Peer-to-peer traffic is nothing new, and how to deal with it has been the subject of some debate -- and opportunity. With some 40 percent of all network traffic stemming from P2P applications, some carriers have turned to deep packet inspection (DPI) and traffic managing solutions, but a few startups are betting that carriers may need more to ease their pain. (See P2P Takes Over.)

That's where P2P caching companies like Oversi Networks Ltd. and PeerApp Ltd. come in.

Oversi and PeerApp sell equipment that sits in the carrier network and caches content from recognized P2P protocols. When more than one user downloads a P2P file on the same network, the file is served up from the local cache rather than from a remote server or peer. The end result is less traffic passing through carrier peering points and faster delivery of the P2P content.

Israel-based Oversi has been operating since 2004 and offers a P2P caching solution, online network storage, and a content distribution platform. Its Overcache P2P caching series of products has a 90 percent byte hit ratio and claims it can scale to support traffic of up to 100 Gbit/s.

Newton, Mass.-based PeerApp was founded in 2004 and has its R&D operations in Tel Aviv. The company's Ultraband family of products promises up to 2 Gbit/s capacity with a P2P byte hit ratio of up to 80 percent. The Ultraband products, the company notes, are completely transparent to the network.

But while Oversi's P2P caching product only captures downstream traffic, PeerApp's provides upstream and downstream caching, which it says can help to mitigate traffic congestion. PeerApp also received a patent for its technology earlier this year. (See PeerApp Awarded Patent.)

PeerApp has financial backing from Pilot House Ventures , Cedar Fund , and Evergreen Venture Capital . Oversi, meanwhile, just received funding from Cisco Systems Inc. (Nasdaq: CSCO) and has previously received funds from investors StageOne Ventures and TempoPark Fund. (See Cisco Invests in P2P Video Vendor.)

Both companies already have customers for their products, although neither has named a major buyer of P2P caching devices. So far, the customers for this kind of gear are second- or third-tier providers in developing nations, where transport costs are high.

PeerApp claims 12 service provider customers, mostly in Asia and South America. Oversi says it has 20 customers worldwide, most of which are also in Asia, with some customers in Europe and South America.

But both startups claim there is increased interest in their technology by Tier 1 providers. That's due in part to the amount of legitimate content being delivered using P2P protocols.

"In the U.S., peer-to-peer was a dirty word," says PeerApp's VP of business development, Frank Childs. "But now we're seeing business models leveraging this," which he says is causing U.S. carriers to pay attention.

Some carriers may be put off by the idea of caching content they can't guarantee was downloaded legally. Oversi and PeerApp both claim compliance with the DMCA, but both admit that their caching products currently don't recognize what kinds of content are being served. "We intentionally do not know" what content is being cached on PeerApp's devices, Childs says.

But with the increase in the number of ad-based Internet video providers leveraging P2P technologies to deliver content, differentiating among different types of P2P content could be of value to service providers.

"Service providers want to deliver content without being a dumb pipe," says Eitan Efron, Oversi's co-founder and VP of marketing. In the future, he believes, P2P caching products will be able to differentiate among premium, non-premium, user-generated, and illegal content, which could allow carriers to charge more money for certain types of content.

As a result, Oversi and PeerApp are looking to add protocols from P2P-based content providers. Oversi and PeerApp have for the most part reverse-engineered P2P protocols used by eDonkey and Gnutella, but they hope to partner with legit services like Joost and Babelgum.

While Oversi and PeerApp are just picking up steam in the P2P caching business, it's worth noting that at least one player in the segment recently called it quits. Former P2P caching provider CacheLogic decided earlier this year to begin using its technology for content delivery instead. (See CacheLogic Pushes Hybrid P2P, CacheLogic Fires Up Its CDN, and CacheLogic Intros P2P CDN.)

When asked why his company switched gears, CacheLogic VP of marketing Gary Croke pointed to the size of the content delivery market, as opposed to its failure to catch fire in the equipment arena. "Content delivery is a $1 billion business in 2007 and will grow to $4 billion in 2010. It's a massive opportunity."

— Ryan Lawler, Reporter, Light Reading