NFT taxes: Does Sec. 170(e) apply to NFT donations? – Protocol

Tax season is here, but NFT tax guidance isn’t. That means major headaches for anyone who bought, sold or donated an NFT.
NFT taxes remain blurry to many, including accountants.
2021 was the year NFTs became mainstream. And that means as Tax Day on April 18 looms, all those new NFT buyers may find themselves dealing with thorny questions they’ve never faced before: How exactly does one file taxes on NFT sales? Or what if I donated an NFT and want to take a write-off? (Don’t take a shot every time NFT appears in this story; you won’t survive. Or maybe that’s the only way you’ll make it to April 18. We don’t judge.)
The IRS first offered guidance on virtual currency transactions in 2014. That’s offered some basis for interpreting the rules around NFTs, but there are many unanswered questions. As a result, NFT taxes remain blurry to many, including accountants.

While the Internal Revenue Service hasn’t issued specific tax guidance for NFTs, the general consensus is that NFTs are taxed as collectibles. For NFT creators, the income generated by selling one would be taxed as ordinary income, with a rate varying between 10% to 37%, in addition to a 15.3% rate for self-employment taxes.

For traders and investors, taxes on NFTs are broadly similar to buying and selling stocks — albeit at the significantly higher rate for collectibles. Since the NFT craze only really started in August, most new traders will only have short-term gains if they made a profit, which are taxed as ordinary income. Early adopters could qualify for long-term gains on NFTs they held for more than a year, which would be taxed at a 28% rate for collectibles. High-income individuals might also pay a 3.8% net investment income tax. Losses on NFTs could offset other capital gains — but not if they’re held for personal use. What does that mean for NFTs? It’s hard to say without official IRS guidance, but you might have a problem if you just bought that Bored Ape to show it off on your Twitter profile.
Tax guidance seems to get even more complicated for those who want to give an NFT to charity and take a write-off. Donating an NFT without knowing exactly what the organization you donated to is going to do with it in the next few years may very well backfire.
When NFTs are donated to a 501(c)(3) charity, they’re usually eligible for tax deductions. Charles Kolstad, a partner at international law firm Withers, said that issues arise when the recipient of the NFT donation isn’t clear on how they’re going to use it due to a “related use” provision in IRC 170(e) of the tax code.
“Typically, when someone gives a piece of real art to a hospital, we make sure the hospital has that piece of art in the hallway or in waiting rooms so that it’s using it in its overall business,” Kolstad told Protocol.
He added that in addition to the requirement to demonstrate a related business use, if the recipient of an NFT sells it within three years of the gift, then the donor will have to report some of the resulting profit as income and therefore pay income tax. That may be part of why selling or auctioning off NFTs, with the cash proceeds donated to charity, seems to be more popular than donating NFTs directly.

Austin Woodward, CEO of crypto tax accounting firm TaxBit, told Protocol that while he thinks traditional tax guidance for collectibles provides a fair amount of direction for how to treat the taxation of NFTs, there are plenty of nuances specific to NFTs that haven’t been addressed, such as minting fees, gas fees and royalties.
The IRS has yet to issue official guidance on whether or how transaction fees in digital assets factor into the cost basis of an asset. Much of the burden in the tax filing process still falls on the taxpayer, giving rise to third-party services such as TaxBit and CoinTracker.
But Woodward is optimistic that the IRS will issue guidance down the line.
“They don’t want to kill digital assets, they don’t want to kill crypto. This is an asset class that they just want people to be tax-compliant,” Woodward said. “I do think we’re going to see more and more guidance around the corner.”
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SaaS companies are helping lower cloud subscription costs, as long as you subscribe to their services.
Although it might seem counterintuitive, the best way to manage cloud spending could be spending money on spending control tools.
Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She’s based in Los Angeles and can be reached at [email protected]
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The rise of the cloud made businesses faster, quicker and more agile. But it created a new problem: Usage-based billing models at cloud providers like Amazon AWS, Microsoft Azure and Google Cloud Platform have made it easier than ever for enterprises to lose control of computing costs.
There’s an underlying assumption that moving from on-premises servers to the cloud will help companies save money, said ServiceNow IT asset manager German Bertot. But that’s not always the case. “The promise is there, and it is great. But companies are having a hard time realizing those savings,” he said.
“People are very surprised at how much money cloud computing is costing [them] over traditional computing,” said David Linthicum, Deloitte’s cloud strategy leader. While some of that is just the price of access to computing power, the majority of it is due to inefficiently managing spending, he said.
That’s why SaaS companies like Flexera, Apptio and ServiceNow are helping companies lower their cloud subscription costs — as long as you subscribe to their services, which, of course, aren’t free.

The reason cloud costs can balloon so quickly is that managing expenses associated with compute power is a lot more complicated in the cloud than it was when companies bought and managed their own servers.
With data centers, it was common for CIOs to only purchase new technology every few years or so, said Flexera Senior Director Brian Adler. In response, IT employees would ask for as many resources as they could get, especially because most companies provisioned more computing power than they needed at the time. “But that was the way to do it; that was the behavior that we had because I was hoping I would grow into it,” said Adler.
Because it took such a long time to purchase and deploy infrastructure resources when operating on-premises data centers, this was fairly common behavior, said Forrester Senior Analyst Tracy Woo. The difference with the cloud is that provisioning “is something that you can demand and get online within minutes.”
However, when many customers first moved from on-premises operations to the cloud, they often brought the old data center mentality along with them. Instead of scaling up resources as needed, for example, many companies still feel the need to over-provision up-front. But with the cloud, “I don’t buy the peak, I can rent the peak. So that’s a new behavior that folks need to learn,” said Adler.
At other times, because there was no reason to turn off applications in data centers, customers would leave virtual machines in the cloud running. In data centers “it didn’t matter if I turned off my virtual machine, the physical host was still going to run and chew up money; there was no benefit,” said Adler. But in the cloud, if you leave things running, you have to pay.
The other aspect that makes managing cloud costs difficult is that IT spending isn’t as centralized as it used to be.
For one, the ease of getting started on the cloud means it’s a lot easier to subscribe, deploy and then rack up large bills. “You don’t need to get a purchase order out to your hardware provider, bring them in, pay for it up-front, get the hardware into your data center, install it and so on,” said Bertot. In fact, nearly any employee with a corporate credit card can sign up for a SaaS application and pay for a service.

The fact that most cloud providers bill based on usage also means that it’s fairly easy to drive up costs if companies aren’t paying attention. Even gaining visibility into where spending is coming from can be a challenge, because a company could have hundreds of engineers using resources, but only get one bill. And those bills are so complicated that no one could look at all that data and determine if they’re being overcharged, said Adler, who has seen Flexera customers with 12 million rows of information in a single monthly bill.
That’s why software is absolutely required to truly understand cloud spend at the enterprise level, said Apptio vice president Eugene Khvostov. “By day two of the month, you’re getting so much data that you can’t possibly run it through without any software,” he said. “So you have to either build or buy specialized software.”
Although it might seem counterintuitive, the best way to manage cloud spending could be spending money on spending-control tools. That’s why the major cloud providers AWS, Azure and Google as well as SaaS companies like Flexera, Apptio and ServiceNow all offer services to help companies cut their cloud costs.
Although many of these services require purchasing yet another subscription, according to industry practitioners and analysts, the savings can be massive.
How do third-party software providers like Flexera, Apptio or ServiceNow actually help lower cloud costs? There are many different tactics, from lowering subscription tiers based on usage to turning off machines when they’re not in use or reserving instances in advance.
On the SaaS application end, understanding which users are consuming licenses, and how much they’re using, can help determine which subscription tier to purchase or who to give licenses to. If a user is consuming a license but not using it, “are there ways for us to analyze the usage patterns and suggest a lower level subscription … and in the process achieve savings?” said Bertot.

Other times savings can come from rationalizing SaaS applications. “How many different communications platforms do I have? Do I have Zoom and GoToMeeting and Teams and Citrix? What if I consolidate those?” said Khvostov.
At Deloitte, Linthicum has seen clients save as much as 200% on their cloud bills after using a spend management tool. Although that’s an outlier, “in many instances it’s going to be 30% to 50% savings,” minimum, he said. And “there’s always going to be some sort of savings 100% of the time in my experience.”
At Apptio, which owns the Cloudability spend management tool, Khvostov has seen similar results. “When we typically onboard a customer we find anywhere from 10% to 30% savings right away.”
Even incremental savings on cloud infrastructure costs could amount to significant amounts of money. While only a small number of companies spend a million per month on cloud services — Woo calls them power users — a lot of companies still spend hundreds of thousands per month, she said.
And because many of the cloud spend management tools are fairly affordable — typically, 1% to 3% of what customers spend on cloud services in a month — the return on investment far outweighs the cost of subscribing. “Generally you see an ROI for these within two weeks to three months,” said Woo.
Although the major cloud providers all offer tools that can help customers analyze their billing, they have limitations.
While the cloud service providers give visibility into how a company is spending with them, they can’t do the same across other cloud providers or with SaaS applications, for instance.
If a company analyzes its spending with just one cloud provider, that’s only going to create a silo, said Linthicum. “You’re going to understand everything about a particular cloud provider, but not holistically,” he said.

When a company starts to do cloud at scale, for instance, it’s likely using a multicloud or hybrid approach. “So I might want to be handling visibility across multiple clouds and plop that in one portal or one control plane,” said Woo.
At ServiceNow, for example, the company’s spend management tool connects directly into SaaS providers and also analyzes deployments that are still on-premises. “That’s something that no cloud provider will ever be able to do,” said Bertot.
While customers who are new to the cloud will face many of these problems, over time they will get better at understanding how to manage their own spend. “Initially, it’s usually a pretty big bang for the buck, and then it peters out over time,” said Adler.
But what does this mean for companies selling spend management tools? As customers become more adept at managing their own spend, could demand for these services wane? To some the answer is no, because cloud spend management requires ongoing monitoring.
In the cloud, cost governance is about the ability “to not only have observability so you can see where the costs are going, but have observability around the interdependencies, observability around how things are going to be billed moving forward, and do that across platforms,” said Linthicum.
Without spend management tools, companies would have to build their own internal processes and software to have that level of visibility over their cloud spend. While that’s possible, it’s a lot easier to buy a subscription.

Monday, April 25
Robinhood and Coinbase have a fix for volatile trading revenues
Cloud spending is hard to control. Cloud providers only do so much to help.
The FTC is going after dark patterns. That’s bad news for Amazon Prime.
How sharing cars can make cities more livable
Tuesday, April 26
Truebill turned canceling subscriptions into the ultimate recurring-revenue business
Most consumers don’t appreciate subscriptions. Productivity nerds do.
Subscriptions won’t take over the game industry anytime soon
It’s possible to save money on cloud computing, but it will cost you

Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She’s based in Los Angeles and can be reached at [email protected]
Trusted Future is a non-profit organization dedicated to the belief that we need smarter, better-informed efforts to enhance trust in today’s digital ecosystem in order to expand opportunities for tomorrow.

Co-Chair, Trusted Future

The most important element for building trust in the digital ecosystem is to have producers of products and services dedicate themselves to infusing trust into the lifecycle of their products and services. Only with trust can we maintain a global information infrastructure and obtain the full benefits of technology into the future. From software and hardware development, to supply chain, to product security and incident response, to threat modeling, to certification, to vulnerability management, to treatment of customer data, to corporate governance, to relations with governments globally, to security information sharing with others in the ecosystem, and through employing a systems engineering approach to trust management — employing this holistic approach to trust is the cornerstone of trust going forward.

To get there, we are creating the first holistic Trust Framework that existing and emerging technology producers and users can use to instantiate trust and answer the simple question — should I trust this product or service in my infrastructure, or with my data? As producers adopt and users demand this Trust Framework — the trust needle will move.
Learn More
Co-Chair, Trusted Future

For those that are designing, developing or deploying cutting-edge technologies, trust has now emerged as a central factor in determining whether and how fast transformative new technologies will be adopted in the marketplace. We’ve all seen how technologies have transformed the way we work, live and learn. And just over the horizon a new set of breakthroughs offers even more potential.
Innovators across the country are unlocking new technological frontiers using AI, 5G, IoT and the cloud to create opportunities never before possible that fundamentally expand our ability to solve important problems —technologies that can improve health outcomes, cut greenhouse gasses and make factories more competitive. But we risk squandering or even delaying these opportunities when people lack the foundational trust necessary to take full advantage of their potential. For example, a small factory owner may not adopt smart manufacturing technologies to improve business if they don’t trust it to protect them from factory-idling ransomware or a consumer privacy data breach. It is more important than ever that we infuse strong privacy, robust security and inclusive design into our technologies from the start so that we can trust that the technologies of tomorrow will be even better than today.
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Chair of DLA Piper’s U.S. Regulatory and Government Affairs Practice

Trust, by its nature, is a function of human expectations about the reliability of another party (or parties) in the context of some relationship. For our purposes, building trust in the digital ecosystem requires consideration of the existing relationships that parties in that ecosystem have with each other.
In the United States, the trust relationships between many public and private institutions that are prominent participants in the digital ecosystem (from government agencies to tech and telecom companies) and communities of color are notoriously weak.
These relationships are frequently stained by deep-seated and historically reinforced suspicion, trauma and fear of exploitation or persecution. For example, survey data shows that many in communities of color harbor particularly strong distrust of the government when it comes to their personal information. This data also shows stark differences in community perceptions of how much control individuals have over personal data, privacy risks and concerns about information disclosure.
In order to foster greater trust in the digital ecosystem, we must approach our task from a culturally and historically informed perspective. This approach is essential to effectively communicate to all consumers how holders of data are managing the security and privacy of their data, to best develop and implement policy and to understand the efficacy of those policies.
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3Com Founders Principal Research Scientist at the MIT Computer Science and Artificial Intelligence Lab, Founding Director of the MIT Internet Policy Research Initiative and an adviser to Trusted Future

Trust depends on knowing that those who hold data about us are managing the security and privacy of that data. Yet, you can’t manage what you don’t measure. We’ve made real progress on digital privacy and security — we know more about how to build more-secure systems, many organizations have chief privacy officers and chief security officers and there are new laws like the GDPR that demand companies pay more attention to privacy.
But we’re still in the Stone Age when it comes to our ability to actually verify that systems are worthy of public (or regulatory) trust.
We’re measuring all the wrong things. For example, in cybersecurity, we count the number of threats detected and averted, number of systems with up-to-date software and how many potential vulnerabilities are visible to adversaries. But that only tells us how much effort we are putting in, not whether the billions of dollars we spend on cybersecurity are pointed in the right direction. What we really should care about is which potential risks are likely to cause actual losses. The only way to do this is to also collect data about actual losses from among the billions of otherwise harmless attacks. It’s understandable the firms don’t want to share sensitive (and embarrassing) information but without it we are flying blind. In my research group at MIT, we’re closing this gap with a tool called SCRAM that allows us to collect data on security losses privately and then analyze what specific failures are the cause of those losses. That will allow firms to make better investment decisions, and regulators to craft more sensible, efficient cybersecurity rules. The result will be systems that we can all trust.

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Chair, Baker Botts’ Global Antitrust and Competition Practice
Strong privacy protections that safeguard consumers’ personal information are essential to building trust so that consumers may feel confident enjoying the many benefits of innovative products offered in today’s dynamic marketplace. Consumers need to be able to trust that their sensitive personal information, such as health and financial information, real-time precise geo-location information, Social Security numbers and children’s information, will not be used or disclosed in ways that could result in harm. It’s also vital that businesses honor the privacy commitments they make to the public. A false promise to provide certain privacy or data security protections undermines consumer choice about whether to use a product or service, and erodes consumers’ trust in the ability of businesses to protect their information. Without this trust, many consumers may be less willing to share their data or participate in the benefits of the Internet economy.
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Subscription platforms and the smaller cloud gaming services are just a tiny piece of the overall global games market.
Only games lag far behind in shifting away from traditional retail models and downloading toward subscription services and streaming.
Nick Statt is Protocol’s video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at [email protected]
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Video games aren’t experiencing a Netflix or Spotify moment after all. At least not at anywhere near the pace that other forms of media adopted subscriptions and streaming over the last decade.
While subscription gaming services have been on the rise for the past few years, thanks largely to the growth of Microsoft’s Xbox Game Pass platform, the shift in consumer spending and consumption hasn’t followed. Instead, subscription platforms and the smaller cloud gaming services often bolted onto them make up a tiny slice of the overall global games market.
It may take years or perhaps even decades, alongside major advances in internet speeds and coverage as well as streaming technology, before these distribution methods supplant the traditional retail model in gaming. And for many popular titles that are given away for free and monetize entirely through in-game purchases, these models may never mesh well.
“I don’t believe that subscriptions will become the dominant monetization of the game sector as it has done progressively within the video and music sectors,” said Ampere Analysis researcher Piers Harding-Rolls at the Game Developers Conference last month. “79% of the total market opportunity in 2021, in terms of consumer spending, was based on in-game monetization. That means I think it’s very unlikely that we’re going to see a wholesale shift to subscription monetization.”

Subscription and cloud gaming represents just 4% of North America and Europe game markets, or roughly $3.7 billion, according to a recent study Harding-Rolls published at Ampere. Of the available services, only 5% are streaming-only offerings, while a majority (60%) use Xbox Game Pass.
The study found that most Game Pass users download their games and do not stream them at all. Harding-Rolls said he expects the combined subscription and cloud gaming market to grow to about 8.4% of the U.S. and European game markets by 2027, a far cry from the adoption of subscription services and streaming in the music and video markets.
This tendency to compare games with music and video makes sense. Games are a relatively new form of media, compared with film and recorded music, and yet all three simultaneously underwent the same forms of disruption caused by widespread internet access, digital distribution and the advent of streaming.
Yet only games lag far behind in shifting away from traditional retail models and downloading toward subscription services and streaming. That’s largely because of the complex economics of how games are funded, sold and monetized and the variety of styles, file sizes and length in entertainment hours they provide.
The music industry, due to complex factors involving piracy, digital distribution and the technical sophistication of streaming music files, embraced Spotify and other subscription platforms at much more rapid clip than other forms of media. After all, most songs are around the same length, and streaming an MP3 is a much lighter lift than a video or an interactive video game stream.
About 83% of all U.S. music revenue now comes from streaming services, according to the Recording Industry Association of America, and industry leader Spotify has more than 400 million monthly users and a 31% market share of the more than 500 million paying subscribers worldwide.

TV lags behind much further, in part because of the tangled knot of economic relationships at the heart of TV production and distribution. Streaming platforms like Netflix and Hulu account for only 26% of time spent watching TV, according to a report last year from research firm Nielsen, while most of America (64%) still spends a majority of their time watching cable and network TV.
The film industry, which suffered severe drops in theater attendance due to the pandemic, has long since shifted to predominantly digital distribution, according to the Motion Picture Association of America’s 2021 report. But the share of viewing is evenly split among cable and satellite providers and subscription services, the report said.
Meanwhile, many of Hollywood’s most powerful incumbents are also incentivized to maintain the traditional theater model. When some media conglomerates tried releasing films they funded directly onto the streaming services they owned, a number of directors and theater chains aggressively pushed back, turning the trend into a short-lived experiment in trying to sidestep the economic impact of COVID restrictions.
Now, viewers are forced to either pony up if they want to see new films outside the theater or wait about 45 days for it to land on a streaming service. (Granted, 45 days is much shorter than the standard 75-, 90- or 120-day windows of the pre-pandemic years, and being able to pay even $20 or $30 for a film still running in theaters, as Amazon and Disney now allow, is a substantial shift in the film distribution market.)
And then there are video games, which only saw the scales tip in favor of buying digital in 2020, thanks to the pandemic. Prior to that, most consumers bought video games on Blu-ray discs from big-box stores like Best Buy, Walmart and GameStop and ecommerce retailers like Amazon.
Games are still overwhelmingly downloaded locally on devices like consoles and PCs, rather than streamed over the internet through a cloud service like Xbox Cloud Gaming or Google Stadia. The transition toward these new distribution formats for gaming is not accelerating at anywhere near the rate it is with film and TV, which is seeing record highs in subscription sign-ups and shifts in viewing behavior.

Harding-Rolls found that less than 10% of Xbox Game Pass’ more than 25 million subscribers only stream games. This suggests that subscription services may play a larger role in helping bridge the gap between consoles and PCs and the markets in which gamers are mainly using mobile phones.
“Streaming distribution will gradually become more important to the games content subscription market over the next five years,” Harding-Rolls said. “While console users represent the core of Microsoft’s service for example, its future growth will increasingly rely on converting non-console users through its streaming functionality.”
Sony made arguably the most public rejection of a subscription-first future for the game industry when it rolled out an understated refresh of its PlayStation Plus platform. Instead of trying to compete directly with Microsoft’s Game Pass, Sony said it was uncertain about the long-term viability of releasing big-budget games onto a Netflix-style subscription platform that cost much less per month than the cost of a single game.
Sony’s new PlayStation Plus, coming later this year, now includes two more costly tiers that offer a mix of classic games and newer first-party games that had been on the market for at least a year or more, in addition to a cloud streaming component borrowed from the company’s PlayStation Now service for the priciest plan. Missing from any of the three tiers are first-party games the day they release to retail channels, as Microsoft does with Game Pass.
“It’s not a road that we’re going to go down with this new service,” PlayStation CEO Jim Ryan told Gamesindustry.biz last month, referring to releasing major first-party games like Horizon Forbidden West into its higher-ter subscription offerings. “We feel if we were to do that with the games that we make at PlayStation Studios, that virtuous cycle will be broken. The level of investment that we need to make in our studios would not be possible, and we think the knock-on effect on the quality of the games that we make would not be something that gamers want.”

“Subscription has certainly grown in importance over the course of the last few years,” Ryan added. “But the medium of gaming is so very different to music and to linear entertainment, that I don’t think we’ll see it go to the levels that we see with Spotify and Netflix.”
“It’s very hard to launch a $120 million game on a subscription service charging $9.99 a month,” Shawn Layden, a former PlayStation exec in charge of its internal studios, said last year. “You pencil it out, you’re going to have to have 500 million subscribers before you start to recoup your investment. That’s why right now you need to take a loss-leading position to try to grow that base. But still, if you have only 250 million consoles out there, you’re not going to get to half a billion subscribers. So how do you circle that square? Nobody has figured that out yet.”
Even Microsoft has gone out of its way in recent months to reassure developers that subscription gaming isn’t the one business model to rule them all, and that it does in fact believe in having a variety of different approaches to game distribution. That could be in part because Game Pass, while still growing, has failed to scale as fast as the company expected, adding just 7 million users from January 2021 to January 2022.
“For us at Xbox, there’s not one business model that we think is going to win. I often get asked by developers, ‘If I’m not in [Game Pass], am I just not viable on Xbox anymore?’ And it’s absolutely not true,” Microsoft Gaming CEO Phil Spencer said in an interview with Xbox executive Sarah Bond at GDC 2022.
“It’s really about the diversity of business models, and this is where I sometimes contrast against other forms of media we get compared to whether it’s music, whether it’s video. Where, the models have really condensed down to maybe one or two business models that are working,” Spencer added. “I fundamentally believe a strength for us in the video game business is the diversity of business models and the strength of those.”

Indeed, having a diversity of business models, with a variety of price points, is one reason why the gaming industry has ballooned into a much larger economic force than Hollywood and the music industry.
But it’s those same factors that make it difficult for new forms of distribution to catch on, at least not without significant investment from some of the most cash-flush companies in the tech and gaming space. Microsoft, thanks to its Office, Windows and Azure businesses, can afford it. Many other companies, including Nintendo and Sony, cannot, and we see that play out with how hesitant Microsoft’s competitors are to jump into the deep end of subscription gaming.
For now, however, it looks like the “Netflix for games” moniker may be applicable only to Game Pass, based on the scope of Microsoft’s ambitions. And it may take a very long time until we know just how early Xbox has been to gaming’s next big distribution shift.

Monday, April 25
Robinhood and Coinbase have a fix for volatile trading revenues
Cloud spending is hard to control. Cloud providers only do so much to help.
The FTC is going after dark patterns. That’s bad news for Amazon Prime.
How sharing cars can make cities more livable
Tuesday, April 26
Truebill turned canceling subscriptions into the ultimate recurring-revenue business
Most consumers don’t appreciate subscriptions. Productivity nerds do.
Subscriptions won’t take over the game industry anytime soon
It’s possible to save money on cloud computing, but it will cost you

Nick Statt is Protocol’s video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at [email protected]
Productivity subscriptions can add up quickly. These enthusiasts think every penny is worth it.
Protocol talked with several productivity aficionados about how they manage and prioritize their app subscriptions, diving into how much they’re willing to pay for productivity.
Lizzy Lawrence ( @LizzyLaw_) is a reporter at Protocol, covering tools and productivity in the workplace. She’s a recent graduate of the University of Michigan, where she studied sociology and international studies. She served as editor in chief of The Michigan Daily, her school’s independent newspaper. She’s based in D.C., and can be reached at [email protected]
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If you want to deduce whether someone is a true productivity nerd, ask about their stack. You might think people are passionate about their workplace tools, like Slack versus Microsoft Teams. But what about people who build immaculate productivity stacks in their spare time? The tool choices are endless in the personal productivity tech landscape, and the debate is fierce. Self-proclaimed productivity nerd Chris Klein said he loves when people unlock the power of a productivity app and then pledge allegiance to that tool; he joked that some people might “take a bullet” for Notion.
There are only so many tools you can take a bullet for, though, before your stack grows too chaotic — and your wallet grows too empty. Like every area of tech, productivity largely runs on the subscription model. Some, like Adobe (up to $53/month) Superhuman ($30/month) or Sunsama ($20/month), are on the pricier side. Most are on the cheaper side, around $5 to $10 a month; but those costs can add up.

When you look at the productivity app market at large, the most popular subscriptions are the basic ones. According to Lexi Sydow, head of insights at data.ai (formerly App Annie), the top mobile apps in the productivity category are Dropbox, and various Microsoft or Google products. VPN apps are up there, too. Almost 25% of apps downloaded globally fall under utility and productivity, Sydow said. Productivity apps make up only 9% of consumer spending, however. As a whole, we’re more likely to spend money on entertainment.
Which makes sense! Spending money on a Netflix subscription sounds way more fun than spending money on a task management app. Still, the productivity-obsessed consumers are out there. Protocol talked with several productivity aficionados about how they manage and prioritize their app subscriptions, diving into how much they’re willing to pay for productivity.

Klein, a creative and real estate agent, has dabbled in productivity for over a decade: since he was 10, to be exact.
“Most kids were worried about what girl they liked in middle school, and I was like, ‘Damn, my task manager is causing me so many problems,’” he said.
His stack has been through many iterations, mainly because he kept landing on tools that felt lacking. Some were powerful but looked terrible; others looked great but didn’t allow for customization. Eventually he progressed from wanting a basic task management system to attempting to build a second brain: productivity expert Tiago Forte’s term for taking all the thoughts and experiences in your brain and organizing them in a coherent system using digital tools. Basically, it’s what all of us strive for when accumulating productivity tools.
A coherent system means being strategic about your productivity subscriptions. Klein prioritizes integrations when evaluating productivity apps, as well as privacy policies and feature sets. He needs his tools to work together, so integration and automation options are the first things he looks for.
“Otherwise, I’ll be in an endless spiral of managing and maintenance and no actual work will be done,” Klein said. “If a tool lacks integrations or connections to other tools, whether it be something as simple as Slack or to a full platform like Zapier or If This Then That, then I won’t even look at it.”

Rahul Chowdhury, productivity expert, recommends looking at your subscription usage. To manage subscription fatigue, he will make a table of all his active subscriptions and list how many days in a month he uses each tool. Then he’ll add a quick description about why he purchased the subscription. Taking these two data points into account, he’ll decide whether to keep or cancel the subscription.
Klein also considers usage frequency when exploring a new tool. He’ll pay extra attention to how he’s spending his time. This is something you can do manually (see Superhuman CEO Rahul Vohra’s time log) or via various time tracking apps. Using Rize.io, Klein will note how much time he’s spending in the new app, and how much work he’s getting done.
“It’s very rough data, but it’s mostly like, is this working against my brain or with it?” Klein said. “Notion has been so great but so dangerous for me. I can build a system just for me, but I can get in a rabbit hole of building a system for hours when I shouldn’t be.”

Keeping track of subscriptions is a hassle — the subscription model certainly benefits developers, but it isn’t something the average consumer appreciates. “I would rather just have a one-and-done investment in that technology or software at a fair price, and use it forever,” said MIT PhD student Fatimagül Husain.

Because of her subscription fatigue, Husain prefers using just one app: She has bet her productivity on Notion. The fewer apps, the better. “To just have one to manage your workload and productivity is, frankly, relieving,” Husain said.
But many productivity power users know what it’s like to depend on an app and then lose it because the developers couldn’t afford to keep it running without regular payment. Michael McWatters, director of product design at HBO Max, actually prefers the subscription model for this reason. Even if a product he likes offers a free version, he’ll opt for the paid tier to ensure the product stays healthy.

“I’ve gone through the pain of really liking something and then having it disappear because the developer wasn’t making money,” said McWatters. “If I’m using it and I’m relying upon it heavily, it’s worth it.”
As an app developer himself, McWatters knows that you’re never fully done building an app. “It’s not like you cook the pizza and the person eats it, and that’s it, it’s over,” he said. “You’re always baking and adding new ingredients and keeping up with the latest trends.”
Another telltale sign of the productivity-afflicted: They cannot stick to one app. They’re constantly moving their notes from Evernote to Roam Research to Notion to Obsidian and back to Evernote again. Subscriptions let them roam more freely from app to app and perfect their systems. “I appreciate subscriptions and the flexibility they provide,” Klein said. “If I only need a tool for three months, that’s it. That’s all the money that’s out of my pocket.”
Klein said he probably spends more on productivity than the average person. But so what? He enjoys it.
“It’s like a hobby, you know?” Klein said. “I don’t need all of them, but some people go spend $30 on a Friday night to get a few drinks. I have some subscriptions for productivity tools.”

Monday, April 25
Robinhood and Coinbase have a fix for volatile trading revenues
Cloud spending is hard to control. Cloud providers only do so much to help.
The FTC is going after dark patterns. That’s bad news for Amazon Prime.
How sharing cars can make cities more livable
Tuesday, April 26
Truebill turned canceling subscriptions into the ultimate recurring-revenue business
Most consumers don’t appreciate subscriptions. Productivity nerds do.
Subscriptions won’t take over the game industry anytime soon
It’s possible to save money on cloud computing, but it will cost you

Lizzy Lawrence ( @LizzyLaw_) is a reporter at Protocol, covering tools and productivity in the workplace. She’s a recent graduate of the University of Michigan, where she studied sociology and international studies. She served as editor in chief of The Michigan Daily, her school’s independent newspaper. She’s based in D.C., and can be reached at [email protected]
Now a part of the company that owns Rocket Mortgage, Truebill is helping the fintech giant fill out its offerings.
Haroon Mokhtarzada launched Truebill with his brothers to track recurring subscriptions.
Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at [email protected] or via Google Voice at (925) 307-9342.
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Haroon Mokhtarzada launched Truebill after realizing he was paying $40 a month for home security for a house he no longer occupied.
He and his two brothers, who are Truebill’s co-founders, also discovered that they were unknowingly paying for subscriptions they didn’t really need. That’s why they created a whole business around canceling subscriptions.
“In my case, I was paying for a security system on a home that I had moved out of a year previously,” said Mokhtarzada, the company’s CEO. “I had blown over $500 on that subscription.”
Truebill tracks users’ subscriptions by analyzing their bank account and credit card data and helping them cancel those they no longer need, or aren’t even aware they have.
The startup launched in 2015 amid the rise of subscriptions as a business model.
“The subscription economy has massively exploded,” he said.
Rocket Companies acquired Truebill for $1.3 billion in December, starting a new chapter in the Maryland-based company’s history.

In an interview with Protocol, Mokhtarzada looked back on Truebill’s journey as a startup that blazed a trail by embracing a new and unusual business model, and shared what’s in store for the company as part of another fintech pioneer.
This interview was edited for clarity and brevity.
How did you come up with the idea for Truebill?
Most of my companies come out of a personal frustration that I have. In this case, I actually found it quite difficult to keep track of the subscriptions I had all over the place.
I spent a good deal of time looking for something that could just tell me what I’ve got. It didn’t exist, and this bothered me. So my brothers and I got together and built a prototype. We all found stuff that we were paying for that we didn’t want to be paying for. In my case, I was paying for a security system on a home that I had moved out of a year previously. I had blown over $500 on that subscription: forty bucks a month for security, but I was gone, I had left the house.
How did you decide to approach this need and turn it into a business?
What we realized is you need to get someone’s transaction data, and from that transaction data we built algorithms that can detect recurring payments and subscriptions automatically.
That’s what we built, and we ran it on friends and family. We basically were able to identify all of their recurring subscriptions. Then, beyond that, we started adding a knowledge layer. What actually are these subscriptions so we can detect them? What company is this? How does someone cancel it? And then we added our own service, which would cancel it for the user.
The first thing is getting visibility. That’s great. Tracking it — that’s great. But then being able to cancel is the next step. We added that to the initial product.
Canceling subscriptions can be tricky. How did you work that out?
We basically went and studied each one. We support over 1,000 subscriptions now. We looked at the different methods possible to cancel and we do it within those methods, whether it’s a letter, whether it’s an email, whether it’s calling them. We will call on behalf of our customers and cancel for them.

You mentioned the decision to start the company was based on your personal experience. But how big a problem was it when you started?
I’ve got to be honest, I didn’t do some huge market research analysis on this. What we believed was that it was a problem and it was going to be a much worse problem as more and more companies were shifting to subscriptions. This idea germinated in 2015. The subscription economy has massively exploded. There were so many things that were one-time payments and are now subscriptions: all of software, basically. Do you remember we used to buy software in a box?
Sure, shrink-wrapped boxes.
Right, shrink-wrapped. Microsoft does not do that anymore. [Editor’s note: Well, mostly.] You’re paying a subscription. So software was the first thing to go. Then suddenly it’s things that you would have never expected as a subscription. You have a subscription for grocery delivery; you have a subscription for food delivery; you have a subscription for clothing to come to you; you have subscriptions for vitamins and things like that. There are now subscriptions for cars. You can get a Tesla as a subscription; Autopilot is a subscription. There’s now music subscriptions. Then you’ve got cable TV unbundled. You went from one bill to, “I’ve got to have my Netflix, my HBO [Max], my Disney.” Then your music became a subscription. So no more CDs.
What are the most common reasons why people cancel their subscription?
The most common reason is: “I am no longer using it anymore.” It fundamentally comes down to that. Service failure is another one. But the main reason is, “I’m not using it anymore.” It comes down to the consumer getting enough value out of that subscription to keep it. The companies that have very high retention rates, like Amazon Prime or Netflix, people are getting a lot of value and use out of it. But there’s many other subscriptions where you sign up for a free trial and you forget about it. You don’t really like the product. You don’t really use the product and then it just continues to bill you until you remember to go and cancel that.

What are some of the bad practices that you’ve seen in terms of using subscriptions as a revenue model?
One is when you take something that is often used for a very short-term thing and you turn that into a subscription. For example, paid credit-repair companies. You’re buying a house. You need to get your credit score up. You subscribe to one of these services. Often, they help you actually get it up; they might help you argue some of these things on your credit file, and things like that.
But then, afterwards, you don’t really need that anymore. Once you’ve purchased your house, they’re not really doing much work for you. But that thing often continues to renew in the background.
There are many companies that make it very difficult to cancel: They might have online cancellation, but you’ve got to go through a really convoluted flow to really get there that’s so confusing that you almost can’t figure it out. And people will even employ dark patterns sometimes in these cancellation flows.

The first thing is getting visibility. That’s great. Tracking it — that’s great. But then being able to cancel is the next step. We added that to the initial product.
The other one is just not letting you cancel at all or making it really hard. For example, there may be gyms where you have to physically show up to the gym to cancel. We have people who are military. They’re overseas, and they can’t cancel the gym membership because they will not let you call and cancel. Even if you tell them, “Look, I don’t want this anymore.” And they say, “I’m sorry. You have to come in and fill out a form.”

We think that these bad practices need to go away. There needs to be clear consumer protection that just says, “Hey, look, if you’re billing someone’s credit card and they no longer want you to bill their credit card, they don’t want the service anymore, you make it just as easy for them to stop.”
I’ve heard about gym memberships. What do you do in those situations? Do you have someone actually go there to cancel for a Truebill user?
We can do certified letters and things like that. There are some that we just cannot do, unfortunately. We can’t show up with a mask on looking like that person. We’re not going to do that. With those ones, we give them the instructions and we tell the person, “This is how to do it. Unfortunately, we can’t do it for you.” But the vast majority are not like that, and we can support it.
I guess that’s one example of a dark pattern. What are other examples?
Sometimes, you actually make the flow confusing when they’re trying to cancel. You can do this through design. You can do it by making the button that says, “No, I’ll keep my subscription,” really big. And then there’s a tiny gray text that says, “Continue with my cancellation.” Things like that.
There are things where it’s just fundamentally not clear how to cancel. You just don’t put any information anywhere that’s clear to do it. A lot of these companies don’t pick up the phone. You can’t just call them. They don’t publish an email address on their website. So it’s quite difficult.
Have you gotten any kind of feedback from these companies? Are these dark patterns intentional?
I don’t think someone says, “Go and create a dark pattern.” I think someone has an idea and says, “Hey, why don’t we change this page to be a little bit more like this?” And they try it and they say, “Hey, look, our retention has been improved.” Then it’s like, “OK, let’s keep that thing.”
There’s a balance, right? I think it’s fair for a company to try to save a customer. If someone’s trying to cancel, you can give them an offer. You can kind of ask them, “Hey, please try us out for one more month,” or things like that. I think that’s fine as long as it’s not laborious, and it’s simple enough for someone to do.

What are the best practices that you’ve seen?
I think Netflix did it right. Netflix’s homepage used to say sign up for free, cancel any time, in massive text. They put front and center that this thing is gonna be very easy to cancel, and you can cancel it with just a click of a button.
As companies start learning over time, they’re gonna realize the benefit of making it worry-free to join something. You might get a little bit more churn because you didn’t make it hard for people to cancel, but I actually think more people will sign up for a service like that because they won’t be afraid that it’s gonna bill them and it’s gonna be a hassle. There is a trade-off of, yeah, on the one hand, you might lose a few more people, but people don’t want to join a site that they know is going to be difficult to cancel.
Many software and SaaS companies make it pretty darn easy. You don’t want that anymore, you go to your account page and say, “cancel my subscription,” and you can do it.
This is an unusual business model. How did you attract users?
We launched on some public forums. We’re a Y Combinator-backed company and got some press. We did some PR work and just kind of got the word out there. There was a certain amount of organic traffic. We actually built landing pages for every service just telling people: “How do you cancel this thing?” A lot of people just search and say, “How do I get rid of this thing?” So we did SEO around that. We got folks signing up through SEO.
The business model was really interesting. We said, “Look, this service we’re continuing to develop, it costs us money.” And we just asked our customers, “Hey, would you mind paying for this thing?” We let them choose how much they wanted to pay. And they could cancel anytime. That business model enabled us to then start paid user acquisition.

What were some of the biggest mistakes in those early years?
It took us a little while to figure out that people would pay for our service. We were trying to make money in all kinds of other clever ways, like showing them ads and stuff like that. We thought maybe we could get them to sign up for other subscriptions or other services through our service. But none of that worked.
What really worked was just aligning our incentive structure with the customer. Customers were like, “Hey, I like this thing. I find value. I’ll pay you.” Because of that, we can just focus on making the product better.
We went from a product that gave you visibility over just your subscriptions, to, “Hey, wait a minute here. We’ve got all of your transaction data. We can give you visibility to the whole thing, your entire financial life.” So we added spending reports. We added automatic categorization of all of your spend, putting it into months, budgeting. We added your credit file so you can see your whole credit report. Net-worth tracking. You can track all of your assets, your debt, your investments, all of that stuff, all in one place. You get a full financial picture.
There are many companies that make it very difficult to cancel: They might have online cancellation, but you’ve got to go through a really convoluted flow to really get there.
What we realized is we were lifting a veil; we were exposing something. The problem wasn’t that people couldn’t cancel the subscription. The problem was they didn’t even know what they had. So we are removing blind spots. We went and said, “OK, let’s remove other blind spots in people’s financial lives.” So we basically gave people a full picture of what they’ve got with a lot of good alerts around: “Hey, your cash is getting low. These bills are coming up.” We have a really good sense of what’s going on because of these algorithms we built. We know exactly when your paycheck’s coming. When are your bills coming? What is your cash flow looking like? Are you going to make it to your next paycheck? All kinds of stuff like that we could do with the data that we already have.

Other companies like NerdWallet and Credit Karma are doing that. How did you navigate the competitive landscape?
We fundamentally are a product company. Credit Karma is a marketing company, as is NerdWallet. They’re basically an SEO marketing company that built a product on top of it. And fundamentally, their business models require them to sell other products, right?
The biggest thing that differentiates us is, because our customers were paying for our service directly, we didn’t have to muck up our interface with all these ads. We didn’t have to throw all these recommendations in their face. We could just say, “Here’s your finances. Here’s what it looks like.” And we could basically just focus day in and day out on that because all we cared about was that our customers used our service and loved it so that they would keep it and tell others.
Basically, we let people go down to a $3 a month subscription. And you know, up as high as $10 a month.
It’s like a tipping model.
It’s a little bit like a tipping model. We sort of say, “Hey, here’s what we recommend, but if you want it to be less, you can do it.”
How did the businesses whose subscriptions were being affected by your service react?
We’ve had a very, very small number of companies that have said, “Hey, we do not want you engaged in this at all.”
We usually don’t fight it. What more often happens is a company says, “Hey, you’re canceling subscriptions on behalf of your customers. We appreciate that. But it’ll save a lot of time if you just do it this way. Send us an email to this box and we’ll just process it that way.”
So sometimes we work out an arrangement that’s more efficient for them. But I mean, what are they going to do, right? We don’t ever recommend, “Hey, we think you should cancel this subscription.” We just tell them, “Here it is. Here’s your subscription.” If a user sees something and they don’t want it, they don’t want it.
What has been the most memorable reaction, like maybe an angry call from a CEO or something like that?
That’s funny. Let me think about that. I don’t know about an angry call. It tends to be a cease-and-desist letter. And like I said, it’s been few and far between.

Honestly, the real reactions that are memorable are the insanely positive reviews that we get where something is just life-changing for someone. You have people who have super high anxiety and they knew they had all these subscriptions, but they just can’t get on the phone because of the anxiety they have. And they say, “You don’t know how much this has helped my mental health.” You have someone who says, “I didn’t realize how much cigarettes were taking out of my budget. And I’ve quit smoking as a result of that.” You have people who say, “I have two children and I haven’t been able to make ends meet. But now that I can see all my finances, I’ve gotten my stuff in order and we’re thriving as a family again.”
There’s just so many amazing examples where it’s not just someone who’s saving $10 a month. We’re actually changing their life and how they interact with their finances completely.
Can you talk about the decision to sell to Rocket? How did that conversation start and how did you decide it was the right move to make?
[Rocket CEO] Jay [Farner] actually reached out personally. Initially, I didn’t really understand what we might do with a mortgage company. But when I hung up the phone, I turned to my brother [Yahya], who’s our chief revenue officer and co-founder, and I said, “This is really interesting.”
There are a lot of people that are thinking about a home, but are not ready to purchase. A lot of those people end up at Rocket, and Rocket doesn’t really have anything for them. If you’re not ready to get your mortgage, what do you do there?
Trubill is actually a really great platform for high-intent users who’ve got some kind of large transaction coming up, where you want to get your finances in order. You want to start tracking your credit score. You want to do all of those things.
Truebill is perfect for that. It fits really neatly in that use case. And you think about their servicing customers who’ve already gotten a mortgage. They have two-and-a-half million servicing customers. Many are logging in every month to pay their bills. And they’re there for years, on average seven years.

What if you could give them a more holistic kind of financial platform where they’re not just trying to pay their mortgage, but they are then seeing all their finances in one place?
They’re tracking their home value. They’re tracking their net worth. These things make sense in each other’s context, in my mind. We’ve got some really amazing plans to put a very holistic platform together that brings the best of both of these worlds.

Monday, April 25
Robinhood and Coinbase have a fix for volatile trading revenues
Cloud spending is hard to control. Cloud providers only do so much to help.
The FTC is going after dark patterns. That’s bad news for Amazon Prime.
How sharing cars can make cities more livable
Tuesday, April 26
Truebill turned canceling subscriptions into the ultimate recurring-revenue business
Most consumers don’t appreciate subscriptions. Productivity nerds do.
Subscriptions won’t take over the game industry anytime soon
It’s possible to save money on cloud computing, but it will cost you

Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at [email protected] or via Google Voice at (925) 307-9342.
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