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Join us on the path to an unprecedented ICO

“So what’s this thing you’re working on?” can be a loaded question if directed at an entrepreneur like myself. The inquisitor was an old friend who I randomly, and happily, ran into a couple of weeks ago. My answer then was mildly satisfactory, if a bit light on the details, but it just so happens now is the time to answer that question more in full, and in public. It’s time because we need help to move this “thing” we call ZEN forward into the brave new world of blockchain/cryptocurrencies (think Bitcoin).

What is ZEN?

My co-founder and I are the team behind ZEN for iOS: a video sharing and communications app for the video editor community. It has short, looping videos and social features like Vine (RIP) and big public group chats, sort of like Kik. Depending on who you are that may or may not seem impressive, but the key thing to understand is that it’s the front door to what we think is a powerful business model innovation. I personally find business model innovation a lot of fun, but before I dive into that some context is needed…

Hard Money Problems

The original idea for ZEN was to help video editors make money with, or monetize, their videos. That’s it. Well, it turns out that simple sounding problem is hard to solve. The way I discovered the problem even existed was pretty indirect. Prior to ZEN, I made a video editing app targeted at, wait for it, the video editor community. I organized and paid hundreds of Vine video editors to promote the app, and by spending $12K on that drove over 200K downloads and over $100K gross revenue. Ultimately though, the app fizzled out because of market dynamics, which I’ll come back to. So, in essence, the idea was to just figure out how to grow and sustain what already worked. Makes sense, right?

Who are These Damn Video Editors Already?

Self-described “video editors” are ordinary kids, primarily in the 14–18 age range, who are intensely involved in creating and consuming video “edits”. A video edit is a remix, or mashup, of clips from a single genre- think anime movies, sports highlights, TV cartoons, and many others- which they painstakingly sync to visual effects and typically a pop soundtrack. It’s an emergent and fascinating expression of fandom, something my co-founder Matthew Knight has previously written about in detail. It is also a true craft that these kids take very seriously… you wouldn’t believe how much grief they’ve given us over our (now much improved) looping.

The Ideal Beachhead Users

Our hyper-focus on video editors is no accident. We’re targeting them because: They operate in self-organizing, tight knit online communities that are highly social in nature. They skew young, and for many of them apps like ZEN are their first introduction to social video; which in and of itself represents an amazing opportunity to build a strong brand that grows with them. But most critically, they’re popular and command significant audiences yet have very limited ways to monetize. In other words, they’re the people most afflicted with the problem ZEN is meant to solve, and by solving their problem we get a nice virtuous cycle of more content to attract more users. Rinse and repeat.

Platforms are Hard (So Don’t Bother?)

Every business idea has its naysayers, and we’ve encountered plenty, but it’s important that I address one critique in particular. The critique goes something like “platforms are too hard… blah blah blah.” I’m partially kidding of course. Since we’re trying to make ZEN a platform (meaning a technology product designed for other people to build products/services on top of) we take this critique very seriously.

The thing is it can be extremely hard to stand up a successful platform, but extremely valuable if you do. Note the symmetry there. Successful platforms generate way more value for way more stakeholders than one organization, no matter how large, could do alone. And, in our particular market platforms that own the primary relationship with the consumer are in a uniquely powerful position (see Ben Thompson’s Aggregation Theory). All of this makes them capable of stunning network effects, highly resilient, and hard to dislodge- great qualities for a business if you’re truly ambitious and actually care about being around for a while.

If you’re not so ambitious an easier route is to build a business on someone else’s platform, which is what I did with my previous app, and what many people are doing in the ecosystems of Instagram and YouTube- to name a couple prominent examples. Many players in the Instagram/YouTube axis are glorified talent agencies, but even there successes do occur. However, the downside risk is your business can be arbitrarily crushed by the platform because: it doesn’t like you, it doesn’t care about you, decides to compete with you, the leadership is merely incompetent. As an early employee at Zynga I witnessed this first hand when Facebook basically destroyed that business, and then again on a much, much smaller scale with my previous app (those pesky market dynamics!).

We’re not afraid of hard work, or competitors for that matter, so all things considered… we’ll take the platform route, thank you very much.

There’s Proof!

It’s early days for ZEN but consider this, as of April 29th we averaged around 20 daily active users (DAU) and as of today it’s around 1.5K, so 75X growth in around 90 days. Anyone with experience building our type of product can tell you getting to that first thousand users a day is a significant milestone. Here’s another significant number: $22K in revenue from a single experiment, $10K of which occurred in one month, and 50% of which was paid to our video editors. And that mostly occurred before the growth spurt.

Now all of this is from a small base and we’re still very small, but it is unambiguous validation that we’re on to something. Our users are telling us this directly as well. Clearly, we need to speed up and double down.

So About That Innovation…

Recall that the main idea here is to help video editors monetize, but it’s not just because we like them and we’re nice people. It’s because people like videos. I mean like everybody in the world really likes watching video on their mobile device, if they can. Today, those who can are watching more and more. And probably, eventually, just about everyone else will too. We’re fans of building technology businesses that offer new ways to deliver things that everybody likes. But first, you have to get the goods, which in this case is video content (and to be clear the video I’m referring to here is the kind meant for public consumption).

There are a number of ways to get video content: you can build a free Web video archive (YouTube), you can build a social network and get people to post video content for free (Instagram), you can pay skilled third-parties to make it on spec (TV), or some combination of them all. But there’s another way- you could build a system that enables practically anyone who wants to make video content to make money. Sort of like how Uber (scandals aside) enables practically anyone with a driver’s license to make money driving people from point A to B.

As with Uber, the key is the power of a marketplace model when it’s pushed out to a massive number of new participants. In ZEN’s case it’s a little more complicated because it’s not one marketplace, but a set of interlocking marketplaces. Let’s just call the whole thing the Exchange.

From the very beginning, we identified two promising foundational marketplaces for the Exchange: one an attention marketplace for third-party advertisers, and the second a peer-to-peer attention marketplace for re-posts (aka shoutouts). The first one is easy to understand, although not exactly easy to implement. We ran ads and shared the proceeds with our editors 50/50 via a custom attribution system. Note the past tense- the experiment wasn’t sustainable, mainly because we had the wrong type of ads. But besides making money, which is always useful, we learned a tremendous amount. One of the important things we learned is that a lot of kids want to do this. Over 4.5K ZEN users signed up for our Revenue Sharing Program (which unfortunately wasn’t active for most of the growth spurt), but less than a thousand were actually able to participate. We know how to fix that but need to…. speed up and double down.

The second marketplace is really unique- as far as we know there’s no other platform doing anything remotely like it. Currently, there are large shadow markets for peer-to-peer “shoutouts” on Instagram, which are simply ads promoting other accounts. It’s all done manually and subject to the scourges of all informal markets, including inefficiency and fraud. ZEN’s re-post feature is the ideal mechanism around which we can build a formal, automated marketplace for the exchange of this basic unit of attention. It’s easy to see how this marketplace can eventually be integrated with and supercharge others- like the one for third party advertisers, who could use it to purchase more distribution for their ads. And we just charge reasonable transaction fees for it all.

Finally, but just as critically, the Exchange is meant to enable third parties of all types to join the fun! It’s how ZEN truly becomes a platform for other products and services. Take video editing apps, something I know a bit about, for example. We’ll provide developers of video editing apps software tools to integrate with our platform and deliver value to our editors, building a more sustainable business for themselves in the process. If you’re familiar with cryptocurrencies you might have already figured out exactly how we plan to do this…

ZENCoin, a Cryptocurrency with a Purpose

With all the hype around cryptocurrencies like Bitcoin and Ethereum it’s easy to lose sight of what caused the hype in the first place, but take a moment to think about how the internet has radically transformed communications on a global scale. In other words, the internet gave us radical new forms of communicating- from email to video chat. We’re still communicating the same stuff, but those new forms have had previously unimaginable impact, including spawning completely new types of businesses while completely destroying old ones.

Now think about what happens when we apply this transformation to money. Not the money with dead presidents on the front, I mean anything we use to transfer economic value, new forms of money. What happens when anyone can create a new form of money and transfer economic value as easily as sending a text message? Probably lots of things we can’t imagine at present, but we know for sure one thing that it enables to happen: the ZEN Exchange.

Here’s why. Remember that the ZEN Exchange is a set of interlocking marketplaces. A set of interlocking marketplaces typically benefits a great deal from a common currency, like say, the Euro. Euros make exchanging stuff cheaper and more efficient across geographies- lots of local marketplaces now operate like one big market. I can go to Paris and spend the same Euros I spend in Berlin, I can go to London and… well, I can’t spend them in London but you get the idea. Now, lots of apps and such have their own internal currencies, it’s almost standard in mobile games, and there was even a thing called “Facebook Credits” for a little while. We could do something similar, with no need to go through the trouble of using a blockchain, save for one extremely important distinction- ZENCoins are meant to be used as a new form of money inside and outside of ZEN itself.

We’ll return to our video editor developers example to make this clear. A great tool we’ll provide them is software to accept ZENCoins as payment. Why would they want to do that? Because they’ll get new, higher margin customers. We’ve got a bunch of ZEN video editors who are now making money they couldn’t make before, and they love video editing apps. Most businesses love new customers so that’s pretty good, but it gets better. Apple and Google charge developers a 30% percent transaction fee to sell through their app stores. Remember that $100K in gross revenue I made with my old app? Apple happily took $30K of that right off the top. Someone very successful once said your margin is my opportunity, and since our developer friends have been so kind as to accept ZENCoins we’ll happily undercut that 30% fee. So again, new, higher margin customers. Who wouldn’t want that?

Multiply that example by tens, hundreds… millions? There are literally millions of mobile app developers worldwide. And who knows how many video content creators there could be over time… ZENCoins are what will knit them all together into a single, infinitely dynamic, market. It takes a complex, global, distributed exchange and makes it just work.

How ZENCoins Will Just Work

Like many new forms of money, ZENCoins have a particular design, and fortunately, it’s quite easy to understand: the network-access token. In real life, advertisers will purchase ZENCoins (network access tokens) to pay ZEN video editors to run ads for their products, but let’s use a fictional amusement park analogy to simplify things. Buying a ZENCoin is like purchasing tokens to said amusement park where all the rides are token operated, but only a fixed number of tokens are ever created. The kicker is that all the ride operators are independent contractors and set their own prices, so if demand for the big roller coaster is high (as it always seems to be) the operator can require more ZENCoins, or tokens, per ride. As more and more people hear good things about the amusement park it attracts more fun-seekers, more ride operators, and better rides. And the park owner (ZEN) makes money by taking a cut of all the transactions.

So far so good, but there’s another property of these tokens that is super important. ZENCoins will be created on a public blockchain called Ethereum, which is similar to Bitcoin but designed specifically for creating custom tokens. The upshot is that ZENCoins can be bought, sold, or transferred-globally. It follows that if someone wants that token more than you do, you can simply sell them your token and make a profit. Of course the price of tokens can go down as well, but generally speaking, as long as the amusement park is growing the price of tokens will have to rise.

Note that because the ride operators are paid in tokens they’re incentivized to not only seek more tokens per ride but to keep some tokens themselves as prices rise- thus limiting the supply and making the prices rise even more. That is a powerful network effect in and of itself, but the following graph reveals the real power of all these things combined:

This graph is a representation of the relationship between ownership ROI in a network and the size of the network. It’s from another Ben Thompson article in which he describes network-backed cryptocurrencies as a huge f*****g deal (I added the “f” word for emphasis). Basically what it means is this: all network-based businesses get more valuable the more people join them- while the ROI for owners operates on a curve that is the mirror opposite. For example, the first users of Snapchat got way less value out of it than those that joined yesterday, while the earliest employees and investors have made out like bandits compared to someone who bought the stock yesterday. But what if the users that make Snapchat worth anything at all had been given ownership in it from the beginning? And what if the opportunity to become an early investor in Snapchat was made broadly, globally, available- and not restricted to well-connected silicon valley insiders? The short answer is it would be an absolute game changer.

Game, meet Change

Since all business on the ZEN Exchange is conducted in ZENCoins, as more business is done the price goes up in correlation with the blue curve. This means that the token represents the value of the entire ZEN network, so simply by holding on to that token, anyone can enjoy the upside potential of a network owner. Naturally, the biggest, most important class of token holders will be the video editors themselves (they’re the ones getting paid to run ads)- giving them the ultimate incentive to participate, recruit others, and help the network grow any way they can. Game changed.

Next Step, ICO (Initial Coin Offering)

I’m well aware that taken as a whole this is a somewhat daunting and fairly complex business plan- iOS and Android apps, multiple marketplaces, a custom cryptocurrency, etc. Not exactly simple. But this is a vision statement, it won’t happen tomorrow. It will take years, with thousands of steps and many, many milestones along the way. And there’s no time to waste.

The next major milestone will be a token pre-sale, or Initial Coin Offering, for the first batch of ZENCoin tokens. Think of it as pre-selling tokens to the amusement park to investors/users and using the funds to finish building the park. Once the park is sufficiently built the pre-sale token holder can use it to simply enjoy the park or hold onto it in anticipation of prices rising. We’ll be providing more details on exactly how the sale will work in a future paper.

In the meantime, we need to expand this effort beyond the two person (I’m the sole engineer) operation it is at present. Our most pressing need is for iOS and Android engineers, but we’ll also need many types of collaborators: product designers, blockchain specialists, and more. If you’re any of these things or feel compelled to get involved in any way, please contact me directly: frank at autozen.tv and/or sign up for our ZENCoin newsletter. We’ve got a lot to do!