Victus Spiritus


The Web Modeled as an Elaborate Ponzi Scheme

16 Nov 2010

The hypothesis of this post is merely food for thought, but is worth keeping an eye on as the web grows. Thanks to my friend Ben for planting this conspiracy theory in my head a while back. I'll focus on business models for the social web (socweb, pronounced suck-web*) and how little real capital is generated for contributors.

The Social Web Doesn't Pay the vast majority of Participants

Let's begin by following the money trail. Who's profiting from the socweb?

I'll break down socweb money makers into a few categories. In no particular order the primary sources are:

Most larger web companies implement multiple business models to various degrees to maximize profits.

Hosting companies have a couple of obvious business models. They can monetize aggregate attention as YouTube does. Others are strictly subscription based, and charge for hosting and support (Hostmonster, GoDaddy, WPengine). And then there are companies who's model is a mix of attention, software as a service, and paid hosting like Automattic. While there aren't ads currently on Tumblr and Posterous blogs unless added by paying users, I suspect fiscal forces will push free publishing sites to monetize. Outside venture capital enables companies to grow for a time without sufficient revenue, but sustainability drives ads and paying services into the mix. It's business. These companies provide a marketing platform and show ads on user content or support epublishing for a monthly fee. Several providers provide a free service level, and different paid service tiers.

Ad and affiliate driven companies are one of the few business models which split revenue with content creators. These corporate entities split revenue for various forms of user generated content: Squidoo, Google Adsense, Admob, and Amazon. I generate $30-40 on a good month from Squidoo and Amazon, but this is a far cry from a living wage.

Collaborative filtering sites like Stumble Upon, HackerNews, and Reddit draw enough attention to be valuable for marketing and/or ads. The content generators and human filters are rewarded with Karma points which have no real financial value, but are a facsimile of reputation (not equivalent or transferable). Professional reputation has real value, like making a big sale, partnering with an investor, attracting fantastic talent, or landing a dream job.

There are direct social networks for news or for friends like Twitter and Facebook. These companies monetize attention with targeted ads. Facebook crosses the boundary as an app platform. They take a cut of transactions through their network much like Apple iOS store. The store content is provided by third party app companies like game makers (Zynga), and utility apps. A couple of utility products I'd like to see integrated into social networks are a collaborative office variant (Google docs++) and seamless voice and visual conference (Skype like).

Unless you own a share of or work for a big attention company, personal revenue shares are insufficient for basic survival^. There are exceptions, but my ballpark estimate is much less than 1% of content contributors earn a decent wage from web revenue splits.

The vast majority of socially generated content is only profitable for companies and portals which aggregate and control distribution, not individual content creators. If you've ever seen the Running Man with Arnold Schwarzenegger and Richard Dawson you might remember the former winners that were celebrated on commercials but later discovered to be skeletons in an old bunker. This is the harsh reality of socweb income. The promise of financial freedom is bait that fuels only those at the top of the network stack.

*= It's easy for me to write this idea up, as I generate very little income from the web. I'd like to change that, but it's challenging coming up with a decent product and a model that isn't a raw deal for contributors.

^= Ballpark $20k-60k yearly income to be self sufficient depending on local cost of living in the US