TOKEN GESTURE TO TAKE DOWN YOUTUBE
Live-streaming start-up YouNow is to offer a new kind of reward in the latest example of digital currencies’ capacity to disrupt
Adi Sideman, the chief executive of the live-streaming start-up YouNow, spends his days hawking a new form of digital currency.
The tokens are called Props and Mr Sideman wants people who stream video online to accept them as a form of payment. Creating an economy based on Props is the centrepiece of Mr Sideman’s plan to loosen YouTube’s hold on the internet. It’s a hopelessly audacious idea by any standard – except perhaps by the standards of those who trade in digital currencies, where YouNow’s long shot makes perfect sense.
The first place the Props economy will exist is within Rize, a new live-streaming app that YouNow is releasing in January. People who use Rize will earn the tokens based on a mathematical formula determining how valuable their contribution to the service is. They can convert them into dollars or hold on to them as a bet that Props will increase in value over time. Mr Sideman is offering Props free of charge to other developers willing to distribute the currency to the services of their own users. In theory, this will create a flywheel, where demand for Props gets people to use the apps, which further increases demand for Props, until a self-sustaining economy emerges, according to Bloomberg.
YouNow, which will hold on to about a quarter of the total supply of the tokens, stands to profit as the value of the coins appreciates. If Props go to zero, it’s left holding nothing. Or almost nothing. Over the next two months, it will sell off 20 per cent of the total supply of Props and expects to raise US$25 million doing so. There will be a billion Props in total – a number that won’t change over time – and YouNow is initially valuing each one at about 12.5 US cents.
This sort of thing is in the air nowadays. This year, investors have poured more than $3.6 billion into about 230 initial coin offerings (ICOs), the term of art for this sort of token sale, according to the website CoinSchedule.com. The ICO boom is the latest incarnation of the fascination that certain tech and finance circles have for blockchain, the technology enabling the exchange of virtual items without the control of a centralised entity.
Digital tokens based on blockchain, often referred to as cryptocurrencies, have proved appealing as tools for speculators, since they will increase in value if the demand for their use grows. The most prominent is bitcoin.
Bitcoin is showing no signs of slowing down, blowing past $9,000 less than a week after topping $8,000 and now quickly closing in on five big figures.
The price of the largest cryptocurrency by market value is soaring as it gains greater mainstream attention, despite warnings of a bubble in what not everyone agrees is an asset. From Wall Street executives to venture capitalists, observers have been weighing in, with some more sceptical than others. Bitcoin has climbed more than 40 per cent over the past two weeks.
“Bitcoin has seen another frenzy of buying as the fear of missing out trade bites even harder,” analysts at IG Group, a trading-platform operator, wrote in a note on Monday. “There are others who see downside risks from the introduction of bitcoin futures,” they wrote. But alongside bitcoin there is also ethereum (more flexible than bitcoin), NEO (ethereum for China) litecoin (bitcoin but faster), zcash (more private) and ardor (a blockchain for creating blockchains) to name a few. A growing roster of entrepreneurs and venture capitalists say the technology could prompt the biggest change in the architecture of the internet since the rise of Facebook and Google.
That’s the bull case. As happens whenever a new, unregulated way for speculators to make money emerges, the ICO craze also has its share of shadiness, chaos and the threat of government crackdown. Promising projects have descended into infighting; banking regulators recently issued a statement seemingly aimed at the US celebrity Paris Hilton after she hyped a token called Lydian Coin; and Jordan Belfort, the real-life subject of The Wolf of Wall
Street, called ICOs “the biggest scam ever”.
YouNow wants to thread the line between hype and scepticism. Mr Sideman avoids using the term ICO, saying it carries “connotations of speculation”. Yesterday, the company announced it would sell the first batch of Props – between $13m and $19m worth – today through CoinList, which works only with accredited investors and handles screening for compliance with money-laundering rules. YouNow will sell the rest of the batch of tokens to the general public in December and January. From that point on, people can acquire Props either by earning them by using services that have adopted them or by buying on exchanges that swap cryptocurrencies.
YouNow’s ICO is hardly huge by current standards; the largest sales have brought in upwards of $200m. But it is notable for other reasons. YouNow is already a profitable company with 40 employees, name-brand investors and 40 million registered users, a rarity in a world dominated by brand-new projects. People who work with cryptocurrencies say they are fielding an increasing number of calls from established companies and predict that is where the next wave of notable cryptocurrency projects will come from. The Props project is an early illustration of what that process could look like.
Another thing distinguishing Props is that it will actually be good for something right away. YouNow is plugging Props into an operation that it has spent six years fine-tuning. The company’s performers make money by convincing viewers to tip them, and YouNow facilitates the exchange of cash into digital money and back again. On Rize, Props will work in much the same way. Last month, the research firm Token Report surveyed 226 ICOs. Fewer than 9 per cent of the tokens had any use other than to be a way to bet on their value going up.
“Most everyone has no users, or technology, or product,” says Jake Brukhman, the co-founder of CoinFund, a firm that helps companies develop plans for cryptocurrencies and is working with YouNow.
Chris Burniske, an investor in blockchain companies and author of the book Cryptoassets, says YouNow is the rare company set up to integrate its tokens into a business it has already built. It has also already created a consumer product used by millions of people. “It could be the best user experience application we’ve seen in the crypto space,” he says. But he also views companies that develop an interest in cryptocurrencies with scepticism.
“It’s a double-edged sword around the established companies,” says Mr Burniske. “Investors need to investigate the motivation. Why now? And why a token?”
There’s a pretty obvious bear case here. YouNow’s growth has slowed in the face of competition from the biggest companies in technology. Any new service competing with YouTube and Facebook has to be consideerd a long shot. But Mr Sideman has bought in to the idea that blockchain will prove to be the Goliath-slayer that reclaims the internet. While YouNow cannot compete with the behemoths on their own terms, Props lets it offer something unique: a kind of equity stake in this new economy. “We call it asymmetric warfare,” says Mr Sideman. “An unfair advantage, so to speak.”
Mr Sideman, 47, has dedicated the past several decades to developing odd, new ways for people to make and consume media. He built software for DJs in the 1990s, then created an online karaoke business, which he sold to Myspace in 2006. YouNow, which Mr Sideman started in 2011, consists of a website and mobile app designed for people to stream live video of themselves.
It’s the rare social media company whose business model isn’t based on advertising, making money instead of transaction fees. YouNow has raised about $30m from investors such as Union Square Ventures and the investment arm of Comcast Corp.
YouNow attracted a stable of
It’s a double-edged sword around the established companies. Investors need to investigate the motivation CHRIS BURNISKE Blockchain company investor
young performers, but it began having trouble luring new users several years ago, when Facebook, Google and Twitter all began focusing on live-streaming. YouNow’s users continued to increase the amount of money they spent on the platform, says Mr Sideman, but it felt like the party was over. “Frankly, a profitable business with a couple million dollars a month in sales is great, but this is not necessarily what I signed up to deliver,” he says.
The company began planning a major pivot about 18 months ago. Andy Weissman, a partner at Union Square Ventures who sits on YouNow’s board, says it had not been seeking new funding, but that any start-up with venture investors is reaching treacherous territory when its rate of growth slows.
YouNow’s leadership knew it needed to take a big swing if it wanted to be more than middling. When asked whether YouNow was forced into this strategy, Mr Weissman hedges. “‘Forced’ is a strong word,” he says. “But it’s not inaccurate.”
This August, YouNow laid out its plans for Props in a white paper, the first official step in the ICO process. As with other cryptocurrencies, the idea is that the economy will eventually function on its own. The plan is for independent developers to make apps that automatically distribute Props based on how much value video creators add.
Rize passes out new tokens daily, giving more to users whose videos attract more engagement. Its business plan rests on its own Props gaining in value. “We’re changing our business model completely,” says Mr Sideman.
This is a deliberate rejection of YouTube’s economy, where people post videos, Google arranges for ads to appear on them and the company splits the revenue with the creators. While everyone seems to have the same incentives, the specifics of the ad splits cause friction. Google retains complete control over the most lucrative part of the system – the data about the viewers that it can use to target ads. Then again, Google has the world’s largest audience and pays its partners in actual money.
Mr Weissman calls YouNow’s plan a “grand experiment” that relies on several things going the company’s way. But a brazen gamble beats the alternative. “There were open questions about: how do they compete with Facebook and Google?” he says. “It may be that this is the only way.”
YouNow has been holding a series of parties to drum up excitement for Props. It is attempting to appeal to two crowds: people who might use a weird new live-streaming app and people who might invest real money into an unproven virtual asset.
The mixture made for an interesting crowd at the most recent event, at YouNow’s office near Times Square. Mr Sideman, sporting a blue track jacket and bright red sneakers, did a presentation with Philip DeFranco, a popular YouTube creator; demoed the new app; and answered questions about liquidity in the Props economy.
A regular presence at these parties has been Rob Paone, who appeals to YouNow both as a potential user and cryptocurrency investor. He works a day job as an account executive at Oracle while betting on cryptocurrencies on the side. Recently Mr Paone recorded a video about cryptocurrencies and posted it to YouTube on a whim. His channel, Crypto Bobby, now has 37,000 followers. Like any cryptocurrency expert worth his salt, Mr Paone is inundated with get-richquick schemes.
Popping his phone out, he says: “ICO, ICO, ICO,” scrolling past countless pitches in his email. As a general rule he turns everything down, but he did accept Mr Sideman’s proposal to sign on as an adviser in exchange for Props.
Another backer is Kunyi Li, an investment analyst at BlockTower Capital, a hedge fund looking to anticipate changes in the value of various cryptocurrencies. He says he hears from multiple venture-backed companies each week that are looking to retool themselves as crypto-economies.
“I’m always wary. Everyone thinks crypto-economics are going to save them,” he says. BlockTower generally steers clear of ICOs but decided to put several hundred thousand dollars into the Props ICO, because the white paper was intriguing and YouNow is already running a multimillion-dollar economy.
If YouNow can translate that to Props, it will be a success – and a first for Mr Li. “I haven’t seen a tokenised economy that actually works,” he says.