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DCD welcomes feedback at letters@digitalcoastdaily.com. All letters become property of DCD and can be edited for space and clarity.