What are the different ways businesses make money on the internet? What are the preconditions that made those possible? And the question which interests me most: what kind of businesses can support the new decentralized internet without exploiting its users or customers?
SoundCloud’s recent financial struggle has made us in the Scuttlebutt network talk about decentralization and business models.
It has always bothered me that the marketplace-middleman business model is the most common one, and often arguably the most viable, given that the internet’s crippled infrastructure (still largely based on IPv4 and NAT) makes true peer-to-peer impractical. Blockchain-based economies are picking up steam, and are genuinely disrupting some markets, but blockchain consensus isn’t a silver bullet. For instance, for something like SoundCloud, which contains a social graph, it isn’t necessary to have global consensus through a distributed ledger.
Instead of trying to fit a blockchain model into this problem, I decided to take a step back, zoom out, and think about how all the possible ways businesses can thrive in the digital economy. I shared these thoughts in the Scuttlebutt thread, and since then, I have refined them and now I want to articulate them properly in this blog post.
Four capabilities are necessary for the internet economy: Energy, Computers, Storage, and Connectivity.
The foundational business of the digital economy is hardware. Personal computers and smartphones are the canonical example of “Computer as a product”, but hardware in other fields are also important and foundational: Storage (external hard drives, DVDs, USB sticks), Energy (solar panels), Connectivity (we don’t have good examples of this, I’ll come back to it later).
The important property of products is they don’t require anything else to provide you value according to their value proposition. The best example is an external hard drive: once purchased, it gives you storage. You may need another product or resource to make it useful (like a computer and energy), but it does one thing, and does it well.
The second layer, the Grid, builds on top of products and provides “remote products as a service”. Energy as a Service (the energy grid) is the oldest such example, and is widely more common than Energy as a Product. Connectivity as a Service is the concept of Internet Service Provider. Storage and Computers as Services are typical data centers.
While most capabilities in the Grid layer can also be obtained directly from (B2B or B2C) products, some aspects like Connectivity are only available in the Grid, not as a consumer product. We currently don’t have a product which allows you to get on the internet. Even satellite-based internet access requires a subscription.
The subsequent layers comprise the Cloud economy: IaaS, PaaS, SaaS. While Grid businesses manage real world infrastructure (often as public utility), Cloud businesses reutilize Grid services in the realm of Software only. Even IaaS is just Software Infrastructure as a Service.
Plenty has been written about the Cloud economy so I’m not going to bore you with details about this layer. Amazon AWS, Google Cloud, and Microsoft Azure dominate this space.
The top layer can be understood as the Big Data layer, comprising of businesses in the realm of surveillance capitalism which engage in data mining, user behavior analytics, metadata collection, etc. These often come from SaaS such as Gmail, Facebook, Google Translate, etc.
In this layer, the “Data is Gold” mantra demonstrates how data is a resource to be used to extract valuable insights. In the recent years, data is used as fuel for Machine Learning. Most Artificial Intelligence systems require training data to adjust the model to expected behaviors.
Alongside cryptocurrencies and crypto tokens, data represents the emergence of the economy of software feedstock. First came analytics and data mining, and now we are witnessing the early years of AI.
Off Grid is the lifestyle based only on the Product layer, without accessing higher layers, due to restrictive environments, ideology or other reasons.
As an ideology, Off-the-grid is desireable because it maximizes self-sufficiency. The internet economy so far has had very weak products for Energy and Connectivity. On the other hand, Computers and Storage have evolved immensely for consumers: even low-end smartphones are more powerful than computers used to launch rockets in the 1970s, and a cheap USB stick can hold much more data than expensive storage systems of the past. Humans are self-sufficient in computing and storage, and this in itself has greatly contributed to distribute “power”.
The lack of self-sufficiency for Connectivity and Energy has made us dependent on the Grid. Over time, additional layers were built on top of the Grid and in other ways we have come to depend on the Cloud and Big Data. If the Grid, the Cloud, and Big Data turn against the people even partially, we don’t have much choice because we can’t choose to be self-sufficient in all four capabilities.
Many businesses for the new decentralized internet, mostly cryptocurrency-based applications and services, don’t recognize how centralization still plays a huge role in Connectivity and Energy. For instance, if a country ends up having a single Internet Service Provider, it’s enough that this ISP blocks traffic related to the decentralized application (such as Bitcoin or Ethereum) to kill the application. Also, a huge portion of the Bitcoin network clings on Chinese miners who get their energy from private hydropower stations.
The new decentralized internet is incomplete before we can be easily and viably self-sufficient in all four capabilities. Currently, consumer Connectivity Products are weak or non-existent (a great promising example, though, is goTenna), and consumer Energy Products are starting to pick up steam with the sales of personal solar panels.
Businesses that sell hardware will support the new decentralized internet, increasing people’s self-sufficiency and (literally) empowering them instead of exploiting them.
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