Nadia Asparouhova

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Equity for third-party developers

I’ve been mulling on Handshake, a new DNS service that recently announced their intent to give away 70% of their value to developers.

From their paper (emphasis mine):

The intent behind Handshake is to allocate a representative portion of the resources to the stakeholders which may be potentially contributive towards development and adoption

The Handshake mechanism is designed to create a competitive game of asset ownership distribute [sic] more to FOSS developers, and perhaps all of humanity. Much as capitalism creates a competitive game between participants which competitive self-interest reduces the price of goods in non-monopolistic commodity environments, the handshake [sic] mechanism is a project exploring a similar concurrent game to maximize ownership for FOSS developers and the public.

Far from altruistic, by giving away ownership to incentivize development, Handshake seems like a better version of the “developer funds” offered by platforms like Slack, Facebook, or Cloudflare.

In the classic developer fund model, a company invests in developers building products on their platform. Usually, funding is structured as an equity investment into the developer’s company, much like venture capital.

These funds are meant to encourage developers to build third-party apps and integrations on their platform. However, the reward favors the house. Developers who build popular apps on a platform arguably increase the company’s valuation. In exchange for this service, the platform takes equity in their company. (The gall!)

Handshake has the same goal as a developer fund. They’re giving away their coin supply because they want developers to use their service. But instead of taking value from the developer, they reward them with ownership in Handshake. In hindsight, this seems like an obviously better alignment between platform and developers. [1]

I could see this being beneficial not just for developers, but for the platform itself. Equity awards are likely simpler and cheaper than acquiring popular apps and shutting them down. And rewarding the most popular third-party developers with small amounts of equity could take the pain out of unfavorable policy changes that platforms inevitably must make later down the line.

Say you’re a productivity app in Apple’s App Store that’s been around for 10 years. You’re not really the best app anymore, but a comfortable spot in the search results ensures a steady stream of paid downloads.

Apple makes changes to its search algorithm to help surface new apps and give other developers a chance at discovery. This has the effect of tanking your app’s downloads, leading to the inevitable David-and-Goliath news story about how Apple ruins developers’ lives.

However, if you’d received Apple stock for your app’s significant early contributions to making the App Store popular, you’d probably be less upset about these changes. This is not unlike an early employee whose generalist skills become less useful as the company grows. They can go on to do other things, while also feeling adequately compensated for the early work they put in.

Platform-developer relationships today resemble a political battle more than a dance. Twitter is an example of a platform with a long, contentious relationship with its third-party developers, historically limiting access to its APIs and making major changes that threaten the future of apps in its ecosystem. Last week, Rob Johnson, a product director at Twitter, finally announced their decision to officially end support for legacy APIs, “acknowledging that some aspects of these [3rd party] clients will be degraded as a result”.

It’d be great if Twitter had been able to reward the apps that made Twitter so popular in the early days, while also doing what Twitter needed to do to innovate. Instead, app developers work with platforms suspiciously, giving them the side-eye instead of being excited to build cool things with it.

I don’t see developer equity as a worse option for companies, but rather a way to better align incentive and reward structures, treating developers as collaborators with a stake in the company’s future instead of pure value extraction. It seems both sides should be able to get what they want.

Thanks to Feross for an email conversation that nudged this post.

[1] Kin’s Developer Program seems to take this approach, offering $60K + 400M Kin for building on their ecosystem.