Much of the recent debate around the damage that large technology companies are causing to parts of the economy, the social fabric of society and democracy comes back to the foundation on which most media organisations are built: advertising.
Services such as Google and Facebook are free because users are willing to share information about themselves, which is then sold to third parties in search of eyeballs (and, increasingly, ears – I’m talking about you, Alexa/Siri). You are the product, as the saying goes – platforms are incentivised to gain as many users as possible and to obtain as much data from them as they can. Alphabet and Facebook are the third and fifth most valuable companies in the world because they have managed to scale advertising in unsurpassed ways.
When Google started selling space in 2000, it went about it in the way that media companies had been doing for generations – human beings selling slots based on the cost per thousand people who viewed the advert. The company’s innovation was to automate the process and develop an online auction for the top of the rankings. Introduced in 2002, automated advertising, or AdWords, generated the company just over $400 million that year. In 2017, that number was over $95 billion. Facebook’s ad revenue was close to $40 billion in the same period.
With those numbers, it’s completely understandable that tech companies like Facebook, Twitter and Google have based their businesses on models that have long existed. However, the web is pretty good at something you may have heard of called disruption, and that is what might be coming to large technology companies in a future where their incentives are more closely aligned with those of their users.
Advertising has been part of the cultural fabric for well over 100 years, but will it provide the basis for the next generation of web services? Those experimenting with cryptocurrencies already talk in terms of it being a “movement” akin to the open source software advances of the 1970s. New technologies, whether that’s the mainframe computer or the smartphone, unlock new capabilities, meaning that products and services are built on top of new innovations. There would be no Uber without the smartphone, for instance. No Wooga without Facebook. No Tweetdeck without Twitter.
Today, the analogue of smartphones and social platforms is blockchain and crypto networks, which are built upon distributed ledger technology. The blockchain, like any platform, is in effect, a design space that enables others to build on top of the underlying infrastructure. And the collaborative teams building on these types of networks are bringing a quality to their work that has been eroded significantly on platforms like Facebook – trust.
In the way that the developers of the 70s built on open networks with web standards and decentralised protocols that they could trust, so those working on the blockchain are working on products and services that have that quality in-built. And this has additional benefits: consumers can rely on the products and that investors can support these companies in the knowledge that the platform has mechanisms to ensure against bad outcomes.
It’s this, rather than advertising, that’s likely to be the foundation of the emerging platforms of the next decade. Advertising has become the de facto economic driver of the internet, but adherence to a business model of proprietary algorithms that hoover up personal data to be sold to third parties could change as we see models based on tokens. At the moment, there are competing visions about what this might be, but it’s clear that the underlying infrastructure encourages collaboration and the development of networks with a broader range of incentives. Handled in the right way, tokens need not be extractive, but add value, not just to the platform but to all its users.
We’re some years away from this, but one way of understanding a possible future is to consider the words of the investor Charlie Munger: “show me the incentive and I’ll show you the outcome”.
This article was originally published by WIRED UK
