Need for Decentralised social media
This article was written almost impromptu as a result of discussions we had on Linkedin triggered by a post, where author describes profile of a person working at Mckinsey. It was a bit of a fun (check the marked area in image below) and it did trigger the general discussion about the business model of McKinsey etc.
And after few hours and great many comments this chain was taken down without notice and consent of all the other people who contributed to the chain. This is the second time I have noticed this happening. It is not a good sign and it means that something is going wrong with the community / rules set by the platform.
Here is the image that was taken of the article that triggered this. This time instead of leaving it without notice, it left me wondering why this happened.
Caption: Before this article was taken down. Had taken screenshot of the same.
It started off with a small discussion thread but as you can see the number of comments and claps was sizeable. And then suddenly within a span of half a day this chain was discontinued. [Edited 2 days later: The author apparently brought the article back to live after I had published this article on Linkedin!]
Without going into details of this, it was not the only time it happened. Perhaps these kinds of thread leads to tagging of individuals and they fear backlash. Hence they want to discontinue that.
So this brings into question why the hell we should use these media.
Being a tech guy, always looking for solutions to problem, I thought is this the kind of media we want to have where people do not have the guts to speak their minds and also bring constructive criticisms on the table ? And when real discussions happen & people start to give their opinions, the media can delete at will whatever they want ?
Can we have an alternative media which is self sustainable and able to provide more balanced views and opinions without fear. We have replaced kings with Corporates, who are now feeding on human frailties and needs. But still are we so fearful of corporates that we cannot vent our opinion in an open media ?
As goes from the saying of the late Nobel Laureate RabindraNath Tagore from his Gitanjali:
Where the mind is without fear and the head is held high;
Where knowledge is free;
Where the world has not been broken up into fragments by narrow domestic walls;
Where words come out from the depth of truth;
Where tireless striving stretches its arms towards perfection;
Where the clear stream of reason has not lost its way into the dreary desert sand of dead habit;
Where the mind is led forward by thee into ever-widening thought and action
Into that heaven of freedom, my Father, let my country awake.
Can we create honest unbiased media, where central authority does not have the ability to control the content and when people discuss stuff, automatic ownership is assigned to them ?
Effort here is to discuss this slightly in detail and see where we reach.
Let us look at the current drawbacks of centralized media and their business models that they employ to run these platforms. Let us take Linkedin as this is the current scapegoat:
They gather people’s data and create connectivity graphs.
Current question we will try to answer:
- Who owns the data ?
- Who benefits from this ?
- Who provides content to them ?
In principle we are providing our data so that Linkedin can use that to sell it to the headhunters at a premium.So basically in the value chain The people who provide the data are basically made scapegoat and an increasing revenue stream is generated during the working lifetime of the person. Using notifications as the tool they consolidate this network so that people constantly engage with one another.
Beneficiaries of the data:
Primary beneficiary is the platform itself and the AI algorithms that are used to parse and generate relationships among institution, geography, gender, race, job profile, etc. And this becomes a permanent repository of knowledge that feeds the headhunters and premium subscribers. When unemployment rises their profit rises at the cost of people’s data.
Again it is the same set of individuals who are eager to showcase their work to their fellow colleagues. All is fine and it is indeed a good way to showcase creativity. Higher the intellectual capability of the people better researched content is created. And in the end AI algorithms also forms profile of people and feeds them with similar content from that segment of users who are connected to one another. It creates an entertainment channel for the self minded and provides the platform greater content to feed to the advertisers.
Current business models and money flow which will help to refine the use cases and business models.
- How do they monetize these content ?
- How much benefits does people who are connecting get vs the platform and the profit margins they generate ?
- What is network effect and why it is hard to replicate ?
Linkedin takes the following routes to monetize their content:
- Paid advertisements
- Premium subscription for job searchers.
- Headhunters who wants to look for candidates looking for jobs.
- And probably more ways (and not less) for which more research needs to be done.
Let us look at how we behave as a community and share our woes and suffering in front of Linkedin, literally being stripped naked when we lose our jobs and this information then feeds the platform and drives them towards more earnings in terms of feeding data to headhunters and premium subscriptions. So basically when we cry they enjoy ! What a community ! Is this what we want ?
If Linkedin is compared to a community of like minded compassionate human society and not a blood sucking institution driven by pure profit and having the monopolistic power to disdain and profit from human misery how should we restructure this institution so that it can better serve our purpose
Benefits we get Vs the Profits that we generate for the platform:
On an average if the linkedin notifications are set to on, one will get quite a few of the notifications that will trigger revisit to this platform to read the feeds. Many people are refined enough to stay away from facebook, but this so called refined media of linkedin is now serving the same purpose …
Every visit implies we leave behind our likes/dislikes and enhance our profile on this platform, helping them to provide better targeted job advertisement via their AI algorithms. And increasing the power of the network in the process.
In the end how much do we benefit in the process ? Probably very little.
From the wikipedia: A network effect (also called network externality or demand-side economies of scale) is the effect described in economics and business that an additional user of goods or services has on the value of that product to others. When a network effect is present, the value of a product or service increases according to the number of others using it
The network effect that they generate and with premium subscription leverage this same concept, is also tilted entirely in their favour.
LEARNINGS FROM ABOVE AND HOW CAN THIS BE IMPROVED
- Data ownership should be clearly defined so that we are able to control who uses the data that we provide.
- When people monetize the data, the profits should be distributed that reflects the intentions of the community as they define it.
- When the community members have a tough time, profits gathered earlier should be utilized to help the individuals.
- Institutions who benefit from the platform pays for the monetization of the platform and similarly the headhunters who provide candidates via this platform.
- Voting on important issues in the community should be possible.
- Content monetization should be transparent and profits generated should benefit the stakeholders.
- Networking should be possible by choice and not looked upon as profit generation mechanism, but a social coherence mechanism.
- Community can vote on rules that govern monetization of articles that are published on the platform. If an article gets enough votes then benefits accrue to the owner of that article and people who review and comments on that.
- For the maintenance of the platform a treasury system can be created with voting rights belonging to the community, who can propose projects that benefits the community.
ECONOMIC MODELS FOR DECENTRALIZED PLATFORMS
The question we want to ask is whether there is economic value in creating decentralized platforms and whether they can outgrow the centralized systems as we know them today.
First we discuss some macro trends based on which we will state the economic models for these decentralized media.
Some of the macro trends that we are observing today, triggered by the black swan event of COVID-19, is that the world is now moving in a certain direction. Here are some pointers.
- CBDC: Central bank digital currency probably based on some sort of blockchain based technology. China is leading the way with digital Yuan and US, EU will follow. This will basically redefine banking as we know it. The normal banks will no more be needed for controlling and distributing currency as digitization will drive better management systems around currency and also allow better integration with token based block chains that exist today.
- As flight from FIAT happens, Bitcoin gains ground as a store of value that removes much of the drawbacks of Gold as value store. Given it is not under the purview of any government, it is more trustworthy than any CBDC where fear of mass surveillance of assets can kick in unless strong counter measures are in place.
- Failure of the FIAT currency system where no more the Keynesian economics seems to be working. (The incremental effect of introducing liquidity into the systems is negative.)
- We are now staring at Negative interest rates and consequent bank failures.
- Rise of the AI driven systems being introduced in every walks of life.
- Lower production cost and lack of inflation
- Higher unemployment of the masses as there is an acceleration of services going digital. Although it has started as a covid dependent phenomena, the reestablishment of the new normal is already on the way.
- Rise of interoperability in third generation block chains such as Cardano, Polkadot, Algorand etc.
- 2020 marks, 50 years epoch of the SWIFT protocol which is now on the verge of being displaced by faster transactions speeds in different block chains in addition to providing many other benefits of instant settlements, smart contracts and host of other value added service.
- Also this decade 2020–2030 marks 100 years since the great depression of 1920s. It started with the bang of COVID-19 but expected are some big changes as it did 100 years back.
And the list can probably go on and on …. But what is noticeable is that we :
- are now moving into a new era of financial systems governed by decentralized revolution in form of different crypto currencies.
- Better interoperability of Blockchains with different fiat currency when CBDC initiative gets implemented. (regulations apart)
- Higher unemployment means people will now seek value in their work on a more granular level than the last decades. The institutions we have nurtured in the past have to adopt to the new normal and provide more distributed value added services.
Economics of Distributed platforms
Nothing works in nature without making economic sense at least not in a sustainable way. Hence let’s work out some back of the envelope calculations…shall we..?
Again let us make Linkedin as the scapegoat. As you would know it now belongs to Microsoft.
Gross operating margin is : greater than 80% and much of it gets reinvested to support scalable growth of the platform. Note the definition of gross operating margin:
Gross Operating Profit (GOP)= Gross Profit — Operating Expenses — Depreciation and Amortization
GOP: 1816 Million
Total number of subscribers: 500 Million
Hence GOP/subscriber: 3.632 Million
Fast forward to 2020
2020: 6440 Million.
Total Number of subscribers:706 Million (approx)
Hence GOP/subscriber: 9 Million.
Just take a minute to digest the above numbers …. Please…. Because this becomes the foundation of what we are now going to discuss. So just to recap,
- Out of each user on linkedin, they earn Millions of dollar as a gross revenue.
- And again to repeat higher the unemployment rate higher the network effect and higher their earnings.
- Earnings from people’s misery with not a cent given back to the people who create the network.
Just from this ask yourself:
- Is this a fair thing that these damn big blood sucking corporates are doing ?
- Why are we enslaving ourselves via this corporates and the way they are entangling our social life ?
- Why are we not getting back a dime that we are making for these platforms ?
… I know you will probably say …this socialistic rant ….we all know but what can we do in the end ?
(As a side note : Do not look at the net profit margin, as they pump it back into the platform to suck out even more profit from each subscriber by beefing up marketing and other tech strategy to enhance the ecosystem and finally not to pay tax by showing higher depreciation … the usual crap of the corporates)
The above economics holds true for all the social media platforms … but here we are specifically targeting Linkedin.
Now let us create what would be possible if we are able to create the following economic model in the future.
Again the underpinning concepts:
- Proliferation of decentralized systems based on blockchain with smart contracts, on chain voting and host of dapps allowing interoperability with the FIAT world
- CBDC introduction: making interoperability even easier
- Higher unemployment: Thus people unable to pay higher subscription fees to these platforms and need to search for jobs and showcase their skills.
What if we do as follows:
- Initial 3–4 years will be spent in creating the platform by using VC funding, as it will be just like normal development of any social media platform.
- Except we use third generation blockchain to allow distributed spread of value from the platform. Let us sketch a simple story line to explain this and let us call our new platform T and associated token of same name.
Few points to note about tokenomics of T token:
Tokens supply will be fixed right from the beginning.
Tokens will be created only when we have value generation happening.
Value generation can be injection of new fiat currency, users of platform buying tokens to use the platform and so on.
Users acquire token when they write articles, or publish profile, it will be transferring generated tokens to these users.
There is a concept of treasury that holds extra value generated above and beyond what is received by the users, and meant for investors and platform maintenance.
To continue the story ….
- Initially the platform issues a fixed number of tokens after receiving initial funds from seed investors.
- User Tom joins T
- Tom creates his own profile
- Tom Invites his friend to join this platform
- Tom starts to write some interesting article that acquires likes/kudos from his new colleagues….
- Gradually over the years he is able to communicate about his professional works on this platform and able to create suitable content that he is capable of.
….. and so on and so forth.
For each of his above actions, Tom continues to acquire T tokens which are tradable on any crypto exchanges. Initially these tokens are very cheap as no one uses this platform, but as the word spreads about this platform (marketing etc.), network effect increases and these tokens acquire greater and greater value (demand of tokens increase while supply being fixed. Market prices these tokens based on that).
Tom knows that whatever he is contributing to this platform will be moderated (professional moderators and reviewers who are also paid in T tokens does this job) and the quality of the articles hence will improve over time. In fact there will be a marketplace where such jobs for moderators can be published, and hence it will attract good talents who will be peer reviewed by the writers.
Now here is the key. Whenever Tom acquires a token T, a part of the token value say 0.1T (can vary over period of time) will be diverted to a treasury system which will be maintained in centralised manner, that is regulated by the community of platform T. Thus Tom keeps (T-0.1T)=0.9T. Thus as the number of users grow, and network effect increases, the value of token rises and so does the fund in the Treasury.
After 5 years as the first batch of investors leave ( and new Series A round investors come in), the treasury will be used to pay them back, with possibility of other financial instrumentation to hold back some value for future dilution.
And now Series A investors become part of the game by investing say 5 Million USD in Fiat in exchange of equivalent value in T tokens. There is no dilution of initial investors and platform users and they are happy that the platform becomes for them a revenue stream.
One question maybe raised: How will investors protect themselves that the platform does not run away with their money. That is where the creation of proper treasury will play a role. It may be a layered treasury where preferred tokens are issued to the investors and they will be exchanged to tokens issued for users of the platform
But now right from the beginning we have put users in charge of this system. As new players join the show like advertisers, Headhunters and Institutions new revenue streams starts to be created. Each of the above stakeholders have to pay in token equivalent amount to avail of the services (so again new Tokens generated in lieu of Fiat injection from new stakeholders). Now let us see how the profits generated from the above can be easily paid back to the people who provide the data…(job seekers)
- When the headhunters search the profile of persons, they can only unlock the profile if they enable a transaction using T tokens. When this transaction happens an underlying contract transfer this token both to treasury and to the account of the person whose profile is being viewed.
- When institutions have to host themselves on the platform and publish jobs, they will be paying from the tokens they have obtained in exchange for fiat. Job seekers can see certain number of jobs for free, but for more jobs they may need to pay a nominal amount using token they have gathered or purchased. Thus loyalty can be baked into this system and long time users are benefitted.
- Now once the platform gains maturity advertisers flock in and want to show their services to certain user groups. They will also pay using T tokens. But now when a user clicks on an advert and acts on that link, he will be paid in part using T tokens, and rest going to treasury of the system.
This kind of completes the story line of how this platform generates and transfers value for all stakeholders. Let us now hypothetically calculate how much value is distributed to the real value generators like jobseekers.
If we see the gross figures and take even 10% of that it amounts to 300K — 900K annually per user. Given that is the earning possible this platform will be self propagating engine and scale to 10–100 times more than what centralised platforms can achieve.
Stability and Downtime:
After the first version of the article was written this happened with our most powerful search engine, Google.
This shows no matter how good a company is, their weakness will show over a period of time. And now in this time of the history, we are reaching the age of decentralized software deployment powered by the people and supported by next generation of blockchain. It restores the faith of people in technology and allows the centralized technology to benefit humanity and scale further. The economic incentives provided to the masses, leads to a sense of liberation of the masses (of educated tech people) and helps spread the need for adoption of this technology further. =
Way to the Distributed platform
Now that we have showed the plus side of the distributed platform, let us discuss potential challenges in implementing such platform and the network architecture for such platform.
- Framework to issue smart contracts on blockchains
- Ability to scale to millions of users.
- Distributed identity so that people do not make fake identity to trick the platform.
- Regulatory framework that governs the distribution of tokens taking into account the different financing moments. Distribution ratio of the tokens to the stakeholders would be different over a period of time especially because the tokens themselves will be tradeable entity with varying price due to the market demand/supply equation.
…to be continued.