*michael parekh on IT*: ON PAYMENT FOR PEER PRODUCTION

Friday, October 21, 2005

ON PAYMENT FOR PEER PRODUCTION

PAYMENT IN KIND

UPDATED BELOW*

A subject discussed at the Union Square Ventures' event (see earlier post) was the issue of who gets paid what and how for "peer production" in a web 2.0 world. It's a subject worth some exploration.

Most of the discussion to date focuses on how the web services themselves can make money from peer production.

But the broader question for me is how users are eventually compensated for their "peer production" today and over time.

Payment for our peer participation and production to date on services like Wikipedia, Flickr, blogs and the like are primarily in non-cash terms.

Specifically they can be classified in the following categories:

Convenient functionality for all (e.g., Flickr, Del.icio.us, Wikipedia and of course, Google).
Reputation as in the case of bloggers, reviewers and commentators on the web (aka vanity).
Generosity, as highlighted by Tom Evslin in the discussion at the USV session. Good example here are the mostly anonymous contributions by countless folks to entries in Wikipedia.
Monetary compensation direct and indirect, as in the case of eBay sellers who get direct cash from sales and Google advertisers, who presumably get transactions from the leads they pay for through Adsense and Adwords on the service and affiliates.

In most cases, we get convenient functionality as the top form of compensation in web 2.0 services, by being able to share in the efforts of many around a subject of interest to one.

As pointed out aptly by Tim O'Reilly in the session, this is particularly true in the case of Google, where every user's search fuels the efficacy of the search for all.

Google's shareholders of course benefit here, particularly when the company reports a seven-fold increase in profits for the third quarter of over $380 million on revenues of a little over a billion dollars.

Not bad for a seven year old company monetizing very well the 5% of time and attention that users worldwide spend on search on the Internet.

In a world where the "peers" in peer production are paid mostly in convenience or reputation (aka vanity) in the case of blogs, user comments and the like, one wonders how far we are from a time when a search engine and other web 2.0 businesses offer a piece of the cash to users for their attention and loyalty in any form.

It's been tried before of course in Web 1.0 days...the notion of paying money to search users. iWon.com is the poster child here, which continues to pay users in cash prizes to this day (over $64 million to date according to their website).

Of course back in the web 1.0 days, the prize money was a customer acquisition expense. Today in the world of paid-search, there is real revenue that can be split with users.

Alternatively, search engines could offer a loyalty program a la the airlines that offers specific awards and benefits for sustained usage and loyalty.

In a trillion dollar plus world of global advertising, direct marketing and promotion, it's not unreasonable for peers to collectively ask for a piece of the pie. Especially when there's SO MUCH of it to go around.

Whatever form it takes, at some point in the evolution of the web, consumers and users may ask for and get more tangible compensation beyond functionality, reputation and feelgood generosity, in exchange for their attention to all things on the web.

Why, we may even call it web 3.0.

After all it is VERY personal and it is BIG business.

The next Google wannabes of course will keep this in mind.

UPDATES:

*David Gibbons of Poductivity has an interesting comment below applying some of Umair Haque's thinking on microchunking to the eBay-Skype acquistion, that happens to be relevant to the paying for peer production thesis above. For reader convenience, here are the live links to the slide and his original post. My own post on the eBay-Skype acquisition can be found here.