Unblocked

by Alison McCauley

  Figure 8-1. The path to digital sustainability. When consumers become aware of the true price they pay to participate in a platform, they may consider that platform less valuable. As alternatives come to market, a disillusioned customer may be more willing to try something new. Over time, and with more awareness of true costs, consumers will come to expect products that are more balanced.

  When Web 2.0 products first came on the market we were enamored. We freely gave, were quickly hooked, and were easily harvested. For some, it may take a single dramatic awakening (like the Facebook scandal) to trigger disillusion. But for others, it may take a series of smaller events. But these are just precursors to change. These products are deeply entrenched in our daily lives. It will take more to incent a true shift. It will take the launch of more attractive alternatives.

  What Blockchains Make Possible

  Blockchains as a Foundation for a More Sustainable Digital Future

  Blockchains, along with the use of tokens, offer several unique, core elements that can be designed to support the more equitable sharing of value between contributor and business. As innovators work to develop and launch products that embody these elements, they will trigger a next step in the progression toward a more sustainable, more balanced, digitally driven world.

  Smith + Crown head of research Matt Chwierut explains how this could work: “One of the areas that excites me most is how tokens create an economic model for user-generated content and actions. Web 2.0 business models are often based on advertising and harvesting data, but blockchains open up a world in which micro-actions and micro-contributions can be compensated. They create ways to substantiate and reward value. Users can even build their own business models around their contribution of content or services. And blockchains provide a very efficient payment rail for everyone involved.”

  Certainly, some digital players today give a form of compensation for contribution. One could argue that YouTube’s placement of video ads before content represents a kind of compensation for an action taken: watch part of an ad, and get rewarded with the video content they’ve hosted and served for you. Perhaps more directly, YouTube gives “creators” who meet certain criteria access to resources, events, and even a share of revenue made when viewers take action on the ads shown with their content.

  But this is still a very lopsided arrangement. The percent of revenue that the contributor gets is small. The investment a creator needs to make in meeting the criteria and understanding the program is high, shutting out many who are not willing to make a dedicated effort, or aren’t sure their content is strong enough to make the effort worthwhile.

  Blockchains Promise Direct and Feature-rich Compensation

  Compared to what is possible with blockchains and tokens, today’s efforts to compensate consumers looks simplistic, almost crude. Multiple features of this new functionality converge to enable a way to finally, and potentially even elegantly, compensate customers for the value they contribute to a network:

  The flexibility to compensate a broad range of contributions, including data, content, or even attention or engagement. These could be micro-behaviors such as engaging with an ad, or something more involved, such as rewarding the impact of a piece of content measured by number of shares or high reviews. (See more on the potential for rewarding micro-behaviors in Chapter 9.)

  The capability to tie contribution to a unique identity, even as that contribution, whether data or content, moves from one application to another.

  The capability for the contributor to control how their contribution is used, and track that usage, no matter where or when it happens.

  A mechanism—in the form of cryptoassets or tokens—to compensate a user immediately and directly for this broad range of contributions (they can be used to incentivize behavior as well, as we will see in Chapter 9.)

  The ability for compensation to come from many kinds of participants, even directly from one consumer to the other, such as in the form of tipping or voting with tokens.

  Value Will Solidify (One Way or Another) with Market Maturation

  Today, the liquidity of cryptoassets varies greatly, and liquidity is a key driver of how value is perceived. Yet, as the space evolves, a wider range of merchants, service providers, and even other consumers will accept cryptocurrency or other cryptoassets as a form of payment. The exchanges that enable one cryptoasset to be exchanged for another, or for US dollars or other traditional government-issued money, will mature and be more accessible to the average consumer (today many are difficult to use). We have already seen companies like Expedia, Overstock, Dish Network, and Microsoft accept the first cryptocurrency, bitcoin. Japan passed a law accepting bitcoin as legal tender. While the number of US households holding cryptocurrency is still low, several analysts estimate that over a third of households in South Korea hold cryptocurrency. As the market matures, and these assets also become less volatile, the perceived value of cryptoasset-based compensation could very well rise.

  Note, however, that compensation may be perceived as valuable even if it is not used as a traditional currency. In fact, as the space evolves and adoption rises, we can expect that consumers will have a choice to exchange “earnings” directly for products or services that are valuable to them, similar to the way that airline loyalty points might be used. (I discuss loyalty programs in more detail in Chapter 9.)

  Implications: What Happens When Your Customer Knows Their Worth

  The Birth of the Alternative

  Innovators will leverage this new functionality to develop alternatives to today’s imbalanced internet applications. There are already dozens of funded teams around the globe working on alternatives to Facebook, Google, Amazon, Uber, and Airbnb that reward consumers for the value they create. There will be many, many more contenders before winners start to emerge.

  As entrepreneurs introduce more and more viable products with blockchain-driven compensation models, consumers will start to see that they can achieve some control. If a particular consumer has been disillusioned with the products they use today, or if they highly value the compensation offered by an alternative model, they may very well convert.

  Let me be clear: the practice of using tokens to compensate contribution is extremely nascent. There is not clear regulation or a proven business model in place yet. But initiatives that are eventually successful can build on the backs of large addressable markets. And they could potentially achieve a level of loyalty, engagement, and high-quality contribution that eclipses that of today’s models.

  The Short Journey from Exposure to Expectation

  We can expect that some entrepreneurs will focus their initial work on relatively targeted and specific audiences. We can also expect that once these consumers are exposed to the idea of being compensated for their contribution—whether this contribution is content, or data, or even their attention—they will eventually learn to ask for it. And it is then a short distance to come to expect it.

  As this “compensation mindset” becomes more ingrained for these first target audiences, we may see adoption spreading outward, in an epidemic-like pattern, from their spheres of influence (family, friends, community members, colleagues, and so on). We’ve seen this before in platforms like Facebook, which first took hold with college students; with Airbnb, which first took hold with members of the Democratic National Convention, who were at a loss for rooms in an overcrowded city; and with Twitter, which gained an uptick in traction among SXSW attendees.

  Where It Could All Begin

  Crypto-enthusiasts are an obvious choice. While the number is hard to peg, one popular digital currency exchange, Coinbase, has over 20 million accounts (double the number of brokerage accounts at Schwab).106 But let’s dig a little deeper to examine how innovators could influence broader knowledge, understanding, and adoption of this compensation mindset with another large, global audience.—for example, the 2.2 billion gamers worldwide.

  How One Audience Could Influence
Adoption

  In the debates over where adoption will accelerate, gamers are in a strong position to be an early audience. Games have been using virtual currencies for over 20 years. Users are accustomed to purchasing, earning, and spending in this way. From Playstation Store credits to digital Xbox Live memberships, digital assets and goods are not foreign to modern gamers. Tavonia Evans, the founder and CEO of a blockchain company and mother of eight, explains, “There are a lot of millennials and teens who are very aware of cryptocurrency. The concept is not new to them; they look at it as similar to the virtual currencies they are already using online. And if a match gets lit in this area—well, we all have seen how quickly something small can start a movement.”107

  Gamers also trend technically sophisticated: a recent Magid Media Futures study found that gamers are more tech savvy than the average online user.108 This could indicate that, if properly motivated, they would be willing to jump in even before user experience (UX) has reached the point of being truly consumer-ready.

  A high number of blockchain-based companies will be directing marketing dollars to educate gamers on what a blockchain makes possible. In the last few years, there have been 50 ICOs for gaming-focused projects, from over 20 nations. The top 10 fundraisers brought in over $300 million alone.109 They include companies that are building products that provide new revenue streams for expert gamers to sell coaching to other consumers, compensate a player for engagement with a brand, or enable gamers to move digital collectibles from one gaming environment to another.

  The success of those projects will depend on many factors, and it is likely that a great many will fail. However, all these teams are aligned in their community about the new types of value that come from this new model. Their marketing dollars will drive awareness and interest among gamers, regardless of how many companies gain actual traction.

  If entrepreneurs build products and applications that resonate with gamers and they become strong adopters, they could influence the spread of knowledge and trust of cryptoassets as compensation. Once gamers are comfortable owning and using tokens, they may then help to make their friends and families comfortable as well (assuming we have reached the point at which products are consumer-ready). Given the number of gamers, their increasing gender diversity (45% of smartphone gamers and 44% of PC gamers are female),110 and how globally dispersed they are, this could be an influential force.

  There are many other possibilities for specific segments that would be motivated to adopt early—for example, digitally sophisticated populations in need of income (think: students) or frequent contributors to an existing platform if it were to add blockchain-driven compensation features (think: bloggers contributing to a platform like LinkedIn or Medium, or reviewers on a platform like Amazon or Alibaba). Each blockchain-driven business will be motivated to also introduce users to the new kinds of benefits blockchains enable, and familiarize them with its unique forms of compensation—and these efforts, gathered together, could be a massive force. If a trusted, established brand makes a strong move into the space, this could also be the trigger of hockey stick–like adoption.

  But regardless of where it starts, its diffusion will move in lockstep with the evolution of the technology. There are formidable challenges to come, including the difficulty of identifying best product-market fit, clunky user experience, limited scalability, cryptoasset volatility, and an unclear and rapidly shifting regulatory environment. However, the quality and volume of the human capital moving in to contribute their minds and skill sets to the advancement of the space is staggering. While it will take some time, we are sure to see rapid innovation that gradually chips away at these obstacles.

  Contribution Doesn’t Always Mean Human

  As we acquire more products equipped with IoT functionality, these assets can also contribute data or even content, and we could be compensated for this as well. Our car could contribute weather or road condition data, our refrigerators could contribute food data, and a drone could capture video footage. It’s not hard to project into a future in which assets like these are making money for us as they contribute value to a digital application or platform.

  Compensation Doesn’t Always Mean Money

  Compensation does not need to be seen as strictly financial. In fact, at least in today’s world, paying consumers directly for data can reduce their trust.111 While this perception may evolve as new digital norms do, we can expect that companies will also become clever in how they frame compensation using tokens, perhaps more as “earnings” or “rewards” than currency, and emphasizing how those tokens can be used to get goods and services consumers value over conversion to traditional currencies. There will be a great deal of important experimentation and learning that comes out of this area in the next few years.

  Toward a More Balanced Future

  These new models will give customers a choice. The unblocked customer will be able to share more equitably in the value they create. They will have more control over who gets to use what, and in what way. For example, a consumer could choose to lock the data exhaust flowing from her fitness tracker, or choose to sell it to Nike, Amazon, or a research study.

  As more products and services gain traction, they will each make a contribution to training customers that there is a new way of doing things. And as more and more expectations change, a new digital norm could evolve: brands will compensate consumers for their contribution to value creation.

  As more and more expectations change, a new digital norm could evolve: brands will compensate consumers for their contribution to value creation.

  But there will be a terminal limit to the amount of value that can be returned to the customer. Our contributions are worth more when shared. A single dataset on a particular consumer is not particularly useful. It is when data is combined across populations and sources, and processed, that useful insights can be extracted. It is an organization’s investment in predictive analytics, data scientists, machine learning, and all the supporting infrastructure that makes it possible to unlock these insights. This costs money.

  Likewise, a single piece of content from your average citizen, no matter how well composed or carefully written, has limited value. It is the volume of content from many contributors that attracts users. It is an organization’s investment in developing an ecosystem of contributors and users, facilitating value-added connection between those contributors and users, and all the infrastructure required to manage and evolve a two-sided platform that makes it possible to drive revenue. This also costs money.

  Margins will be compressed, but they will not go away. There needs to be a motivating driver for someone to make this investment (and that someone could actually be the community itself, as you will see Chapter 9).

  It is not inconceivable to think that one day kids will be shocked that in the 2010s their grandparents paid for Amazon Alexa to sit, gathering data that went straight to a retailer instead of Amazon paying them for the privilege of listening to the family interacting in the intimate space of their own home.

  Cautions and Considerations

  The shift toward fair compensation presents both threats and opportunities to existing businesses. While some of these cautions and considerations are very future-focused, they are meant to provoke your thinking about what could come. This is by no means an exhaustive list; it provides additional food for thought on how to prepare for this new paradigm.

  Cautions

  Moving too early or too late

  As with any new technology, timing is crucial. With its complexity and rawness, this space will prove particularly challenging to time correctly. Move too slowly, and you could be caught by surprise as a competitor discovers a particularly elegant and engaging way to compensate your customer base, and takes them from you. Move too quickly, and you could end up wasting resources and confusing your customers with an ill-executed strategy, clunky technology, or token they perceive as worthless. Internet incumbents have particularly high stakes�
�if they move too quickly, they give more away to customers than they need to, and if they move too late, they risk disintermediation themselves. Discover ways to achieve a more accurate barometer of customer readiness and market landscape, such as conducting customer research, participating in think tank–like sessions with a range of experts, and actively engaging through partners, pilots, and other forms of experimentation.

  Not taking emerging alternatives seriously

  The business landscape is littered with disastrous misfires as companies missed crucial signs of a shift in environment. Let me be clear—I believe the great majority of blockchain-native startups that have raised funds through initial coin offerings (ICOs) in the last few years will fail. And this aspect—compensation—is very difficult to get right. The eventual leaders will have aced the development of an economy, a product that incorporates high-fidelity behavioral economics and network effects.

  But some projects will eventually be viable, and teams will launch compelling products. And we can expect the next generation of blockchain natives—perhaps those founded this year or next—to build on the incredible learning, experiences, and development of the first. And so on. Look carefully. Pay attention. Learn. Even if these young companies and their products are rough around the edges, they are getting very wise, very quickly. Understand what they are getting right—and when they are reaching the early stages of traction with your customers.