Bluesky Business Model Vision

With Twitter on the cusp of major changes, one of the original Twitter (+Square) founders Jack Dorsey has put the building blocks in place for a “decentralized Twitter.”

The Bluesky Vision blends Twitter (social) with Square (payments) to create a new ‘social internet,’ an ambition that merits deeper study.

Unlike Twitter or really any other social network – whether the Social2 giants such as Facebook or the emerging Social3 networks like BeReal – Bluesky is still in its ideation phase, there is no product to test or play around with just yet. Only technical documents have been released and a Beta waitlist has emerged. Yet an ambitious ‘blue sky’ vision is taking shape.

Bluesky

Reinvent the Structure Of The Social Internet

Jack Dorsey has been working for three+ years on the core building block of the network known as the ‘AT protocol’ or the ‘Authenticated Transfer Protocol.’ At its core, this major innovation would fundamentally alter the laws of social networks as we know them today because it would enable the transfer of account data from one network to another (interoperability).

We‘re building the AT Protocol, a new foundation for social networking which gives creators independence from platforms, developers the freedom to build, and users a choice in their experience.

BlueSkyWeb

Technically, this fits under the Web3 banner, which is something that Dorsey has been an outspoken critic of to this point, and rightfully so. Furthermore, his company Block is heavily leveraged to Bitcoin, particularly via Cash App, which generates a large % of its revenue from ‘Bitcoin revenue‘ each quarter.

But beyond what we can see visibly to date is a larger ambition to effectively restructure the social web and push its creative dimensions away from the centralized gatekeepers; at least on paper anyways.

“The World-Wide Web wouldn’t have been much fun if it had been created without a browser, and the same goes for the AT protocol. So we’re also building a social application called Bluesky. That was the original name of this project before it took shape and continues to be the name of our company.”

Medium

In sum, the vision here is nothing less than trying to reinvent the structure of the social internet, which as it stands today is very centralized on major social media platforms. There are three major components behind this vision as it is articulated now:

  • Identity – “a self-authenticating social protocol” BlueSky blog
  • Trust – auditable social network standards BlueSky blog
  • Incentives – layered in with the Bitcoin network (speculation!)

Bluesky’s documentation outlines how DIDs (decentralized identities) would be a “user-facing identifier” which means that they would probably be a slightly more complex version of the twitter.com/usernames that others can see and are linked to a corresponding public key (encryption).

As we go through the first three, we come to the final question:

Business Model – what is the business model of Bluesky?

Identity: A Self-Authenticating Protocol

What’s a “federated” network? It’s a way for servers to communicate with each other — like email. Instead of one site running the network, you can have many sites. It means you get a choice of provider, and individuals and businesses can self-host if they want.

BlueSky blog

The term ‘federated’ is thrown around frequently and not necessarily easy to understand because it doesn’t really fit the definition of the way the Internet is currently structured as a whole. The Internet itself is a distributed network where a centralized infrastructure – servers – are routed together via ISPs (Internet Service Providers).

Social networks themselves then connect their own servers to the Internet itself and transmit the data via TCP/IP (Transmission Control Protocol/Internet Protocol) between servers. There is no portability from one network to the other ie. you can’t communicate between a Facebook account and a Twitter account.

Email is an example of a federated network. One email address connects to another email address, as long as there is internet access. The original Bluesky Vision revolves around the idea of a portable identity across networks that would allow these networks to thus become ‘federated’ in the same way email is.

The above is based on emerging ‘W3C Standards‘ around DIDs or ‘Decentralized Identifiers.’

In contrast to typical, federated identifiers, DIDs have been designed so that they may be decoupled from centralized registries, identity providers, and certificate authorities.

Web3 – Decentralized Identifiers
W3C – Decentralized Identifiers (DIDs)

Such DIDs are not owned by Bluesky, nor by anyone. They are a conceptual ‘Scheme’ as shown above designed in collaboration with multiple entities to “federate” identity and make it portable. This is not related to “identity” relative to concepts like KYC (Know Your Customer) where one needs to “show ID.’ Identity is related to identifier across domains.

Bluesky’s documentation outlines how DIDs (decentralized identities) would be a “user-facing identifier” which means that they would probably be a slightly more complex version of the twitter.com/usernames that others can see and are linked to a corresponding public key (encryption).

Trust – auditable social network standards

Social media has the power to shape cultural discourse and needs to exist within a system of checks and balances.

BlueSky blog

As part of the Twitter restructuring, Elon Musk has pledged to “open-source the algorithm.” The Social3 wave of social apps like BeReal is to date (subject to change of course) based on a transparent model between the network and users without ads. To sum it up, people are distrusting of “the algo” and this distrust is a big impediment to the ongoing development of the ‘digital public square.’

Thus, to maintain a sense of trust it makes sense that “the algo” itself could be audited. Not exactly “Elementary, my Dear Watson” but nevertheless very important. How does one audit the algorithm? “Open algorithms mode.”

Algorithmic choice. Algorithms dictate what we see and who we can reach. We must have control over our algorithms if we’re going to trust in our online spaces. The AT Protocol includes an open algorithms mode so users have more control over their experience.

Bluesky Blog

This does not seem to be 100% explained at this point, but conceptually, “Algorithmic Choice” is based on the concept of PDS (Personal Data Servers). “Indexers” are third parties. Presumably, the theory is that those third parties would need to subject their algorithm to some sort of ‘audit’ on Github or some other open-source repository or risk being deemed ‘untrustworthy?’

Whereas in contrast to the traditional social networks, the PDS concept is based on a model where irrespective of the actual network you are currently in, you own your data (hence ‘Personal Data Server’) and can port that data over to another network (interoperable) at any moment.

Any network itself relies on the authentication of the ‘Public Key’ and the corresponding ‘Recovery Key’ (comparable to a Private Key) so that the user can “re-port” their data out of any existing network without fear of reprisal because a respective network does not control the user’s DID Recovery Key. A user controls their own Recovery Key and can connect to a new ‘PDS Address’ at any moment, thereby avoiding “punishment” for leaving a given network.

It seems that the best way to think about this is that we presume that any “algo” on any network would be ‘auditable’ in some format. The “open market” of algorithms would mean that you could choose your algorithm(s), certainly a distinct concept from today. But if one day, suddenly the algo changes and punishes you (certainly foreseeable!), you could still port your data to a new network. In other words, you can’t be immediately cancelled, or so it would seem.

Incentives – layered in with the Bitcoin network?

#Bitcoin is deliberate and predictable… it’s going to serve billions of people”

@jack

As mentioned above, this is the purely speculative part.

There is nothing in Bluesky’s documentation to suggest it will use Bitcoin as a ‘currency layer‘ protocol. We only know that Jack Dorsey is a big proponent of Bitcoin and less so any of the other cryptocurrencies or Web3 tokens that we currently see. The likelihood of Bluesky creating its own Web3-style token seems close to zero.

Bitcoin has a fixed supply, an anonymous founder, and a cachet of being the “anti-establishment” currency of choice. It certainly isn’t your state-level CBDC.

With Twitter in the news and on the move due to the Elon Musk takeover, Dogecoin (Twitter Ticker: $DOGE) is ramping up with speculation that Twitter will become DOGE-central.

Economic incentives are the backbone of any network. What we have seen in the last decade or so of social-network growth is that there is big money to be made on advertising; yet, there has been a revolt in the last several years due to the misalignment in incentives between the users and the companies themselves, who capture the lion’s share of the rewards.

This has given rise to the whole concept of ‘decentralization’ and a string of DAPPs (decentralized apps), none of which have really achieved any traction outside of certain niches. Block (ie. Square, Ticker: SQ) has taken heavy criticism for being heavily exposed to Bitcoin’s price volatility in a year when both Bitcoin and Nasdaq companies have seen their prices dive sharply.

But most iconoclastic tech billionaires are long-game players. If you pick a horse (ie. Bitcoin), you bet the farm. At least that’s most of what we see in today’s winner-take-all type of markets. Bluesky is not a hedge against Bitcoin, it is potentially a layer to scale it. The inclusion of encryption-layer authentication protocols at the core of the decentralized ‘social internet’ make it a perfect fit.

Furthermore, it is hard to imagine how networks like those envisioned above would be any fun without the ability to transact ie. Payments enabled. If we think about a true public square in the physical world like an Italian Piazza, absolutely, people can go out and speak, listen, chit chat or browse. But they can also transact. We certainly wouldn’t expect to see Paypal on these platforms!

What is the Business Model of Bluesky?

All of the above leads to a fairly intriguing (and ambitious!) Value Proposition. Yet, we are left with the rather obvious hanging question – what is the business model of Bluesky?

Technically, Bluesky PBLLC is a “public benefit corporation” one that received its initial funding from Twitter. If we think about a lot of the protocol-level innovations to date, like Python or even the core web-based protocols like TCP/IP, they never end up being “owned” by their inventors. Nor does it ever really end up being clear who controls them long-term.

So to answer this question, we would need to ask – what is the competition’s business model? Bluesky is not the only protocol-layer entity endeavoring to build the ‘social internet’ on the back of federated, decentralized protocol.

There is the Mastodon project that leverages the Activity Pub protocol, which was started in 2016. The inception of Bluesky in 2019 created some controversy among them.

At Mastodon, we present a vision of social media that cannot be bought and owned by any billionaire. Your ability to communicate online should not be at the whims of a single commercial company!

@Mastodon

Mastodon is itself a non-profit that funded itself via Patreon and Open Collective campaigns. There is no token (ie. cryptocurrency) for Mastodon. Everything is open-sourced as it endeavors to be the antithesis of Big Tech social networks. It has millions of users, so the product is both visible and viable. The Patreon currently generates ~$8K USD per month, and they have raised ~$78K USD on Open Collective against an “estimated annual budget” of $5K USD.

In other words, Mastodon is community funded and has no business model or stated plans to create a business model on their social network protocol, which has millions of users. Other networks have setup their own Mastodon servers and created their own ‘network’ but users can move between one another using the ‘federated identity’ provided at sign-up.

Thus, conceptually, the decentralized social internet with a federated identity is already in the wild and it operates sans business model as a non-profit. But it doesn’t operate at the scale that the ‘centralized social networks’ operate. Since the name of the company is ‘Bluesky’ – a term typically synonymous with a ‘hail mary’ or longshot – maybe Bluesky is really endeavoring to be a protocol-level innovation with funding coming in from Dorsey and co?

If Bitcoin does end up becoming a part of of the protocol down the line, that would enable Bitcoin to scale and those leveraged to the success of Bluesky could just buy more Bitcoin. It is an interesting Business Model analysis full of unknowns at this point. But since a public beta is in the works and the market is ripe for these types of innovations, we should find out soon one way or another.

Overall, the world is abuzz with trying to understand the ‘future of social networks‘ at this moment in history. Facebook ($META) and Snapchat ($SNAP) are crashing. BeReal and other similar players are on the rise. Twitter is heading in a new, unknown direction. And now Bluesky is attempting to reinvent the whole model. Who is going to win the war for the ‘digital public square?’

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