Maximizing Profitability: Understanding High vs. Low-Quality Revenue in Crypto Projects
In the world of investing, we look at businesses and the revenue they generate now and in the future. Whether you're looking at companies on the stock market or small crypto altcoin startups, analyzing revenue is an incredible insight you should have when investing.
This morning, I was listening to the BG2 podcast - it's a new podcast with Bill Gurley and Brad Gerstner. If you don't know them, they've both been featured on the All-In Podcast and are well known VCs/Investors in the Startup World.
One of the first topics they talked about was the recent string of massive acquisitions in the LLM (Large Language Model) space, more popularly known as AI Models.
Microsoft invested $1B in 2019 to OpenAI. In 2023, they then announced a $10B Investment. The exact details are private but a few things are known:
- this is a multi-year deal with funding to be released in tranches over time
- part of the deal is that it's not $10B in cash. Some of this are non-cash benefits like cloud compute credits
As you can imagine, a company like OpenAI will need lots of cloud compute. These credits are valuable to OpenAI and they also add revenue to Microsoft's cash flow statement but is that high quality or low quality revenue?
Bill Gurley argues in the podcast I mentioned above that this is low quality revenue. It is not real cash flow for Microsoft.
He uses an analogy and says imagine a startup that generates 100% of their "revenue" via cloud compute credits. This startup will put all this revenue on their balance sheet but their effective cash flow is $0. Is this a healthy business? One that you'd want to sink your teeth into?
Cash Flow in Crypto
The timing of this was quite funny since I had just seen a Tweet this morning by a crypto project that I won't name. The project is NFT / Blockchain Gaming related.
They listed out their sources of cash flow and I'll summarize them with broad strokes:
- Token sales
- NFT primary minting sales
- NFT Secondary market sales
You get the picture? Their only source of revenue is token sales. There's no business model there. That's straight up hopium.
When you look around to most crypto projects (hell, even a lot of startups are like this too), they don't have a proper business model now or even in the future. They're entirely reliant on hype cycles and getting investors in later to pump their bags.
If you have been following LEO for any measurable amount of time, then you'll know we have an intense focus on generating real revenues. I would define these as high-quality revenue sources:
These forms of revenue bring in tangible outside capital into the LEO Token Economy. The ad revenue is paid by Web2 (Google, Currently). The Premium Subs are paid by users.
The last two are under development currently - The Promotions are paid by creators. LeoSubscriptions are paid by users to their favorite creators (like Substack).
These sources of revenue are high quality - using BG's terminology - because they bring in actual cash flow. They are not credits on the balance sheet but actual $$ flowing into the economy on a monthly basis.
Right now, these forms of revenue are relatively small. Ad Revenue is about $1k to $1500 per month. Premium is $2k per month. Promotions and LeoSubscriptions aren't released yet.
The key is that we aren't sitting here and saying that the LEO business model revolves on token sales.
What is the Business Model and is it Sustainable?
This is a good question to ask whenever you look at any startup. For LEO, our business model is to grow our Monthly Active Userbase (MAUs) and generate revenue through ads, premium subscribers, promotion by creators and LeoSubscriptions from creators to users.
In short: grow our userbase and monetize the platform.
When you look around to other crypto projects you're familiar with, ask yourself the above question. Do you find that they have solid business models now and in the future? Have they explicitly laid out that business model and an actionable plan to achieve profitability?
1,000 Premiums
Now, this whole conversation was even more interesting me in the current state of LEO. You have likely seen a push I've made with the LEO Team and our Community to grow the # of Premium Subscribers.
We recently added a ton of new features and also changed @leo.voter's (2.4M HIVE POWER) curation policy to favor Premium Subscribers.
These changes along with the push is all aimed at driving up the amount of premium subs that INLEO has. It's time to fully monetize the userbase we currently have and set ourselves up for profitability. This will lead us to being able to grow revenues that push capital into the LEO Token while also focusing on growing our MAUs (currently ~1,600 MAUs and trending quickly toward 2,000).
As we continue to grow the user base, our monetization of the platform grows. More users = more page views = more ad revenue. More users = more potential premium subscribers. More users = more creators to promote their content. More users = more potential subscribers to authors via LeoSubscriptions.
In my opinion, this is a very solid business model. What proof do I have in saying that? Look at any major Web2 platform like Facebook or X: how have they monetized themselves? Primarily ad revenue. More recently, they started offering Premium services.
The business model is identical to Web2 and that's one major reason why I believe it will work. We've taken this business model and "Web3-ified" it by making 100% of the revenue flow back into the LEO Token itself.
So the beneficiary of the growing revenue is the LEO Token Economy.
As the LEO Token Economy grows (LEO's Market Cap), the rewards in $$ terms on Threads & Posts grows too. This leads to more users getting interested and active for more rewards.
This leads to more growth in the various revenue streams which then brings more cash flow to the token.
The network effects are very interesting, but they'll take time to play out. None of this has been easy to build up to this point and the future won't be easy either. To build a real business is difficult. To build a real business in crypto is seemingly insurmountable.
But we've got something special right now. Premium and Ad Revenue are bringing cash into the LEO Token on a monthly basis. Now we just need to scale up.
Ready to Earn More HIVE Rewards?
Going Premium on INLEO is the #1 way to grow your Hive account and earn more rewards.
When you're premium, you get access to exclusive features:
Premium
- Orange checkmark next to your username- More Curation on Your Blog Posts by @leo.voter- Priority in "For You" feeds- Edit threads after you post them- Add Bold, Italic and other "Markdown Styling" to your threads- Publish longer threads- Themes- Bookmark Folders
Coming Soon
- Advanced User Dashboard
- Auto-AI summarize your Long-Form Posts into Threadstorms
- Access to LeoAI Chatbot
- NFT profile picture (PFP)
- Pinned threads
- Favorites menu
The recent changes to @leo.voter also means that you get massive upvotes on your blog posts that are published from inleo.io.
If you want to increase your earnings on Hive and enjoy some exclusive features, I highly recommend trying Premium for 1 month. If you're not happy with it, DM/Tag me anywhere after a month and let me know that you weren't satisfied with Premium and I will personally refund your subscription back to you.
As I mentioned in this blog post, INLEO is aiming to build a real, sustainable business model that drives revenue to LEO every single month. Growing to 1,000 Premium Subscribers will radically change the face of the LEO Token Economy and our goal is to get there by March 31st, 2024.
If you're ready to go Premium on this 30-day money-back guarantee, sign up today and then drop a comment below this blog post letting me know you went premium. I'm keeping everyone who does this bookmarked on my browser so I can keep an eye on your experience and look for ways to improve it.
Let's get it, 🦁s
Posted Using InLeo Alpha
Is @leo.voter going to upvote non-English content? If so, what are the criteria?
there is no language bar. it supports quality content
Great :) Thanks for the reply :)
👍 👍 👍 👍 👍
GJ, easy to understand on nice quality
Thanks for this update
I have always thought that good things are worth imitating at first but then improve them latter on, adding some web2 business models to INLEO like adds and subscription is no problem and yes tokens themself is just hopium, having a yearly plan could also help retain some users, more data of how the account is performing a dash with all necessary metrics to an author, all the bells and whistles that have been mention before, this is why I got into Hive because other than just been a token you can trade its a working platform with more dapps on top to keep growing, specially Inleo with all this development in the last year, keep on going soon we will get to that 1k premium users
I have enjoyed the shake up of my posting routine and the extra incentive to leverage Leo for both short and long form content. On the networking side alone, all of those orange checkmarks are people looking for opportunity, to support our favourite blockchain and build a stake they know will be valuable. Pretty good company here if you ask me!
Is there info published or on the Discord server on how the @leo.voter prioritizes and votes?
I would happily consider the 10 HBD as a donation to the platform but curious as to whether it is voting long posts or threads? How it decides who gets the vote etc.
Also, with the first round of early adopters, what kind of content are you hoping people will post in order to bring more attention and traction for the platform?
Hey Zeke! Love to hear that you're enjoying it!
I'm going to post a snippet from this blog post I wrote last week that talks more about Premium. It will answer your questions about @leo.voter:
TLDR;
Create great content and publish it from the inleo.io UI. If you're not premium, we still curate but if you are premium, then you'll get a much larger voting % when @leo.voter curates you
We actually track all the rewards of the Premium users each month using SQL and ensure that each one earns 3-5x (or more) of the cost of Premium in upvotes. BUT the big caveat is content - if you were to post spam or bad content, we won't curate it since it doesn't meet the minimum content quality standards.
Content quality matters to us. So if you post quality stuff AND are premium, you'll earn a lot :)
Oh I am a little bit of a stickler about my content to the point I will not post if I feel it is not interesting to a wide audience. It has turned my blog into a bit long-content heavy. So the short stuff is a mental exercise to me as I strive to not only post and engage, I wanna make sure I am putting up what will help the platform. Not worried about the return that much but was curious as to how it worked.
How awesome is it that the big man himself steps in to make sure the little people are connected and in the know!?
Hey Zeke! Love to hear that you're enjoying it!
I'm going to post a snippet from this blog post I wrote last week that talks more about Premium. It will answer your questions about @leo.voter:
TLDR;
Create great content and publish it from the inleo.io UI. If you're not premium, we still curate but if you are premium, then you'll get a much larger voting % when @leo.voter curates you
We actually track all the rewards of the Premium users each month using SQL and ensure that each one earns 3-5x (or more) of the cost of Premium in upvotes. BUT the big caveat is content - if you were to post spam or bad content, we won't curate it since it doesn't meet the minimum content quality standards.
Content quality matters to us. So if you post quality stuff AND are premium, you'll earn a lot :)
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STOPCheck out our last posts:
Starting with a $1 billion investment in 2019, Microsoft made a big investment in OpenAI. In 2023, they made another $10 billion investment papa's pizzeria. The specifics of the deal are kept secret, but it is known that the investment will last for more than one year and that the money will be sent over time in payments.
Good day!
I joined premium. I will be very grateful for support and help (recommendations on the correctness of actions).
Thank you!