Subscriptions for the 1%

We are in a subscription hell. Paywalls are going up across the internet, at aggregated prices few but Jeff Bezos can afford. The software I used to pay for once now requires an annual tax, because … “updates.” We are getting less every day, and paying more for it, all the while the core openness that made the world wide web such a dynamic and interesting place is rapidly disappearing.

I’m not a subscription hater. Far from it: subscriptions are vital, because they provide sustainability to the content and software I care about. Regular, recurring income helps make the business of creation more predictable, ensuring that creators can do what they do best — create — rather than stress about whether the next book or app is going to generate their yearly earnings.

Greed, though, has managed to make subscriptions deeply unpalatable. Sustainability has become usurious, with news subscriptions jumping in price and app developers suddenly demanding a fee where none existed before. This avarice for our wallets though is not misdirected. Ultimately, one group of people is to blame for this situation, and it isn’t the bean counters in the accounting department.

It’s us.

And by us, I mean the proverbial 99% consuming public who refuses to pay for any content or software — except for Netflix or Amazon Prime, of course.

Just take a look at the abysmal conversion rates for online content. The New York Times gets 89 million uniques per month, but only has 2.2 million subscribers, excluding crossword and other app subscribers. The Guardian has 800,000 financial supporters, but about 140 million unique visitors at a peak a few years ago. Last year, the Wikimedia Foundation received donations from 6.1 million donors, yet just the English language edition of Wikipedia received 7.7 billion page views last month. That’s 1,300 April page views per annual donor.

The implied conversion rates here are in the very low single digits, if not lower. And that’s no surprise given the extreme lengths people go to get content for free. A friend of mine uses AWS to rent IP addresses to reset his article meter on popular news pages, allowing him to download web pages through a Singapore data center using a custom command line utility. Engineers who make hundreds of thousands of dollars are suddenly tantalized by the challenge of trying to break through a porous paywall. I have less technical friends Googling URLs, setting up proxies, and other tactics to get to the same outcome.

The problem with these minuscule conversion rates is that it dramatically raises the cost of acquiring a customer (CAC). When only 1% of people convert, it concentrates all of that sales and marketing spend on a very small sliver of customers. That forces subscription prices to rise so that the CAC:LTV ratios make rational sense.

What we get then is a classic case of economic unraveling. A company could offer an affordably priced subscription, but users hesitate, and so the company tries to do more marketing initiatives, which raises the cost of the subscription. That makes the vast majority of users even less willing to purchase it, so marketing gets more budget to go after the highest spending consumers.

Before you know it, what once might have been $1 a month by 20% of a site’s audience is now $20 a month for the 1%.

That’s basically the math of the New York Times. Last year, the company generated $340 million in digital-only revenue from 2.6 million subscribers (including derivatives like crosswords and cooking). That’s $155 a user on average annually, or about $13 a month. The Times had an implied conversion rate of about 2.5% from my earlier calculations. If they could convert 20% at the same sales and marketing cost, they could charge $20 a year and get the same revenue (maybe $22 for added credit card processing fees).

The entire subscription economy is ultimately a 1% economy — it’s focused on a very small subset of users who have demonstrated that they are willing to pay dollars for content. The most likely factor that someone is going to buy a subscription is that they already have a subscription to another service. And so we see pricing that reflects this reality.

There is a class of exceptions around Netflix, Spotify, and Amazon Prime. Spotify, for instance, had 170 million monthly actives in the first quarter this year, and 75 million of those are paid, for an implied conversion of 44%. What’s unique about these products — and why they shouldn’t be used as an example — is that they own the entirety of a content domain. Netflix owns video and Spotify owns music in a way that the New York Times can never hope to own news or your podcast app developer can never hope to own the audio content market.

Yes, we are living in a subscription hell, but it is also heavily a product of our own decision-making as consumers. We want content and software for free, and in fact, we will go to ridiculous lengths to avoid paying for it. We will protest ads and privacy-invasive tracking, but we will never support the business model that would make that technology obsolete. Even when we will consider buying a service, we will wait so long and make the conversion so expensive that a huge chunk of our individual revenue will simply evaporate in sales and marketing costs.

The solution here is to become more intentional about aligning our content spending with what we read, use, watch, and hear. Put together an annual content budget, and spend it liberally across the publications and creators that you enjoy. Advocate for pricing that makes sense for you individually, but also convert more easily when you find something that you like. The friction has to lower on both sides of the marketplace for the 20% to supplant the 1%.

I don’t want a world filled with gilded walled gardens designed to ensure that the 1% have the best information and entertainment while leaving the rest of us with clickbait fake news and bad covers on YouTube. But creating content and software is expensive, and ultimately, businesses are going to sell to the customers that pay them. It’s on all of us to engage in that market. Maybe then this subscription hell can freeze over.

MoviePass parent drops another 46%

There’s been another bomb at the box office, and it isn’t a movie.

MoviePass parent Helios & Matheson lost nearly half of its remaining value today as investors continued to flee the cash-burning movie service. That drop followed a 31% dive yesterday, after the company filed a statement with the SEC warning that it would have to sell equity in the coming weeks for it to remain solvent. Since Thursday’s opening bell last week, the stock has moved from $2.13 to $0.79, a drop of 63%. The company’s market cap is now $51.44 million.

MoviePass CEO Mitch Lowe said in a written statement that “Our burn rate has been slashed by 35-40% by the implementations and abuse prevention measures we have put in place over the last few weeks. We have always known, from when MoviePass took off in August, that it was going to be a high cash burn business model. We are not changing our guidance on 5 million subscribers by the end of this year – which should make us profitable/cash flow positive according to our business model. We have access in capital markets to over $300 million. So there is plenty of cash available to sustain the subscriber growth and movie-going habits of our users.”

Those are the facts as we know them, but let’s consider some of the options the company has now.

Even if you believe the market demand for Helios’ stock (I, for one, find them incredulous), there is an enormous challenge of converting that money into equity now. The envelope math looks like this: a month ago when the stock closed at $4.21, buying 20% of the company would have cost roughly $55 million. At the company’s current average burn rate of $21.7 million per month, that cash would have lasted approximately 2.5 months.

Now though, with the stock price so low, getting cash on the balance sheet today is a much harder proposition. That same $55 million that bought an investor a fifth of the company last month would be a complete buyout today. Buying 20% only costs a bit more than $10 million now, or roughly two weeks of burn.

So what’s the trick here that will save the company?

The obvious option is to radically control burn. The company could offer pricier tiers for heavy users of MoviePass, and could put a ceiling on the number of films a customer can watch per month as it did temporarily a few weeks ago. Lowe seems deeply committed to overall subscriber growth though, and that makes any sort of constraints on the product unlikely. The reason is that subscribers are the leverage Lowe needs to negotiate better partnership arrangements with theater chains, so he has to keep trying to grow users rapidly.

One theory is that the company could be negotiating equity deals with theaters chains like AMC, which could be enticed by the low price of the stock to “buy in” to MoviePass’ popularity. Such media equity partnerships are not unusual — Sony, for instance, was a major shareholder in Spotify, as was Warner Music group, although both have since sold off large percentages of their holdings. Given the reliance of MoviePass on theater chains, building an equity partnership could prove to be the service’s savior.

A well-publicized partnership — including discounted movie tickets for MoviePass — could boost the stock significantly since the cost savings would improve the company’s burn rate. That could be an enticing proposition for the chains, since they could realize an almost immediate gain on their investment, plus the on-going proceeds of a partnership going forward.

The other tactic would be to sign up more MoviePass subscribers who watch limited films. This is what might be called the “gym membership model” of trying to identify customers who want to buy a membership as an aspirational purchase, but who won’t actually use the facilities often. The challenge, beyond the incredibly short time period to try to build that marketing funnel, is that MoviePass appears to lose money on the very first ticket a customer purchases. The question isn’t how much revenue each customer generates, but how much the losses can be minimized.

The situation is a high-wire act, and the company will either hit the ground in the next few weeks, or it will right the ship, limit expenses, and get enough equity investors to give it some cash to burn and keep on growing. I’d say use your MoviePass while you have it, but then again, that’s exactly why the company is faltering to begin with.

A Google I/O conversation

Hey Google, what happened at Google I/O today?

Artificial intelligence.

Okay, that’s non-specific. I heard Android P was released today. What’s new?

Artificial intelligence.

Hmm. Has Google added any features to make battery life longer on Android?

Artificial intelligence.

Let’s move on. What about the brightness settings? I heard there was something new there too?

Artificial intelligence.

How the hell can brightness use artificial intelligence? And why do you only say one thing? Let’s move on to some apps. What’s new with Google Maps?

Artificial intelligence.


Artificial intelligence.


Artificial intelligence.


Artificial intelligence.


Artificial intelligence.


Artificial intelligence.

You are the worst assistant ever. Did Google update Assistant at all?

Artificial intelligence.

Argh. I heard Google released a lot of dev tools today. What’s ML Kit about?

Artificial intelligence.

And Duplex?

Artificial intelligence.

And tensor processing un…you know never mind. I get the damn picture. At least you still call Google Research Google Research right?

Artificial intelligence.

No, it’s called Google Research.

Artificial intelligence.

Dammit they rebranded. You know, you are the very definition of a PR drone.

Artificial intelligence.

Wait, you’re not human?

Artificial intelligence.

You pass the Turing test.

MoviePass parent drops 31% on looming cash crunch

The big question in the media world today is whether MoviePass parent company Helios and Matheson can stanch the bleeding of its cash flows before it becomes insolvent.

In a new filing today with the SEC, Helios informed investors that it had $15.5 million in available cash, with another $27.9 million in accounts receivable from members of MoviePass on longer-term subscriptions. Under accounting rules, those dollars can’t be used to fund current expenses. The company said that it has lost $21.7 million a month between September and April this year.

Investors dumped the stock following the filing, and the stock was down 31% at the close of the equity markets today.

While linear math would seem to indicate that the company is on track for insolvency in a matter of days, the filing and its CEO are maintaining an optimistic line. The company said that following a series of product changes including more verification that a subscriber actually watched a film themselves, it should reduce its cash loss on the service by 35% during the first week of May.

In an interview with TechCrunch, MoviePass CEO Mitch Lowe struck a positive view on the future of the business. He argued that unlike in the past, where a new app or service would raise venture capital and then invest it in the business, you can just handle capital concerns as you need them. “Today what you do is you raise enough money month by month to fund essentially that negative cash flow,” he said. “We are 100% confident that we have the committed funding to do it.”

In order for the company to avoid insolvency, the company will need to continue to sell its common stock to investors on a regular basis to fund that negative cash flow. The company said that sales of its common stock will need to begin this month in order to fund operations. If the company is unable to do so, “we may be required to reduce the scope of our planned growth or otherwise alter our business model, objectives and operations, which could harm our business, financial condition and operating results,” it wrote in the filing.

Backstage Capital launches $36m fund to boost black female founders

Conceiving a product and turning it into a successful high-growth startup is challenging work, but it can be absolutely punishing for underrepresented founders. While a strong product and a great go-to-market is critical for early success, that’s not enough to ensure a successful venture capital fundraise. Instead, what often matters is building relationships with investors, and the evidence is clear that people love to work with people who look just like them.

In an industry dominated by white men, it can be hard for founders to find investors who look like them. That’s why Arlan Hamilton built Backstage Capital. Her firm’s mission is to provide early seed financing exclusively to founders who are women, people of color, and LGBT — groups that are massively underrepresented among Silicon Valley founders compared to the general population.

“I think the figures speak for themselves: less than .2% of all early stage venture funding goes to Black women, while we make up approx 8% of the U.S. population and are one of the fastest growing entrepreneur segments in the country,” she wrote in an email exchange with TechCrunch.

My colleague Megan Rose Dickey interviewed Hamilton early last year about raising her firm’s second fund. Dickey wrote at the time that “Hamilton wasn’t able to say the exact size of the second fund but says they’re the size of the catering budget for the Christmas party at Andreessen Horowitz.”

Well, that second fund has now launched and is targeting $36 million in commitments by its final close (Hamilton is continuing to fundraise). And unless A16Z’s Christmas party has gotten even more ritzy than I remember it, it appears that Hamilton has far exceeded her own expectations on what size fund she would be able to ultimately aggregate. The fund’s mission is to specifically focus on black female founders.

The burgeoning size of the fund can also be seen in the size of checks the fund is targeting. Originally, Hamilton said she wanted to target $25-100k seed checks. Now, she foresees the fund investing $1 million checks into 15-20 companies over the next three years, with the remainder of the fund reserved for follow-on investments.

While Backstage certainly has a mission, Hamilton sees a huge potential for outsized returns. “It is my firm belief that because Black women have had to make do with far less for centuries, equipping them with early stage capital that is on par with their white male counterparts has the potential to lead to outsized returns,“ she wrote.

Hamilton pointed to last month’s Vanity Fair spread featuring black women who had raised $1 million in venture capital. “While this was a proud moment for us all, I want to do my part to make sure that number reaches heights such that the next photo shoot isn’t contained in one single room,” she wrote.

The firm has invested in more than 80 portfolio companies, and Hamilton expects to make two or three seed investments out of this new fund by the end of the year.

China closing in on massive new chip fund in bid to dominate US semiconductor industry

China’s government has made technological independence from the United States one of its highest priorities. And now, it appears to be putting its money where its messaging has been.

According to the Wall Street Journal, China is close to finalizing a $47 billion investment fund that would finance semiconductor research and chip startup development. The fund, formally the China Integrated Circuit Industry Investment Fund Co., appears to be underwritten predominantly by government capital sources.

Such a fund has been rumored for months, with the size of the fund ranging widely. Just two weeks ago, Reuters had reported that the fund would be $19 billion, while Bloomberg reported $31.5 billion two months ago. The exact number appears to be under intense negotiation among the Chinese leadership, and is also responsive to the increasingly tense trade negotiations with the United States.

If the $47 billion number pans out, it would be identical in size to a $47 billion fund that was financed by Tsinghua University, China’s leading engineering university, to spur the development of an indigenous semiconductor industry back in 2015.

China is highly dependent on foreign tech in its semiconductor industry, importing 90% of its chips in order to power its fast-growing economy. The Chinese government has always been wary of that dependency, but its fears were heightened in recent weeks after the United States banned American companies from selling components to ZTE, a prominent Chinese telecom equipment manufacturer.

Chinese President Xi Jinping has gone on something of an indigenous innovation tour in recent weeks, visiting factories across the country and encouraging further investment in the country’s technology industry. From the Communist Party of China’s official newspaper the People’s Daily two weeks ago, “National rejuvenation relies on the ‘hard work’ of the Chinese people, and the country’s innovation capacity must be raised through independent efforts, President Xi Jinping said on Tuesday.”

While the numbers discussed are eye-popping, so are the costs of developing leading-edge semiconductor technology. As semiconductors have grown more complex, costs have skyrocketed to maintain Moore’s Law. Intel spent more than $13 billion on R&D expenses alone in 2017, according to IC Insights, with Qualcomm, Broadcom, and Samsung each spending more than $3 billion.

While China may try to play catchup in the broad category of semiconductors, it is strategically placing its money on new areas like 5G wireless and artificial intelligence-focused chips where it might become a leading provider of technology. Concerns over 5G in particular have galvanized American attention on Qualcomm and its ability to compete in what is rare virgin territory in the telecom equipment space.

For American companies like Intel and Qualcomm, who are used to holding de facto monopolies on entire swaths of the semiconductor market, the renewed competition from China is going to pressure them to push their tech forward faster.

With MIT launched, Learning Machine raises seed to replace paper with blockchain credentials

Transcripts, diplomas, resumes — simple documents with enormously important economic consequences for their holders. The right classes or GPA on a transcript can radically change the career prospects of a young graduate, and yet, the infrastructure that manages these critical documents still centers on mailing official paper to processing centers.

Now, a startup called Learning Machine wants to completely migrate these documents into the digital era by placing them on the blockchain. Its design partner is MIT, which launched the Learning Machine technology at the MIT Media Lab and the Sloan School of Management last year. Now, it is announcing a $3 million seed fundraise to build out this vision, led by Dave Fields of PTB Ventures.

Learning Machine is behind an initiative called BlockCerts, an open source and open standard securing credentials on the blockchain. Institutions like MIT can cryptographically sign a credential and place it on the blockchain, then another person (say an employer) can use the BlockCerts app to verify that the credential is valid. The project was jointly conceived by the MIT Media Lab and Learning Machine, and will continue to develop as an open-source project.

Chris Jagers, the founder and CEO of Learning Machine, has deep expertise in the space. He previously founded SlideRoom, a platform that evaluates applicants in college admissions, particularly in science and technology. He built a long-term partnership with MIT, and even had an office on the MIT campus.

While admissions is certainly more digital than it once was, forms like letters of recommendations and transcripts are often still sent via paper. “We saw first-hand the difficulty of getting official records sent to admissions,” Jagers explained. “These kids started to Snapchat their grades and send them in [and they] didn’t understand why it wasn’t that easy.”

Jagers founded SlideRoom in 2007, and built it into a growing business across university admissions departments. This continued for years until the rise of blockchain tech. “Then when bitcoin started getting big, we were hanging around the Media Lab,” Jagers said. “And we were thinking, ‘How cool would it be to use the blockchain as a decentralized verification network?’”

After 10 years of building SlideRoom, Jagers finally accepted an offer to sell last summer and work on Learning Machine full-time.

While BlockCerts is the open standard, Learning Machine is the enterprise-grade service provider that works with universities to set up and manage the technology. Jagers believes that the focus on open standards and interoperability will give Learning Machine an edge in a market filled with blockchain credentials startups. “Our belief is that records should have no ongoing dependence on the issuer,” Jagers said.

It charges a yearly fee to maintain the systems for the universities. The idea is that once a credential has been processed, there shouldn’t be any more fees to verify its authenticity or to transmit it to other parties. As such, it’s pretty much a traditional enterprise software company, rather than some sort of blockchain/token-based model. That has helped with sales, and “Right now, we are in the midst of our first round of pilots, with a government and a few schools,” Jagers told me.

While the focus is in many ways on transcripts, Learning Machine’s technology is not limited to just one type of document. “It could be diplomas, driver licenses, medical records,” Jagers said. The company has developed a set of schemas that institutions can use to standardize credentials, and Learning Machine is developing more schemas as clients require more flexibility.

The long-term vision, though, is to make these blockchain credentials “smart,” so that credentials could lead to other credentials. For instance, completing the final class of a degree program wouldn’t just give you the class transcript grade, but also the degree itself. Jagers called these “stackable certificates,” and the hope is that the right infrastructure could reduce a lot of the paperwork involved in managing academic and other programs.

Jagers sees the world slowly awakening to the benefits of blockchain for records management and credentials. “By the end of three years, we want to see blockchain-based records … start to enter the public consciousness,” he said. Right now though, “It’s about showing success with this first round of pilots.” If blockchain is going to work in the enterprise, deep expertise, traditional business models, and open standards appears to be a potentially winning formula.

Technical ignorance is not leadership

There is a peculiar pattern that I have noticed among elites in the United States outside Silicon Valley, which is the almost boastful ignorance of technology. As my colleague Jon Shieber pointed out today, you can see that ignorance among congressmen throughout the whole Facebook/Cambridge Analytica saga. Our president has rarely sent an email, and seems to confine his mobile phone activities to Twitter. One senior policymaker told me a few months ago that she doesn’t know how to turn on her computer.

Such a pattern is hardly unique to politics though. Hang out with enough business executives, lawyers, doctors, or consultants, and you will hear the inevitable “I don’t really do the computer,” with an air of detached disdain.

Yet it isn’t just the technical challenges that this class avoids, but anything to do with implementation in general. In the policy world, wonks spend decades debating the finer points of healthcare and social spending, only to be wholly ignorant at how their decisions are actually implemented into code. There is an elitism in policy between those who make the decisions and those who implement them, just as much as there is a social distinction between corporate executives and the people who have to carry out their directives.

In many ways, this disdain for the technical mirrors the disdain for math, where the phrase “I’m not a math person” has become sufficiently ubiquitous in the U.S. as to be covered regularly in the press. Being bad at math is a way to signal that someone isn’t one of the worker bees who actually have to care about calculations — they just read the reports prepared by others.

Yet, that ignorance of technology is increasingly untenable. Decisions are only as good as the implementation that results. Marketing isn’t a plan, it’s a system of feedback loops from the market that need to be adjusted in real-time. It’s one thing for politicians to sign a bill into law, but another to ensure that the bill’s intentions are actually encoded into the software that powers government.

The gap between decision and implementations was at the core of a conversation I had this past week with Jennifer Pahlka, who founded and heads Code for America, a nonprofit whose mission is to bridge the divide between government and technologists.

To show how far a policy and its implementation can be, she pointed me to Proposition 47 in California. That initiative, which was passed by voters in 2014, was designed to allow individuals to retroactively expunge or reclassify certain nonviolent felonies to misdemeanors, allowing individuals to become eligible again to work, vote, and receive some government benefits.

Yet, several years after the approval of Prop 47, a single digit percentage of eligible people have taken advantage of the program. The reason is classic government: incredibly convoluted paperwork, which is exponentially worse since every one of California’s 58 counties has to implement the program independently. “If you are a voter and you voted for a specific referendum,” Palhka explained, then you expect a certain outcome. But, “if none of the benefits that you expected to change” materialized, then cynicism mounts quickly.

To help bridge the gap, Code for America launched Clear My Record, a service designed to automate many of the steps involved in the Prop 47 process and make it more accessible. It’s just one of a bunch of services that the group has launched to improve government services ranging from food assistance through GetCalFresh to improving case manager communication through ClientComm.

Palhka’s mission isn’t to just offer point solutions for specific government programs, but to completely overhaul the latent anti-tech culture of government officials. “Digital competence is core to successful government,” she explained, and yet, “If you are a powerful person, you don’t have to understand how the digital world works … but what we are saying is that you do have to care.” Her goal is straightforward: “how do you get policy, operations, and tech to all work together?”

While Palhka and her organization focuses on the public sector, their framework is perhaps even more important to the private sector. There isn’t a company today that can survive without technical leadership in the C-suite, and yet, we still see an astonishing lack of awareness about the internet and its potential from corporate executives. Software increasingly intermediates all relationships with customers, whether though digital commerce or enterprise services. If the software is bad, no amount of decision-making in a mahogany-paneled board room is going to change it.

The good news is that ignorance has an easy solution: education. The computer is not some mystery box. It’s well-documented, and all kinds of resources are available to learn how they work and how to think about their capabilities and nuances. If someone can run a multinational company, they can probably ask smart questions about algorithms or machine learning even if they don’t realistically implement the linear algebra themselves.

CEOs, senators, and other leaders are synthesizers — they rely on staff to handle the details so they can focus on strategy. We would never trust a CEO who brushed off an accountant by saying “I don’t do cash flows,” and we shouldn’t trust a CEO who doesn’t understand how the internet works. Changing times require adaptable leaders, and today those leaders need tech literacy just as much as our grade-school children do. It’s the only way leadership can move forward today.

Enterprise wasn’t ready for blockchain, so Manifold brought its ledger to consumers instead

While the cryptocurrency craze last year brought more consumer attention to blockchain technology, the future of this movement will be in the enterprise. Blockchain’s true potential is its ability to replace the archaic and centralized infrastructure that powers everything from payments to land registries with digital-first, decentralized, and trusted networks of data.

Skepticism, though, abounds. Jamie Dimon, CEO of J.P. Morgan Chase, has called bitcoin a “fraud,” only to walk back those comments later. He has more recently said that blockchain is “real”. The challenge of course is it is exactly people like Dimon who ultimately control the destiny of blockchain in the enterprise. Without leadership from the top, few CIOs and other buyers are willing to consider such a wildly disruptive new technology.

That has been the experience of Manifold Technology founder and CEO Chris Finan and his co-founder Robert Seger. The two have an intelligence background, with Finan working at DARPA and Defense more broadly and Seger working at the NSA. Seger would go on to become CTO of Morta Security, which was acquired by Palo Alto Networks, while Finan became director of cybersecurity legislation for the White House before heading to the Valley and working at Impermium, a cybersecurity startup acquired by Google.

Taking advantage of their backgrounds, they got together in 2014 to try to connect blockchain into the enterprise. “We wanted to be the Cisco of enterprise blockchain providers,” Finan explained to me. “We were looking at what we can do to leverage cryptography to build the picks and shovels.”

Over the next few years, they built out a distributed ledger technology built on top of Amazon Lambda. The idea was that serverless technology like Lambda could offer quick scalability to a blockchain from day one, without requiring the kinds of decentralized technology adoption seen in cryptocurrencies like Bitcoin. “In that way, we try to let Amazon handle this scalability for us,” Finan explained.

There was just one problem: enterprise hasn’t gotten on the blockchain bandwagon yet. “They don’t want to buy a blockchain, they want to flip a switch and have it,” Finan said. He didn’t see institutions looking to migrate their infrastructure to a blockchain model, and “we found ourselves to be an engine manufacturer in a sector that wasn’t buying many engines.“ Even worse, “you definitely see VC interest in the enterprise infrastructure market definitely waning” when it comes to blockchain.

Stymied by the enterprise market, the team started investigating whether it could build consumer applications on top of its infrastructure. What they came up with is Volley, a blockchain-backed augmented reality marketplace to buy and sell goods, which is currently in beta and available in the Apple App Store. This new direction connected with investor appetites, and the company raised a $7 million series A from MalibuIQ, Westlake, and other investors.

The idea of Volley is that current online marketplaces for goods are filled with scams and other security issues. To improve trust and safety issues, Manifold has built a reputation system for buyers and sellers so that transactions are decentralized, but trusted. “We wanted to make it very expensive to make a fake account,” Finan said.

Using augmented reality, the app allows users to explore their world and see things for sale. The hope is that at scale, the app would show users hundreds of things all around them that they might purchase, from the backpack of the person in front of them to a car parked on the street. Right now, the technology only works with iOS and the ARKit library, with the company hoping to launch an Android version shortly.

Finan believes that a consumer marketplace is a near-perfect application of blockchain. “There has to be some sort of need for independent trust guarantees,” he said, which requires that a marketplace be filled with people who don’t trade often with each other and has goods that are not trivially cheap to replace if fraud were to occur. In addition, he believes you have to have “auditability” as well as high throughput for blockchain to make sense.

It’s easy to be cynical about two cybersecurity veterans diving into the consumer world. While Volley has to prove itself as a potential consumer winner, to me what makes the investment here more interesting is that there are two ways to win. Volley itself could become an interesting consumer play, or Volley might help to prove out Manifold’s serverless blockchain technology, which could find renewed adoption in the enterprise in the future. It’s the sort of hedged bet that investors are making in the blockchain space, as we await the further maturation of this brand new market.

Subscription hell

Another week, another paywall. This time, it’s Bloomberg, which announced that it would be adding a comprehensive paywall to its news service and television channel (except TicToc, its media partnership with Twitter). A paywall was hardly a surprise, but what was surprising was the price: the standard subscription is $35 a month (up from $0 a month), or $40 a month including access to online and print editions of Businessweek.

And people say avocado toast is expensive.

That’s not the only subscription coming up though. Now Facebook is considering adding an ad-free subscription option. These rumors have come and gone in the past, with no sign of change in the company’s resolute focus on advertising as its core business model. Post-Cambridge Analytica and post-GDPR though, it seems the company’s position is more malleable, and could be following the plan laid out by my colleague Josh Constine recently. He pegged the potential price at $11 a month, given the company’s revenue per user.

I’m an emphatic champion of subscription models, particularly in media. Subscriptions align incentives in a way that advertising can never do, while also avoiding the morass of privacy and ethics that plague ad targeting. Subscription revenues are also more reliable than ad dollars, making it easier to budget and improve operational efficiency for an organization.

Incentive alignment is one thing, and my wallet is another. All of these subscriptions are starting to add up. These days, my media subscriptions are hovering around $80 a month, and I don’t even have TV. Storage costs for Google, Apple, and Dropbox are another $13 a month. Cable and cell service are another $200 a month combined. Software subscriptions are probably about $20 a month (although so many are annualized its hard to keep track of them). Amazon Prime and a few others total in around $25 a month.

Worse, subscriptions aren’t getting any cheaper. Amazon Prime just increased its price to $120 a year, Netflix increased its popular middle-tier plan to $11 a month late last year, and YouTube increased its TV pricing to $40 a month last month. Add in new paywalls, and the burden of subscriptions is rising far faster than consumer incomes.

I’m frustrated with this hell. I’m frustrated that the web’s promise of instant and free access to the world’s information appears to be dying. I’m frustrated that subscription usually means just putting formerly free content behind a paywall. I’m frustrated that the price for subscriptions seems wildly high compared to the ad dollars that the fees substitute for. And I’m frustrated that subscription pricing rarely seems to account for other subscriptions I have, even when content libraries are similar.

Subscriptions can be a great tool, but everyone seems to be doing them wrong. We need to transform our thinking here if we are to move on from the manacles of the ad networks.

Before we dive in though, let’s be clear: the web needs a business model. We didn’t need paywalls on the early web because we focused on plain text from other users. Plain text is easier to produce, lowering the friction for people to contribute, and it’s also cheaper to store and transmit, lowering the cost of bandwidth.

Today’s consumers though have significantly higher standards than the original users of the web. Consumers want immersive experiences, well-designed pages with fonts, graphics, photos, and videos coming together into a compelling format. That “quality” costs enormous sums in engineering and design talent, not to mention massively increasing bandwidth and storage costs.

Take my colleague Connie Loizos’ article from yesterday reporting on a new venture fund. The text itself is about 3.5 kilobytes uncompressed, but the total payload of the page if nothing is cached is more than 10 MB, or more than 3000x the data usage of the actual text itself. This pattern has become so common that it has been called the website obesity crisis. Yet, all of our research shows people want high-definition images with their stories, instant loading of articles on the site, and interactivity. Those features have to be paid somehow, begetting us the advertising and subscription models we see today.

The other cost is content production itself. Volunteers just haven’t produced the information we are seeking. Wikipedia is an extraordinary resource, but its depth falters when we start looking for information about our local communities, or news, or individuals who aren’t famous. The reality is that information gathering is hard work, and in a capitalist system, we need to compensate people to do it. My colleagues and I are passionate about startups and technology, but we need to eat to publish.

While an open, free, and democratized web is ideal, these two challenges demonstrate that a business model had to be attached to make it function. Advertising is one such model, with massive privacy violations required to optimize it. The other approach is charging for access.

Unfortunately, subscription seems to be an area filled with product engineers and marketers led by brain-dead executives. The default choice of Bloomberg this week and so many other publications is to simply put formerly free content behind a paywall. No consumer wants to pay for something they formerly got for free, and yet we repeatedly see examples of subscriptions designed this way.

I don’t know when media started hiring IRS accountants, but subscriptions should be seen as an upgrade, not a tax. A subscription should provide new features, content, and capabilities that didn’t exist before while maintaining the former product that consumers have enjoyed for years.

Take MoviePass for instance. Consumers can continue to watch movies as they always have in the past, but now they have a new subscription option to watch potentially more movies for a set price. Among my friends, MoviePass has completely changed the way they think of films. Instead of just seeing one blockbuster every month, they are heading to an art house film because “we’ve essentially already paid for it, so why not try it?” The pricing is clearly too cheap, but that shouldn’t distract from a product that offered a completely new experience from a subscription.

The hell is even worse though. We not only get paywalls where none existed before, but the prices of those subscriptions are always vastly more expensive than consumers ever wanted. It’s not just Bloomberg and media — it’s software too. I used to write everything in Ulysses, a syncing Markdown editor for OS X and iOS. I paid $70 to buy the apps, but then the company switched to a $40 a year annual subscription, and as the dozens of angry reviews and comments illustrate, that price is vastly out of proportion from the cost of providing the software (which I might add, is entirely hosted on iCloud infrastructure).

For product marketers, the default mentality is to extract a lot of value from the 1% of readers or users that are going to convert to paid. Subscriptions are always positioned as all-or-nothing, with limited metering or tiering, to try to force the conversion. To my mind though, the question is not how to get 1% of readers to pay an exorbitant price, but how to get say 20% of your readers to pay you a cheaper price. It’s not about exclusion, but about participation.

One way we could fix that situation would be to allow subscriptions to combine together more cheaply. We are starting to see this too: Spotify, Hulu, and Scribd appear to be investigating a deal in which consumers can get a joint subscription from these services for a lower rate. Setapp is a set of more than one hundred OS X apps that come bundled for about $10 a month.

I’d love to see more of these partnerships, because they are much more fair to the consumer and ultimately allow smaller subscription companies to compete with the likes of Google, Amazon, Apple, and others. Cross-marketing lowers subscriber acquisition costs, and those savings should ultimately stream down to the consumer.

Subscription hell is real, but that doesn’t mean the business model is flawed. Rather, we need to completely transform our thinking around these models, including the marketing behind them and the features that they offer. We also need to consider consumers and their wallets more holistically, since no one buys a subscription in a vacuum. For too long, paywall playbooks have just been copied rather than innovated upon. It’s time for product leaders to step up and build a better future.