The Future of Money

Hi, this is Greg, one of the founders of Qbix. I wanted to write a post to you in first person.

Our company has been busy building apps to empower people and unite communities. The original goal was to build a social networking platform to offer an open-source alternative to Facebook and other centralized sites, letting people host their own networks. In this video (sorry about the sound) you can see my overall vision about decentralization, not just of software but of cellphone signals, power generation (solar panels), etc.

I believe that, over the next several decades, automation will lower demand for human labor. The hardest hit will be low-wage workers around the world, but when 1 person can do the job of 10, wages are bound to go down in that sector. I believe this has already been happening since the 70s (Piketty, et al) and wages going to be an increasingly ineffective way to bring enough money to the people, so our communities will need to institute an Unconditional Basic Income. The money for this income will come from the growing amount of profits Corporations will make from automating their operations. I’ve written about it extensively, in the larger context of the corporate world. I’ve written responses to libertarians and altruists. Those who wonder how we can afford UBI can look at single-payer systems in countries around the world, or right here at home. In those systems, people wind up paying less per capita for basic levels of service, because buyers don’t compete, only sellers do. A basic income would reduce inequality, remove the need for minimum wage laws, and provide better opportunities for everyone. Everyone from Milton Friedman to Martin Luther King advocated for it, but so far, it hasn’t been implemented.

What we’ve already done

So far, we have built a bunch of apps that got a lot of traction around the world. Now we are working to let communities host their own social networks, and let people use apps on their devices to authenticate with various communities (protocol), manage their identities across communities, and use social apps hosted by these communities. They can move their money between communities, spend it within a community (the businesses cash out through the community bank or crypto-network, etc.) and apply to receive UBI from various communities.

I’m currently in the process of building a team to execute on this vision. We’re also documenting our roadmap, writing a white paper, and speaking with an investment bank to do an ICO in addition to the equity funding that we’ve been doing up to this point. Among the people who have been advising us are Ryan Fugger (original creator of Ripple), the lead developer of solid, the creator of Ruby on Rails, the founder of PlanCast, and Warren Mosler (because MMT talks about issuing currency).

Basically, we started building social networks to decentralize the power of Facebook, etc. and we are now looking to actually build the first implementation of UBI as an app within a community currency.

Where this is all going

Our company is connecting 5 different facets (see above). We already have the first one – People – in 110 countries around the world. Now we started to build our first apps for communities to give to their members, and I should be able to invite you to some in the next month or two.

The last 12-18 months, I’ve been working to design a crypto-currency that would support UBI. Something like groupcurrency.org but implemented in practice. Here is the reasoning behind its design, in bullet points:

  • UBI needs to be on the local level, because the cost of living varies from place to place. In a desert environment, water is more expensive than right next to an aquifer, for instance, yet water is a necessary good. UBI doesn’t mean everyone can move to the desert environment.
  • Communities can already issue their own currencies, like the Bristol Pound. This is called “complementary currencies” – fiat of the larger polity is accepted, but inside the community, the currencies circulate. Due to Gresham’s law, people would actually spend them much more readily than fiat. You can also see a transition to internal currencies (backed by fiat reserves) in WeChat/AliPay in China, or how the Millennials venmo each other money.
  • Communities can be more resilient – e.g. Detroit Bucks can pay an employed plumber to do a job. Even if Detroit is hemmorrhaging dollars, most Destroit Bucks will stay in Detroit so it won’t go bankrupt. Same with Greece and the EU, for example. Communities need to be able to have their own fiscal policy.
  • Money is just another “social app”, but for now it’s been a dumb one. The value of a currency comes from network effects, just like an app – stores accepting the currency in exchange for all the stuff you need, is similar to all your friends being on facebook. Payments between communities can be done using the interledger protocol.
  • UBI can be implemented in the community currency without coercive taxation by automatically measuring the local CPI (of food etc) every day, and issuing that amount to everyone in their accounts. UBI comes with “immigration quotas” – the community or its representatives make decisions as to who can move there and start to receive UBI. So the U in UBI does have one condition: “membership” in a community. This is similar to how tribes used to live for centuries, except now they don’t need to work.
  • I believe this will also have a great impact environmentally. By stimulating local economies and issuing UBI to local residents, we counteract the effects of Capitalism that cause people to live further and further away from their jobs in expensive cities like SF, and commute to work and pollute the planet. The phenomenon of commuting to work to sit in a chair is only about 150 years old, and is very wasteful for most jobs.
  • The UBI will invariably cause the community currencies to inflate, and lose value against the fiat etc. But all the prices will be quoted in the fiat, so this shouldn’t lead to confusion. The endless inflation will not cause the same problems as it did in the Weimar Republic, but instead will transparently capture the cost of “how much it costs for everyone to eat”, mitigating shortages and fixing them later. Plus, communities can implement taxation to remove money from circulation if they want to disincentivize certain business activity. Or the Federal government can help subsidize the shortages of fiat reserves that some local communities have, the same way they rescued the banks when they overextended themselves.

So far, our talented team at Qbix has been able to put out some impressive apps that are well-received around the world. We built an open source platform that lets communities host their own social network, and for people to manage their own identities and data privately and securely. Hopefully, in the next few months, we will expand our team and bring on board the right partners (from the fields of security, crypto-currency, and economics) who can help us to achieve our larger vision of empowering people and uniting communities.

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What is Money?

The last blog post spoke about two major trends in technology in the last few decades:

  • Centralization of Platforms – leading to a sort of feudalism on the internet
  • The rise of Open Source Software – leading to a democratization of advanced technology

In 2008, a paper published by a mysterious author (or group) called Satoshi Nakamoto led to the launch – and meteoric rise – of Bitcoin, a decentralized crypto-currency whose explicit design goal was that no one company or government could control it. Bitcoin was modeled after commodity money, like gold and silver, and though new coins would appear through “mining”, the rate would slow down exponentially so that the maximum number of bitcoins that would ever be mined would be 21 million.

From 2008 to 2017, the value of Bitcoin went from $0.003 to over $4,000, an increase of 1.3 million times. With an ever expanding set of exchanges, supporting infrastructure, and merchants willing to accept it, the market cap has now steadily grown to above 100 billion US dollars.

Even earlier, a web developer in Vancouver named Ryan Fugger conceived of a different sort of payment network, which he called Ripple. The original idea was based on people extending each other interest-free credit lines, and paying people they didn’t know through intermediaries. These trustlines, as they are called, are a form of credit money rather than commodity money. Credit can expand and contract, depending on how much people are willing to extend to one another.

A Brief History of Money

Before money, people had gift economies, because a coincidence of wants was rare. Then people started accepting gold, or silver, or other rare things, as symbols of payment. Thus, gold and silver became a medium of exchange as more and more people around the world would accept it as payment. It became the first money.

Then institutions and standards arose where people would borrow this money, and promise to pay it back later. The loans could be either secured or unsecured. Either way, the borrowed money was recorded as an IOU, and later were developed into double-entry accounting systems, where each credit had an exactly matching debit. If the borrower defaulted on their debt, then both the credit and the debit disappeared. The property that was held as security for the loan would continue to be used by the original owner, even while they used the borrowed money. However, the lenders did not have the commodity money around for the duration of the loan, so they couldn’t use it.

Banks and other institutions charged with safekeeping of money realized that, most of the time, the money wasn’t being used. So they started started to leverage their credit with the community and issue their own currencies, which led to Representative Money. This type of money was easier to carry to the marketplace and quickly drove out the commodity money from circulation, in a phenomenon knows as Gresham’s Law. The actual Representative Money was additional to the already-existing commodity money, and it was now being issued by the banks. This came to be known as Fractional Reserve Banking, and without oversight many banks flooded the market with poorly backed banknotes. Some banks over-leveraged their credit so much that it caused a run on the bank, and widespread financial panics. This led to the creation of the Federal Reserve System in the United States, which represented a return to Central Banking for the country.

Today, every country has moved away from commodity money and towards a system of Fiat Currency. Fiat Currency is legal tender that is backed by the government which issued it. Legal tender means it’s able to extinguish all debts, public and private. This is usually enforced by laws, which the courts adhere to, so that courts will not compel anyone to pay a debt in any other way. If you go to a restaurant in the USA and eat without giving them anything, they can’t force you to pay by credit card. They have to accept cash.

Today’s circulating money is primarily credit money issued by banks and other financial institutions, with some of that money issued by the government. In the US, official national money is minted as specie (coins) or paper dollars by the Federal Government through the Treasury, a power enumerated in the country’s Constitution. However, the vast majority of money in circulation is not this M0 money. Instead, it’s M1 and M2, including all those credit cards you use, all those paypal transactions, and the trillions moving around the world as nothing but bits in a computer. Every so often, banks settle liabilities between their accounts using systems like ACH which is run by the Federal Reserve System.

Fiat currencies and Fractional Reserve Banking has allowed the money supply to grow and shrink to accommodate the needs of people, businesses and industries. But, ultimately, monetary policy is in the hands of governments, which sometimes leads to inflation, hyperinflation and various other issues. In general, both inflation and a credit crunch are runaway effects, which have the potential to disrupt the economy for a long time. This is a great overview of business cycles under the current system. (And here are two rap songs.)

Decentralized Ledgers

What’s appealing about Bitcoin and other decentralized currencies is that people are able to transact, store value, etc. without anyone being able to stop them. You can think of it as a decentralized Paypal. The bitcoin ecosystem has grown tremendously, and its market cap now exceeds $100 billion. The guarantees of safety and security come from the cryptographic systems that underpin their operation. The lack of control, however, is not so easy: the system depends on a property called Byzantine Fault Tolerance to achieve global consensus in the face of many (possibly up to 50%) dishonest participants at any given time.

A question might arise, why does Bitcoin need global consensus, if it’s decentralized? After all, if I pay you, we can just both cryptographically sign it so that everyone who sees the transaction knows we approved it. The reason is that digital currencies which try to implement commodity (value) money suffer from the double-spend problem. Any actor can pay two people with the same coin, and “neglect to mention” that they no longer have the coin.

The answer, in technological terms, became the Blockchain. It’s basically an ever-growing ledger of transactions, that is periodically signed by some validators and replicated across all the machines in the network. The idea of a chain of cryptographically signed blocks, each one referring to the previous one, is not new or unique. It’s a special case of a Merkle Tree, and it’s used in decentralized systems with no global consensus necessary, such as the Secure Scuttlebutt protocol.

Bitcoin used Proof of Work both as a way to sign the blocks in the blockchain, and a way to “randomly” select the next validator. The ideas is that each transaction will eventually be approved, if not by one validator then by another. The problem with Proof of Work has been the escalating arms race that has wasted tons of energy to the point where validating each transaction takes as much electricity as running an entire household for a day. It’s been called the world’s worst database. And now, in practice, control of the validation has been concentrated in the hands of a few mining pools in Asia, in areas where electricity is cheaper. Bitcoin’s promise of decentralization may have dissipated, leaving room for more innovation.

A global consensus is only necessary to solve the double-spend problem. With credit money and trust-lines, this problem simply doesn’t exist. You are extended credit by those who trust you up to a certain amount (your friends, VISA, etc.) and your balance yo-yos back and forth, but there is no danger of “spending the same coin” because every trustline is separate from every other one.

That was the original idea behind Ripple. But, the project eventually found it hard to get adoption because people can’t be on the hook for large amounts of money for their friends. That’s historically been a job for banks, payday lenders and other financial intermediaries. For small amounts, however, trustlines and sidechains are a major area of research in the Lightning Network and other projects. The Interledger Protocol allows payments between ledgers, trustlines, or anything else, making it possibly the glue between all the different emeging technologies.

Ripple was taken over by the NewCoin project, and has reimagined global consensus without proof-of-work. They got funding from Andreessen-Horowitz, a forward-thinking VC firm that also made investments in Keybase and other crypto companies. They currently work with banks to replace ACH transactions (moving from legacy SFTP systems to their XRP token) and already move more money than the bitcoin network.

Money is an App

If you think about it, the value of a currency comes from network effects, just like any social app. You care about currency X if merchants accept X in exchange for the various things you need and want. Similarly, you care about app Y if your friends are on Y and you can do whatever you need/want with them through Y.

When viewed in this manner, you can see why community currencies would be the perfect fit for the Qbix Platform. It would be like Bristol Pounds, but much smarter. It could implement Unconditional Basic Income as a feature. It could allow communities to pitch in to finance drug research and production, or develop open course materials for students.

If you look at the past few years, you see the meteoric rise of cryptocurrencies. But also, look at the growth of payments through WeChat and AliPay in China, or Venmo here in the USA. These are essentially community currencies backed by fiat reserves. We can use decentralized ledgers powered by e.g. Ripple’s technology to let any community run their own currency. More on that next time.

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The Future of Decentralization

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Centralization and Open Source

Act 1: Paradise Lost

The internet, from its very inception, was conceived as a decentralized network with no single point of failure. Early apps, such as Email, IRC and FTP, were built around open, decentralized protocols where anyone could build a server or a client.

But then, centralized services started to emerge. Driven by economies of scale, the venture capitalist model involved funding these companies until they would capture a new market, sometimes establishing a monopoly and extracting rents. America Online was an early example, but was eventually disrupted by the decentralized Web. Today, Facebook and Google are examples of giant social platforms where people prefer to post their data instead of on their own website. They use (and sometimes abuse) vast troves of personal information that people volunteer to them, or that they surreptitiously collect. Even hardcore capitalists might blush at the effects of such centralized monopolies: Peter Thiel, who famously invested in Facebook, insists competition is for losers, but not everyone feels that way.

The game changed even more when broadband connections arrived. Now, people’s internet was “always-on”, and networked apps started assuming you could either be “online” or “offline”. If you were online, it meant their server was reachable on the global internet, and thus all the signals could go through it. Never mind that you might be on a slower connection in India, or on a cellphone in rural Africa. Facebook will build infrastructure for you, so long as all your signals travel through their server farms and your data is stored in California – an offer India ultimately rejected. No matter, Facebook developed drones, and Google developed balloons, to bring access to the global internet to Africa. Why *global* internet access? Because the signals will travel through Facebook and Google servers. Their business models are good enough that they can pay for the infrastructure.

The slew of services, in the last two decades since Broadband became a thing, have been centralized. Facebook, Twitter, Amazon, GMail, Twitter, Apple, Microsoft, Instagram, WhatsApp, SnapChat, Etsy, Uber, you name it – they get venture-funded, get a bunch of people on both sides of a market, and extract rents. They have 1 engineer per million users, or less. Customer support is non-existent. They choose what features you have and what interface you see. They have the people’s data in one place, and sometimes that makes an attractive target for governments and advertisers.

Act 2: Open Source

In the last few decades, another movement has been growing in software – open source. Modeled on how science progressed, it allowed people to build on each other’s work, and collaborate on an ever-growing snowball. The original free software movement was fueled by the Free Software Foundation and its licenses (GPL, GPL2, etc.) which made an ingenious use of copyright to implement “copyleft“. But over time, it came to encompass less restrictive licenses that let people do anything they wanted with the source code (MIT, BSD, Apache, etc.)

The resulting projects – from operating systems (Linux, BSD), to languages (PHP, Python), to databases (MySQL, Postgres), to web servers (Apache, NGinx) to web browsers (Mozilla, WebKit), have all created tons of value, far beyond their counterparts in corporate silos (Windows, Internet Information Server, Internet Explorer). They have lowered the barrier for anyone to contribute to the growing snowball, and as a result, the products have become so stable and resilient that everyone has moved to them. (Safari and Chrome are based on WebKit. MacOS is based on BSD.) Economically, supporting open source (and defending them against software patents) started to make sense for large corporations.

The Web itself – arguably the most widespread and successful application using the internet, and the world’s largest development platform – has spawned so much wealth creation partly because it has always been radically open source. Every browser since the original Mosaic has had a “View Source” command. Developers could learn HTML, CSS and Javascript by looking at other websites, and downloading free software libraries. Thus the ecosystem took off, and has led to trillions of dollars in value around the world.

Because of the open nature of these ecosystems, anyone can take the full power of Linux, or the Web browser, and build something on top of it. As a result, Linux has been adapted to run on some toasters, while Windows still runs only on a particular x86 architecture. If the open source model was applied to drugs, instead of the current patent restrictions, we may have had a lot of innovation and cures for the long tail around the world. Clay Shirky has recently given a great TED talk on the trade-offs between Institutions and Collaboration.

Cliffhanger: Stay tuned for the thrilling conclusion!

Thus we see two major trends develop over the last few decades:

  • Increasing centralization
  • The growth of open source software

Today we live in a world where most people have moved away from general-purpose computers and open protocols to use ever-more locked-down devices and ecosystems controlled by a single company. But it’s also a world where more and more of the software that’s developed is released as Open Source. Even that famously anti-open-source company, Microsoft, has now “left the dark side” and open sourced its flagship development environment, Visual Studio. Yet most of that open source today is currently hosted on GitHub, a centralized site (and the successor to SourceForge) that’s home to myriad software projects.

Why do so many open source projects choose to have their home at github.com/myproject? Why do so many brands tell people to go to facebook.com/mybrand, or twitter.com/mybrand?

Technology – or lack thereof – is the main reason things become more centralized. This also explains a lot of the debate between Anarchists and Statists. Economies of scale attract more resources, until a new disruptive technology is able to decentralize the innovations for everyone to access. This is the goal of companies like OpenAI, which believe that datasets and innovations in artificial intelligence should be widely avalable to everyone, and not just concentrated in the hands of a select few.

Today, there are movements to decentralize social networking, and tore-decentralize the web. But things are just beginning, and these movements are only now starting to get the same kind of attention that Bitcoin and crypto-currencies got when they decentralized money. Having discussed the past, the next blog post will discuss the future of decentralization. Stay tuned!

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Properly Valuing Contributions

A major part of our mission as a company is to empower people. So naturally, at Qbix, we give a lot of thought to the best ways of doing that. This post describes a compensation model that we have designed, which clearly rewards people for their contributions, and actually drives everyone to compete in how much they can contribute to a product’s bottom line.

We call it the Qbix Compensation Model. Feel free to use it at your own company, and share it with others.

What Usually Happens

Say you’ve got an app or website that’s generating some revenues, and you’d like to grow them. As the owner and biggest stakeholder, you have to

  1. keep obsessing and coming up with a list of ideas to try
  2. raise a budget to pay your employees (developers, designers) to build it
  3. set up a system to measure the impact of these new features
  4. launch the features and A/B test their impact
  5. finally, pay everyone on time and hope the features justified the expense

When you have a project, especially an open source project, major contributions can come from anywhere. Wouldn’t it be nice if people with the right skills could come and help you grow your revenues? Wouldn’t it be great if they’d be excited to keep doing it? They just might, if you could compensate them for it. Behold:

Qbix Compensation Model

So you’ve got a product that’s already generating $X / week in profit after expenses. It’s pretty good, but you’ve got a lot of room for improvement. A developer comes along and offers to build a feature that could potentially double or triple your revenue. Maybe they can improve your user engagement, retention, or viral coefficient. Maybe they can design some cute digital goods or useful features that can be purchased in the app. If your project is open source and you actually publish your metrics online, the right person might just come along to help you improve them.

The key idea behind the QCM is that your product’s revenue is the bottom line that you obtain from multiplying all the little factors that go into it. Double day-7 user retention from 20% to 40%, for instance, and you may just triple your revenue. Introduce a popular in-app purchas, and suddenly your revenue may jump by a factor of 10. Each little contribution grows the pie.

So when that developer comes along with an idea and pitches it to you, you can make them a good offer: set them up with a copy of your source code (protect yourself with NDAs, provisional patents and whatnot) and let them do all the work of building, testing, and contributing this new feature. Then you carve out a random sample of your audience to beta test how this change will affect your metrics.

Once the new feature launches, find the average revenue per user for the two weeks before the launch. (Here at Qbix, we prefer to calculate as much as we can on a weekly basis, because months vary in size.) Then for weeks 3 and 4 after the launch, calculate the average revenue for the users who experienced the new feature. Did it increase?

Extrapolating to your total number of users, you can now predict that you will make $Y if you rolled out this feature to everyone. After all, if your sample was large enough and truly representative of the overall user base, the changes you see should hold across the board. Feel free to gradually increase the number and measure the above again.

The Formula

So say your project was bringing $X / week in revenue before you accepted the contribution, and now thanks to this change it’s generating $Y / week. The number C = $Y / $X is the factor by which your revenues grew. It is what determines the value of the contribution to your project going forward. This improvement will probably compound with other improvements people make down the line, so it will constantly be contributing to your bottom line (until, that is, something eventually comes along to disrupt your business model).

So now, how much should you compensate the contributor? Well, pick the maximum amount you’d like to dilute your app’s revenue, for example 10%. You would offer the following to the contributor:

$Z = ( $X ) ( 10% ) ( C – 1 )

Real Examples

Suppose you were making $1000 a week from your project. You accept a contribution, beta test it, etc. and now, four weeks later you’re making…

  • $2000 a week. So the contributor gets $100 / week
  • $3000 a week. So the contributor gets $200 / week
  • $100,000 a week. So the contributor gets $9,900 / week.

As you can see, the more you make, the closer the contributor’s revenue gets to 10% of yours.

Ownership and Risks

Some investors, upon seeing this model, might be a little bit uneasy. After all, did you just effectively “give away 10% of your company” to this contributor? No.

First of all, this kind of partnership should be done per project, not per company. If the feature is re-used in other projects, the same arrangement can apply.

Secondly, if other people contribute more features that increase the pie, then they get a part of the pie. If you (or your employees) wind up contributing more down the line, then you “claw back” your share of future revenues from 90% back to something closer to 100%. The cool thing is, all of you are always motivated to compete and see who can grow the pie more. As long as the pie grows (that’s what the beta testing is for!) no one’s revenues go down.

Finally, you can also limit the period that the contributor gets paid to, say, 5 years. It’s still a pretty attractive option for a developer. Imagine, as a developer or designer, coming across a SaaS company whose product you are very familiar with, that openly publishes its metrics. They honestly reveal that some metrics could use improvement, and you have a great idea for how to do it. You get in touch and – instead of hiring you to for some full-time position doing mostly drudge work inside the company – they agree to pay you for your contribution, if it works out. $1,000,000 / year x (C–1) for every factor C that you improve a certain KPI metric.

So you sign an NDA. Maybe they file a provisional patent on your idea, so your uncle doesn’t sell it to the next company. They set you up with a copy of their source code, and give you access to their testing environment. You build the feature, document your work, they run the tests and see you improved it by 10%. You make $100,000 / year passively. They’re happy, and you’re happy. You got a job done, got fairly compensated, and can go back to doing what you want in your life.

People live lives. Companies build products.

The above is our motto. We believe that products can grow better faster if contributions are allowed to come from anywhere. A person with a great idea or ability should be able to contribute to a project, get compensated in a clear way, and move on with their life.

It used to be that people worked at the same company for decades. Today, technology has come a long way and changed the face of labor. As companies develop more automation and more AI, such project-based work will increasingly become the way things get done. This is the future of work.

Starting a New Project?

Are you just starting out? Use this model to fairly compensate people for their contributions, instead of always thinking in terms of “bringing them on board” permanently. Get things done. Get the designs completed. Get the minimum viable product ready. Go raise venture capital to grow the business – or not. After all, when you can attract people from all over the world to contribute remotely to your project, you may not need all that much capital up front.

But wait, what is $X? It can’t be zero, because then you can’t divide by it. (The very first founder would then have brought “infinite” value to the company.)

Instead, just start a “product line” inside your company, and say that it’s making $1 / week. You can after all purchase your own crappy product, which does nothing. Now, pick your 10 cents per C–1 or whatever you want, and offer everyone compensation from the QCM calculations in exchange for contributing to your growing snowball. If you sit back and do nothing except attract people to your project, your company will still get 90% of the revenue from that product line. That revenue might be $1 million / week, and the contributors each did their part. They’re happy, and you’re happy. Things get done. And society moves forward.

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Four Million Downloads!

Happy New Year, everybody. Coinciding with the start of 2016, we hit another milestone: our four millionth download! Both Calendar and Groups enjoy nearly a 5 star rating in the app stores. To celebrate, we put together an interactive visualization of all our users around the world, complete with sample reviews in their native languages. Feel free to rotate the globe below, tap on some countries and explore the reviews. The animated pings you see represent people actively using our apps around the world.

{{&tool “Qbix/reviews” app=”Calendar” countryCode=”US”}}

Of course, we are pretty proud of reaching this milestone. But our biggest announcements are still ahead this year. There is a lot of work to do on our road to empowering people and uniting communities. Those of you who’ve been following us know that 2016 is going to be the breakout year for Qbix.

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Three Million Downloads!

A few days ago, we hit a new milestone. Since we first launched Groups and Calendar, they’ve been downloaded by 3 million people in over 100 countries around the world. Here are some other stats about our apps:

  • Used over 3.5 million times a month
  • 4 out of 5 star average rating
  • 39% of people downloading our app are in the USA

Month of January 2015

To celebrate, this month we’ll be releasing Groups 2.8, translated into the 15 languages most commonly used by our users. We’ve also prepared to launch Calendar 2 for Mac, a major new release we’ve been working on for over a year, to all our Calendar users.

From day one, Qbix has always been proud to display our metrics publicly on our website. If you have specific questions for us about our apps, user adoption or something else, feel free to reach out.

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Fixed Cost Marketing

Maximize your fixed cost marketing before you raise money and throw it at user acquisition.

No one at Qbix is an expert in traditional marketing. We’ve focused on other things: carefully designing user experiences, building great products and steadily architecting solutions to challenges facing social apps, which have come together in a unified platform. And until now, it has served us well. From day one we have proudly displayed our user metrics on our website:

Most of the user base growth has been linear, because both Groups and Calendar have so far been for personal use without much reason to invite friends. That will change this summer, but for now, let’s analyze what occurred.

We have had very few articles written about us or our apps until now. We didn’t actively seek to take part in promotions. We have spent next to nothing on marketing or PR. In fact, until now, we haven’t even raised very much money compared to Silicon Valley startups, but the vast majority of what we did raise went into web hosting and development. All this growth was achieved organically, using existing systems the way they normally work.

To be honest, we didn’t do this on purpose. We actually did put in some effort to get stories about our apps, but without prior relationships, it proved to be more difficult than we thought. We tried advertising Calendar Plus (our Mac app which sells for $9.99) but didn’t find an ad network that would target ads by operating system. We tried raising a Series A round two years ago, but weren’t successful, being inexperienced with fundraising – as well as being on the east coast in the middle of a Series A crunch with very few personal connections. Still, we continued basically doing the thing we knew how to do best: build products and iterate them, making sure our growing user base stuck around.

Two years ago, when we launched our apps, we wrote about our progress and how we were able to achieve it. Since then, we’ve come a long way, our team has grown, and we realized that our experience can be valuable to others. We want to continue sharing those lessons which we feel are making the greatest difference for us.

Customer Acquisition Cost

The truth is, if your app already converts visitors into paying customers at a proven rate, you’re probably ready to do traditional marketing. As long as your customer lifetime value exceeds your customer acquisition cost, you will probably be able to find an investor to finance this operation.

In reality, though, the trade-off is between the uncertainty in how much a customer will really pay over time, vs. the friction involved in an up-front purchase. If you could pull it off, it would be much better to create a product with a free trial where customers eventually sign up for a subscription. By properly using social elements in your product, you can reduce your customer acquisition cost tremendously, and actually prove you can get loyal paying customers. Once you’ve done this, then you can go big, and you won’t have to go home. That is what the rest of this article will be about.

Discovery

The concept of fixed costs and variable costs are well known in marketing and economics. Looking back, one of the biggest reasons we were able to get where we are is that our strategies all involved fixed marketing costs. They used existing infrastructure, but sometimes took advantage of certain “hacks” to gain an advantage over the competition.

There are many ways to stand out in creative ways. One of the most obvious ways we did this was to get in early and grab names such as “Groups” and “Calendar” to begin with. Being aware of how the app store worked, we knew that users would search for a particular word to solve their problem, and we named our apps with that word. This, combined with making our apps free, caused them to rank #1 in the search.

If you’re starting a business, the first step isn’t to register it with the state – it is to make sure a good domain name is available, one that can be a good brand which stands out in searches. That is how many people will find you. The domain “Qbix.com” cost us $2000 (how we got that is a story for another day). RapGenius is another example of a website that is found entirely organically without marketing, thanks to song lyrics. They didn’t have to pay lots of sites to get good search engine ranking.

Certainly, there are other, more external ways to be discovered. Most of them rely on viral marketing. And while guerilla marketing can be fun and effective, we are not experts on it, and thus we aren’t sharing our experience here. Almost all our efforts that succeeded so far have been intrinsic in the actual products we build.

Thoroughness

At Qbix, we have “best practices” documents for lots of things we do, from hiring to releasing a product. When we find a major tactic or strategy that worked for us, or for someone else, we save it there. Over time, this has proved to be invaluable, allowing us to learn from previous mistakes (much like regression tests are for software) and brainstorm new solutions from existing patterns (like someone who is fluent in a language).

For example, we found out the hard way that apps are supposed to proactively ask users to rate them in the store. The message should go something like, “If you like our app, could you please review it?” Without this, people were much more likely to rate the app if they had a bad experience, leading to much lower ratings. Moreover, the number of ratings – especially positive ratings – increased when we asked people on every 3rd day. Similarly, the amount of bad ratings decreased when we placed the Support link and FAQ section prominently in the app, pre-empting many a user flow that ended up in a bad review. (Sadly, an app like Groups on the iOS can run into OS bugs in some environments. As frustrating as it was, sometimes the best we could do is build a clunky workaround.)

After discovery, thoroughness is the next big factor for maximizing the bang for your buck. Each particular technique can make a difference when the factors are multiplied together.

The Flow

In essence, the main thing we’re talking about is maximizing the following user flow:

Discovery -> Onboarding -> Engagement -> Evangelism -> Monetization

Whether you have an app, some kind of business, or even a nonprofit charity, you should develop metrics to measure how effective each transition is from one state to the next. Do A/B testing and iterate until your KPIs comfortably exceed the thresholds needed to achieve a good return on your variable costs. Prove this to yourself, and then prove it to others with shiny, convincing reports – or maybe even a video. Then you are ready to commit a substantial amount of money and do a land grab. It will go much further, and you will be able to raise it on better terms as well.

We have written in the past how a business can dramatically reduce customer acquisition costs by adding organic social elements. But it goes further than that. The invited user – whether they are a person or an organization – gets psychologically invested in the app the more they use it. It is here that your onboarding process becomes crucial. If you can make the user happy early on, and give them what they’re looking for without making them work too hard, they will come back. The rewards have to be disproportionally large in the beginning.

One of the most effective ways to achieve this is to present new users with useful crowdsourced data to explore, clone and interact with. As they do this, transactional notifications pull other users on the app into social interaction that rewards both the old and new users, effectively providing them with genuine social feedback and releasing dopamine in their brain – not from game points but from positive social interaction. They will then voluntarily invite their friends, as part of another flow that someone initiates on the app.

Prove there is Demand

This coming year, we plan to expand into two markets that we haven’t entered yet. While we already have a good user base, and a plan to move forward, questions remain – is there demand for our solution? Are people willing to pay? And how do we market to those people?

Traditionally, these problems were solved by doing an in-depth analysis of a particular vertical. Maybe your app lets customers reserve time on someone’s calendar. It can be used by tons of professionals, but you have to pick one particular segment and build the app for them. If you guessed wrong, then you might have to pivot. The real issue, however, is that it’s much better to identify demand before investing in variable costs. First, maximize your bang for the fixed cost as we’ve been describing. Prove there’s demand, and that you can be successful in measurable ways. Only then, after you’ve done the math, raise the money and pull the trigger.

There are lots of ways to test for demand on a small scale – many of you are familiar, for instance, with using Google Adwords before actually building a website. However, there is one killer strategy that, if you can pull it off, will give your company a significant advantage over its competitors.

Put simply, create a social product that people find their own reasons to use. This can be well-executed chat app such as WhatsApp, or it can be a social jukebox. But whatever it is, it must be social and you must iterate until you have good metrics on discovery, engagement, and so on.

After a while, look at what people are using it for and find out who stands to benefit from this. Those are your customers. Now you can devote your limited resources to building the best onboarding process for those customers. These are still fixed costs. You haven’t begun marketing yet. You first must beta test with actual customers and iterate until the onboarding works like a charm.

Now, incentivize your existing users to invite your customers. Perhaps you’d like to use in-app credits which they can use at the customer’s business. Usually, the customer won’t mind rewarding the user who invited them, and chances are, they were friends long before your app came along. Once the potential customer is invited, your onboarding process can take over. The more results you get for them (such as importing their data into your social app’s system, giving them ways to engage your users, etc.) the more they will be willing to pay later.

Finally, incentivize customers to invite more users by cross-promoting them in your app. Give them promotional materials (with your app’s QR codes) to give to their members, and in return

And if you’ve done all the above, and you still want to grow faster, then you can finally begin engaging in variable-cost marketing.

We’d love to know whether any of the ideas here were helpful. Tell us what you’re working on in the comments below.

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A new kind of social platform

There’s a reason our blog bears those two words, “Empowering People”. Qbix was founded on the notion that great platforms can power great tools, and great tools can empower people to get more done and greatly improve their lives.

Today I want to share with you a glimpse of the upcoming Q Platform which our team has been working on for the last two years, in stealth mode. Even as we grew our consumer apps to over 1 million downloads (1.3M as of this writing), we were quietly working on a platform for group activities, that we would unroll to our entire user base. We built it for ourselves, but we are eventually planning to release it to the entire web developer community. I’ll get into what it does, but first a few words about why this is the right time for such a platform.

What’s out there today

Lately, more and more entrepreneurs and developers have begun to feel the need for alternatives to the Facebook platform in order to get real social growth and engagement for their apps. Investors are starting to realize too, that apps built on a platform that may be pulled out from under you tomorrow are very risky. I certainly learned this lesson the hard way a few years ago. I started building facebook apps back when the Platform first came out, in 2007. Things changed a lot since then.

Twitter, is a famous example, too, of cannibalizing its third party ecosystem as it grew. It went from bad (in 2010) to worse (in 2012).

The biggest social networks of today started in the age of desktop computers, whereas most people have moved to mobile today. Their mentality of sharing and ad views is behind the times and delivers smaller margins all the time, increasing the temptation to “sell out” their users and expose them to more advertising. Our vision is very different.

Social networks are very useful. They should let good applications spread through social channels that are responsibly managed, whether those applications are third-party or not. But that’s not happening now.

A new approach is needed.

The Q Platform

Okay, so what should a modern social platform have that would create better opportunities for developers and users? At the core, it should have a philosophy:

empower people — both app developers and users — by giving them control over their own data, and tools that match what they are actually looking to do.

That’s all well and nice, what about specifics? Well, I’m glad you asked, because we’ve had a lot to do over the last two years. Once you finish reading the list below, you’ll wonder why a platform like this isn’t around yet. We were wondering the same thing.

  • Write once, deploy everywhere – Apps built on the Q platform can work on desktop computers, tablets and mobile smartphones. HTML5 makes it possible, with help from great tools like PhoneGap
  • Universal user signup – Out of the box, your users can sign up using an email address, mobile number, or connect with facebook at any time. We recommend mobile numbers because it’s harder to get a lot of accounts and spam the system.
  • The address book is the new friend list – Instead of those 1038 fake “friends” on facebook, the people in your address book actually pick up the phone when you call. These are the connections we help people utilize, and give them tools to effectively manage them.
  • Group activities – We consider ourselves a Group Activity Platform, because we focus on facilitating actual collaboration between people. What the activity consists of depends on the particular app. The Q platform will enable many existing apps to become collaborative apps, by giving them all these social features out of the box.
  • Real time collaboration – Our platform is based around streams that people publish. We use Node.js and socket.io to push real time changes to everyone who’s online participating in the stream.
  • Offline notifications – When you walk away from your computer, and aren’t looking at the stream in real time, you can have notifications delivered to your email or smartphone.
  • Eliminate SPAM – The Q platform gives users full control over what streams they want to subscribe to receive notifications from. People can even set up specific filters and rules deliver some alerts to them on their mobile device — for example if it’s from their family. The platform learns about their usage and can suggest intelligent defaults for them that they can override as needed, minimizing work but retaining full control.
  • Privacy back in your hands – We give you complete control over who sees what you publish. On facebook, you can be tagged in a photo or invited to a group without your consent. On the Q platform, you’re invited to a stream and only when you actually show up do you accept or decline. We go much further, however. We have a full and robust roles and permissions system, where any individual or group can show different things to different types of contacts in their address book. Individuals have friends & family, while groups can have managers & admins. The platform can be used for teams and enterprise applications as well. You will find our architects waxing poetic about the group vs the individual, and what design will best empower people to get things done.
  • One-step invitations – If you want your apps to go viral, you want the least amount of friction for new people to sign up. Our platform allows people to invite their contacts to any group activity, and each invite has a special link, so as soon as you click it, your email or mobile number is verified. We also give you infinite sessions so you don’t have to set up a passphrase unless you try to log on from another computer. In fact, you can try out the app without downloading anything, and if you like it, you can get the native app, and continue using it without needing a password. New users can get started with minimal commitment and maximal security.
  • Real names – Speaking of privacy, what about the heavy handed real name policies from Facebook and Google? On the Q platform, a user’s first and last name are streams like anything else, which they can choose to display to some and not others. If someone can’t see your first or last name, then your username is displayed. Thus, a blog which incorporates the platform can be personalized to different degrees for different people.
  • Private and Instant Personalization – Many people thought this wasn’t possible. In the past, facebook simply shared your data with some “trusted partners” in order to “instantly” personalize your experience. We have solved this problem, and this was one solution that was non-trivial enough to patent. Thus, websites using the Q platform can display highly personalized information to visitors while being completely unaware of the information themselves, and even unable to track the user between sites.
  • Scalable out of the box – Suppose your app grows quickly to millions of users. The platform has you covered. Being passionate about the subject, we built a decentralized architecture that can be distributed among many machines around the world. And for local data centers, we built a sharding library that can split a hot shard into 2 or more anytime while your app stays online. Next up is automating this with Amazon Web Services APIs and monitoring.

We have built all this and more. Imagine a platform where you can access the apps from any (web enabled) device, try them out before registering for an account, and easily invite your friends through your phone’s address book. A platform where groups and individuals can control all the data, contacts, roles, privacy for stuff they publish, and easily manage subscriptions for stuff they consume. Where you can tweak them anytime but you usually don’t want to, because they are set just right. We’ve solved the technical architecture. Now it’s just a matter of building out the last 10%, and carefully iterating.

You’ll be hearing a lot more about our platform as we begin rolling it out to our own userbase. Until then – if you’d like to get involved, contact us! We are looking for great developers, designers, documentation writers, evangelists, and PR professionals. Because until now we’ve been doing it mainly on our own.

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1 million downloads, and beyond.

Qbix is starting this new year with some exciting news. A few days ago we passed 1 million downloads!

Since we first launched, we’ve always been confident to openly display our stats right on our website. Here are some highlights that we are proud of, though:

  • About 1 in every 5 people decided to keep our apps.
  • That’s about 220,000 monthly users, of which 40,000 are using them every day.
  • Both Groups and Calendar have a 4.5 out of 5 star rating.

Besides the above, we also launched our first paid app, Calendar Plus, to help people see everything that’s happening in their lives, in one place — whether it’s google calendars or facebook events, birthdays, or the weather. Looks like it got some good reviews.

Where this is all headed

Many startups begin with big dreams of changing the world, through new technology. They build and launch their MVP. Then their big challenge becomes finding product-market fit and getting traction. This is where the winners are made.

Over the last two years, we were lucky to find real demand our first products, and built a loyal and enthusiastic userbase. But this was only the tip of the iceberg. Many of you who have been following us know that we had much more in the works. Even as we worked on them for the last two years, we didn’t reveal our bigger plans publicly — until now.

The previous generation

Two years ago, before GroupMe and WhatsApp and Voxer and Google+, we realized that there was something major missing on the internet. Sure, people were spending all these massive amounts of time on their computers sharing pictures and videos with each other. But as they spent more and more of their lives sharing online, their real lives did not get any easier or more fulfilling.

There were many reasons for this, but most had to do with the design and business models of the original social networking sites, like Facebook and Twitter. Facebook, for example, is proud of being the site you spend most of your time on, but penalizes you for friending people that you might want to meet in real life.

The mobile generation

Mobile smartphones changed the game, starting with the iPhone. People are now able to have rich interactions with others anywhere. But to truly improve people’s lives, we have to move beyond “sharing stuff online”.

People need a better a way to coordinate and plan things in the real world. Tools that are able to help people do this will lead to organic business models around mobile, where marketplaces make money when actual transactions are made and everyone wins. That is where mobile’s untapped trillion-dollar potential lies.

Our vision

Qbix actually began with a big vision. We believe in the power of everyday communication tools to shape how groups of people collaborate. We set out to build tools that helped people naturally connect, form groups, and coordinate their activities. These tools would empower communities to get things done. There was a lot to do, and if we got this right, we would change the world.

Our goal for this year is to combine the Groups and Calendar apps into a social calendar, where people can spontaneously organize activities, plans can come together organically, and groups can make reservations at local businesses.

Technology and business model

Over the last two years, you saw Groups and Calendar go from launch to getting a million downloads. Behind the scenes, a large part of our team was busy building the Q platform, an ambitious new technology you’ll hear a lot more about in the months to come.

Building a mobile platform for real world collaboration presents real opportunities for innovation. Our work to improve the current user experience has led us to focus on several key directions:

  1. Less Pull, More Push.

    Many people incessantly feel the need to check their phone to see if there were any updates. This takes away from their real life and the people they’re with. Instead, people should be able set up subscriptions and filters for what they are interested in, and the service should notify them when something very relevant happens.

    If we get this right, the phone will stop being a distraction. A person should normally only want to reach for their phone if something in their real life prompts them to check out something specific, or because they are bored.

  2. Less Sharing, More Planning.

    So much of what we do online seems to consume our time and energy, a bit like the machines in the Matrix. Sharing your life online is possible to do after you’ve already lived it in the real world. But a different kind of interaction with technology takes place before you head out. This is when you can make plans with other people and reserve various venues and services. Lots of social apps have made sharing a very engaging experience, but there is still a lot of opportunity to make planning real world activities an effective exercise.

    If we get this right, every minute people spend online will help lead to hours of activity in the real world, rather than the other way around. People view planning as a means to a definite end, such as having dinner, or learning a new instrument.

  3. Less Ads, More Deals.

    As I write this, the price of advertising online is falling. More and more ads are being shown on mobile devices, but they are less likely to lead to a purchase and thus cheaper. Big tech companies like Facebook and Google are trying to “crack the mobile problem.” The problem is in the psychology of ads: they feel like they want something from us.

    On the other hand, people will be using the mobile phones to spend money in more and more ways. And what we really want is get a good deal on something. What’s more, we’d be more than willing to earn rewards for taking meaningful actions that help the business. Things such as writing a review for others, or getting a group together for a social activity.

    If we get this right, businesses will come up with creative and useful ways for their customers to help them generate a good deal for themselves and their friends. Both sides will benefit from the deal, and will gladly pay the app for brokering it.

Expect us…

It looks like 2013 will be a breakout year for Qbix. We plan to roll out the above platform to our users, one step at a time. In time, the entire vision will come together and become clear to everyone.

If you’d like to know more, subscribe to our blog. I will be writing in much more detail about the technical and user experience issues as we go along. Until then, take a look at this infographic, constructed by InsightsNow for AOL and BBDO, which shows how people are using their mobile phones today.

Reasons for using your mobile phone

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