Eight months after ChangeTip launched, Emin Gün Sirer wished it dead. He also asked us all to celebrate its demise when it happened.
Sirer is an IT security expert, commentator and professor at Cornell University. In a blog post titled “ChangeTip Must Die” published in December 2014, Sirer stated that the death of ChangeTip was not only eminent but also desirable. He wrote:
“I mean it both as a statement of fact and a wish. As in, the service [ChangeTip] is plaintively destined to die if it honestly operates the way it advertises. And we should rejoice when this happens, because we’d all be better off without it, for it is strictly an information leak, a liability and a security hole.”
In November 2016, two years later, the bitcoin micro-tipping platform—which facilitated users on Twitter, Reddit and other social networking sites to use bits of bitcoin to show appreciation for content—announced it was shutting down. This was six months after the peer-to-peer renting startup Airbnb acquired it. It turned out Airbnb was more interested in ChangeTip’s staff than in its business.
ChangeTip was not the only bitcoin micro-tipping platform that closed shop in 2016. Zapchain, a social media platform where content creators received tips from readers, also found it hard to continue operating amid shrinking interest from the bitcoin community. In late August 2016, it discontinued its services.
After signing a partnership with Coinbase in November 2015 to allow users to sell and buy bitcoins from the platform, Zapchain appeared to be destined for better days. Even artists took note of it. A successful rapper from Brooklyn, New York, named Talib Kweli signed up and started selling his latest album on the platform.
ChangeTip and Zapchain were seen by some as killer apps that could bring Bitcoin to the mainstream. What went wrong? Why didn’t they succeed?
Daniel Modell is a technology enthusiast who is exploring how bitcoin can be used for charitable causes and how it can help the unbanked in the developing world. ChangeTip could have worked better, he says, if people could have used it without having to create an account.
He believes the service failed because the process of using it was too complex. The idea of replacing ad-supported content and paywalls with voluntary, almost frictionless tipping is a good one, he says, but requiring both the recipient and the sender to have an account with the company added a layer of complexity. Modell wrote:
“From the consumer perspective, getting free things is still preferred to paying for [them]. Watching a video or interstitial ad can be annoying, but it is still less annoying than paying [tips] for something. Because it doesn’t require any extra work.”
Chris Ellis, the founder of ProTip, sees it differently. ProTip is an open-source wallet code you install on your browser and it leaves tips on websites you visit that have bitcoin addresses. He thinks ChangeTip failed because of bad entrepreneurialism.
According to Ellis, the business model didn’t add up. With the company charging fees on each transaction, there wasn’t room for substantial growth in revenue. “If people are only sending a few pennies per transaction,” he explained, “it doesn’t make any sense. You are not going to make any money.”
Ellis’s point of view supports Sirer’s original opinion, in which Sirer also warned that the business model of ChangeTip wouldn’t allow it to make enough money to sustain operations and growth. Sirer wrote:
“Lack of a revenue stream is an inescapable fact. The math portends an unsustainable cash flow; they [ChangeTip] will ultimately have to fold or else change their business model.”
Ellis said he believes that investors also exacerbated the revenue problem. “Because they were centralized services that received venture capital funding, they were under increasing pressure to grow the number of users,” he explained. “And bitcoin wasn’t popular enough for that. Most people either didn’t know what bitcoin was or didn’t want to use a centralized service.”
Ellis points out that the overhead costs of the startups might have also played a role in their demise. Staff salary, office space rent and other bills could have been too high for their revenue streams.
Indeed, Panagiotis Pollis, founder of Bitfortip—another micro-tipping startup, which enables users to tip others for finding information—agrees that the running cost was a major factor in the failures of ChangeTip and Zapchain. He said that the need to manage costs in this kind of business is one of the main lessons we learned from the two failed attempts. Pollis:
“It’s certain that others will try too to replicate it. If they manage to solve the running costs they will certainly be on their way to success.”
Perhaps the most interesting reason why ChangeTip failed is explained in the article “Why small payments won’t save publishers,” by Clay Shirky, an American writer and consultant on the economic and social effects of the Internet. He wrote it in 2006, three years before Satoshi Nakamoto published the bitcoin white paper.
Shirky states that online users “hate” small payments. When given a choice, they prefer alternatives such as subscriptions. Furthermore, he points out that users don’t see what problem micropayments solve for them.
“Such systems [micropayment systems] solve no problem the user has, and offer no service we [readers] want. As a result, conversations about small payments take place entirely among content providers, never involving us, the people who will ostensibly be funding these transactions.”
Everyone we interviewed for this article disagreed with that notion, however. Their general consensus was that the success or failure of bitcoin micro-tipping services comes down to the numbers. If more people adopt bitcoin, more users will find it useful to pay for content online with bitcoin. Businesses based on micro-tipping could survive, if their models were sound.