Breaking Up Big Tech: Is It Time for Blockchain Technology to Reframe How We Use the Internet?

Source: https://www.ft.com/content/7cf571bc-518b-11ea-a1ef-da1721a0541e

The blog by Jon Stokes titled Billion User Table sheds light on the significance of the users table for technology companies today, the current control structure of these siloed tables, and how blockchain technology will level the playing field for the companies of the future. His vision of the future is simple:

A public blockchain that acts as a single, massive users table for the entire Internet, and on top of which the next wave of distributed applications will be built

Jon masterfully observes that the health and systemic risk profile of every industry can be boiled down to a few metrics that capture the incentive structure within that industry. He argues that for Big Tech, it is the size of the users table that serves as its key performance indicator. And adding rows to the users table is how companies compete and win at software. How do companies win by adding to their users table?

Jon points to four specific use cases that companies tap into as revenue streams or competitive advantages that allow them to win in the digital economy. Additionally, I have added real-world companies as examples for each use case.

At the end of the day if these applications/services are making my life more convenient, why does this matter?

Jon states that it should matter very much because of a concept known as network effects. He quotes the famous Metcalfe’s law, which states that the value of the network is proportional to the square of the number of users connected to that network. The implications?

The more value a network has to any one user, then A) the easier it is to attract new users, and B) the harder it is for a user to leave (because to leave is to give up all that value)

Network effects dictate that the Big Tech companies, which have relentlessly added to their users table, enjoy certain privileges simply because of its size. So, how can we democratize access to these network effects for start-ups that begin with a massive disadvantage when going up against Big Tech?

David vs. Goliath (Source: https://wallpapersafari.com/w/OJz4DF)

Blockchain Technology: The Bull Case

The internet today strikes a delicate balance between complexity (cybersecurity, data privacy, system architecture) and convenience. Over the past two decades, software engineers built trillion-dollar businesses by abstracting away the complexity of the web to deliver a user-friendly experience. People valued their convenience over all else, and the engineers built the software applications accordingly. However, as people have become more aware of the practices around the users table used inside Big Tech companies, they are beginning to take objection.

Scrutiny Around Monopolistic Practices: The Stage Is Set

Source: https://www.ft.com/content/2b0f22e8-8955-11e9-97ea-05ac2431f453

Amazon has a pending antitrust investigation for allegedly extracting data from sellers (users) on its platform to create and sell cheaper copycat products through its Amazon Basics brand. At first glance, this might seem to benefit the user (buyer) in the short run (get a cheaper product), but the FTC is arguing that these practices that Amazon deploys on the user table are compromising the healthy competition required for businesses to thrive in the long run. In line with these practices, Jon highlights two major risks that result from these decentralized networks of siloed user tables.

Leverage and risk exposure massively constrains every entrepreneur’s ability to build their applications in ways that depend on data [Big Tech] is curating

Facebook has an antitrust lawsuit over its two major acquisitions of Instagram and WhatsApp, primarily focusing on the opaque data integration systems it has built around the users on its three “separate” social media platforms. To quote a recent Forbes article: “Facebook has been anything but transparent about how it is making use of the ocean of user data it gathers across the three platforms. But while Facebook reaps enormous revenue from its digital marketing efforts, the users that power its profits don’t receive a penny.”

Apple, a company less reliant on its user table for monetization, is doubling down on its privacy initiatives as a sign that the company is in lockstep with the changing value system of its users. The stage is set for blockchain technology to change how people, and businesses, interact with their data.

Risks of the Access-Controlled API Ecosystem

The article makes a strong case for dismantling the access-controlled API ecosystem that governs web applications today (Jon terms this as “dark matter”). He argues that there are three primary reasons why the system that exists today is sub-optimal:

  • Data-providing company revokes API-access for inexplicable reasons

Businesses today, well aware of these risks, are left with no choice but to depend on these large access-providing companies for their advertising, marketing, and traffic. Not only does this stifle innovation, but it also concentrates wealth and power into the hands of a select few companies who have become gatekeepers to the internet. The companies that started with slogans like “Don’t Be Evil” and “Move Fast and Break Things” have become distant shadows of that very ethos.

Blockchain as the Internet’s Users Table

Jon’s blog does a great job in portraying how the blockchain can act as a “single decentralized user data store accessible via an open protocol and a decentralized network of storage nodes.” His vision for the end state of this software architecture is one in which every startup begins life with as many users as the largest incumbent, and therefore it is the additional value add that the startup provides that will dictate whether it can switch a user from the inactive to active state.

The users table will stop being an economic moat

In Jon’s opinion, the collective users table on the blockchain will grow to become much larger than the siloed tables that companies collect for themselves that “a decision to keep data siloed this way is a decision to forego on-chain network effects for that data.” Eventually, he argues, the blockchain will become so large that every time an on-chain company onboards a new user, then other on-chain companies will have a new user, as well. In such a world, he feels that the conversations around “tech consolidation, censorship, and non-technical market and political dynamics around users table size, leverage, and risk suddenly go out the window.”

The Criticism

However, I have a contention with Jon’s argument that the blockchain completely eliminates user table advantages. Sure, the size of the user table is ultimately what tech companies are running behind, but there are also accompanying attributes unique to each user that companies optimize. Companies strike a balance between focusing their resources on increasing their user base and optimizing metrics such as time spent, click-through rate (engagement metrics), and Net Promoter Score (customer experience metrics) for their current users. This dilemma is highlighted by a recent tweet by Balaji S.

Note: The calculus is very much sub-optimal, but companies are optimizing for more than size of user tables

Therefore, in my opinion, the decision to forego on-chain network effects is not a simple calculus contingent on the size of the user table. Rather, the problem is a multivariate optimization of weighing the benefits and risks of sharing your user table in its raw form. These calculations may lead to companies deciding to build a siloed user table as the benefits outweigh the risks for their specific business use case. In that context, the public blockchain may never reach the critical mass it requires to become the default modus operandi on the internet.

Closing Thoughts

I believe the blockchain is going to find its way into all the technology platforms that we know and use today — from ride hailing to social media. The real debate that Jon’s blog facilitates is the shape and form that the blockchain technology will take as the internet’s users table. He emphasizes that the free market will come up with the value creation piece for the blockchain puzzle, but he also acknowledges that government could serve as a hindrance for its widespread adoption.

If Jon’s vision is to become a reality, the regulators will have to work to come up with technologically progressive regulation that supports this innovation, rather than stifle it. The non-technical public will have to adopt a more activist stance in demanding more transparency regarding the use and protection of their personal data. The innovation of blockchain technology alone is not enough to warrant its adoption, it will require a multi-pronged effort from all the stakeholders involved.

Eventually, the adoption of blockchain technology will ensure that the health and vitality of our free markets are safeguarded from monopolistic intentions and perverse incentives for generations to come.

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