Kazaa

In brief

Kazaa was a free program from 2001 through which people swapped music, movies, and software directly with each other, without a central server. It was launched by Niklas Zennström and Janus Friis, and the code was written by Estonian programmers. The money came from advertising and from third-party programs that were installed together with the client. A Dutch court found that the program itself did not infringe rights, but by that point it had been sold to the Australian company Sharman Networks; Sharman lost the lawsuits in Australia and in 2006 agreed to pay the labels more than $100 million. The same founders and the same idea went on to Skype.

How it started (the founders)

According to one profile, the BlueMoon Interactive team from Tallinn met Zennström and Friis while working remotely for the Swedish company Tele2 estimate; what Zennström and Friis did before Kazaa has not been verified in the sources collected. The FastTrack technology, according to retellings, was created by the Estonians Jaan Tallinn, Ahti Heinla, and Priit Kasesalu, who then sold it to Zennström and Friis estimate. Kazaa was launched in March 2001 by the Dutch company Consumer Empowerment estimate.

The main idea was decentralization: some of the users' computers became "supernodes" and helped search for files. Kazaa's expert said in the 2002 appeal that the network kept working even after Kazaa's web services were switched off, and that closing the site had almost no effect on the number of users. This architecture was both a technical find and a legal defense: the company had no server that could be pointed to as the "place of infringement."

Joltid (formerly Blastoise) licensed the network technology to Altnet; according to a 2002 retelling by PC-WELT, Blastoise was created by Kazaa's founders to hold the rights to FastTrack estimate. Later, Skype licensed the core of its network from the same Joltid.

Year-by-year timeline

• 2001-03: Consumer Empowerment launches Kazaa on the FastTrack technology estimate
• 2001-10: the industry files suits in the US estimate; a sale to Sharman in this month is not confirmed by the sources: according to Kazaa BV itself, the assets had to be sold after the ruling of 2001-11-29 estimate
• 2001-11-18: the suit "Lieber v. Consumer Empowerment B.V." is filed fact
• 2001-11-29: the Amsterdam District Court orders KaZaA B.V. to stop the infringing use of the Buma/Stemra repertoire within 14 days, under a penalty of NLG 100,000 a day, capped at NLG 2 million fact
• 2002-01…03: Kazaa passes to Sharman: January according to a retelling of court documents (≈€600,000, without the Kazaa Media Desktop client), February according to CNET, March according to Wikipedia (a license) estimate
• 2002-02: Altnet is created: Brilliant Digital 51%, Joltid 49% fact
• 2002-03-28: the Amsterdam Court of Appeal overturns the rulings: the infringements are committed by the users, not by Kazaa fact
• 2003-05: Altnet gets a license for PeerEnabler from Joltid, with a guaranteed payment of $30,000 a month; by 2004 Brilliant's stake in Altnet is 75.5% and Joltid's is 24.5%, with an option until May 2005 on 7 million Brilliant shares for the remainder; the date on which the stake rose to 75.5% is not disclosed estimate
• 2003-12-19: the Supreme Court of the Netherlands upholds the appeal, without deciding the question of individual users fact
• 2004-03: the labels file suit against Sharman in the Federal Court of Australia; in 2004 Sharman accounts for 29–30% of Brilliant Digital's revenue fact
• 2005-02-06: raids on Sharman executives estimate
• 2005-09-05: Wilcox's ruling in the Federal Court of Australia: Sharman authorized the infringements and could have forced a software update; details of the reasoning estimate
• 2006-07-27: a settlement with the four majors, with damages of more than $100 million; the client moves to a legal model fact
• ~2010 / 2012-08: the Atrinsic license, then the site stops working estimate

Lesser-known but significant facts

1. Kazaa's own money was never disclosed anywhere, but it is visible through its partners. In 2004 Sharman accounted for 29–30% of Brilliant Digital's revenue, for content, a patent license, advertising, and payments; Brilliant sold advertising for Sharman for a percentage.
2. The founders' company held a stake in the bundle. Joltid, according to a retelling a company of Kazaa's founders estimate, owned 49% of Altnet, then 24.5%, and received a guaranteed $30,000 a month plus $240,000 for services for nine months of 2004.
3. The installer was huge. According to Edelman's 2005 measurement, the four licenses ran to 22,606 words (182 screen pages), and the installation left behind 845 registry keys and 638 files.
4. Closing the site by court order changed almost nothing. Kazaa switched off its web services in the Netherlands in 2001–2002, but according to Kazaa's own expert (Professor Huizer, University of Twente), the number of users barely fell; Buma/Stemra did not dispute his conclusions.
5. The Australian court explained how the network could have been stopped without a server: a keyword filter, a software update, warnings in search estimate.

Legend vs. the record

• Legend: Kazaa was a Napster clone. That is how most retellings present it. The record: Napster had a central index of files, and the US court saw in this an ability to control estimate; Kazaa's index lived on users' supernodes, and the appeal in Amsterdam explicitly recognized that the infringing acts were committed by users and that the program was not used exclusively for protected works. Verdict: in purpose, a successor to Napster; in design and in the legal outcome in the Netherlands, something different; but in Australia the court still found a lever through the software update estimate.
• Legend: Kazaa's founders walked away from the lawsuits and moved on to Skype. The record: the sale to Sharman happened after the first ruling in Amsterdam (2001-11-29) but before the appeal and the Supreme Court of the Netherlands, and the win, in The Register's words, came too late; in Australia the defendant was Sharman, not the founders, and it was Sharman that paid the settlement. But the Dutch case was won by their company KaZaA B.V., and the founders called the ruling a remarkable victory for the internet and for consumers. The suit "Lieber v. Consumer Empowerment" was filed against the Dutch company; how it ended for the founders has not been established. Verdict: "escaped" is only partly true: the cost of the lawsuits was borne by the new owner, and the Dutch case was won by the founders' company; the outcome of the US suit against Consumer Empowerment has not been verified estimate.
• Legend: The Supreme Court of the Netherlands declared P2P legal. The Register calls it the first such ruling by the country's highest court. The record: the court did not decide whether individual users infringe, and the ruling concerned specifically the owner of the program. Verdict: the wording "P2P is legal" is broader than the ruling itself.
• Legend: Kazaa paid the labels $100 million. The record: IFPI puts the damages at more than $100 million, and the NYT, in a reprint, at $115 million; it was Sharman Networks that paid, not the founders. There is no breakdown by recipient. Verdict: the order of magnitude is confirmed, the exact figure and its composition are not estimate.

The first growth lever

The lever was a free client with no server: the users themselves became the infrastructure, and the company paid nothing for storage and traffic. Advertising and third-party programs were plugged into the installer; Sharman, through which the advertising and the bundle ran, accounted for 29–30% of Brilliant's revenue (content, patent, advertising, payments); according to a 2003 article, Altnet was downloaded together with Kazaa about 20 million times estimate. For Kazaa itself there are no revenue figures. All that is known is that in 2002 the network had about 3.5 million users online at the same time.

The paired story

The pair is Skype (history-skype).

• Common thread: the same Zennström and Friis and the same P2P technology: first files (Kazaa), then voice (Skype).
• Contrast: by the time Skype launched in 2003, Kazaa had already been sold to Sharman, while Skype remained independent until its sale to eBay in 2005.
• Hidden link: the Skype network rested on the "Global Index," the rights to which belonged to Joltid, according to a retelling a company of the founders estimate; Skype obtained them only in 2009, in exchange for ~10% of its equity, $85 million, and a warrant. Joltid, meanwhile, had held a stake since 2002 in Altnet, Kazaa's bundle.
• Reputation: in October 2003 the Skype site sold itself by saying it came from the people who brought you KaZaA.
• Speed: according to Technology Review, Skype reached 2.6 million downloads in two and a half months, while Kazaa took more than half a year to get there.

Parallels today (projects from the catalog)

• Sudoku247Online (sudoku247online): a free product that makes its money exclusively from advertising, as the Kazaa client did; the difference of the era: the sudoku site has a transparent advertising market, while Kazaa depended on adware partners who installed their own software. view this project's dossier →
• Paster (paster-so-simple-saas): the service monetizes waiting and advertising next to other people's files and links; the similarity: the money is made next to content for which the users are legally responsible; the difference: Paster has a paid "Ad-Free" option instead of the installation of outside software. view this project's dossier →

What a builder can take from this in 2026

1. Do not build revenue on someone else's installation without explicit consent. Kazaa made money on bundles, and according to the 2005 measurement, installing it meant hundreds of screen pages of licenses. The cheap trust bought this way came back as a reputation for "spyware" estimate.
2. Decentralization protects differently in different countries. In the Netherlands, "there is no server" worked; in Australia the court still pointed to the ability to update the software. If your product is built on "the users are the ones doing it," check that before launch in every jurisdiction.
3. Selling the company does not remove the risk from the product. Kazaa went to Sharman, but the lawsuits continued against the new owner and its partners, including Brilliant Digital and its executives.
4. Keep the technology for yourself, not the product. Joltid received payments from Altnet and later $85 million along with a stake in Skype. The rights to the core turned out to be worth more than the client itself.
5. The reputation of a previous product works as advertising. Presenting Skype as coming from the makers of Kazaa raised trust in it from day one, although that very reputation also came with a legal trail.

Discrepancies and what we could not verify

• The date and legal entity of the sale to Sharman. January 2002, February 2002 (CNET, via a retelling), March 2002 (Wikipedia, in the form of a license), October 2001 (Wikipedia, refuted by another source); the seller was Consumer Empowerment or KaZaA B.V. estimate. Court documents on the deal were not found; the price and terms come only from retellings estimate.
• The amount of the 2006 settlement. More than $100 million (IFPI) vs. $115 million estimate. The claim that the founders themselves paid found no confirmation rumor.
• Wilcox's 2005 ruling. The date and the conclusion are confirmed; the full text returned a 403, and I know the reasoning from the summary estimate.
• The Supreme Court of the Netherlands. I read only The Register's retelling; there is no primary source for the ruling.
• The US Supreme Court in Grokster. The date 2005-06-27 is confirmed by two pointers; I did not read the text of the ruling.
• The outcome of "Lieber v. Consumer Empowerment" and the founders' role in the US have not been established.
• Kazaa/Sharman revenue is not confirmed by a primary document; there is only the share of Brilliant's revenue.
• Peak users. No independent figures for the peak audience were found; 3.5 million is Brilliant's claim.
• Growth speed vs. Skype. The comparison of half a year vs. 2.5 months comes from Technology Review in 2003; Kazaa has no figures of its own on its growth speed.
• Joltid's owners. According to PC-WELT in 2002, Kazaa's founders; according to the 2009 press, Zennström and Friis; there is no primary document on the owners estimate.

Sources (primary first)

• https://w2.eff.org/IP/P2P/BUMA_v_Kazaa/20020328_kazaa_appeal_judgment.html — ruling of the Amsterdam Court of Appeal, 2002-03-28 (unofficial translation)
• https://www.sec.gov/Archives/edgar/data/0001022844/000117091803000089/bde2q02amend1.txt — Brilliant Digital, 10-QSB/A for 2Q 2002
• https://www.sec.gov/Archives/edgar/data/0001022844/000117091804000668/fm10qsb-093004.txt — Brilliant Digital, 10-QSB for 3Q 2004
• https://www.sec.gov/Archives/edgar/data/0001022844/000117091804000353/fm10qsb-033104.txt — Brilliant Digital, 10-QSB for 1Q 2004
• https://www.sec.gov/Archives/edgar/data/0001498209/000119312510182561/ds1.htm — Skype S-1, 2010
• https://www.benedelman.org/spyware/p2p/ — measurement of the Kazaa installer, 2005
• https://www.benedelman.org/spyware/claria-license/license-112504.html — the Claria license from the installer, 2004 (not opened; per search results)
• https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2005/2005fca1242/summaries/2005fca1242-summary — summary of the Federal Court of Australia ruling, 2005 (not opened; per search results)
• https://www.theregister.com/2003/12/19/dutch_supreme_court_rules_kazaa/ — The Register, 2003
• https://www.aljazeera.com/news/2006/7/27/kazaa-settles-100m-music-lawsuit — Al Jazeera, 2006
• https://merlin.obs.coe.int/article/2347 — IRIS, commentary on the ruling of 2001-11-29 (not opened; per search results)
• https://www.baltictimes.com/news/articles/6846/ — Baltic Times, 2002 (not opened; per search results)
• https://wilmap.stanford.edu/node/29678 — Stanford WILMap, ruling [2005] FCA 1242
• https://en.wikipedia.org/wiki/Kazaa — pointer only