The Gong Show

Got It Wrong #4: Compensating Users with Money

This is the fourth post in my series on Got It Wrong posts (#1 #2 #3). Posts about how I really missed a particular trend, market development, company, etc…

The Issues With Bribing Your Users

I’ve never understood how to motivate users with financial incentives successfully. Prior to joining Union Square Ventures, I had a gut feeling that financial incentives were essentially a bribe, and ultimately corrupting to end-users’ behavior.  I remember my skepticism of services like AllAdvantage, which paid users to browse the web with a banner ad perpetually open on the screen.  AllAdvantage was never going to capture a valuable audience because the only people that would opt-in to extra advertising are the people for whom ~$1/hr would make an impact on their lives.  By definition the audience is unappealing to large brand advertisers.

Once I joined USV, my attitude towards bribing users was further reinforced.  Brad introduced me to the ideas of Yochai Benkler*, who has made a career writing about crowdsourcing, altruism of data transfer, and other economic impacts of the internet.  Yochai has a great analogy that lifts the conversation up to an easily comprehended level: after having dinner at a good friend’s house, you would never leave a $100 bill on the table; such behavior would be offensive.  If you want to foster altruistic behavior, like the best of what occurs on Wikipedia, StackOverflow, P2P networking, or even the basic DNS routing system that is the underpinning of every address request, then direct financial compensation is corrupting and detrimental.

One more case study to really drive this point home. Digg motivated users to contribute and vote on stories by giving them social validation.  If they submitted good stories, their stories rose to the front page of the site and they moved of a leaderboard of top Digg users.  By contrast Jason Calacanis launched a Digg competitor at Netscape.com which paid users for their contributions to the site, which led to people gaming the system and a lack of interest in contributing because the payment was relatively low compared to people’s full-time jobs.  Netscape.com failed after a year or so of pursuing this strategy. Digg is not the pinnacle of success either, but is having issues for unrelated reasons. As soon as you attach a price to an action, people’s attitude towards the value of that action changes dramatically, and the price causes a self-selection away from quality.

So, What Did I Get Wrong?

I took the pitfalls of paying users too literally and I didn’t realize that financially motivating end-users does have it’s place, especially when crowdsourced contributions are not relevant. Some fantastic businesses have been built during the second boom that pay users for their contributions.

For example, Groupon. Users don’t use Groupon out of any form of altruism.  Users are already spending money at restaurants, spas, and other local service providers, and a company can buy new users by offering steep discounts.  I did not see Groupon as a deal while at USV, but if I had, I know my knee-jerk reaction would have been something like:

“Groupon is bribing their users. This can’t end well because the “deals” (bribes) end up selecting for a worse demographic that other forms of small business advertising that don’t directly pay users for behavior change.”

And I was wrong. The bribe is effective thus far. Small businesses continued interest in marketing via group buying means that something must be working.  And, a $12-16 billion rumored IPO doesn’t hurt either.

Or, another example, Mechanical Turk.  Amazon creates a marketplace to pay users to do menial actions for a fraction of the cost of my traditional full-time labor.  The quality of the work isn’t great, but it’s so dramatically cheap that you can people multiple people to do the same task and only accept a majority answer. The system is cheap enough that it can QA itself.  It’s direct payment to end users for crowdsourced work, and the result has 

I’ve been bullish on Mechanical Turk and CrowdFlower (back when it was Dolores Labs) from the start, by a little voice in my head has persistently felt like it was in direct contradiction to the lessons about not paying users. Again, I’m wrong because I am trying to apply Benkler’s lessons too broadly.

So, if you have a web service that is directly paying users for contributing value inside your service. My first question will still be “Why do you need to pay the users anything at all?  Can’t you motivate your users with more emotional or social incentives?”  But, I’ll listen with an open mind, and warmly welcome a rebuttal that addresses my past mistaken skepticism.

[*If you want to expand your mind about the Internet’s effect on economies for 17 minutes, check out this TED talk with Yochai.]