You Are Not the Product: The Coming Revolution in Social Networks

Something’s in the air right now – call it a whiff of rebellion. Its first sign might be traced to this simple comment on an online forum four years ago:

This idea that we are just products for advertisers pops up in lots of online conversations, a reflection of the current state of our advertising-driven social networks. These networks were built on TV’s old business model of “I sell your eyeballs and give you interesting stuff to watch in exchange.” They’ve just modified that model a bit so that now, in addition to attention, we also surrender our personal data. Oh, and now we’re the ones supplying most of that “interesting stuff” to watch.

That’s why I’ve gotten excited over a flurry of recent announcements painting an alternative vision for social networks:

1. Reddit announced its intention to take a portion of its $50 million in recently raised venture capital and give it back to the community of people who built in the first place.
2. Ello, a brand new social network, just committed to never selling ads, never selling your data and never selling out to another company that would.
3. Tsu, another new social network, rolled out an aggressive, revenue-sharing model for end users.
4. Synereo announced plans for a fully distributed social network built on Bitcoin technology that will also compensate end users for their contributions.

What excites me about these recent announcements is that not only are they based on the premise that you are not the product, but they may actually represent a new source of income that could eventually become quite important to people.

Solution 1: You Are the Customer

Let’s start with Ello because it’s the simplest to understand. What Ello Founders have said is “look, you are not a product; we don’t want to sell your eyeballs or data to advertisers.” Their model is to treat you, the end user, as the actual customer of this social network. You can use the network for free, and may choose to purchase add-on functionality, such as a special layout for your page, or maybe an advanced analytics feature. This is a “freemium” model that has been proven in many other contexts, including by Automattic, the makers of WordPress.

Ello launched with a powerful manifesto:

We believe a social network can be a tool for empowerment. Not a tool to deceive, coerce, and manipulate — but a place to connect, create, and celebrate life.

You are not a product.

Many observers, myself included, were initially skeptical, especially on hearing that Ello had received venture funding. But the company’s funders are giving every indication that they’re comfortable with Ello’s model and in it for the long haul. Most promising of all, Ello’s management and investors have agreed to transform the company into a Public Benefit Corporation, legally bound not to:

1. Sell user-specific data to a third party;
2. Enter into an agreement to display paid advertising on behalf of a third party; and
3. In the event of an acquisition or asset transfer, the Company shall require any acquiring entity to adopt these requirements with respect to the operation of Ello or its assets.”

This is a clear signal that Ello is aligning itself with a strong customer mission, or as they put it in their announcement: “Ello exists for your benefit, not just to make money.” I hope the company will take the additional step of full B Corporation certification, even though right now their primary focus has to be on building a critical mass of users and engagement.

As a side note, another approach to treating end users as customers is the recently announced Splicious, which is still in planning stages but hopes to enable easy tipping using fractions of Bitcoin, as an alternative to liking and plussing others’ content.

Solution 2: You Are the Employee

Tsu

Tsu (pronounced “sue”) is an advertising-based social network that shares its revenues with end users, based on their engagement and recruitment efforts. I’ve heard four main objections to Tsu: that it’s not possible to earn significant money from it, that it will just attract bad actors bent on gaming the system, that money will debase the ethos of today’s social networks, and that its multi-level marketing scheme feels a bit sleazy. I’ll address the first and last points now and save the other two objections for more general treatment at the end, since they are not unique to Tsu.

It is true that Tsu uses a multi-level marketing (MLM) strategy that gives users a cut of the revenues earned by people they recruit into the network. My user name is @gideonro, for example, and if you use that link to sign up, you will split your Tsu revenues with me in perpetuity. When you engage on Tsu in ways that help the social network generate revenues, such as when your posts generate likes, shares, and comments, 10% of those revenues go to Tsu to support the network and 45% goes to you. The remaining 45% is split with those users above you in your payment hierarchy, which Tsu calls your “family tree.”

The family tree revenue hierarchy was clearly designed to speed user growth of the network. But on this count, I fear Tsu’s management may have badly underestimated the value we attach to our social capital. Tsu uses an MLM strategy which doesn’t make it a true pyramid scheme, but for many people, that distinction is a nuance. Things that smell even vaguely like a pyramid tend to send us scurrying for fear of being scammed ourselves or making our friends think we’re using them for financial gain.

As for the criticism that no one will make real money from this platform, I think the critics are wrong – assuming Tsu eventually does catch on. To show you why, let me share some actual royalty figures from a few friends who are active on the service.

After about a week on the service, friend “A” was generating $3-4 a day. This is just a week after the network’s launch, and with only a small base of people generating advertising views. Is it possible to imagine this friend eventually generating a few hundred dollars a day from Tsu? It’s still too early to say, but it’s not out of the realm of possibility if the network really grows.

It’s worth noting that a hundred dollars a day translates into a $36,500 annual income. Given that median household income in the U.S. is just over $51,000, this could be a viable source of income or at least a healthy supplement, so I think we need to be careful to not dismiss the potential here too easily.

There is a bit of a catch though. I personally am earning just a few pennies a day on Tsu but I’m not investing much there either right now. So, I asked another friend, “B,” who’s been sharing a lot of good content there. A and B are both quite active, but with one difference: B has just 250 or so family tree members (what Tsu calls B’s “network”), while A has nearly 3,500 network members. If you compare the number of views needed to generate $1 of royalty income on Tsu, B has to generate 14,772 views, while A has to just generate 10,661 views. In other words, with the smaller network, B has to generate 39% more views to earn the same royalties as A. That’s because A earns a slice of the royalties of the views generated by a much larger network of other people’s work.

In doing this analysis, I’ve come to believe that Tsu’s revenue hierarchy isn’t just a tool for accelerating user sign-ups. It’s also a tool for concentrating revenues in the hands of its most valuable end users. Why would Tsu want to do that? Two reasons.

First, value contributions can be quite skewed with user-contributed content. A small percentage of people often contribute a disproportionate share of the overall value and you want to be sure to take care of them. On Wikipedia, for example, 2% of the users account for 33% of the edits.

Second, a small number of high profile Tsu users with lots of friends and followers who are able to honestly say they make decent money on the network serves as a valuable source of inspiration and a way to boost confidence in the system.

So, I wonder whether this might be a deliberate design decision.  If everyone in the network earned the same, and it was just pennies a day, what good would that do to anyone? Tsu’s revenue hierarchy creates something very common in network structures: a power law, where a very small number of people secure most of the reward, while the vast majority secure very little.

One thing worth noting about Tsu’s family tree royalty sharing formula is that it peters out rapidly by the fifth generation of sharing, effectively capping what could otherwise be exponential growth and a very extreme concentration of royalties on the platform. This is a very good thing and I’m indebted to Deen Abiola for pointing this out to me on Google+.

What’s fair is a tricky question. When we do work and others do not, it seems fair that we should be compensated more. And yet, there is another, more egalitarian, sense of fairness that bridles when we see the rich getting richer in ways that make it impossible for others to catch up. In this sense, Tsu may well reflect some of paradoxical aspects of the American Dream and capitalism itself. All systems must be tuned to reflect our collective values, and Tsu proves that this is no less true when that system is shaped by algorithm. How they resolve this tension will be part of the key to their long-term success.

Synereo

Synereo is a complex, and quite exciting, collection of ideas for a very different approach to social networks. Like Diaspora before it, one of Synereo’s chief objectives is to remove our dependency on centrally controlled social networks. Synereo goes one step further by building on the distributed block chain technology at the heart of Bitcoin. You can read the Synereo plan to learn more details.

The first thing to note about Synereo is that it takes the notion of an “attention economy” very seriously. In Synereo, the value of one’s attention is determined by your “Reo,” a kind of stored reputation that inherently makes some users’ attention more valuable than others. Users with more Reo have an easier time getting their content seen by others, getting more compensation for their attention and getting more relevant information on the network.

Synereo will also use a crypto currency called AMPs, a “content flow currency” for amplifying information on the network. People or projects with lots of Reo probably won’t need AMPs, except for when trying to spread content beyond their normal network reach. You earn AMPs by contributing to the Synereo project, signing up and migrating information over from an existing social network, by getting others to join, by contributing to the development of the platform, and, critically, by paying attention to advertisements on the network.

It’s too early to know whether Synereo will succeed with its ambitious plans. What is clear to me is that the people behind this plan are doing some very good thinking about information flows within social networks. If they can build what they’re planning, it will be great advance over what we have today. One of the important questions I will be following is how Synereo’s designers handle the difficult tradeoffs around questions of fairness and the natural tendency of networks to concentrate resources into fewer and fewer hands.

Solution 3: You Are the Owner

reddit

On September 30th, CEO, Yishan Wang announced that 10% of reddit’s recent injection of $50 million in venture funding would be set aside as a way to recognize contributions from reddit community members over the years. If that weren’t enough, the company is proposing to do this by issuing a kind of alternative reddit equity, based on a Bitcoin-like crypto currency:

CAVEAT: KEEP IN MIND THAT THIS PLAN COULD TOTALLY FAIL

We are thinking about creating a crypto currency and making it exchangeable (backed) by those shares of reddit, and then distributing the currency to the community. The investors have explicitly agreed to this in their investment terms.

Nothing like this has ever been done before. Basically we have to nail down how to do each step correctly (it is technically, legally, and financially complex), though in our brief consultation with an ex-SEC lawyer, he stated he could find nothing illegal about this plan. Nevertheless, there are something like 30 different things we have to pull off to make this work, so we’re going to try.

– Yishan Wang on reddit

Crypto equities are starting to generate some attention. Companies like Overstock.com are exploring their possibility, and it’s starting to feel as though Silicon Valley is preparing an assault on Wall Street’s hegemony over our equity markets. What is interesting about the reddit case is that the firm’s investors are putting their money where their mouths are in acknowledging the value of end user contributions. They’re telling the reddit community that their contributions make them owners too – and that’s a big deal. Luckily, these investors also happen to be some of the very same people pushing the Valley’s assault on Wall Street.

How reddit equity might be distributed to its community poses some difficult questions. They could allocate it based on the community’s existing reputation system called reddit karma. Many reddit users just use the service to find interesting content though, never contributing comments and links themselves, but still generating views, which is an important factor in the company’s fledgling advertising efforts. So, getting this distribution question right may prove just as tricky as clearing the legal obstacles to their plan. I wish them luck because I believe what they are attempting is very important.

Reveal

With the growing interest in Bitcoin and crypto currency-based approaches to equity, we will see a growing number of entities proposing to give away equity as a reward for user contributions. Reveal is an example. I’ve not tried it, but from looking through the documentation and online discussions, it feels like more of a crypto currency with a few social network features tacked onto a very lightweight mobile app. Their equity allocation plan essentially sets aside 8% for sign up rewards, 8% for referrals and the remainder for engagement incentives that become increasingly expensive to earn with each passing year.

The Perils of Money

One of the big problems with introducing compensation into social networks is that it creates incentives for gaming the system. Google expends a lot of effort fighting email and search results spam, and I speak from personal experience when I say that groups and communities on social networks are under a constant deluge as well. What’s more, today’s spam is created simply by the lure of traffic that might result in revenues – so imagine the incentives for abuse with services that provide direct financial rewards. Just a few days after launch, Tsu found itself inundated with attempts to rack up views with low quality posts and had to set limits on the number of daily posts and shares that users could make.

Any social network built around rewarding end user contributions is going to need to devote serious engineering resources to protecting the integrity of the system, much like an immune response in nature or anti-spam solutions today. Automation will be critical, but humans will still play valuable roles in spotting the nuanced and ever changing ways that systems can be gamed. What’s been interesting to watch on Tsu is that the community seems to be stepping up and shunning people who post spam. This makes sense. On social networks, aside from communities and groups where the dynamics are a bit different, people who are too spammy quickly get un-followed.

I’ve speculated elsewhere about recognizing end users’ contributions to a policing function that goes beyond just un-following (and yes, there is potential for abuse here as well). The designers at Synereo are investigating online gaming solutions to abuse problems such as the tribunal system run by League of Legends. Developing these solutions will be resource-intensive work, but if social networks are to evolve so that they reward end-user contributions, we need to see these anti-abuse functions as simply a new cost of doing business.

Money often costs too much. –Ralph Waldo Emerson

The other problem with money is that it often changes the nature of what it touches. When money enters into the equation, it sometimes distracts and confuses our understanding of why we’re even doing something in the first place. We more easily mix up ends and means, and jobs become just paychecks. Daniel Pink has shown in his book, Drive, that it’s not money, but autonomy, mastery and purpose that most deeply motivate us.

So there truly is a risk that, in introducing financial rewards for our contributions, we may very well kill the goose that lays the golden social network egg. The great irony would be if, in building social networks that no longer treat us products, we began treating each other as products.

Developing “End User Equity” (EUE)

So, how do we recognize the contributions that end users make in social media without destroying what is, by most counts, a pretty amazing ecosystem for distributing information?

My first job out of business school gave me an equity stake in my work. It was Microsoft, and that stock option program made a big difference for thousands of people here in Seattle, where I live. Stock options aren’t perfect, but I do think they address some thorny issues. For the sake of argument, let’s imagine a stock option, based on crypto currencies, granted to end users based on their contributions in social media.

Users wouldn’t get paid immediately for their contributions. Compensation happens only when – and if – the network is successful, that is to say, profitable, over the long-haul. That gives end users an incentive to concentrate on the good of the platform and the community over the long-haul. That longer-term timeline for payout would also help dissuade gaming of the system by significantly increasing the time required for payout.

There also seems to be a subtle psychological shift that happens when what I earn is a stake in the platform, rather than an immediate royalty or paycheck. I’m eager to hear how others feel, but to me, options feels a bit less mercenary and distracting. With options, I’m making a bet on, an investment in, the long-term success of the platform and the community. By making these investments, I help others who are investing with me, and I forge a trail for those who come after me, and I don’t think it would feel quite as awkward being rewarded for bringing people into the network.

Equity is tricky though. Its value grows over time with the success of the venture, so early pioneers are compensated for their early work in a way that allows them to ride on the work of those who come after them. In one sense, this is fair compensation for their risk taking and early investments in turning the platform into something valuable. But if left unchecked, an equity-based solution can play the same wealth-concentrating function as any pyramid.

So there needs to be a way for later contributors to ensure that their work is fairly valued too. In today’s employment system, one solution lies in a mix of wages and stock options, and I suspect that we will end up with something similar as we develop “end user equity” in social media.

When you look closely at their models, what’s interesting about Tsu and Synereo is that they seem to be doing something like this mixing – just with a different set of tools. With Tsu, the family tree gives me a slice of all my descendants’ future revenues, which is kind of like them working for me as an owner in the business. To be clear, it’s not actual equity, but in an odd way, Tsu’s pyramid sort of plays that function. With Synereo, the more users contribute and the higher their contributions are valued, the higher their Reo reputation and the easier it is for them to earn AMPs. Again, it’s not equity, but it performs some of the same functionality.

The real key will be how Tsu, Synereo and others use their algorithms to balance fairness, so early contributors are rewarded for their work and risk taking, while continuing to generate opportunity for newcomers. This will be hard work, and we are still in the very early stages of these new approaches. Many of today’s experiments will no doubt fail. But out of those ashes, I believe we will find a new meaning for equity – one that is built on end user contributions to our new way of creating and disseminating media as a society.

Who knows? All this activity and experimenting may shift end user expectations enough that even established players like Facebook may soon find it impossible to ignore the idea that we are not the product.