Millions of Profitable Niches – 1,000 True Fans 2.0?

The following guest post is an excerpt from Read Write Own: Building the Next Era of the Internet, the brand-new book from a16z partner Chris Dixon.

Additional resources and potential next steps have been added to the end of the blog post. 

Chris Dixon (@cdixon) is the author of Read Write Own: Building the Next Era of the Internet, and a general partner at Andreessen Horowitz (“a16z”). He joined the venture capital firm in 2013, where he made early investments in Oculus (acquired by Facebook), Coinbase (which went public in 2021), and many other successful companies. Chris now leads a16z crypto, which he founded in 2018, and which now has over $7 billion in committed capital dedicated to crypto and web3 technologies—with investments ranging across applications such as decentralized finance and decentralized media, to infrastructure, social media, gaming, and more. He was ranked #1 on the Forbes Midas List in 2022. 

Before joining a16z, Chris placed early bets on Kickstarter, Pinterest, Stack Overflow, and Stripe—all of which have products in wide use today. He had also previously co-founded and led two technology startups, SiteAdvisor (acquired by McAfee) and Hunch (acquired by eBay).

Drawing from his first-hand observations, mental models, and experiences with startups and the internet industry, Chris was an early and prolific blogger and has been a long-time advocate for community-owned software and networks. 

Chris has Bachelor of Arts and Master’s degrees in philosophy from Columbia University and an MBA from Harvard Business School. He started his career as a software developer. He lives in California and grew up in Ohio.

Enter Chris…

In his classic 2008 essay, “1,000 True Fans,” Kevin Kelly, the founding executive editor of Wired, predicted the internet would transform the economics of creative activities. He saw the internet as the ultimate matchmaker, enabling twenty-first-century patronage. No matter how niche, creators could discover their true fans, who would, in turn, support them. 

The reality is creators do, generally, need millions of fans, or at least hundreds of thousands, to support themselves today. Corporate networks got in the way, inserting themselves between creators and audiences, siphoning away value and becoming the dominant way for people to connect.

Social networks are probably the most important networks on the internet today. The average internet user spends almost two and a half hours a day on social networks. Next to text messaging, social networking is the most popular online activity.

The design of the dominant social networks explains what went wrong. Powerful network effects locked users into Big Tech’s clutches, and that lock-in led to high take rates. It’s hard to know precisely what take rates many major corporate networks charge, because their terms can be opaque and noncommittal, but it’s reasonable to estimate they charge around 99 percent. With the combined revenue of the five biggest social networks—Facebook, Instagram, YouTube, TikTok, and Twitter—at about $150 billion per year, that means these networks pay out on the order of $20 billion to users, with the overwhelming majority of that share coming from YouTube alone.*  

Corporate networks won out because they made it easy for people to connect—more so than protocol networks like RSS did. But that doesn’t mean corporate networks are the only, or even the best, way for people to connect. The alternative to today’s world would be one where social networks are decentralized and community-owned, meaning built with either protocol or blockchain architectures. This could have meaningful economic effects for users, creators, and developers and could revive Kelly’s compelling vision for internet patronage.

To understand the effect of a different network design, let’s do some back-of-the-envelope math. Protocol networks have take rates that are effectively zero. Sometimes companies build apps on top of these networks, providing easy access and other features. 

Let’s pretend the top five social networks charged a similar amount. If they all had take rates of 10 percent, their share of the $150 billion in annual revenue would drop from $130 billion to $15 billion. That would put into the pockets of network participants such as creators an extra $115 billion per year. How many lives might that change? At the average U.S. salary of $59,000 per year, that extra $115 billion of redirected revenue could fund almost two million jobs. This is a rough estimate, but the numbers are clearly big. 

As new technologies like AI automate work, social networks can be a counter-weight that provides people with fulfilling career opportunities.

Decentralized social networks would also be good for users and software developers. The high take rates, capricious rules, and platform risks of corporate networks are deterrents for developers. In contrast, decentralized networks encourage investment and building. 

This might all sound great in theory. The practical question is whether today, given where we are in the evolution of social networking, it’s possible to build a decentralized social network that can actually succeed. Occasionally users awaken to the problems of today’s platforms, and after an incident happens—a deplatforming, a rule change, a new corporate owner, a data privacy or legal scandal—people flee to some upstart social network. These anti-communities usually don’t last. 

The value proposition needs to be full parity with corporate network user experiences, plus much better economics. Corporate social networks succeeded because they made it so easy for people to connect. It’s not too late to design decentralized social networks that make connecting just as easy. Protocol social networks like RSS were a good starting point, but they failed because they lacked the features and funding of corporate rivals. Blockchains can address both shortcomings. We can now, for the first time ever, build networks with the societal benefits of protocol networks and the competitive advantages to rival corporate networks. Indeed, the timing is right: blockchains have only recently become performant enough to support social networking.

Today, a cohort of blockchain projects is taking on the social networking establishment. Each project is designed in its own way, but the common thread is that each one overcomes the weaknesses that doomed RSS. The best designs fund software developers and subsidize username registrations and hosting fees through their token treasuries, analogous to corporate coffers. And in terms of features, blockchains have core infrastructure that provides a centralized global state to support basic services, making it easy to search and follow across the entire network, avoiding the user experience issues that the partitioning in protocol networks and federated networks creates. 

The key marketing challenge is to kick-start a network effect. One tactic is to start on the supply side, where the pain of high take rates is greatest. Users may not realize how much value they’re forgoing by participating in corporate networks, but creators and software developers care deeply about how much money they earn. Offering a predictable platform where they receive a greater share of the value they generate would be a compelling proposition. If the best content and software were available only on another platform, the demand side of the network—the users, many of whom are passive consumers—would likely seek it out. That users can participate in a blockchain network’s economic upside and governance, privileges from which they were previously excluded, adds further motivation for them to switch.

Starting in narrow and deep niches could help a new social network get over the initial hump. Targeting a group with common interests, like people interested in new technologies or new media genres, is one way to plant the seeds of a community. The most valuable users will likely be up-and-comers who don’t have big followings elsewhere. When YouTube started out, it didn’t succeed by getting creators from TV and other forms of media. New stars rose along with the platform. That’s the power of native over skeuomorphic thinking.

What we have today may feel like a golden age for creative people: creators can push a button and instantly publish to five billion people. They can find fans, critics, and collaborators just about anywhere on earth. But they’re mostly forced to route everything through corporate networks that devour tens of billions of dollars that might otherwise have funded an immeasurably greater diversity of content. Imagine how much creativity we’re missing out on because earlier attempts at decentralized social networks, while noble, like RSS, couldn’t hold their own.

We can do better. The internet should be an accelerant for human creativity and authenticity, not an inhibitor. A market structure with millions of profitable niches, enabled by blockchain networks, makes this possible. With fairer revenue sharing, more users will find their true callings, and more creators will reach their true fans.

*Four out of five of the largest social networks referenced—Facebook, Instagram, TikTok, and Twitter—have take rates of about 99% or above. Youtube has a take rate of 45%, meaning it pays out 55% to creators. Almost all of the payouts to creators come from YouTube alone. The calculations presented here estimate that YouTube paid out $16 billion to creators in 2022 (which is 55% of its annual $30 billion in revenue) and the other four social networks paid out about $1 billion each from their respective creator funds. In total, that yields $20 billion.

Excerpted from Read Write Own: Building the Next Era of the Internet, by Chris Dixon. Copyright 2024 by Chris Dixon. Published by Random House. Reprinted with permission. 

***

Additional resources:

Why decentralization matters (Chris Dixon)

You’re not imagining it: Social media is in chaos (New York Times)

The future of decentralized social media (ETHGlobal video)

Sufficient decentralization for social networks (Varun Srinivasan):

The rise of decentralized social networks (Bankless)

Next possible steps:

Learn the basics of crypto wallets and other tutorials (Coinbase). 

How to create an NFT (OpenSea)

Intro to web3 creator tools (Manifold)

More web3 creator tools (Alchemy)

A list of decentralized social networks (Ethereum Foundation)

The Tim Ferriss Show is one of the most popular podcasts in the world with more than one billion downloads. It has been selected for "Best of Apple Podcasts" three times, it is often the #1 interview podcast across all of Apple Podcasts, and it's been ranked #1 out of 400,000+ podcasts on many occasions. To listen to any of the past episodes for free, check out this page.