An Evolution Of The Online Business Model
June 5th 2022

The following is my opinion on the future of the online business model.

Disclaimer: this is lazy writing, but publishing it nevertheless :)

Economics is a giant yield-seeking machine.

Most online business models are subscription based. Some are usage based. I suspect with the emergence of the internet of money — and specifically the ability to send USD over the Lightning Network — we will witness a trend of many subscription business models migrate to usage based models.

Subscription based models are a flat fee, paid on a regular interval, for a bundled product of goods and/or services. For example, I pay $15 per month and I get to watch as much Netflix as I want. I get access to the full library of Netflix’s offering, even if I don’t want but a few offerings. Same with Spotify. With Spotify, I pay a monthly fee, and I receive unlimited streaming of the large library offered by Spotify.

Bundling — monetized by a subscription business model — is useful for discovery. As a user, I’m willing to pay a flat fee, even if I don’t fully realize the value, for the option to discover a broad array of possibilities.

Usage based business models are useful for users who already know what they want.

I’ll provide an example. Imagine Alice and Bob are both subscribers to Netflix. Alice is obsessed with The Office, and watches the show 10 hours per day, every day. Bob watches the occasional episode of The Office, maybe once per week at lunch time — call it one hour per week.

Consumption of the show has operational costs for Netflix. There’s the cost of the network bandwidth, the cost of the server hardware, and many other costs. Let’s say, arbitrary numbers to prove a point, it costs Netflix $0.05 to serve an hour of video content to its users.

Alice watches 10 hours per day, every day. That’s $0.05 x 10 x 30.5, so approximately $15 per month of operational cost to provide the service to Alice.

Bob watches one hour per week. That’s $0.05 x 1 x 4, so approximately $0.20 per month of operational cost to provide the service to Bob.

Don’t get caught up in the numbers. The point is, Netflix makes money on Bob but not Alice. Or, said differently, Alice realizes the full value offered by Netflix but Bob does not. Bob loses money.

In this example, I’m showcasing a market inefficiency which is made possible via the subscription-based model.

Say a competitor to Netflix comes along, and say they’re able to offer the same exact library of content, but offer the service in a usage-based approach. If you’re Alice, then you want to keep paying the $15 per month to Netflix, because you’re fully — or even overly — realizing the value of the bundle. But, if your Bob, then you want to pay the per-byte usage based model to the new competitor.

The Lightning Network — and specifically USD-over-Lightning — opens up the possibility of more efficient market for digital content. Of course, the Lightning Network isn’t necessary, it could be some other monetary network, but neither here nor there.

In my opinion, practically all consumption of digital content ought to be usage based, even the process of discovery. As I’m scrolling through my Twitter feed, for each tweet that I lay my eyes on, I ought to be paying a fraction of a fraction of a penny. If all online content required micropayments, we’d have a much different online culture, and in my opinion, a healthier one. But, perhaps more on this later.