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Web2 learning: Software doesn’t sell itself

Bill Gates once referred to open-source software as “a new kind of communism.”

His successor, Steve Ballmer, called it “a cancer.” 

Mostly, they both thought that giving something away for free removed the incentive to improve it — like expecting volunteers to build skyscrapers, or people to take a rental car to the car wash.

To their immense good fortune, they were wrong.

Satya Nadella’s 2011 decision (before becoming CEO) to provide Azure support for open-source Linux may be the unrecognized turning point in Microsoft’s history — the start of its remarkable re-emergence as the apex predator of the tech world.

Nadella recognized that despite its dependence on volunteer developers, Linux had been spreading like, well, a cancer (Ballmer got that part right, at least).

But it did so benignly. 

Since its 1991 release, open-source, not-for-profit Linux has let a thousand software flowers bloom, many of which were for-profit businesses.

These profit-motivated businesses pollinated the non-profit Linux ecosystem, spreading open-source software like bees spread pollen.

Bob Young, co-founder of Red Hat, was the first to recognize this symbiotic relationship between corporate and kibbutz software.

Red Hat's early business model was simply to sell Linux in a box — "Yes, I'm selling free software," he told both customers (who were immediately receptive) and investors (who were initially skeptical).

That turned out to be a great business model — IBM bought Red Hat for $34 billion in 2019.

But there was also a bigger lesson to be learned: Free software spreads quicker if someone is selling it.

Could the same symbiotic business model work for open-source crypto?

DePIN protocols and the for-profit companies promoting them may soon find out. 

With a little help from my friends

While momentum for most parts of the crypto ecosystem feels stalled, hopes for the projects categorized as DePIN (decentralized physical infrastructure networks) are high and rising. 

Multicoin Capital estimates that DePIN projects can build infrastructure 10-100x faster than traditional business models, with use cases in “telecom, energy, data aggregation, carbon removal, physical storage, logistics, delivery and more.”

Messari forecasts that all those use cases will add $10 trillion to global GDP over the next decade and $100 trillion in the decade after that.

Most big-thinkingly, Josh Rosenthal believes that DePIN’s ability to solve “cold start problems” may catalyze an economic revolution on par with the Renaissance (yes, that Renaissance).

Unlike most blue-sky scenarios in crypto, I think these predictions have a chance — the novel business model of DePIN really does seem like a new way of doing potentially very big things.

They will probably need some help, though. 

To fulfill their promise, I expect that open-source DePIN projects will need traditional, for-profit companies to promote them in the same way that Red Hat and Microsoft have promoted Linux.

I say that because while the supply side of the DePIN equation is already working (crypto speculators are incentivizing infrastructure build), the demand side is not (customers have not yet replaced the speculators). 

A recent report from Franklin Templeton (which is otherwise enthusiastic about DePIN’s prospects) notes that “the demand for these projects has remained limited relative to token incentives emitted.”

Translation: The cost of incentivizing infrastructure has (so far) been much greater than the revenue generated by that infrastructure. 

This shouldn’t be a surprise however, because 1) even free software needs selling, 2) selling takes time and 3) selling is best done by centralized entities. 

(A decentralized entity can’t even make a phone call, let alone take you out to lunch.)

Fortunately, most DePIN projects have a centralized entity working on the demand side of the equation — and the best ones have patient token holders providing them with enough time to do the hard job of selling.

In the case of Hivemapper, for example, incentives to build an online map of the world have worked brilliantly — Hivemapper’s map is already far better than Google’s.

But creating demand for that map is proving to be the harder half of the equation — the map doesn’t sell itself. 

It can’t, because the map isn’t even onchain — the only thing fully onchain are the incentives to build the map. 

The all-important task of selling that map is handled by Hivemapper Inc., a traditional-looking, for-profit company.

Here’s how it works: Customers buy data from Hivemapper Inc. with US dollars, Hivemapper Inc. uses the dollars to buy map credits from the Hivemapper Foundation, and the Hivemapper Foundation uses proceeds from selling map credits to buy the Hivemapper token, HONEY.

It’s working pretty well so far, but the real upside is that anyone can sell Hivemapper’s map data —  just like anyone can sell Linux.

As of now, I believe it’s only Hivemapper Inc. that’s doing so, but once they make enough sales, other for-profit entities will likely jump in, repackaging and reselling the data in distinct ways.

With luck, that will pollinate the crypto ecosystem in the same way that Red Hat pollinated the Linux one.

— Byron Gilliam

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