The Sustainability of Steem - Is Freemium Broken?
What is Freemium?
In short, freemium business model means that you get a service or a product for free while someone else pays for the costs of developing it and providing it to you.
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You probably know the most prominent examples such as Facebook with its social network, Google search, and Steemit with its social media network. All these services needed huge investments into development before even coming to the stage where they would be able to provide users with their service. Now they “only” need resources for operation, but these are also not negligible - they need many servers just to run and big teams to keep them running and keep improving your user experience.
Somebody has to cover all these costs. So the question is, who is it if it’s not me - the user? Who wants me so much to use the service that they pay for it? There is a saying: "If you're not paying for the product, you are the product."
Who Is Paying It?
For most internet businesses the answer is simple: Advertisers. For me ads are a controversial topic: 10 years ago, I hated ads because they were just a source of distraction for me. They were basically stealing my precious attention, and once I found out about ad-blocker I immediately started blocking all ads. I was happily using the internet until Facebook found a way around ad-blocker and put ads into my feed.
I was angry at first, but then I noticed something’s changed. Facebook had been learning about me the whole time and started giving me ads which were much more relevant. So I realized that ads are not pure evil as I originally thought. The problem was not with ads in general, just with the ads which were not targeted well and thus too irrelevant, spammy to me. I thought it was actually pretty clever - use AI to find out what I like and get paid for showing me the ads which have the highest chance of being useful to me.
Is Freemium Broken?
That was before I realized this is not how it works. There is nothing there which would hold facebook back from showing me ads which I totally don’t care about if it’s more profitable for them. They just need to ensure the ads don’t decrease my time spent on Facebook much, but otherwise, they optimize for something completely different than what I want.
But my goal was not to attack Facebook here, it’s just an example. Google and other “free” online services have the same problem: The incentives in the freemium business model are just fundamentally broken. And the reason is that the one who is paying for the service is different from the one using it.
So What About Steem?
You might be wondering, how does Steem fit into this topic? There are no ads on Steem... But you can still create an account, post, comment, and vote. You can even earn rewards without paying a dime upfront! So who is paying for all that?
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Who Is Paying for Steem?
You could say nobody and everybody. Both are wrong, but at the same time there is a piece of truth in each. In short, everything is paid by inflation. But the devil is always in the detail - because if everyone’s stake were inflated by the same amount, nobody would earn anything. In reality everybody pays something, but some people get something in return. So who pays what?
You could say people who are inactive are paying for the activity of others. To be more specific, everybody gets diluted by approximately 9% per year, but holders of liquid STEEM pay the most as they don’t get anything in return. Then there are holders of Steem Power who don’t vote. They also have the 9% inflation as everybody else, but they get approximately 2% back, so that’s 7% per year.
About a third of all existing STEEM is kept liquid and almost a half of Steem Power is not being used for voting. By being inactive the owners of these allow all other active voters to distribute 3 times more rewards (over 21 million STEEM per year) than they could if everybody powered up and voted (7 million).
Ok, What’s the Problem?
I see two big problems we are currently facing. We, the users of Steem, have been relying too much on the rising crypto markets and on the speculators (holders of liquid STEEM) and the long term investors (inactive large SP holders). We got too used to the rewards we get from them without even knowing where these were coming from. Now with the big price decline, this business model starts failing as we see on the example of Steemit Inc, who is the largest owner of liquid STEEM and inactive SP.
The second problem is quite deeply connected to the first one. The incentive for normal users to power up is broken. Originally the main financial incentive for powering up was curation. But this currently isn’t working because the reward distribution is not working. Only a small fraction of good content gets good rewards.
Why is that? There is like 20 thousand new posts created on Steem every day. But with no content discovery mechanism people are unable to find good pieces. And if most of the good posts never reach their readers, nobody will reward them. Then in turn, if good posts often don’t get good rewards, there is no incentive to search for them and upvote them (other than purely altruistic). In this situation there is just no reason why people should power up.
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Are We Doomed?
There is a new project - @steeveapp - that tries to change this situation for the better. I think it has a great potential to succeed, but I will not talk about it here, as I am a part of it. Just one thing to add: It won’t be free. Because nothing of value is actually free.
A post from hr1, I just had to read! I've never seen you other than with those upvotes that seem to reach everyone.
So, from reading the steeveapp post, would the form of payment would come via a cut from curation votes on good content found by Steeve?
Nope, the idea is to take a cut of the vote. The curation rewards will be actually higher than usual for regular users if the upvoted post will be rewarded by Steeve's vote. They could be actually higher than the cut we will take.
Posted using Steeve
Lmao same
Posted using Partiko Android
Wow, now I understand why the bandwidth demands(and now resource credits) vary.
So what you are saying @hr1 is that we will eventually get to a point where the system comes to a halt?
Let's say if prices spikes and a large number of people come running back to steemit.
If nothing of value is actually free what is air, or partiko and any of the numerous open source projects out there and countless freeware?
Posted using Partiko Android
So you think partiko is free? Why are they asking people to delegate them SP? And all software development costs money, or at least the developer time/energy, it just depends who pays for it.
Posted using Steeve
It doesn't matter how much it costs to run or create, what matters is if the apple is free, and that is determined by the offer. If I offer free apples or free software, the offer is what makes it free, unencumbered.
Posted using Partiko Android
Sometimes (or maybe always) not all costs are clearly defined in the deal. If those who create the free apples pollute your environment by pesticides, than the "free" apple is not that free for you anymore.
Posted using Steeve
Indeed, indirectly they might cost you something but the argument is flimsy at best as you could argue that by not using pesticides to combat an infestation or pest invasion it could cost much more, directly and indirectly, and essentially ruin a lot of hard work. Ultimately it doesn't matter because free apples or not pollution by pesticides isn't there because the apple is free and will be there even if you pay full price for the apple. When it comes to the matter at hand, if the offer is free and unencumbered, then the product is free, yes there's all kinds of hidden costs but essentially we are talking about costs in a broad manner and indirectly instead of direct cost, or cost as exclusively in terms of what the product is priced/offered for.
Posted using Partiko Android
Leaving the air aside, these things are not free as in that they don't cost anybody anything, right? If you are an open source developer, you just make OSS because you enjoy making it, or someone is paying you to make it. Others are then free to use it, yes, but the added value does not come out of thin air.
Anyway, it is all said in the article...
Posted using Steeve
No, they are free as in they don't cost anything, like air, to have and utilize. If you want to argue that those things cost someone else time and energy that doesn't make those products or things not free. Also if you consider that ideas and eurekas generally come directly out of thin air, the added value of those ideas and eurekas does come directly out of thin air.
Posted using Partiko Android
You could say nothing is free and there's something in it for the creators. In the case of something like @dtube they take rewards, in the case of something like Steepshot or other addons to this platform whilethey may not directly charge, the attention and notoriety and power they get helps buildtheir accounts andthey can sell that steem. nobody does something for nothing
You could but then what would freeware and things such as partiko which DON'T take a cut or cost anything be? Clearly there are PLENTY of people who offer things for free, which makes the thing free, even if the ones making such offers are getting something like joy or happiness from it.
Posted using Partiko Android
I guess my point is there's almost always a motive or reason for doing something.Not saying that's a bad thing its just human nature.
My point is that regardless of the motivation or the costs of bringing something to market, if the thing is priced as one cent then it costs one cent, and if it's offered for free, then it's free and arguing that "it costs someone time and energy" or "they're doing it because they get something out of it" only speaks of what it costs to produce or what the motivation to bring it to market is, but it says absolutely nothing about what it costs the consumer, which is expressed quite simply by what it costs a consumer to purchase it, or how much it is offered to them for.
Posted using Partiko Android
So you downvote people who try to have a discussion with you? Cool bro I'll be sure not to engage with you onthis platform anymore.
As the community seeks to better understand what has happened and how to improve the ecosystem to get on track, I think these talking points you share with us could be a great foundation to build a upon. If we extract value, they why can we not pay for it, right? Especially when we can created value ourselves to build the community and the projects it is composed of. I am intrigued to learn more and follow the project. Thanks for sharing!
Posted using Partiko iOS
Thanks for trying it out! I think we will have to experiment much more in general on Steem..
Posted using Steeve
I spent over a year trying to push the discussion and offer solutions about curation being broken. The best response I got was that SMTs and Oracles could actually fix a lot of the issues I have and I believe they can still. The problem is that for STEEM to be the utility token that holds value to run all of these dapps we either need much smarter projects here on the chain or we need much simpler ways to do the things that need to be done (SMTs and Oracles). As long as STEEM as seen as the reward and not the fuel or oil that makes the machine go, we will always be living on a speculation bubble with no real value. The people and the communities are the value, but when most of them don't even know how the chain works and have no incentive to power up, they just see it as free magic internet money to throw away for fiat or other crypto. Hopefully SMTs and Oracles doesn't get completely derailed by these layoffs, but as of right now the best functional use case I see for our chain is Steem Monsters as they actually created a tokenized economy with a burn mechanism. It is what it is, I've already placed my bet there, but I really do hope this current situation is a wake up call to raise awareness of some of the glaring issues we have with our economic model.
Oh I agree Steem Monsters are a genious idea and they may point to the direction where SMTs will take us. But I think they are quite tangential to what Steem has been trying to do for authors and curators.
Posted using Steeve
It's not like I completely understand how SMTs and Oracles are going to change the game, but I have a feeling it is not the wisest thing to just bet everything on these to solve all our problems. I can tell you that usually when you are like, yay, this is going to happen in the future and change everything, you are then unpleasantly surprised that things didn't exactly go the pink planned way :-)
It's not like I am trying to be a pessimist, though ;-)
Posted using Steeve
I agree. Banking on theoretical developments that haven't been implemented isn't really my style, but the fundamentals of what they are doing will help address the biggest issues. We need price discovery for content that isn't completely broken. We need incentives for curators to actually promote quality content and have an organic "trending" feed. We need actual burn cases for the tokens to counter inflation and create some kind of scarcity. There have been so many suggestions that ways to go about doing these things that just get completely ignored that it's unreal. SMTs should in theory make it easier to tokenize value and create price discovery for the content by not paying people in STEEM. Dapps need users and will have to use their STEEM to create accounts and give RC to "normies." Oracles allows for content moderation to get rid of all the spammy bullshit and keep the DAPPs or Communities clean. All of this can already be done with some top notch coding, but we either don't have that many devs that can actually code these dapps that well or they have no incentive to actually do it as they are simply in it to make the most fast cash as possible. Probably some combination of the two. These are just my thoughts on the situation and no I don't think SMTs and Oracles are a silver bullet to all of our problems, I just think they will give better resources to make creating communities with tokenized value and content price discovery easier.
@steeveapp is totally planning to address these issues. You can read more about it a post that is a followup to this article actually:
https://www.steeve.app/@steeveapp/steeves-business-plan
Posted using Steeve
Awesome I'll check it out!
Ok, I read up a bit on SMTs and Oracles. Sounds pretty much like "We messed up, but we will give you a mechanism to fix it, but it's super complicated and you will need a rocket scientist to get it right" :-)
I am really wondering who will get enough funds and brains to pull this out...
Posted using Steeve
I think the vote selling on Steem is causing active harm as it creates an arms race to pay more and more to promote posts onto trending. That causes some people to give up as they don't have money to buy Steem for votes. I choose to not play that game. You can earn here by building connections with people rather than bots. I see accounts that only buy votes and never comment on other posts. Their lack of replies indicates that few are reading their content.
I find good posts via the people I follow.
I will look into Steeve, and not just because we have similar names. There are other attempts to expose good content, but new users may not see those. Seeing the trending page first creates wrong expectations.
We can't stop people buying votes, but we can engage with them and point out the alternatives.
You are right, the trending page is a very artificial barrier. For no reason all the attention of the whole community should be focused on some self-selected top X posts. To change that is really our biggest goal with Steeve - we want to get more interesting posts under the spotlight. But you can never do that with trending, it just doesn't scale. The recommendations simply must be personalized, each user should get what they are interested in.
Posted using Steeve
"I will look into Steeve, and not just because we have similar names"
Lmao
Posted using Partiko Android
What do you mean there are no ads? The reason why I stopped looking at the trending and promoting pages is because it’s full of posts containing ads. Why would a company pay Steemit for advertising if they can just make an account and promote their own garbage to the trending page?
Holy cow! I always thought hr1 was a bot. You used to be my biggest supporter! Thanks for that. Your votes made a huge difference for me. I just looked at Steeve and WOW! You guys are smart! Steem definitely needs something like that. I really hope that with all the work that has been put into Steem applications, the team at STINC doesn't flush it all down the toilet. I'm keeping my fingers crossed.
Thanks!
You can keep your fingers crossed or you can use them to find some interesting content on Steeve :) I will be happy for the first, but if you really wanna help, you should do the second :)
Posted using Steeve
I used my fingers to actually try this application out. If nothing else, it is at least another way to access the Steem blockchain when steemit.com is not working.
So far, so good. The interface is very intuitive, quite familiar, loads fast and has all the features we are used to plus more. I haven't yet figured out what the SHOW SPAM switch is for, but I'm guessing it hides low-rep posts? Also, since this is my very first comment, I can only guess that the APPEND FOOTER is the thing that adds the POSTED USING STEEVE footer.
I'm baffled why STINC isn't able to improve their own interface when everyone else can do such a good job. Perhaps laying off 70% of their staff was a wise move and now they can hire outside contractors to make things happen that should have happened a long time ago.
Posted using Steeve, an AI-powered Steem interface
I run a game on a daily basis and I just used STEEVE to check on my players' activities. I found 2 things that I don't like about Steeve.
I don't know how important these issues are for others, but for me, they are quite important. The image expansion would likely be a good idea for any user, however I'm not sure if most people would prefer one long page as opposed to having it cut short.
Posted using Steeve, an AI-powered Steem interface
Thanks for the feedback! I created two issues in our issue tracker and we will see what we can do :)
Option to show images in original size
Option to show all levels of comments at once
Posted using Steeve, an AI-powered Steem interface
Sweet! Thank-you so much.
This is really well written, and clear to even the layman like me.
I was sad not to see Steeve in the analysis i did earlier, hopefully next time.
Does Steeve accept mcdonald's hot drink tokens? It's about all i have of value at present :)
You can create an issue in the issue tracker... ;-)
Posted using Steeve
I'm not sure my issue of an empty wallet is suitable for your issue tracker, but I've bookmarked the link.
Tomorrow, some Steeve action, scouts honour.
Man, you study the data way too much! It's not healthy, I know that from the first-hand experience :)
Posted using Steeve
I focus on finding the positives these days, it helps put/keep me in a much better frame of mind!
Exactly, let's take this chance and change Steem for the better
Posted using Steeve
Let's assume that there is no crypto-speculation.
One may ask why anyone should buy the token and power up in the first place. Curation? Curators get 0.25*(1-0.1-0.15) = 19% of the total inflation. So, to earn STEEM faster by curating than it is diluted requires that you are much better at curating than the average curator. On average, buying STEEM and powering up in order to curate on Steem would be a losing proposition (if it weren't for irrational crypto speculation). The only way that could keep the external price of STEEM from crashing is for a continuous stream of new wannabe curators to exist who grossly overestimate their ability to curate more effectively than most other curators. Most of those who try curation on Steem as a way to make money will fail which will make them stop, power down and sell their STEEM and some point. The only economically rational buyers are those who accurately estimate their curating ability to be much better than average. You won't find an ever increasing fresh supply of overconfident wannabe curators sufficient in numbers and/or obstinacy to support the price of Steem Power. Even under the most optimistic theoretical scenario, the world would run out of people. The pyramid would come crashing down at some point.
If the crypto winter continues, what will happen before long is that Steemit Inc will run out of money to cover its costs. To continue to cover them it will have to pull away its delegations from the apps, power that SP down and sell the tokens. Then the only apps left will be those that stand on their own financially, that is, are capable of covering their costs and pay for their Steem Power out of their own pockets to be able to have the Resource Credits to claim accounts, empower new users with RC and to reward their users. To do that without sitting on a massive supply of mined SP like Steemit Inc, they will have to have adequate fiat revenue streams in place. Currently the only app like that is SteemMonsters, the true gold standard of a Steem application at the moment.
There is no escaping the fact that without irrational crypto speculation buyers of Steem Power must have reasons to buy it other than outearning other buyers of Steem Power by a very large margin. There will have be some kind of financial benefit in doing so. In fact, the white paper of Steem spells this out by saying that the value proposition of Steem is to become a global advertising and promotion network. Its value proposition is exactly the same as that of every other freemium Internet service out there: advertising and paid promotion made profitable by having eyeballs on the content, be it eyeballs belonging to registered users or people who just consume the content without having an account.
What makes Steem better than its centralized alternatives is the fact that the content producers have full ownership of their content and the openness and adaptability of the platform enabling anyone to develop apps that use it. But there is no way it can survive as an elaborate pyramid scheme for long. Getting people to join Steem is very hard because most people correctly identify it as an elaborate pyramid scheme its current state. But according to the white paper it was never intended to be that. Paid promotion and advertising are an inevitable part of the future of Steem. If too many of the current Steem account holders can't stand ads, then perhaps a good compromise would be to show targeted ads (based on keywords on the page they're reading) only to those users who haven't registered or have registered but have Steem Power below some threshold. That threshold could be adjusted according to the how much support the price needs.
Thanks for such an in-depth response!
I agree with your point that as a curator you are betting on overperforming other curators. What you missed though in your analysis is that the curators must be weighted by their SP. If you factor that in, suddenly it's much much easier for smaller SP holders to overperform the average, because the more SP you have the harder it is to earn more curation.
Regarding your idea with adds - I think it could work. But I would prefer to just base the business model on subscriptions. The incentives would suddenly be much more aligned compared to using any adds system.
Posted using Steeve
Yes, it's easier for small SP curators have much easier time overperforming the average. But that incentivizes large SP curators to sell, creating selling pressure on the tokens.
A subscription model is one possibility. You could think of buying SP as a kind of subscription fee. One selling point of SP could be not the profit you can make but the fun of having influence over which of the content creators get rewarded and how much.
I think we need every possible incentive to purchase SP. I think commercial promotion should be made as lucrative as possible. That's because witnesses have ongoing costs that need to be covered for the network to even survive. I, for one, would love it if, say, some camera manufacturer bought a load of SP to promote its camera gear in a community of photographers on Steem. They could organize a photography contest and fund the prizes. That would be sure to generate a lot of positive attention and motivate Steemians to creating high quality content, thus increasing the value of the whole network. The camera manufacturer would benefit from increased sales. There is a lot of potential for mutually beneficial interactions with commercial actors like that.
It incentivizes curators to maintain the level of SP which is profitable to them.
Of course people will start powering down at some point, but that doesn't mean they will power down everything. The more SP you have, the more responsibility you get and the short term profits shouldn't matter so much to you, you have to care about the community more and about the health of the whole ecosystem, as this will be more profitable to you as your stake increases.
Posted using Steeve
The average of which is negative. Nearly all high SP users have gained most of their SP by mining it in the spring and summer of 2016. We are talking also about why anyone would buy large amounts of SP and not just not power down if they have a lot of SP.
Without speculative bubbles there are no long-term profits.
The question is also about incentives to power up. If it is profitable to power up at all only because there are high SP users who behave altruistically, that model can't be sustainable.
For Steem to be sustainable, paying for Steem Power with fiat must enable the payer to gain access to fiat revenue streams. Paid commercial promotion does just that. Remember the photography contest example where a camera manufacturer buys or more likely rents Steem Power to be able to reward the contestants. If priced right, paying for SP can be a financially rewarding proposition under that scenario. This, in fact, is the actual value proposition of Steem according to the white paper.
If don't see clear signs of growth in the number of users in the years following HF21 and acceptance of paid promotion and advertising on Steem as a way to fund it among prominent stakeholders, I will power down and sell everything at the peak of the next speculative bull run and never look back.