February 27, 2023

Super-apps and the Monopoly Problem

The Monopoly-problem sounds like one of the latest TikTok challenges gone wild: Kids running across town, placing hotels on every street corner, forcing people to pay when they stop in front of their hotel for just a second. It would be mayhem. 

Unfortunately, the Monopoly-problem is a bit bigger than a TikTok rage. It’s one of the fundamental problems of any capitalist system: “Businesses are heavily incentivized to increase profits, improve market position, and eliminate competitors - which over time can turn them into monopolies.” That behavior can lead to one company owning so much that they can’t be competed with anymore, or as Forbes put it: “A large and growing part of our economy is “owned” by a handful of companies that face little competition. They have no incentive to deliver better products, or to get more efficient. They simply rake in cash from people who have no choice but to hand it over.”  

In the battle to beat competition and maintain that monopoly position, the new go-to weapon is data. Since information is power and data is information, the more data you have the more power you’ll have as well. With the right data, companies can outperform their competition more easily and increase their market share rapidly. 

Everything in One App 

Within this context it’s almost surprising that none of the big tech companies have built their own “Super-app.” Having people only use your systems gives you all the information you need to know to extract the most money from them. With so much information, advertisement targeting can become so specific that you know exactly what product to show at what time and to who, to increase the chances of them buying it. Or even more effective, make sure they see information that challenges their beliefs and how they see your company.  Once successful, you could even start charging higher prices to those that have become fully dependent on your tools. Easy money!

When you have so much information at your disposal you can make sure your app becomes the best, making it almost impossible for customers to switch to or stop using it. Maybe that is because you've created the best app, or maybe it is because all of the customers' friends are using it, or without using the app they would have trouble being a part of society. 

WeChat; China’s best app?

Exactly this happened in China when Tencent’s app “WeChat”, which started as a chat platform but evolved into an Super-app, became overwhelmingly popular and established themselves as a monopoly.
For the user, the potential upside of a Super-app is fantastic. You have all you need in one place: payments, information, contacts, products, services, heck - maybe even medical information. In an ideal world, that could make everyone’s life much easier. 

Imagine not having to struggle getting information from one place to another, or having to download an entirely new app to show the tickets for your local theater, access your medical files or get a ride in a cab. You can do everything you need to do and just have one account that you can use for all those services.  

Unfortunately, the world is not always ideal. Super-apps combined with the monopoly-problem can become a very dangerous cocktail. Imagine a race of companies building  Super-apps. In the early stages there will probably be some competition, but at some point one clear winner will come out. Simply because of the majority pull. 

Like getting people to leave Whatsapp and join Signal. It’s almost impossible to get your friends to use a different chat app. Can you just imagine how hard it would be if the switch wouldn’t be just for chat but also for banking, medical records, and government documents? 

Eventually one of those Super-app runners becomes the clear winner. Winning also means establishing a monopoly position, and not needing to worry about competition. This doesn’t have to change a thing. The company could still make a great app and make their customers as happy as can be. 

In practice what often happens is different. Monopolists often start exploiting their power to gain even more power, more wealth or more influence. With an Super-app that most people use, the impact of excluding people from their platform, tweaking algorithms to exclude certain groups and influencing people’s behavior in extreme ways can become problematic really quickly. Something the inventor of the infinite scroll realized too late: his invention now wastes 200,000 human lifetimes on a daily basis... 

If you think that's just a small nudge, and wonder if a simple app can have a larger influence on people’s behavior. Think again and check out the 10 most deadly TikTok challenges of all times. (Don’t try at home!) Compared to those challenges, the scenario of kids placing hotels everywhere suddenly becomes heartwarming. 

One could only wonder how this technology could be used to influence thinking around topics that have an even larger impact on society. Something like voting behavior maybe?

What’s the danger of Super-apps that acquire a Monopoly position? 

The biggest danger of any Super-app acquiring a monopoly position is that it is hard or nearly impossible to change it back. Usually the government will step in and take away the power of the company or break them up into smaller companies.  The question is, will that remain possible if the Super-app takes a vital infrastructural role in how a country is functioning?

Let’s say the app allows you to create a digital passport and now you can only travel with the Super-app on your phone. Sounds practical, but what if the shareholders or government has other interests they want to account for?
Something that, at least according to John Gruber, is the case with WeChat. WeChat is offering a lot of benefits to its users, the app has made the daily lives of many much easier but, according to John, there’s more to it than just that. “It’s no coincidence at all that WeChat comes from China, an authoritarian regime. It doesn’t benefit users that WeChat dominates all aspects of digital life.”
So instead of building an app that only optimizes for users, it has become an app that, just like many others across the world, optimizes for its shareholders mainly. 

For WeChat, which has many investors and stakeholders, including the Chinese government, it could mean that some decisions are made to benefit the authorities instead of the users. What that could mean for the ambitions of such a government to build a social crediting system remains unknown. 

The example of WeChat in combination with the social crediting system is a rather extreme one. Even without authoritarian governments, granting so much power and influencing capacity to an organization that dances to the tunes of its shareholders is dangerous to say the least. They might not hand over your data to a government that wants to use it for their crediting system, but is selling it to the highest bidder really a  much better alternative?

Memri’s way to Solving the Monopoly-problem

From our perspective, the Monopoly-problem for Super-apps exists out of two main issues. One, the Super-apps can harvest so much data that this can be used to gain a monopoly. Two, when they have that position they will prioritize the needs of shareholders above those of the other stakeholders. Sometimes those needs are aligned, sometimes they’re not. 

While the benefits of an everything app are unmistakable, the downsides are harming us. Over the past few years we've been searching for and experimenting with various solutions and building out an understanding of what it would look like to build a technology platform that doesn't suffer from these downsides. We think we found the solution. 

For us, the answer to both problems starts with the way things are organized. The first solution focuses on the values and purpose, the latter involves the structure and the way the organization is governed. 

Preventing monopolistic business practices 

When we founded Memri we did so with a clear philosophy, for us it is vital that our users can take back control of their data instead of them being the product themselves. To do so we’ve made privacy one of our core values. Any data that users add or generate should remain private at all times. It should not be possible for anyone to extract the data without permission, and therefore it can’t be sold to the highest bidder. These values are in our DNA, they’re in our articles of association and we’re using them in any decision we make. 

Saying that everything is private and safe is one thing, actually being it is another. That’s why we’ve chosen to be an open source project and have developed our code publicly for anyone to see and check. You guessed it, transparency is one of our other core values. 

When you use Memri a Personal Online Data-storage (POD) is created. This POD is basically your own server only you have access to. The information stored there is encrypted and can only be accessed using a unique cryptographic key that only you have. Meaning that if someone unplugs the server, takes it home and tries to access it, they won’t be able to see or understand any of the information stored on the POD. 

By building our product like this we make sure that nobody else can access the data you store within Memri. That also means that no organization, including Memri, can access your data without you approving. This way it won’t be possible for us or any other company to use that information and become a monopolist. With this freedom people become the authority to decide whether the product they are using is best for them or whether they want to use a different one. 

Memri Coop: Stakeholders first instead of Shareholders first

Being an organization with clear values and a purpose is great, but does not automatically solve the second part of the monopoly-problem, the problem of shareholders needs being prioritized over that of others. Our commitment is real.  That’s why we’ve chosen to adopt a legal structure that makes sure the power to make these decisions remains with the people that are affected by it. In our case, the employees, contributors and consumers. 

This allows all those stakeholders to have an influence on the decisions made in the organization. Even though Memri won’t be able to acquire a monopoly by exploiting information shared by its users, it can still become a tool that people can’t do without anymore. An end-state that from a capitalist point of view would be a dream scenario.  If your users can’t do without your product, you can charge whatever you want! That dream for some, is a nightmare for us. 

That’s why we made sure that the interests of all stakeholders, including that of customers, are taken into account during decision making. Making it impossible for Memri to start charging unrealistic prices to its customers. 

To do so we created an empowering legal structure.  At its core lies a Dutch Multi-Stakeholder-Cooperative, Memri Coop. The Cooperative is monitored by a Foundation that makes sure the Cooperative does not turn into a monopolist. The Cooperative itself, acts as a holding company and owns the only regular shares of Memri B.V. (the Dutch equivalent of an Ltd) This allows the Cooperative to select the board, choose the CEO and make decisions on other predefined topics in the B.V. 

By adopting this legal structure we make sure that we stay true to our values, that our stakeholders, Employees, Contributors and Customers, can influence the way things go, and at the same time we’re able to attract external investors as well. Here’s how it works. 

The Foundation; Monitoring the Cooperative

The foundation will be governed by a group of people that makes sure that none of the values formulated by Memri Cooperative are broken. The Foundation can’t make decisions, but can only block certain things from happening within MemriCooperative. (E.g. The Coop votes to sell data to the highest bidder? The Foundation can prevent that from happening)

The structure is inspired by the Steward-Ownership model created by the Purpose Foundation (pdf), in our case that means that specific topics the foundation can veto have been hard-coded in the article of association of the Cooperative. 

Why is the Foundation needed? We wanted to find a balance between democratizing our structure, but at the same time prevent a group of people from ignoring the core values, such as privacy and transparency, and only care for their own interests. The Foundation adds that layer of security. 

The Multi-Stakeholder Cooperative: Memri Coop 

The cooperative represents three groups: 

  • Employees of Memri B.V (Worker-Owners)
  • Customers 
  • Contributors 

Memri Coop has the responsibility to care for the interests of all these three groups. It does so by facilitating democratic processes in which the different stakeholders can voice their needs, and influence decisions made by the cooperative. The simplest way is to choose a board of the Cooperative. When the Cooperative grows, a membership council will be installed and they will take a more influential role in the organization.

Those decisions are connected to another core responsibility of Memri Coop: Acting as a holding entity for Memri B.V. 

Memri Coop is the only shareholder of a regular share, meaning they are the only one that has voting power in Memri B.V. Memri Coop can therefore make key decisions such as firing & hiring the CEO, changing board of directors at Memri B.V or making changes to the legal structure of Memri B.V. Having a vote in Memri Coop means you have a way to influence what’s going on in Memri B.V. 

Memri B.V: The business

Memri B.V is the entity in which the business is done. It’s the entity in which investors invest and where shareholders exist. We realized early on that it would be complicated to find investors that were willing to invest in a cooperative. Investing in such an unknown legal form was something that made most investors uncomfortable, while the principles we had were attractive enough to spark interest.

What we wanted to prevent was building another company with a structure that would encourage extracting a huge amount of money and distributing it to a small set of shareholders. That’s why we created two types of shares. Regular Shares & Non-Voting Limited shares. 

Shares Structure in Memri B.V.

Regular shares, as the name suggests, are quite standard. The holder has voting rights and can receive dividends over the shares they hold. Memri Coop is the only one holding a Regular Shares. 

Non-Voting Limited shares are held by both investors and past or current members of Memri B.V. By doing so we make sure both groups have aligned incentives. The holders of these Non-voting limited shares do not have any voting rights, and have a limited amount of profits they can receive for each share they hold. Once that limit is reached, that specific share will dissolve. For investors the limit is based on an x amount of their investment, and for employees the x amount is fixed. 

When more and more shares start to dissolve, several things will happen. The dividends will be shared amongst a smaller group, meaning that those that still hold non-voting shares will reach their limit faster. Once all Non-Voting Limited shares are dissolved, the dividends flow to Memri Coop and its stakeholders. 

By designing the shares structure as such we feel that we managed to make it interesting enough for investors to get a return, and at the same time make sure that the shareholders are not the only ones benefiting from the success of the company. 

Did We Solve The Monopoly Problem?

Currently Memri is far away from acquiring any sort of Monopoly position, and it might be something we never need to deal with at all. Nevertheless, we’re convinced that not thinking about it in the early stages of your company will make it hard, or even impossible to adjust course and do something other than optimizing for the shareholders interests only. 

While creating our legal structure we learned and were inspired by existing solutions out there. Some relatively new, some that have been around for centuries, and many in between.
We make sure that the data people store on their POD isn’t accessible by anyone else so that nobody can use that information for purposes that don't align with them individually and their community. It truly remains their data, and no business can use it to gain a competitive advantage over someone else. 

On top of that we created a governing structure that gives different stakeholders a way to influence decisions and a structure that over time optimizes for a distribution of wealth amongst all its stakeholders. For us this is the ultimate goal. We believe this can change the world we live in. 

So if you’re a founder, or if you’re thinking about how to restructure your organization, take into account the things we shared above or reach out to join us in our endeavor to have a positive impact on the world. 

If  you want to learn more, try it yourself, share cool ideas, or simply receive updates when we have them: Sign-up to our newsletter, join the waitlist for early access or share your ideas and thoughts in our Discord!

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