Sunday, June 8, 2008

The Ultimatum Game: Can community driven services make money and survive?

This post was inspired by Clay Shirky's new book - Here Comes Everybody.

The Ultimatum Game is a famous social experiment. Two people are involved. One is given ten dollars and told to split it between the two participants in any way he wants. The second person can decide to accept his share or deny the deal altogether - neither one gets anything. Rationally, the second person should accept as little as ten cents. However, unless at least $2 is offered, the second participant usually rejects the deal and no one receives anything. Why? Humans have a strong emotional instinct for fairness. They would rather suffer than to let someone else make out unfairly, in their eyes.

Clay Shirky uses the example of AOL Community Leaders, basically volunteer guides. These people were happy to help other AOLers enter the world of AOL and the Internet. Happy at least until AOL's valuation rose into the 10s of billions of dollars. Community Leaders felt they a big part of why AOL succeeded. Most dropped out. Why work for free just to make AOL more money?

So, what about Wikipedia? What happens if they start to monetize the site and take in a few hundred million dollars per year? How will the volunteer contributors and editors feel? Will they continue to support the Wikipedia with as much fervor as they do now? The Ultimatum Game suggests they likely won't. Which would destroy the value of Wikipedia.

What about other user-driven sites such as Digg and Craigslist? What about open-source projects such as SugarCRM or MySQL now that Sun has purchased them? They had best tread carefully or risk losing their franchise.

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