Friday, September 29, 2017

Tentpole sponsors: an idea for improving paid service virality

Ad-supported communication platforms like Facebook have many structural advantages over hypothetical competitors that charge users money directly. One advantage is that a purely ad-supported service can spread virally, from user to user, at a vastly greater rate than a service that demands direct monetary payment.

For most users, the unpredictable, frequently unmeasurable harms of losing privacy and control over their social identity are less tangible than the direct time and money cost of signing up for a paid software subscription [0]. Thus free services which strip-mine your privacy and lock you into their prison spread like wildfire, while paid services that respect their users barely get off the ground. It seems that every large social networking service on the Internet has been hammered on the anvil of this seemingly inescapable logic and beaten into a Facebook-like shape.

However, user preferences vary. One can conjecture that within any social network subgraph of size N (for some N), there exists at least one user who cares an unusual amount about privacy and control. This user might be willing to subsidize a large subset of their local subgraph. Let R be the ratio of the local neighborhood of size N that such a user is willing to subsidize.

If N and R have the right values, a possible hack for the virality problem is to charge money to these special users — call them "tentpole users" — and allow them to sponsor the addition and ongoing use of the users around them. Most users will not be tentpoles; but given enough poles, positioned appropriately, the tent may be lifted over the entire addressable user population.

In the most basic form, you can imagine that a paid subscription gives every user a certain number of tokens, which they can use to sponsor accounts for their friends and family. When a new user is invited, some tokens would be allocated to them — one to support that user, and optionally some extra tokens gifted so that they could invite more users in turn. A non-sponsor user who wants additional invitations beyond their starter set would purchase more, thereby becoming a sponsor, or ask their network for some spare tokens. Sponsorship would be fungible — that is, users would be able to change their sponsor at any time — but every user would be either a sponsor or a beneficiary or both.

In principle, with proper tuning, most users could be beneficiaries, and pay nothing. A service engineered this way would be closer in virality to an ad-supported one. (It's still not quite as viral; for one thing, there is still some real friction at the edge of the "sponsorship radius", the distance from a sponsor at which users run out of tokens for further invitations. This needs further thought.)

Another model would allow all users to join free of charge, but grant additional privileges to sponsored users. This works, economically, as long as the aggregate cost of free-riding users is less than the total revenue from sponsors. This "tentpole freemium" model resembles an ordinary freemium model (where only the sponsors themselves pay [1]); arguably it is simply a freemium model where one of the premium benefits is improved amenities for one's contacts.

When I mentioned these ideas to a colleague a few months ago, he immediately pointed out that tentpoling leads to a situation where sponsored users are socially indebted to their sponsors. This has at least two effects. First, debt potentially causes social awkwardness, and this risk must be navigated (c.f. V. A. Zelizer). Second, users may feel a sense of precarity because sponsorship could end (for example, if their sponsor cancels their subscription), and thus would be reluctant to adopt the platform. These are definitely challenges, but it may be possible to overcome them.

Social awkwardness may be amenable to psychological hacks which obfuscate the transactionality of the interaction. To invent a silly example, one can imagine a social network where your profile picture can be decorated with a virtual hat, which degrades over time. You can only remain on the service if your profile has a hat; sponsors receive a certain number of hat credits, which they can use to purchase various hats and gift them to their peers. Lastly, any user can trade or gift a hat that they possess. The combination of these mechanics makes the act of "wearing" a hat expressive, not merely pecuniary; wearing a hat that one of your friends obtained and gave to you can be construed as a fun social act which strengthens your friendship, rather than a purely financial necessity. By adjusting the number of hat credits that sponsors get, you can create enough liquidity in the system that most active users have multiple hats. Therefore, it is possible to beg your friends for a particular hat without disclosing that you just don't feel like buying any hats — for example, a user who doesn't want to pay for the service might ask "Hey, anybody got a spare blue knit cap? My last one is expiring next week." A certain degree of strategic ambiguity is preserved.

This example is crude and probably too nakedly gamified to work, but I hope it illustrates that there is a gigantic space of possibilities for designing the social character of sponsorship. Somewhere in that space, I conjecture that there is a point where people are comfortable with sponsor-beneficiary relations in a social network.

Precarity may also be amenable to engineering solutions. For example, one could allow and encourage users to be sponsored by multiple people, and then grant enough tokens to sponsors that their "radius of influence" would, in practice, always overlap with other sponsors'. Then, in steady state, most users would feel secure, because they would be sponsored by more than one person. And in a tentpole freemium model, users would always continue to have access to their identity even when sponsorships expire, reducing the downside even if one were to lose all of one's sponsors.

Have there been examples of tentpole sponsorship as a business model in the wild? I have trouble thinking of them.

Anecdotally, one sometimes hears of people buying paid Slack workspaces to socialize or organize activities that are not part of their day job. I assume that there are usually free riders in this arrangement. So, Slack may have stumbled on this model without intending to (obviously, Slack's primary revenue stream is charging businesses for employee accounts, which is socially a very different scenario, although arguably isomorphic to tentpole sponsorship in some ways).

Alternatively, one could argue that whenever a highly technical user sets up a custom email domain for their family, rather than just signing everyone up for Gmail, they are tentpoling the base protocols of the Internet. The difference, I guess, is that sponsorship is not fungible: if you set up a domain for your family, your child cannot change their sponsor later in life without migrating to another domain, which incurs various transition costs.

The last example I can think of is in gaming. In some multiplayer games like Lineage, players can organize into clans, and clans can purchase in-game collective goods. I've never played Lineage, but I assume that players within a clan differ in their level of contribution, and thus the most committed players are effectively sponsoring the rest.

Overall, however, I think the idea of tentpole sponsorship has seen little use, and this seems like a space that is ripe for experimentation.

Having read this, your reaction might be (probably should be!), "Talk is cheap. Ideas are cheap. What are you gonna do about it?"

Alas, I have to admit that the answer is very little.

To really pursue this idea would be multi-year effort, and there are all kinds of reasons that this does not seem like the thing that I want to spend the next few years building. (For one thing, a half-hermit misanthrope like me is probably one of the worst people in the world to try building a social network.) So, instead, I'm throwing this post out there in a sort of cry to the universe, both to get it out of my head, and also in the vague hope that it infinitesimally increases the probability that somebody will figure out how to make it work.

This may be the dumbest theory of change that's ever been written down, but it's about what I can muster at this point in my life. On the other hand, if you back up and squint, in 2009 I predicted (sort of) both the business model of Patreon and Jeff Bezos's purchase of the Washington Post, so maybe the universe will again cough up something resembling my half-baked ideas.

Bonus thought: once you have the idea of tentpoling in your mental toolkit, you will begin to see echoes of it in many places. For example, nearly every software package is sometimes hard to use. But some users have the inclination and capability to become expert in that software, and then spend effort helping others cope with it. These helpful experts are technical (rather than financial) tentpoles, paying the cost of onboarding and support for users in some radius around them. Every geek who serves as tech support for their parents' devices is holding up the tent of Microsoft or Apple or Google or whatever over their family.

In fact, many instances of free riding can be thought of as tentpoling on some level. I suppose the difference between the concept of tentpoling and free-riding in general is that tentpoling is voluntary and has a significant dimension of locality in the social graph.

[0] Arguably, there is also a market in lemons for software services that offer users privacy and control. This is a separate issue and much too big to tackle in this post.

[1] On a vaguely related note, observe that Maciej Ceglowski has repeatedly suggested that Twitter should adopt an ordinary-freemium model where users just pay money for additional features. It is an interesting thought puzzle to contemplate why Twitter has never even experimented with doing this. There seems to be a real organizational dynamic in business that once a company settles on an advertising-supported revenue model, this sucks up all the oxygen necessary for alternate revenue models to breathe, and I do not entirely understand why. Consider how long it took for YouTube to offer YouTube Red; although this is also a case which proves that it is not impossible for the alternative model to break through.

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