Blocks of Disruption hit the media business as Privacy finally hits the front page in 2018

Blockchain & Media.002

This is Part 2/chapter 6 in The Blockchain Economy serialised book. For the index please go here.

Daily Fintech is a media business. Our domain is financial technology, but we are a media business. So the impact of Blockchain on the media business is personal. As one of 7 billion people on this planet who likes to communicate with other people, the future of social media is also personal.

This simple A/B test will reveal what you think about this subject.

The Facebook Cambridge Analytica story is:

A. Just another privacy backlash that will blow over, after much noise and fury, like all the past privacy backlashes that Facebook rode past so skillfully.

B. As big a threat to Facebook as Mobile in 2011 but this time Facebook  cannot simply buy the equivalent of Instagram and WhatsApp.

The wisdom of the crowd signalled by the Facebook stock price says A. This post/chapter offers a contrarian view that B is true. In which case, Facebook’s decline is inevitable (which is not the same as imminent ie shorting is a very dangerous game where timing is everything).

Betting against Facebook has been a very dumb move for a long time. This is the Facebook era and Mark Zuckerberg is one of the smartest, most driven entrepreneurs the world has seen (up there with Gates, Jobs, Bezos, Ma). However this post/chapter offers a contrarian view that B is true by describing:

  • the two earlier waves of media disruption and why the coming third wave is fundamentally different.

 

  • why political grandstanding is more than simply theater and why 2018 maybe the Year of Privacy

 

  • some early attempts at decentralised, user controlled media. 

The two earlier waves of media disruption and why the coming third wave is fundamentally different.

Wave 1: From print to digital. This was hard. The mantra was that $1 of Ad revenue in print became $0.10 of online Ad revenue. Few companies could navigate that well.

Wave 2: Eliminate paid writers by tapping into user generated content. The platforms producing this free content (Facebook, Google etc) set the ad rates (and did well based on zero cost of content and scale from network effects). Paying humans a salary to write became a very difficult business model. To make it worse, Adblockers and Ad Fatigue (humans tuning out ads) led to a vicious circle of declining revenue leading to declining content quality leading to…

The only temporary bright spot is video. It is harder to tune out/block video ads, so YouTube is thriving with a long tail of content producers aiming to emulate the winners at the top of the power law distribution. This is not sustainable and one sign of the coming decline is the growth of annoying textual content that is spoken in a robotic voice just so it can go on YouTube and get some ad revenue.

The ad driven model that powered the Internet for over 20 years is under serious threat.

Content producers who care about content quality are moving to a direct revenue model in one of two ways:

  • Paywall subscriptions. This works for business content where time is money (eg FT and WSJ) but the NYT subscriptions shows that investigative journalism about world affairs can also be funded this way.
  • Donations, via regular appeals to readers/viewers. This keeps the content open and relies on passionate supporters. It works when the original funding comes from an ultra rich person who cares about journalism (eg Pierre Omidyar funding The Intercept) and this can come at the expense of political objectivity. 

Wave 3: users stop being products and become customers & shareholders. This does not exist yet today at any scale but it is technically feasible and commercially compelling. The idea is described in an earlier chapter/post as Digital Cooperatives and is quite simple – the users of a social media service pay a small subscription (meaning they are customers not a product to be sold to advertisers) and they share in an economic upside through a token. Run the numbers and you can see that it is a compelling business proposition – one billion users (about what Facebook has) paying $1 per year (easy for even the poorest on the planet) and with $100m in annual operating costs (servers, developers etc) has $900m in annual profit, meaning those 1 billion users would get back close to their $1 annual subscription each year in dividends.  That is a deliberately simplistic model to illustrate a point  – earlier users/investors would get more. It is technically feasible with current Blockchain technology and the numbers above show that it is commercially compelling. Whether it will happen and how this might play out is described later in this chapter/post. 

Why political grandstanding is more than simply theater and why 2018 maybe the Year of Privacy

Mark Zuckerberg getting grilled by politicians made good theater. It is more than that because politicians are expert at reading the public mood – that is their core competency that enables them to make a living.

In past waves, the threat of regulation came when the wave was already cresting. That is what happened to IBM and Microsoft in the past and what may be happening to Facebook today. What is relevant is not so much the regulation as that the politicians are reading the public mood.

I have been a privacy nut for over 10 years (as this post on ReadWrite from 2007 illustrates). Finally in 2018, I am taking the trouble to do something about it.  I think of social media as an addictive bad habit that takes away time from genuine human connection and productive work. 

My first action was the simplest. I switched my search engine from Google to Duck Duck Go. That took me less than one minute and with no degradation in experience (and possibly better experience in some areas).

Switching from Facebook is harder. It involves changing personal habits and that is hard – ask anybody trying to lose weight.

Like any bad habit, it takes a near term trigger (or multiple triggers) to actually make you take the steps to change. For me the three triggers in 2018 have been:   

  • Trigger 1: The Cambridge Analytica story. Knowing something is bad for you and having it thrust in your face are two different things.
  • Trigger 2: The celebrity #deletefacebook campaign. The voice that says “if you don’t spend hours on Facebook every day you will be lonely and isolated” keeps you glued to your screen. Seeing some of the most successful people on the planet saying “it ain’t so” is a comfort.
  • Trigger 3 The latest Facebook TOS (Terms of Service) change which generated headlines such as this:

Facebook rewrote its terms of service and data policies to better explain what data it is collecting about you. You should read them.

Of course you don’t read them. Who has time for this when you want your social media fix? Bundled in those new TOS was a classic Facebook move. While the headlines are all about respecting privacy, buried in the terms were big steps away from privacy in areas such as facial recognition. For a more critical, analytical view read this post on Techcrunch. 

My options were:

  • Work really hard to use a degraded version of Facebook that kept my data a bit more private.

 

  • #deletefacebook.

I chose the latter. So far I have had few withdrawal symptoms. The stock market is saying that a few outliers choosing to quit the Facebook habit don’t change the numbers. Short term that is true. Longer term maybe different and that is what brings this story back to Blockchain.

Some early attempts at decentralised, user controlled media and why it has not happened yet. 

For a long time, anybody suggesting that the Facebook Era (aka the Centralised Social Media Era) was coming to an end was told:

Yeah right. So how is Diaspora doing?

Eeyore seems to win that one. Diaspora was started in 2010 as the decentralised Facebook alternative and it never went beyond its technical early adopter market. 

Game Over? Facebook will be the most valuable company on the planet and take the lions share of user attention and ad dollars for decades to come?

History suggests that this is unlikely. Research by Daily Fintech shows that the Competitive Advantage Period is halving with each wave of technology – from IBM/Mainframe to Microsoft/PC to Google/Web to Facebook/Social. We measure the years of absolute unchallenged dominance, preceded by years of obscurity and followed by many cash cow years after dominance has declined but the franchise is still strong.  This halving of the Competitive Advantage Period  indicates that the  Facebook Era is nearing its end.

The game-changer is the ability to let millions of people share in the economic rewards of the networks that they help to create. Instead of a handful of people making $ billions from a network such as Facebook, how about millions making $ thousands and hundreds  of thousands making $ millions? That is the Digital Cooperative future enabled by value exchange online using digital tokens/currencies.

Since the Blockchain era began in 2009 (with the Satoshi Nakamoto White Paper), the idea of decentralisation has taken hold and has been proven to work. We are no longer in the realm of a few isolated experiments such as Diaspora. We now also have Steemit and DTube and more are in the pipeline.

So far these are all full frontal assaults. They may work. Innovation history suggests that a more indirect model may work better, with new decentralised networks gaining traction in niches ignored or underserved by the big networks and then these networks link to each other.

One way or another, the centralised media empires are likely to be replaced by decentralised media networks that are controlled and owned by their users.

Facebook cannot simply buy these threats like they did with Instagram and WhatsApp when faced with mobile. The move to mobile involved a wrenching user experience shift but the basic business model was intact – attention logged in central servers monetised into advertising. The move to decentralised user controlled media networks is a total business model shift – Facebook cannot go there without destroying their current business.

 

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