Category: Passion Economy

The Hey vs. App Store dispute is a manifestation of Karl Marx’s ideas about the struggle between capital and labor, updated to a 21st century world in which a platform, rather than a factory owner, controls the means of production and distribution.

If “capital vs. labor” defined politics for the last 150 years, then we are now entering the era of “platform vs. participant.”

The parallels are striking between Marx's ideas and the battles playing out today among platforms vs. developers & platforms vs. workers.

Marx’s recommendations have obviously led to catastrophic outcomes, and I’m not endorsing abolishing private ownership (I’m a VC after all).

But history rhymes, and his work serves as a useful lens for the events and powerful actors of the present.

Das Kapital, published in 1867, remains hugely influential because it seeks to scientifically explain how capitalism works and its role in shaping modern society. It is the most cited book in the social sciences published before 1950.

In it, Marx lays forth an explanation of how capitalism works, based on what he observed from the Industrial Revolution:

The capitalist class—a select number of individuals—controls the means of production (factories, machinery, etc.), and employs workers who make goods.

The worker produces widgets, which the capitalist then sells for a profit. Meanwhile, the worker doesn’t retain any ownership of his output, and feels alienated because he’s merely a cog in the production process and has no agency over his work.

The capitalist’s profit represents the difference between the value of workers' output & their wages.

Capitalism, Marx argues, is inherently exploitative because the capitalist’s lever to extract more profit is to widen that gap: pay workers less than the value of their work.

How do these ideas from Das Kapital relate to today? As the US economy shifts away from manufacturing and to services, and from traditional employment to platform-mediated 1099 work, this struggle between capital vs. labor takes a new form, becoming platform vs. participant.

Instead of a factory owner controlling the means of production, today, platforms are gatekeepers of production and distribution, with developers & workers giving up a portion of their income, as well as some degree of control over their own product and end customer relationships.

Apple’s 30% “tax” is the prominent example currently in the headlines—but there are many more "taxes" all around us. Marketplaces commonly charge a rake: Uber charges >20%, Grubhub 5-15%.
Even SaaS fees can be seen as a limiting factor for accessing means of production.

Bill Gurley discussed platform rakes on his blog: “Most venture capitalists encourage entrepreneurs to price-maximize […] There is a big difference between what you can extract versus what you should extract.” http://abovethecrowd.com/2013/04/18/a-rake-too-far-optimal-platformpricing-strategy/

Today, the clearest form of "rake" in most people's lives is taxes, paid to the government. The issue of how much people should keep is an issue that splits the globe.

With a growing 1099 economy, income increasingly comes from platforms that decide how much workers get to keep. If the passion economy encompasses 100M people in the next 10 years, the question of rake is going to be the “capital vs. labor” dispute of our time.

UK's Labour Party was formed in 1900 to advocate for workers' rights. What will be the 21st century variant in a platform world?

Despite being widely vilified in modern times, Marx’s ideas have left enduring, widespread legacies that many people find welcome. Since the Industrial Revolution, the advancement of workers’ rights stems from his ideas on the struggle between capital vs. labor:

• Anti-trust laws, first passed in 1890, curb concentrations of power that interfere with trade and reduce competition
• The FLSA of 1938 created the 40-hour work week and prohibited child labor

These laws address the evolving limitations of the capitalist mode of production.

What is different today from Marx’s mid-1800s world is that the internet has, in many ways, democratized access to means of production, making everyone able to become a micro-capitalist.

Not everyone can own a factory, but everyone can start a blog, launch an e-comm store, etc. Learning to code is one such means of production that modern workers can wholly own. With code, workers can make products that they own and exercise creativity and imagination (an antidote to alienation).

Instead of Marx’s prescription of common ownership of means of production, with surplus value redistributed to society, another path is emerging. Everyone can now have access to means of production, own their output, do work that’s fulfilling, and accrue profits to themselves. Podcasts and email newsletters are examples of gatekeeper-less ways to produce something. Social media platforms democratize the ability to market and find audiences.

The accessibility of new passion-oriented means of production is outlined in my blog:

But just as the capital-controlled system entailed risks for workers, the platform-mediated model does, too. Individuals can get “de-platformed,” workers can be banned from marketplaces, and platforms like Apple can levy a 30% take rate on in-app purchases and subscriptions.

The Apple/Hey case has captured widespread attention due to Apple’s scale: the iPhone has an install base of 200M in the US and the App Store is tightly controlled. Apple is a major gatekeeper of the “means of production” if you want to make something that reaches 45% of the US.

Unlike the capitalists of Marx’s time, platforms’ dominance comes not from access to raw materials or machinery, but from network effects. Developers don’t have to build for Apple: they can sell their software on the internet or on other mobile OSs. But developers want to build for the platform that has the most users, and workers want to be on the platform with the most demand. That means platforms are effectively the new limited means of production.

The Austrian school of economics’ critique of Marx is that profit represents capitalists’ compensation for sacrificing present consumption for future gain—they deserve to capture the surplus value. It’s unquestionable that those who built and own platforms and marketplaces have taken on risk, created important infrastructure, and created value for society:

• There are 2.2M apps on the App Store, and Apple paid out $35B to developers in 2019. That’s tremendous value creation for consumers AND developers

• Uber enabled 1.7Bn trips to be taken in Q1 ’20. These are transactions that would not have occurred without the platform

There are many more examples where platforms created massive value for society. But the perennial question (which harkens back to capital vs. labor) is: how much platforms should take vs. participants? How consistently should rules be applied?

Marx’s work neglected to focus on the end consumer, and instead hones in on the capitalist and the worker. But the struggle between platforms and participants ultimately spills over into consumers’ lives, manifesting in the prices they pay and the services they can access.

Various people have conjectured that one of the invisible consequences of Apple's policies is the universe of apps that don’t exist because they can’t profitably operate under a 30% rake.

The marketplace counterpart is all of the non-producers that never sign up—that consumers can’t access—because of the platform’s take rate. More on how new means of production enable non-producers to become producers in my blog: https://li.substack.com/p/how-the-passion-economy-will-disrupt

Given our new digital paradigm, we need to re-think platforms’ powers and responsibilities.

In a way, Apple is acting like a government—it enacts a tax. But with the power to govern, there also needs to be transparency around a set of rules and benefits for workers & consumers.

As we shift to earning more income online—mediated by platforms, SaaS tools, and marketplaces—we need to re-think what mutual protections and responsibilities look like for platforms, workers, developers, and ultimately, end users.

As consumers desire greater control over how they spend their attention, an emerging biz model will be paying for ongoing access to *people*–or what I’ll call “Community-as-a-Service.”

There’s now lots of subscription services for high-quality premium content (Substack for newsletters; Knowable & Luminary for audio, etc). But for creators who lack the ability to sell something tangible, Community-as-a-Service enables monetizing *time* and *access*.

Examples of Communities-as-a-Service:

– Tools like InviteRobot & LaunchPass enable paid Slack groups

– Knowledge Planet in China allows KOLs to create paid groups & interact w/ subscribers

– Video games: people pay for status & attention in communities like Twitch, Fortnite, etc

The Community-as-a-Service model can combine paid subscriptions for access to the community itself, and tipping to express support/appreciation (including admins tipping community members for valuable contributions!).

Not every community can successfully charge for access. The paid model works best when there’s high intentionality (the community is a destination), desire for recognition within the community, peer-to-peer affinity & interactions, and potential for ongoing exchange of value.

For fans, the value prop is meaningful conversations and connection with each other and deeper engagement w/ someone they have affinity for. For creators, the benefit is being able to earn money and engage with fans, without having to produce something.

Deeper trends driving this:

– Creators have amassed audiences but lack ways to monetize it in a value-aligned way (not ads)

– Desire for creators to own user relationships directly

– Move towards curated micro-communities

– Value of experience over things

In the next few years, we’ll see more large communities moving off major social platforms where they originated + setting up their own independent properties, with built-in direct monetization models.

This is a fascinating example of the Passion Economy at work.

Some notable recent examples:

– Earlier this year, the 800k+ member subreddit Change My View–which promotes discourse around opposing viewpoints–launched its own website with custom features that go beyond Reddit’s capabilities

– The Woolfer, a FB group for women over 40 with 30K members, moved to a paid app/website. The reason? “This is a volunteer-run organization that has gotten too big, and we can’t sustain it anymore unless we make money” (h/t @juliey4’s great thread https://twitter.com/juliey4/status/1184264248874061824…)

The themes behind these moves to a dedicated property are:
– Outgrowing existing social platforms and needing additional product features specific to their community
– Lack of monetization options/viable business model for group creators on existing ad-driven social platforms
– In addition, various models have de-risked that consumers are willing to pay for curated, high-quality content/community (e.g. Substack, The Wing, etc).

The challenge will be to leverage existing horizontal social platforms for discovery & distribution, while giving a compelling enough value proposition so that power users move to a narrower, premium community.

It’s the 1000 True Fans idea in action.

What are other examples you’ve seen of this?

New tools are emerging and focusing on *consumers* first. That’s because consumers today aspire to become businesses tomorrow. I’ll dub this the “enterprization of consumer.”

It used to be the case that software tools focused foremost on business customers, because they had business needs and could spend money on such products. In that vein, Canva, Shopify, Wix, etc. built multi-billion dollar businesses based on empowering and selling to a large number of SMBs. 

Now, a new generation of tools have users that are initially just regular individuals, but who want to grow into businesses in their own right. There’s an opportunity to engage users pre-”enterprization”, enable their growth, and capture greater economic value as they professionalize.

The recipe is to start with a very basic offering — something that might even look like just a toy — and, as customers grow and start to earn revenue and develop new needs, get pulled into additional product capabilities. 

By virtue of engaging users early and enabling them to start and grow their businesses, these products build deep workflow lock-in and loyalty, and have the potential to supplant existing b2b-focused platforms.

The undercurrent here is that digital platforms have enabled people to amass an audience, and so creates an opening to help individuals turn their unique skills/knowledge into a business, whether that’s through designing and selling merch, self-publishing, starting a podcast, or other means.

Some examples of the “enterprization of consumer”:

• Instasize started as a free app for resizing IG photos, then realized much of their user base was comprised of “aspirational influencers” who want to uplevel + differentiate their content and grow their following. So they moved into premium features to help users achieve these goals, including filters and editing tools, as well as an inspiration map that helps users find photo-worthy/Instagrammable locations around the world. 
• Substack helps individuals easily launch paid email newsletters. The tool is built to be intuitive enough for normal consumers to use, who can opt to make their newsletters free. At the high end, top creators on Substack are making $500K a year! In the old world, these writers would likely have had to join an existing media publication as their livelihood.
• Universe enables people to create websites entirely from mobile in a few taps. As a result of being mobile-native, the user base skews young and international. Lots of the websites created w/ Universe are purely personal/just for fun–sites that people likely wouldn’t have built with SMB-focused website builders. You can imagine these mobile-native consumers staying with Universe as they grow and monetize, and the platform can capture more value by building out richer functionality and features.
• CALA is fashion house technology that makes it easy to design, produce, and deliver custom apparel. Initially, the product was used by a lot of fashion design students and influencers to create one-off projects. As these creators grow into the next generation of fashion designers and launch their own brands, CALA grows with them and can capture more value through the managed marketplace.

The “enterprization of consumer” is all about starting off as a lightweight, accessible consumer product. But as those individual consumers grow into businesses — whether as influencer brands, writers, podcasters, streamers, etc. (jobs that don’t even exist now) — these tools can evolve to meet their needs. 

See my thread on the influencer stack here for related thoughts: https://twitter.com/ljin18/status/1088501349187182592?lang=en

What else have you seen like this?