The value which is captured by a company and its products varies widely by its organizational form.
Open-source projects create massive amounts of value1 of which most is not captured by its contributors.
In contrast, semi-open platforms like medium.com that are organized and supported by traditional inter-organizational structures like hierarchies, markets, and brokerages2. They create value for their users which is monetized and captured by the company and eventually by its founders and investors as stock options.
The main question of this piece is “Can open platforms exist?“. First, we compare different types of platforms to clarify the properties of open-platforms.
Following this point, we examine the tools that could make them possible.
Next, we compare platforms like medium.com that are owned by a private company, a non-profit owned platform like Wikipedia to Steemit.com a blockchain-based platform. Specifically, we ask if one of them lends itself to an open-platform-model.
Lastly, we look at the obstacles for such a platform could face.
2 Open vs Proprietary Internet Platform
2.1 open-source software and Marketplaces and Platforms
2.1.2 Marketplaces and Platforms
Transaction Cost Economics (TCE) theory, popularized by Ronald Coase’s ‘Theory of the Firm’3, postulates that firms exist to minimize transaction costs.
Gig economy platforms (e.g. Uber, Airbnb), market networks (e.g. eBay, Amazon Marketplace) and content platform (e.g. Youtube, Medium) flourish because they are minimizing transaction costs consisting out of Search & Information-cost, Bargaining-costs, and Monitoring & enforcement-costs for example through expensive processes, like due diligence and contracts.
This is done with command-and-control hierarchy, making search and information discovery easy, bargaining straightforward, and having policing and enforcement provided essentially for free by the platform, where before coordination of production was done via the market mechanism.4
With new technologies like the Ethereum-based protocols of companies like Colony for creating and operating internet organizations, rules are defined in code and enforced by a blockchain mining process. This automation and trust-creation enable entirely new and previously impossible organizational forms to come into being.
Before we continue to examine those technologies lets look at other types of organizations and why open-source software projects are formed.
2.1.1 open-source software
Open-Source software products can be created in many ways but one of the most prevailing ways are two kinds of groups:
The first kind is a company, employs different business strategies that rest on the premise that users of open-source technologies are willing to purchase additional software features under proprietary licenses or purchase other services or elements of value that complement the open-source software that is core to the business for example through hosting. Wikipedia categorizes those into Selling users, Pre-selling code, Selling intellectual property and Selling proprietary additives5
The second kind is an intrinsically motivated group of people that build a product in their free time and publish this product under a free license to be used by anybody. They do not form a company and introduce ways of monetization or provide hosting services. The most used way to sustain such projects is voluntary donations like the Sponsor program introduced by GitHub6 in 2019.
Till recently there were only little tools available to manage a trusted community of open-source contributors that also host and deploy the created software and monetize their work directly i.e. capture value of the value created for the customer, for example by introducing subscriptions.
As we will see in the section those tools based on blockchain technology already exist and are increasing in adoption.
2.2 DApps and DAOs
It is not easy to find an authoritative source on the definition of DApps but the Financial Crimes Enforcement Network (FinCEN) of the United States, which is part of the Treasury’s Office of Terrorism and Financial Intelligence, and therefore one of the globally most important institutions for financial regulations, defines a DApp as follows: “Decentralized (distributed) application (DApp) is a term that refers to software programs that operate on a P2P network of computers running a blockchain platform (a type of distributed public ledger that allows the development of secondary blockchains), designed such that they are not controlled by a single person or group of persons (that is, they do not have an identifiable administrator). An owner/operator of a DApp may deploy it to perform a wide variety of functions, including acting as an unincorporated organization, such as a software-agency to provide financial services7. Generally, a DApp user must pay a fee to the DApp (for the ultimate benefit of the owner/operator) to run the software. The fee is commonly paid in CVC8.”
Even if definitions from other authorities sate more or less the same definition this should be taken with a grain of salt since the trust in the US State and its incentives regarding the sustainability of its usefulness as a system is debatable.
The difference between DApps and Decentralized Autonomous Organizations (DAOs) is not clearly defined. However, the term DAO is often used for a more futuristic concept where the organization itself has certain intelligence and humans operate more on the “edges”.9
2.2.1 Example Steemit.com
The most prominent example is the Steem blockchain and its content platform Steemit.com.
The Steem “blue paper” states that:
“These actors, such as content creators, witnesses, and curators, compete in > specialized ways for the token” and “… are incentivized to compete in ways that add value to the network.
Secondly, its system enables multiple beneficiaries:
For any given post there may be a number of different people who have a financial interest in the reward. This includes the author, possible co-authors, referrers, hosting providers, blogs that embedded blockchain comments, and tool developers. Whatever website or tool that is used to construct a post or comment will have the ability to set how rewards from that comment are divided among various parties. This allows for various forms of collaboration, as well as a way for platforms that are built on top of the Steem blockchain to collect a portion of the rewards from their users.10
This system also enables, that everyone has ownership of their published content.11
In the next section, we will look at some software applications that can act as tools to build and manage such kind of systems.
2.3 DApp Management Tools
Here we look at two existing tools allow the easy creation, management, and governance of a community:
Colony is a protocol for organizations, with crypto-economic processes for:
- Ownership and permissions
- Dispute resolution and decision-making
- Work management and delegation
- Financial management, including rewards and payments
They also offer two open-source tools. Purser: “a collection of modules that simplify interaction with Ethereum based wallets”, and Tailor: “a library for interacting with Ethereum smart contracts”.12
Aragon offers similar services as the previously described Colony.13
Here is a simplified example of a Solidity Script which is from a tutorial of Aragon’s documentation called “3 steps to Governance” to manage the basic functionality of a DApp i.e. DAO consisting of Permissions, Forward and an Execution Script15:
function hasPermission( address who address where, address what return (bool); ) function foreward(bytes evmScript); function execScript(bytes evmScript) return (bytes)
This example shows the simplicity of developing the basic functionality of a DApp compared to creating the infrastructure of a company. With a script like this rules and procedures inside a company can be described and enforced in a few hundred lines of code. Compared to the process of setting up a company, creating contracts with partners, vendors and employees, creating company wikis, paying partners, vendors, and employees, and voting on decisions in emails or video calls, a few hundred lines of code represent a fraction of the time required.
The company Abridged also states an interesting feature that enables its users to: “Create process flows that other communities find valuable & share them on our global marketplace”.16
In his work OpenCollab: A Blockchain-based Protocol to Incentivize open-source Software17 Development Yondon Fu describes a command-line tool and system that enables a decentralized Git workflow for developing open-source software.
“The OpenCollab-CLI command-line tool along with our extensions to the Mango protocol enables a decentralized Git workflow that not only obviates the need for a centralized service like GitHub to coordinate and collaborate for projects, but also creates the possibility of directly integrating features such as payments and governance mechanisms directly into a repository at the protocol level.”
2.3.4 Design of Tools
In the design of such tools to create an open-source organization, one should not forget the psychological effects of monetary and non-monetary incentives. A great explanation of this difficulty is the following:
“Under the previous “incomplete contract,” parents and (child care-) workers had negotiated an informal but acceptable bargain. When that culture came to include an explicit fine, the parents could view the workers as a means to an end, rather than as partners with a mix of social and commercial bonds.
People’s behavior toward one another isn’t fully described by the market, because market transactions cover only a small part of the repertoire of human behavior”18
Therefore, one should be aware of incomplete contracts between collaborators and employees when creating those token-based incentivization systems and converting management processes into DApps.
3 Comparison of the economics of different organization types
This list of Tools and show the confusion that is created around different technologies once can use to create an autonomous or and decentralized application. What follows is a more abstract qualitative comparison on different platform types and their respective infrastructure.
This contrast in value creation and capturing is depicted in a simple table below by comparing Wikipedia.org and Medium.com. Medium is a social network and publishing company valued at around $600 million19 that crowdsources most of its content from contributors and hides some of them behind a paywall.
3.1 Company Founding and Economics
Wikipedia is a non-profit that was founded early in the days of the internet and has produced 6,058,354 articles in over 20 years20. Medium is a venture capital funded company and has to make massive investments in marketing to create network effects through temporarily faking a platform with two-sided supply through hiring writers to create the first supply of content for its platform. Secondly, since Medium is a privately held company it needs to increase its profits regularly to return a profit for investors.21
Steemit.com is politically decentralized (no one controls them) and architecturally decentralized (no infrastructural central point of failure). But it is logically centralized (there is one commonly agreed state and the system behaves like a single computer).22 The Tools examined in part 2.3 are a great example that the organization and operation of open platforms like Steemit.com are possible because they make it easier to create a DApp.
Another point where open-platforms and blockchain-networks like Steemit.com show their superiority is the fact, that you don’t expose yourself to platform-risks21 when investing time and money into them.
3.4 Comparison Summary
|company type||non-profit SaaS||commercial SaaS||DAO i.e. DApp|
|Decentralization||Logical||No (censorship)||No (censorship)||yes|
|possibility of contribution||content||yes||yes||yes|
|platform||governance||yes (after application)||no||yes|
|ability for code contributors to derive financial value||no||yes||yes|
|Incentivization for||users to produce value||medium||low||high|
|shareholders to extract i.e. capture value||none||high||none|
This comparison shows that a more open-platform like Steemit.com creates a win-win-situation with a more equal distribution of the value that is created and stronger incentivization for the people creating the value.
4 Obstacles for Open Platforms and DApp Platforms
4.1 Organizational Obstacles for Open Platforms
As we saw above at point 3.1 Company Founding and Economics the biggest obstacle might be the faking of one ore more sides of the platform funded through massive venture capital investments. This ‘faking’ in the case of medium consisted of paying people to create content for its platform and paying in the form of Adventist to get people to consume this content. Their acts can be viewed as unethical which makes them harder for communities that aspire to build a platform that is orthogonal to the strategies that companies that use those platforms approach.
4.2 Technological Obstacles for DApp Platforms
The complexity of blockchain technology is a clear obstacle in its adoption and use for managing open-source projects. It is one of the most advanced networking applications ever created. From the complexity and security of the hashing algorithm to the distributed nature of its sharing and processing, the blockchain is truly innovative.24
The lack of knowledge about this technology limits its adoption. This can be traced back to the novelty of the technology itself.
4.3 User Experience
Another important point to accelerate the creating of new DApps and DAOs is the user experience.
An influential part for the user experience is the sign-up experience i.e. the first interaction with a platform. At the point of writing, one has to wait several days to get an account on Steemit.com.
Most of these platforms also require the usage of a private address that in most cases is a 20 character long alphanumeric string. This poses another problem of securing storing that address.
Secondly creating a DApp or DAO presupposes significant programming skills in a specific programming language, Solidity, C++, Haskell, and others.[^25] Thus, it is not available for non-engineers.
In comparison, creating a new company is simple. You fill out a few documents and create contacts written in human language with customers and suppliers.
On the user side, it’s important to improve the sign-up and onboarding experience to make use of network effects. This can be seen as the major advantage of current commercial platforms. They minimize the “cost of switching”26 to their platform.
Connecting this point to the border theme of this article, it has to become as easy joining and contributing to a DAO as a GitHub organization.
As we have seen in part 2.3 there are already the first solutions to organize DAOs and thereby create a more equal distribution of value for all parties involved.
In part 3 we compared the current business models on the market that resemble an open-platform and found that with a platform like Steemit.com we create better incentive structures through a more equal value distribution. This is a strong indication that open-platform are possible even if current ones like* Steemit.com* haven’t reached greater popularity.
In part 4 we looked at the obstacles for open platforms and DApps and found that the ease of contribution and the adoption of blockchain-based services, in general, pose obstacles, which nevertheless can be overcome.
In conclusion, this article demonstrates the benefits of open platforms and that there are technical solutions to manage and monetize an open platform. It remains to be seen how fast the adoption of blockchain technologies will continue and if innovation in user experience can accelerate this adoption, but the possibilities are great for a future with attractive open-platform alternatives for commercial platforms we use every day like amazon and Uber.
- RedHat, Elastic, and more: Why open-source software companies are thriving today (2018). Available at: https://blog.timescale.com/blog/open-source-demise-of-proprietary-software-a49f73f54165/ (Accessed: 12 April 2020).↩
- Morgan, L., Feller, J. and Finnegan, P., 2010. Value creation and capture with open-source software: a theoretical model for understanding the role of value networks. ECIS.↩
- R. H. Coase. The Nature of the Firm. Economica, 4(16):386–405, 1937. ISSN 1468-0335. http://www3.nccu.edu.tw/~jsfeng/CPEC11.pdf.↩
- COLONY Technical White Paper 2020-03-04 — commit 0a1d3f8, (2020). Retrieved 12 April 2020, from https://colony.io/whitepaper.pdf↩
- Business models for open-source software (2013). Available at: https://en.wikipedia.org/wiki/Business_models_for_open-source_software#cite_note-16 (Accessed: 14 April 2020).↩
- GitHub Sponsors (2020). Available at: https://github.com/sponsors (Accessed: 14 April 2020).↩
- For an example of a DApp, see SEC’s Release No. 81207 / July 25, 2017, “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO,” available at https://www.sec.gov/litigation/investreport/34-81207.pdf .↩
- Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (2020). Retrieved 12 April 2020, from https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20CVC%20Guidance%20FINAL.pdf↩
- Buterin, V., 2014. DAOs, DACs, DAS and more: An incomplete terminology guide. Ethereum Blog, May 6 .2014, Retrieved 12 April 2020, from https://blog.ethereum.org/2014/05/06/daos-dacs-das-and-more-an-incomplete-terminology-guide↩
- (2020). A protocol for enabling smart, social currency for publishers and content businesses across the internet, Retrieved 12 April 2020, from https://steem.com/steem-bluepaper.pdf↩
- (2020). Discover, Use and Analyze Decentralized Apps in the World’s Largest Dapp Store, Retrieved 12 April 2020, from https://www.dapp.com/token/Dapp_WhitePaper_en.pdf↩
- (2020). Retrieved 12 April 2020, from https://colony.io/dev/docs/colonynetwork/intro-welcome↩
- Aragon Court Dashboard - Aragon Help Desk. (2020). Retrieved 12 April 2020, from https://help.aragon.org/article/42-aragon-court-dashboard↩
- DAPPCON 2018: Building Modular Organizations - Aragon Brett Sun (Aragon), Retrieved 12 April 2020 from https://www.youtube.com/watch?v=Zpu8tvCCpNQ↩
- Abridged - Run Community Operations with No Code. (2020). Retrieved 12 April 2020, from https://www.abridged.io/↩
- Yondon Fu, 2017. OpenCollab: A Blockchain Based Protocol to Incentivize open-source Software Development, Dartmouth Computer Science Technical Report TR2017-831, Retrieved 12 April 2020, from https://pdfs.semanticscholar.org/8918/a7b036dd7c30e1bda613e9064a4a03c749fc.pdf↩
- Clay Shirky Cognitive Surplus↩
- Ev Williams’s Medium raised $57 million in September — now it’s raised another $50 million. (2016). Retrieved 12 April 2020, from https://www.vox.com/2016/4/21/11586328/medium-ev-wiliams-spark-funding↩
- Size of Wikipedia (2020). Available at: https://en.wikipedia.org/wiki/Wikipedia:Size_of_Wikipedia (Accessed: 16 April 2020).↩
- Why Decentralization Matters (2018). Available at: https://onezero.medium.com/why-decentralization-matters-5e3f79f7638e (Accessed: 16 April 2020).↩
- The Meaning of Decentralization (2017). Available at: https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274 (Accessed: 12 April 2020).↩
- Woodside, J.M., Augustine Jr, F.K. and Giberson, W., 2017. Blockchain technology adoption status and strategies. Journal of International Technology and Information Management, 26(2), pp.65-93.↩
- Current UX Issues of the Blockchain Technology_ (2018). Available at: https://blog.goodaudience.com/current-ux-issues-of-the-blockchain-technology-142338c6beb6 (Accessed: 12 April 2020).↩