How blockchain technology and NFTs can be used for subscription financing and monetization in Web3

Web3 is a hot topic. 

Its proponents say it’s the next iteration of the World Wide Web, with promises of decentralisation, scalability, and privacy. Web3 is based on blockchain technologies, a distributed ledger keeping track of digital transactions. So far, these technologies have created a vast number of crypto-currencies, as well as the rise of NFT trading (non-fungible tokens). 

At Recuro, we’re constantly thinking about how the subscription business model will be developed in the future. In the light of Web3, we’ve done some thinking on how blockchain technology and NFTs can be used for access control, monetization and financing of membership services – similar to today’s subscriptions business model.

This think piece discusses a general idea of how this might be possible and outlines the impact if it would be realised. Feel free to contact us to continue the discussion. 

First off, why is this relevant?

To understand why new monetization models in Web3 are relevant to discuss, let’s look at the shortcomings of current models. 

• Supply, demand and pricing. In today’s subscription services, supply and demand can be difficult to manage. Especially when the price point is usually fixed and gives the member unlimited access (“all you can eat”). This is particularly true for memberships based on physical goods or sharing of a finite number of physical resources. 
• Funding. Funding is a problem for subscription services. Most services require large up-front investments to get started, before they can start to acquire members and make money down the line. This is particularly true for new services just starting out. 
• Engagement. Engagement is an issue, or rather, the lack of it. Many services struggle to build a sense of community, resulting in low retention rates and lack of contribution from the members. 
• Privacy. Privacy is a concern for members of these services. Many subscription providers aim to increase engagement by personalising content, which in turn requires privacy-invasive data collection. This might have an opposite effect on the retention rates if members feel that their privacy is not accounted for. 
• Security. Security is a factor. The subscription providers may very well be victims of hacker attacks, resulting in their membership information being leaked. If you subscribe to a service providing shavers, this might not be an issue. If you’re a member of a union organisation, it might be. 
• Overhead costs. In many services, a significant part of the membership fee will go to overhead costs, such as payment providers and subscription platform providers. 

With those challenges in mind, let’s now look at how a subscription-like monetization model could work in Web3. 

How could it work in principle?

In principle, a Web3 subscription-like model can be built on five principles: 

1. A distributed blockchain holds membership tokens for different services
2. Ownership of a token allows the owner to access physical goods or digital services
3. The membership provider can offer initial memberships through an “IMO” (see ICO)
4. Tokens are exchangeable in a marketplace, giving a royalty to the provider
5. New tokens can be minted by the provider and offered to the market

What might the impact be?

Let’s return to the challenges discussed previously, to see how they can be mitigated in Web3. 

• Supply, demand and pricing. Supply, demand and the resulting price of the access, would be managed by the open market. The value/price of the memberships would rise if demand is high. Vice versa, if the supply for some reason is low (resulting in poor service quality), then the price would fall. 
• Funding. Initial funding would be offered through the “IMO”. Royalties would produce recurring revenue for the membership provider to cover costs of operations. For larger investments, new tokens might be offered. 
• Engagement. As the quality of the service is linked to the value of the membership, there would be more engagement from members to contribute to and improve the service. This can result in true community engagement and commitment. 
• Privacy. Service access would be anonymous, if the member chooses to remain so. 
• Security. A distributed membership database would be less dependent on single points of failure. 
• Overhead costs. These costs could be smaller as there are fewer intermediaries, at least in theory.
  

A practical example: A user-financed news startup

Let’s say there’s an independent journalist wanting to start a news service, covering a particular topic with quality journalism. To get started, the journalist would need to hire some colleagues, get some equipment and build a website. This requires initial funding. 

Let’s say they decide to mint a new membership token in a finite number of unique copies. These tokens are offered to the market through an exchange. By selling these tokens, the news startup will receive the initial funding to start its operations and start producing content. Members acquiring the tokens can access the content from the news service, indefinitely. 

Members can sell their tokens through the exchange to the open market at any price. Selling will result in transfer of ownership for the access to the service, as well as a royalty fee to the news startup. The royalty fee will be used to cover the startup’s continuous operations. 

The members will engage with the news service and try to improve it, as this will increase the value of the tokens to the market. They will enjoy the service for their initial investment, and hopefully see their investment increase in value. 

Another example: A car pool membership service

In this example, the service provider will need to purchase some cars, made possible by the financing from selling the initial tokens. Through the token ownership, members can access and use the cars. Members are incentivized to care for the cars, as this will improve the quality of the service, and therefore the value of the membership. 

When a member no longer needs the access they can sell their token in an open exchange. This will result in a royalty fee going back to the carpool provider and they can maintain and improve their service. 

Finally

If properly implemented, this type of monetization model can create a direct and decentralised relationship between the supplier/creator and the users. That’s a great thing for everyone involved. 

Are you interested in participating in the discussion around this topic? Feel free to contact us to keep the discussion going.