Opportunities for Blockchain Based Social Apps
By Kyle SamaniApril 9, 2018 | 11 Minute Read
There are a few commonly cited arguments on why it makes sense to build social media platforms on top of blockchains, and how these benefits will enable upstart social media protocols to displace incumbents.
In this essay, I’ll make the case that despite the benefits of moving social media onto blockchains, it’s unlikely that this will happen, at least directly. I’ll then explore alternative options for blockchain-based social apps.
The Problem: Incumbents Are Rent-Seekers
Facebook, Google, Twitter, Reddit, and Snapchat unilaterally control their respective platforms. These companies generate billions in revenue by selling ads alongside user attention. Content creators generally don’t share in the profits from ad sales, except on YouTube and Twitch, where creators can share in profits, but only above certain thresholds, and even then YouTube and Twitch take 25-45% of ad revenues.
One common argument for blockchain-powered social media states that by putting this content on blockchain, content creators can monetize their content directly (through a decentralized advertising exchange, tipping, or a Steemit-like upvoting system) and circumvent a middleman who extracts profits.
But, in general, startup companies (and startup blockchain networks) shouldn’t go after incumbents who are protected by strong network effects head on. This has been demonstrated time and time again. For example, Google spent hundreds of millions on Google+ going after Facebook, with little to show for it. Facebook tried to grow Messenger into a Whatsapp competitor before capitulating and purchasing Whatsapp for a whopping $19B. Microsoft launched Windows Phone as a direct competitor to iOS and Android to no avail.
To be fair, there are counter-examples. Perhaps the most successful recent example is Telegram, which, despite a late start, has grown into a juggernaut in the over-the-top messaging space despite facing competition from the likes of Whatsapp and Facebook Messenger. But these exceptions are truly rare.
As much as I’d like to see a blockchain-based network displace the incumbent social networks, competing with them head on, even if powered by economic incentives on a blockchain, seems naive. Most consumers are content participating in these networks without being financially compensated. Facebook generates about $100 of revenue / user / year in the US (much lower elsewhere in the world). Telling people they’ll be paid $8-9 / month for posting pictures of their kids, friends, and pets doesn’t seem like the right way to get people on board.
What then are the opportunities for blockchain-based social apps? Below I’ll outline three major types of opportunities.
Building Communities Around Scarce Assets
The very broad answer is that social apps that seek to build on blockchain need to explore novel social spaces that are uniquely enabled by blockchain. More specifically, there seems to be an opportunity to build social apps that leverage provably scarce items to drive engagement. Decentraland was the first example, and Cryptokitties more recently popularized the idea.
It seems a bit crazy to project that people will want to own large numbers of unique cryptographic blobs of data that represent silly digital objects. But actually, it’s not. We already know that people value scarce objects: see art, rare cars, and unique real estate. In time, arbitrary cryptographic blobs of data that represent arbitrary sets of on-screen pixels will come to be valued in the same way that arbitrary brush strokes on a canvas are.
There is already a large economy for digital goods. People spend on the order of $50B annually on digital, in-game goods that are not provably scarce. These games support thriving, engaging communities.
Developers will build thousands of apps around cryptographically-scrace digital assets. Dynamic, engaging communities and commerce will organically emerge in each community. Some of these will be tied to real-world phenomena, like reality TV, game shows, etc. Others will be built on fictional universes like Harry Potter.
It’s not clear if it’s sensible to leverage these niches to try to compete more directly with incumbents such as Facebook, Reddit, and Twitter in broad-based self-expression (rather than around shared niches of interest). It may not be.
One possibility in this path is to layer in cryptographically scarce digital assets using augmented reality technologies into pictures and videos. Indeed, Snapchat has already demonstrated that consumers love engaging in this kind of behavior with filters. This can create a path by which users blend digital and real worlds, and share their intimate pictures and videos with family and friends.
Lastly, if augmented reality glasses become mainstream, the opportunities for provably scarce digital assets as unique forms of self-expression and identity seem immense.
Breaking Down Silos And Creating New Models For Co-Opetition
In the pre-blockchain era, a lot of what I’ve described above can be accomplished, but without provable scarcity and self-sovereign asset ownership natively provided by blockchains. Indeed, many such silos already exist (e.g. gaming).
Blockchain-based social media apps can innovate on another avenue that’s uniquely enabled by blockchains: a cross-application, shared, public database. By allowing many developers to plug into a single, open database, it seems possible to design entirely new models for self-expression. This is completely unexplored territory, and the opportunities are highly speculative. But let’s try to think through one anyways. Consider the following:
Let’s start with an open image database. Users can upload pictures with filters to share with friends. Then friends can apply other filters from app developers to a friend’s photo, and share the picture back. Friends can also choose to layer games into the photo stream. For example, friends could challenge one another to take a picture hanging upside from a tree within 3 hours. After posting the picture, some friends could layer a game like Draw Something to draw a ladybug on the picture.
These examples are kind of silly, and rather primitive in thinking, but given what we know about how people use Snapchat filters, these types of examples seem entirely plausible. Compounded across more developers, more people, and more content, blockchain-based social media protocols will unlock all kinds of new ways for people to express themselves.
If you take this concept to its logical conclusion, you’d eventually get a single, massive, open stream of user content – articles, pictures, videos, check-ins, RSVPs to events, etc.
With an open data set, developers will build thousands of apps, each of which can build on top one another. Users would be able to “peer” into the stream using the app of their choice, and interact with the underlying data however they see fit. This will certainly create new types of UX problems, but in time they should resolve themselves as standards and best practices emerge.
The exciting part about a shared, open database is the opportunity for co-opetition among developers. Each developer will of course try to encourage users to use their particular app. But because the underlying data is open, developers will be able to compete with one another while building on top of one another’s features and user behaviors. All kinds of new behaviors could emerge as developers compete to help users express themselves in ways that were never before possible.
If there’s any way to take on the social media incumbents directly, this is likely to be it. One of the best ways to defeat a monolith is to empower thousands of independent actors to attack the monolith from every angle such that the monolith doesn’t know what’s happening or how to respond.
To be clear, nothing I’ve proposed above addresses the hardest question: what’s the right set of behaviors to foster in order to kickstart this open network from a cold start?
Smart Media Tokens
I’m intrigued by what Steemit is enabling with Smart Media Tokens (SMT). Although on the surface each SMT-based project falls into the bucket described above as not uniquely enabled by blockchain beyond economic reward, in aggregate SMTs will enable a massive wave of experimentation as hundreds of publishers play with novel economic models.
As noted above, telling people they can be rewarded $8 / month for posting pictures to Facebook is unlikely to work. On the other hand, there may be interesting opportunities to reward people for creating viral semi-professional content such as memes, funny videos, etc. SMTs are also likely to work well in particular niches, although it’s not yet clear which niches are most ripe for this kind of content discovery and curation model.
If there are any new paradigms to be discovered within the realm of “reward people for producing good content” it’s likely that SMTs will find support these new models. SMTs are still early, but I’m looking forward to seeing how the SMT experiment plays out.
Thanks to Jesse Walden, Tony Sheng, and David Jefferys for providing input on this essay.
Disclosure: Multicoin Capital doesn’t currently have any positions, long or short, in any blockchain-based applications in the social media or non-fungible token spaces.