Photo: Rudy (Loïs) Pignot
I am in Paris this week for OuiShareFest, and spoke yesterday morning during the opening session. OuiShareFest is in its third year as a large international gathering of folks interested in the peer/collaborative/sharing/networked society, put on by the community organization OuiShare.
The topic of this year’s fest is “lost in transition”, and the prevailing feeling from the community here is a growing concern about the relationship between peer economy platforms and participants, specifically regarding distribution of value, control, etc. This is not really a big surprise, given the huge financings and staggering valuations that many corporate platforms in this space are putting up.
At the same time, the rise of the blockchain as an application platform has put a lot of people (ourselves at USV included) on to the possibility of a practical, functional alternative to centralized web services.
So, whereas I gather that the tone of the first OuiShareFest in 2012 was unabashedly glowing about the peer economy in all its forms, this year’s fest is much more pensive and reflective about the power dynamics built into web platforms, and in particular their relationship to established power in the form of capital investment.
For my talk, I wanted to take this issue head on, place it in a historical perspective, and help people think practically about what might come next and how to get there.
I’ll give a condensed, annotated version of the talk here:
The title “venture capital vs community capital” is an intentionally provocative strawman. The point I want to make is that of course there is a natural tension here, but it’s not a brand new dynamic, an either/or choice, or a zero-sum game.
Rather, it’s part of a recurring pattern that we can see dating back decades (if not much longer) in the history of technology. Viewed this historical lens, we can see the patterns of this cycle and use them to help us understand where the viable opportunities will be in this phase.
But first, I want to point out that the reason we’re all here is that we believe in the power of networks — of the connected society — to expand knowledge, deliver economic opportunity and solve big problems (energy, health, education, etc) in ways that haven’t been possible previously.
Right before my talk at OuiShareFest, Robin Chase went on and made a compelling plea for us to come up networked, scalable solutions (both venture-backed and community-backed) to the biggest issues facing the planet today, her biggest one being climate change. I am a firm believer that this model will continue to have profound, deep impacts on how we live, how we work, how we learn, and what we make, and that we are still in the very early stages.
But, as we become more and more familiar with this model, we’re starting to pay more attention to the particular architecture of these networks, and the power dynamics built into them.
1/ The Problem (opportunity)
So, the problem that many in this space have identified is a growing concern about the imbalance of power between peer economy platforms and the participants they support, especially as the most mature platforms (Airbnb and Uber being the elephants in the room, but there will be many more) grow to be very large, wealthy and powerful companies.
The problem is essentially one of trust. And specifically in the case of peer economy platforms and workers, it’s about economics and control. One way to think about this is that as this space has matured, platforms have a tendency to “thicken” — to do more, take more, and exert more control. So the question becomes, are participants here getting a fair deal, and do they have an appropriate amount of freedom and control? There is a growing sense that they may not be, and that alternative architectures need to be investigated.
While this may feel scary to many observers of the space, especially those coming at this from a public interest perspective, we shouldn’t be surprised to see this happen. Rather, this is what always happens as companies explore new spaces and establish profitable business models.
So rather than look at this phenomenon simply as a brand new problem to be solved today, it’s more useful to see it as yet another phase in a recurring cycle, that presents both known challenges and known opportunities.
Looking back at the history of major tech platforms over the past 30 or so years, we can see this cycle turn (note: this is not intended to be exhaustive or complete):
(Note: the green boxes are companies, and the blue bubbles are “open” technologies like free software and open protocols — i.e., venture capital and community capital, respectively)
IBM and AT&T once had a monopoly on the PC and the telephone network, respectively, which was opened up by the PC clones and the modem going over-the-top of the telephone network (not to mention the government break-up of AT&T).
Next, Microsoft had a lock on PC software through Windows and Office, and AOL (along w Prodigy, Compuserve, etc) had the online market locked down. This lasted until the proliferation of Linux and IP protocol stack, which poked a hole in Microsoft’s desktop OS as well as AOL’s walled garden, giving us the open internet.
Then, on top of that newly open platform, today’s leaders in web (Facebook, Google, Amazon, Twitter, etc) and mobile (Apple, Google, Xaomi) built their businesses. It’s worth noting that, with the exception of Android, there hasn’t been a really meaningful hole poked in the business positions staked out by this generation of companies (though there have been attempts, such as Diaspora for Facebook and Pump.io for Twitter)
Finally, we’re left with today’s peer/sharing/collaborative economy marketplace platforms. These are the new, venture-backed companies staking out territory and building what will become the next generation of powerful incumbents. And while we have seen the beginnings of open protocols that directly challenge their power (like the La’Zooz ridesharing protocol), it’s all very very early.
So there’s the pattern: tech companies build dominant market positions, then open technologies emerge which erode the the tech companies’ lock on power (this is sometimes an organized rebellion against this corporate power, and is sometime more of a happy accident). These open technologies then in turn become the platform upon which the next generation of venture-backed companies is built. And so on and so on; rinse and repeat.
So, all that is to say: this is not a new thing. And that seeing this as part of a pattern can help us understand what to make of it, and where the next opportunities could emerge.
Given this moment in the cycle — where we have a small number of large and powerful platforms in some sectors, and a growing sense of discomfort about that power — how might people who affect change go about doing it?
In this section, I want to really stress the “how do you get there part” more than the “what might an alternative architecture look like” part. It’s quite easy to imagine a “driver-owned uber” (as many people here have suggested) in its fully realized form, but it’s much more difficult to think about how such a thing might come into being. The history of technology is strewn with failed attempts to replace closed/proprietary systems with open ones.
Here, I’ll point out four ideas that may be helpful in thinking about this:
“Convenience trumps just about everything”
— Steve O’Grady, analyst at Red Monk (link)
Today at OuiShareFest, Aral Balkan from Ind.ie talked about a major failure of the open source movement over the past several decades: to sacrifice short-term usability and experience for long-term (and abstract to most people) freedoms. He framed this problem as “respect for experience” and “respect for utility” (or something along those lines) as the two partner values along with respect for human rights. I would agree with that, and anyone following this space can note the failure of past attempts at open platforms that just weren’t usable enough (for example: openID).
“The Lindy Effect is real. Disruption is rare. But it does exist and it is caused by non-linear changes in technology.”
— Albert Wenger, USV (link)
My colleague Albert discusses the Lindy Effect: the idea that every day that a platform idea exists extends its expected overall lifespan. In other words, technologies and ideas have momentum — the longer they’re around the longer they’ll stay around. It is possible to “disrupt” them, but that requires a profound, non-linear technology change. And even then, they don’t just disappear overnight. For example, Microsoft has endured two decades of disruption from the web — first against Windows as the dominant OS, and then against Office as the dominant productivity suite — but it still alive and kicking. So the disruption that challenged Microsoft didn’t put them out of business, but it did open up the market for many many many others to enter. Looking at today, Uber clearly isn’t going anywhere, though “open” challenges to them could open up the market for others.
To my mind the non-linear change in technology that has the greatest potential to challenge today’s incumbent platforms is the Blockchain (and related decentralized technologies) that are in the process of externalizing data from web and mobile applications (more on that below).
“Your margin is my opportunity”
— Jeff Bezos
This profound idea is not new to the business world, but it’s nevertheless instructive for new technologies looking to compete against the new incumbents. Along the lines of “convenience trumps everything”, cost matters. For example, I met a blockchain entrepreneur/hacker recently who was incensed about the margin that Etsy takes on transactions (and to most people Etsy is about as fuzzy bunny as you can get as a large web platform).
“The first transaction in a block is a special transaction that starts a new coin owned
by the creator of the block”
— Satoshi Nakamoto (link)
This is a line from the original Bitcoin white paper, and I include it to point out the importance of powerful incentives in deploying open technologies. There are two primary innovations in Bitcoin: 1) the distributed, open ledger; and 2) the financial incentive that drives participating computers to cooperate: mining bitcoins.
To the extent that this incentive-to-cooperate model can be extended in other directions, we may be on to something big.
3/ What we’re looking for
Given all of the above, here are a few things we’re looking for at USV:
Collaborative platforms in greenfield sectors
To the first point about the value of networks (to society), there are many many important sectors still operating under inefficient bureaucratic hierarchical models, which are ripe to be re-architected in a network model (I’m thinking energy, health, education, and many others).
I suspect that these sectors will be developed by “traditional” networks (e.g., venture-backed, centralized networks), as these have the ability to move the most quickly, to experiment with new models (failing often), and to help train sectors/cultures that a networked model is possible.
Worker support services
A major concern with the emerging power of web platforms (especially in the collaborative/sharing space) is worker power. We are already beginning to see platforms emerge to serve workers in this environment (e.g., SherpaShare, Coworker, Peers, the venerable Freelancers Union, etc) and will see many many more here.
My belief is that “union 2.0” will be a platform, more than an organization, and its power will derive from the data leverage it’s able to attain over the the platforms that employ its workers.
One way to challenge “thick” platforms is to build “thin” platforms that do less, take less, and exert less control. We have invested in several of these (DuckDuckGo, compared to Google, Twitter, compared to Facebook, Sidecar compared to Lyft, etc) and are looking for more. Often times, “thin” also means decentralized in some way, pushing power, economics and control further out to the edge.
Finally, new protocols that radically re-architect power, information and control. Inspired by Bitcoin and the blockchain, there is now tremendous energy in this space. It’s early early days, but it does feel like this has the potential to become the next “open layer” that washes over the latest generation of big companies (see the diagram above) and cracks open the market even further.
At USV, we’ve made several small investments in this space (OneName, and two that are not yet announced), and are looking for more. It’s not clear yet where value will accumulate at this layer, and much of it may and should remain as “community capital” in the system.
In conclusion: we are at a really interesting time with the maturity of the large web and mobile platforms, the rapid expansion of peer/sharing/collaborative platforms, and the emergence of distributed protocols. All of this has raised really interesting questions about innovation, global problem-solving, economics and control, and the discussion here will undoubtedly lead to short- and long-term impacts on how and what we build.