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What is the underlying value of Profit Points?

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I got this question by email and I will answer it here so others can see it.

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One thing I don't understand is where the money comes from.  Someone creates a task and give it a value, someone does the work and you magic up Profit Points out of thin air to pay them, and then you buy the Profit Points back off them for dollars?  Or how does it work?

Once the exchange is up, who do you anticipate wanting to buy Profit Points?  What value do they have that would make someone want to exchange Bitcoins for them?  Do you guarantee to always buy them at some minimum price?
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The underlying value of Profit Points is future profits of Open-Org.com. This is conceptually very similar to buying a stock in a company or actually having a dollar in your hand (even though we never think about it). The master himself, Warren Buffet, explains this here. The creation of Profit Points out of thin air is conceptually very similar to companies issuing stocks. When companies issue stocks, they usually create new stocks out of thin air, sell them to investors and get cash in return. The investors who did not buy any of the newly issued shares will own a smaller percentage of a company with more cash (higher value). This means that the value of an individual stock is usually practically unaffected by the issuing of new shares.

As for Profit Points we issue (create them out of thin air) new Profit Points in return for a bit of work. Assuming that the work that was done is for the benefit of Open-org.com, the work will lead to increased future profits. This means that the value of one Profit Point should increase over time if the new Profit Points that are issued lead to significantly more profits than what they cost. Of course, over time the holder of a Profit Point will get a smaller percentage of the profits, but if the profits will be higher, the amount of cash gotten for the Profit Point will increase over time. As they say, a large piece of a small cake might be smaller than a small piece of a large cake.

What will the future profits be?
No one can answer this. But the reason why I believe in Open-Org.com is because I believe that we can create an organization which will be superior to existing ones for the following reasons:
  • Flatter hierarchy - The aim of Open-Org.com is to create a hierarchy, which is as flat as the one of the Stackoverflow "organization". They currently have 12 moderators to lead 1,1 million contributors. That's 91667 contributors per moderator, compare that to the usual 10-20 employees per leader in a traditional company. It is not only a reduction of unnecessary leaders, but leaders also block good ideas and initiatives from getting implemented, protect their "kingdoms", have incentives to work against other parts of the organization to gain a larger share of the resources etc.
  • Better access to competence - A traditional company, who understands that they lack some competence (I have seen many, which do not understand this) will usually either hire new employees or consultants. Both of these options are very expensive if the task requiring the competence is small. With the transparency of Open-Org.com we will have an order of magnitude more eyes on the same problems per dollar spent. 
  • Better contributors - The contributors will have a higher level of freedom than in a traditional company, we can work when we want, on what we want, and even work for a traditional company at the same time. Higher levels of freedom will attract better contributors.
  • More and better feedback - The contributors will eventually be given feedback from each other (like on StackExchange) and not from a leader who maybe does not even know how to code. I believe that feedback is the single most important factor to motivate someone. Feedback should be fast, accurate, and mostly positive.
  • Geographically distributed organization - Our contributors will come from the whole world, which makes it possible for us to access competence and opportunities, which only exist in relatively isolated places.

I expect our first profits to come from our Paid Question & Answer website, but I already have two specific ideas about other websites we could build. The criteria for the first services are that they should not take too long to develop, so we can start making a profit as soon as possible.

I believe that once a product starts making a small profit, the price of Profit Points will jump.

Buying guarantee
For a while in the beginning, I will buy Profit Points for a low price, this price will be increasing every day and is posted here. At some point I expect to stop making such a guarantee (though I will probably do it anyway). If I choose to stop this guarantee, I will notify all holders of Profit Points by email and on this forum, and give everyone at least two weeks to sell their Profit Points. I will stop my guarantee of buying Profit Points if the value of Profit Points not held my myself ever got close to our cash reserves. At the moment, our cash reserves are many orders of magnitude larger than the price of all Profit Points.

 
Edited April 12, 2012 7:23 pm AZOST
Retagged
asked April 12, 2012 3:17 pm AZOST

 

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Interesting stuff.  Thanks for the answer.

I'm wondering how to assign a value in Profit Points for any new task I create on the forum.

I see a potential for abuse here.  If I have no interest in open-org and just want quick money, I can post a simple task with a very high Profit Point reward and complete the task myself (using a different username if necessary) and quickly cash out.  Is there any kind of review process to prevent this from happening?
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I have added the following section to the "sticky" post on this forum:
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Users with more than 5000 Profit Points can create a new task and set the value to 1000 Profit Points or less. If the task is more worth, please set the value to "to be defined" and a contributor with more Profit Points can set define the task. Please note that we try to keep the tasks small here, so that they can be solved in parallel and so that no one will work a lot on a huge task just to see that there has been a misunderstanding and that they are not solving the problem.
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If you are unsure about setting the value on a task, then just leave it open and I will set it. I expect us to get a feeling about the value (in Profit Points) for tasks over time.

There is certainly lots of potential for abuse. Generally I believe in late punishment of abuse, so that if it is detected, we will put someone under surveillance to get further evidence and let time pass. Once they have sent a lot of time abusing the system, the punishment will be sudden and severe, possibly confiscating all Profit Points. Evidence must be very clear for this to happen, though.
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Edited April 12, 2012 7:32 pm AZOST
Fixed typos
I emailed about having corrected typos in your first post. It turns out there's no history kept of edits, and you were interested to know what the typos were. I don't remember, but it was lots of small things like "can set define the task" in the text you just wrote here. You only want one of "set" and "define"; they're both verbs in this context.
Also, 'sudden' and 'quick' are much the same thing. Did you mean 'sudden and severe'?
Thanks a lot. I have updated the texts

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