LaLa sings to its own tune by trading used CDs online

Wired on Friday: Second-hand goods and those who supply them haven't had the best of reputations, from run-down thrift shops and hand-me-downs to the archetypical used car salesman. But as internet entrepreneurs dig around for more and more markets to optimise (or, at the very least, manhandle online and snatch their own percentage from the transactions), it looks like more and more of the future will have been previously owned.

This may be as disruptive to existing manufacturers as Napster has been to the music industry. That is, unless those industries work out a way of making trading your possessions as illegal as sharing files.

The latest entrant into this field is LaLa.com, a US-only service for trading used CDs. Here's how it works: LaLa has a database of around two million albums. If you have a copy to trade, you click on its title. If you see one you'd like, you click on it. If somebody else is offering what you want, they send it (directly) to you, using a pre-paid envelope LaLa supplies. If LaLa finds someone with the album you want, they'll arrange for it to be sent to you and charge $1.49 (€1.19) for the matchmaking.

There's no cash reward for sending off your CDs, but the more CDs you trade, the more LaLa sends users your way.

For what seems a somewhat tortuous way of buying and selling, LaLa has been remarkably popular among my sceptical friends. It initially profits - as mass file-sharing did before it - on the fact that hundreds of thousands of people's record collections have more unobtainable and obscure objects of desire than the best stocked record shop, online or off. The pleasant surprise, and cheap price, of receiving tracks you'd never believe you'd find lures you into a world where sending off CDs becomes part of the experience of collecting music.

Its creator, Bob Nguyen, claims a desire to reintroduce the social trading feel of local record shops and their community, as opposed to the bland character of the iTunes Music Store. It's certainly interesting to uncover new music by comparing the wanted lists that match your own.

But there's more to LaLa's business model than just keeping the customers happy. There's also what it does to the original market of CDs. The resale market for CDs, like any other physical good, with the strange exception of fine art in some countries, pays nothing back to the original creator. This makes it, in some people's eyes, just as bad as piracy. There is, it has to be said, little sympathy outside of the copyright holders' own circles for this position. Book publishers and authors have railed about libraries, and Amazon's encouragement of a second-hand book market, but with little effect.

The music industry has, in the US, successfully lobbied for a legal ban on CD rental (which is why there is no music at Blockbusters here). But generally speaking, consumers and US law agree that once you've bought a product, you should have the right to resell it or transfer it as you like.

Previously, the threat to the "brand new" from their dowdier second-hand cousins has been minimal. For most goods, the two are clearly separate markets.

But in products where the information content of the purchase (such as book, or CD, or DVD) is more important than its physical wrapping, however, an unscratched, usable second-hand good is a perfect substitute for the original.

In the case of LaLa, there's also the unspoken possibility that previous owners took the chance to "rip", or copy, the CD on to their iPod before passing it on.

Now, however, the market for second-hand goods is becoming as liquid as the original source. Book owners find themselves competing on Amazon with their own used book market, probably limiting how much they can maintain initial high prices for hardbacks. Price comparison services such as Froogle can do the same for the wider second-hand markets of the web, reminding those about to buy the latest goods that the thriftier version exists on Ebay.

Hollywood's music labels have expressed some concern over the success of LaLa despite assuring the company that they saw nothing wrong with it before its launch. Journalists have prodded the Recording Industry Association of America about whether they will sue, but Lala's legality is nowhere near the legal swamp that file-sharing companies had to navigate. Besides, Nguyen has probably dodged that bullet by voluntarily offering to provide 20 per cent of the revenue from Lala's managed resales to the original artists, thereby hitching the company firmly on to the moral higher grounds.

But this is a temporary ceasefire on both sides. If the music industry cannot attack, it must eventually adapt. It has two options. One is to continue to work to saddle its product with copy protection that prevents resale. That is the model one sees in moves to services like iTunes, where purchased tracks are bound to a single account and can only be freed to be passed along by re-burning them to a CD.

The alternative is to hitch their value of everything else around that immortal digital content. Lala's pioneers have already complained that receiving a bare CD is not quite the experience of receiving a CD with the original artwork. The company has now re-engineered its envelopes and pricing to cope with sending CD covers as well as the disc, but the complaint points to the music industry's salvation.

Work on the trappings and trimmings, the fragile glitz that surrounds those easily transferrable bits. It seems bizarre to have to explain to the music industry, once again, that it's the experience and exclusivity, not the raw tune, that they need to sell. But until they do, the entire industry may find itself the previous, less than careful owner of its own market.