One of the most stunning things about the technology we consume everyday is the degree to which it is built, operated and even funded by its users.
The device you’re using to read this post, the software that’s displaying it, the server hosting this content and so much else on the internet are built with open-source code contributed by a global community of developers. Platforms like Wikipedia, YouTube, Twitter, Facebook, and Airbnb all operate around content and products sourced from individuals, not corporations. And increasingly marketplaces like Kickstarter, Patreon, Substack, and many other new Passion Economy platforms enable users to directly fund the products, information, and services that they consume.
As the role of the individual in the creation of value becomes more commonplace, the next step is platforms that are not only built, operated, and funded by users—but owned by users too.
Ownership, via employee stock option plans, has been a powerful tool for incentivizing talented people to dedicate their skills to building startups in Silicon Valley. While this model has been extremely successful, it hasn’t been accessible to all, constrained by geography and legacy financial infrastructure, among other factors. One result is that the economic interests of the biggest internet platforms are concentrated and often poorly aligned with their most valuable contributors, their users. Now, new technologies are shifting work and value distribution to be accessible online, resulting in a new generation of platforms that thrive on contributions from a permissionless and global talent pool.
Ownership is a powerful motivator for users to contribute to products in deeper ways, be it with ideas, computing resources, code, or community building. This more cooperative model helps ensure that platforms remain better aligned with their users over time, resulting in platforms that can be larger, more resilient, and more innovative. This is the Ownership Economy, and beyond being a positive social endeavor, platforms building it are leveraging the strongest form of market incentives to grow network effects.
While most prevalent in crypto today, The Ownership Economy is expanding into other areas in tech. To understand its origins, and where it’s heading, I find it instructive to look at crypto through a historical lens of protocol innovation. We can observe how protocol breakthroughs often expose disruptive new models that, when productized, influence broader trends and go on to impact billions.
Identifying Disruptive Models Through Protocol Innovations
The history of protocol adoption fits a pattern: early-adopters leverage new protocols to do things that were impossible before the new technology empowered them to do so. Very often, this new behavior involves breaking the rules of the status quo. For founders that recognize the opportunity, building products that make the new behavior more accessible can be a winning formula.
Consider the early web protocols: IP, HTTP, and standards like HTML. At first, popular websites used these protocols to create carbon-copies of physical analogues, like newspaper cover pages or classified ads. But as internet adoption became mainstream, users began to take advantage of the two-way protocols and even created new ones, like RSS, all centered around syndicating their own content; independent blogs, podcasts, newsletters, and forums paved the way for the microblogging and user-generated content platforms that dominate publishing today.
Another example is BitTorrent, a protocol innovation of packet distribution, but a disruption that underpinned the streaming revolution. When BitTorrent first became popular, Netflix was still mailing DVDs in the mail. Meanwhile, the peer-to-peer technology enabled consumers to access music, movies, software, and video games instantaneously, as if the files were already on their hard drives. By 2004, BitTorrent comprised one-third of all internet traffic.
Consumers’ passion for torrenting signalled that they wanted to access the world’s media at their fingertips, but for many, BitTorrent wasn’t a user-friendly experience; trackers were moving targets, cluttered and difficult to navigate.
One person who saw an opportunity through the noise was Daniel Ek, founder of Spotify. As CEO of µTorrent, one of the most popular BitTorrent clients, Ek saw that providing access to all the world’s music in a clean, well-designed product would be a winning formula. Spotify’s success proved that piracy wasn’t about getting stuff for free so much as unfettered access to a library of every song ever.
Today, crypto tokens are the latest protocol innovation to expose a disruptive new model. Think of crypto tokens as a protocol for distributing packets of value. Just as BitTorrent allowed us to exchange packets of information instantly, to anyone, anywhere in the world, and without an intermediary, crypto tokens let us distribute value the same way. This breakthrough has highlighted a new model for market-driven, user-operated networks, where users build, operate and own a piece of the products and services that they use everyday.
The Ownership Economy, Pioneered by Crypto
The idea of user-ownership is at the core of the success of Bitcoin and Ethereum, the first user-owned and operated networks at scale. Bitcoin arrived in 2009, the year that marked a rapid acceleration of economic inequality and the role of the internet in people’s daily lives. Bitcoin promised a new economic means to participate in modern technology history, simply by running open-source software on your computer. Rather than needing to live in a specific place and pursue a specific career in order to reap the benefits of the new economy, anyone with an internet connection could participate by “mining” or securing the network. In return, they earned newly minted Bitcoin, an ownership stake in the network itself.
Ethereum’s 2015 launch expanded the type of computation possible on blockchain networks, enabling a broader range of applications and allowing developers to experiment with new ways of expressing ownership in code. The best-designed Ethereum-based applications leverage a business model similar to traditional Web 2.0 marketplaces, but encode them in autonomous “smart contracts” run by Ethereum’s network of miners. This means these applications have no central operator. Rather than a platform’s inner circle of founders and investors taking home the value, users are able to earn the majority of value generated from their collective contributions.
Needless to say, one of the most challenging problems any startup or new technology faces is adoption, especially where network effects are necessary—and even more-so when competing against the existing network effects of today’s dominant platforms. As the early Bitcoin and Ethereum communities came to realize, ownership is a tool to help surmount this hard problem. Those early communities were largely composed of technologists, developers, and enthusiasts who were naturally among the first to recognize the power of tokens as direct economic incentives. But today, founders are bringing the idea of ownership — or at least, better economic alignment between platforms and participants — to new verticals in tech, from developer infrastructure, to financial services, and from consumer marketplaces to social.
How next-generation platforms are driving an ownership economy
The ownership economy doesn’t always mean a literal distribution of tokens, stock options, or equity. It also doesn’t necessarily mean that an application or service is entirely built on a blockchain. Rather, it means that ownership — which may manifest in the form of novel economic rewards, platform governance, or new forms of social capital — can be a new keystone of user experiences, with plenty of design space to explore.
Some examples: In payments, Celo is making digital dollars and financial applications accessible to anyone with an internet connection via a blockchain network that, like Bitcoin, is entirely user owned and operated. In finance, startups like Binance and Numerai have leveraged tokens to distribute revenue from the platform directly to their users, fueling brand loyalty and growth. Compound, a money market, recently completed its journey of progressive decentralization to become a community owned marketplace for borrowing and lending.
Uniswap, a crypto exchange, has a business model similar to Coinbase or Binance in that it imposes a fee on transactions. But rather than the company capturing that fee, it’s instead distributed to the market-making traders that provide liquidity and make the product useful. Since Uniswap is open source and user-owned, third-party developers can have confidence building on the platform and a rich ecosystem of integrations has grown around the project.
In social, Reddit recently announced that 300 million users will have access to tokenized community currencies through their mobile app. The platform will reward participants in the r/FortniteBR and r/Cryptocurrency subreddits with tokens that can be used to pay for membership, tipping, and badges in the Reddit app, giving them ownership over the economy of each subreddit.
Consumer marketplace Foundation is transforming the Kickstarter model by allowing creators to tokenize their projects in a marketplace where tokens can bought, sold or redeemed for goods or services. This programmable, digital representation of ownership unlocks new revenue streams that gives buyers and creators access to new value streams in secondary markets.
Global talent marketplace Braintrust connects top tech talent with large companies looking to hire them. Their marketplace transacts in USD but uses an Ethereum-based token as its core incentive and governance system to distribute value to contributors.
Across verticals, user ownership is emerging as a new tool for bootstrapping growth.
In consumer products, the house-of-brands startup Arfa is rewarding customers who contribute to product development—The Arfa Collective—with a 5 percent share of company profits. They hope these direct economic incentives can help build a more loyal customer base with lower marketing costs over time.
Other platforms like Bird and Dumpling are putting a new spin on the gig economy by allowing suppliers in their marketplaces to run independent franchises, which they own and operate. These platforms combine the scale of software-driven marketplaces with equity value accrual for operators.
The world increasingly understands that “software is eating the world,” so its no surprise that narratives around personal economic empowerment on the internet are resonating now more than ever. Just as the barriers to professional productivity online have fallen dramatically, so too have the hurdles that previously prevented the equitable and secure distribution of economic value.
Introducing Variant: a firm dedicated to the ownership economy
The power of user-ownership exposed by crypto is an opportunity for founders building new products and protocols that bootstrap adoption through better alignment with users. I’m hoping to work with them at Variant, a new investment firm where I’ll partner with early-stage projects and communities working to grow the ownership economy.
After building and investing in the space for nearly seven years, I am doubling down on the pursuit of a more equitable and innovative internet.In 2014, after starting my career in music as an artist manager, I cofounded Mediachain Labs. The company’s goal was to build infrastructure that would allow creators to capture more of the value they generated on media platforms. That project was acquired by Spotify, where I led blockchain R&D with similar goals in mind. In 2018, I joined the investment team at Andreessen Horowitz to take a wider view of crypto networks, their capabilities, and their applications. And now, at Variant, I hope to work with this generation’s Daniel Ek’s: product-driven founders who understand how the disruptive potential of user ownership can be a keystone of new product experiences.
If that’s you, please reach out! I’d love to hear about what you’re building.
Stay tuned for more details on Variant soon:
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Denis Nazarov, Ali Yahya, Li Jin, Toby Shorin, Fred Wilson, Fred Ehrsam, Nathan Schneider, Jarrod Dicker, Byrne Hobart, Sarah Sherman for feedback on drafts of this post.