What Web2 Can Take From Web3
Product is all that matters. Putting something “on the blockchain” doesn’t immediately make it a useful product, and there certainly are a number of “solutions looking for problems” in the space. But there’s also a ton of early promise that even web2 companies would be wise to start considering, starting with the few examples below.
This topic was further discussed with Jonah Blake of Game Fund Partners and RE3W in the context of gaming’s transition from web2 to web3 — watch here.
Web3, if nothing else, has reinvigorated conversations around user rights, consumer advocacy, data privileges, branding and advertisement, and the importance of snail-mail legal contracts even in a digital era. Let’s explore a few of the highlights of web3 that web2 companies could potentially begin leveraging even today before blockchain goes “mainstream.”
Topics below include:
- Data & Consumer Habits
- Branding & Advertising
- Ownership & Consumer Advocacy
- Legal Contracts in a Digital Era
Data & Consumer Habits
If there’s one thing the past decade of big tech did best it was capture & monetize data at massive scale. Blockchain adds a whole new layer to that old ballgame, and, depending on the implementation, might even be net positive for both users and corporations.
Because blockchain transactions are public¹, you can track the behavior of users and their associated assets without explicitly knowing the real physical identity of the person behind the actions. This simultaneously gives companies multiple levels of insight into consumer behavior while preserving the integrity of user privacy.
For example, if you’re a fashion NFT company and you notice that most of your customers are purchasing your fashion NFTs after they staked some unaffiliated “fashion DAO” token elsewhere, you might correctly surmise that there’s some chatter in that community around your products. Even better, you could see that similar users who also hold stakes in that fashion DAO also hold stakes in ten other fashion DAOs, and you decide to reach out to each of them to improve your brand presence in the space.
Tracking cookies are already popular in web2, but they’re coming under fire from privacy groups, and really can only get you so far. Certain data that’s publicly available on blockchain meets the difficult dual criterion of 1) providing actionable insights to product managers while 2) preserving the absolute privacy of the physical identity of the consumers.
Brand Activation and Advertising
Building off the power of public-yet-private data mentioned above, brands have access to extremely low-lift collaborative brand activation and cross-advertising. In the “ordinary” world of web2, corporate databases are highly proprietary and cross-collaboration requires months of legal contracting and potential third-party intermediation. In web3, collaboration may not require much “permission” at all, for better or worse.
For example, let’s say that I run a business selling sneakers (in real life). Let’s also say that Nike just had a huge NFT drop with tons of celebrities participating, and the whole internet was buzzing around these hypothetical Nike shoe NFTs. As a sneaker store owner myself, it may be prudent to set up a campaign where anyone who has a Nike shoe NFT can get a 20% discount. I could verify their ownership using simple web3 plugins, and the entire campaign could be put together in a matter of days, without any cooperation needed from Nike.
Arguably, I could do this without web3, by saying that anyone who can provably verify that they own a Nike shoe would be eligible for a 20% discount. But the process of verification is not particularly easy, and is highly prone to bad actors and deceit. Blockchain’s entire value-add is simple verifiable asset provenance and ownership, which completely absolves brand tech teams of having to deal with any of the mess associated with this specific type of collaboration.
On the other hand, because public blockchains are largely “permissionless,” there are potential negative outcomes. “Vampire attacks,” whereby a new product simply takes the open source code of a previous competitor, redeploys it, and slashes fees marginally in order to attract that competitor’s userbase, are relatively common in decentralized finance.
I posit that the hypothetical Nike example outlined above, wherein some arbitrary shoe owner gives a discount to Nike NFT owners, could be construed as a cute homage to Nike if it’s done on a small scale, but could also be construed as a full-on vampire attack if it’s done at massive scale and the small store ends up becoming the next Nike. Nike’s customers would leave and join the new hip small store, draining Nike of its brand value and energizing the smaller store brand in a true “vampire attack” made possible only because the small store could specifically target Nike NFT customers without too much difficulty.
It’s the wild west out there.
Ownership & Consumer Advocacy
Allowing consumers to actually own the products, IP, or company behind the product they’re using is a uniquely web3 phenomenon. It’s a powerful method for bootstrapping a wide-ranging community of dedicated product advocates, but it’s also arguably a fast-track to securities-related regulatory action. We’ll ignore the regulatory bit for a moment and consider some of the current practical implementations.
Roblox and Fortnite are two of the biggest web2 companies that have actually implemented a very rough version of “user-owned products” with their creator-focused programs that enable individuals to create in-game content and monetize it, to a small degree. It’s been hugely successful for incentivizing their playerbases to actually create endless game content on the game’s behalf, saving developer time and increasing consumer product advocacy.
In a web3 context, it may be possible to either 1) increase the revenue distributions available to such user-creators because of improvements to back-office and middle-office operations made possibly by blockchain, or 2) allocate tokens to those users and grant them some form of minor fractional ownership over the platform they’re actually helping to create. It’s not hard to imagine that these feedback loops, if properly implemented, will create a massive groundswell of consumer product advocates much stronger than was possible in a web2 world.
These appear to be some of the ideas that both web3 gaming and web3 music are beginning to think along (see Illuvium on the gaming side and Napster, Limewire on the music side). Given that traditional consumers are quite used to almost no incentives or utility aligned with ownership of the platforms they help to grow, it’s a good bet that these new web3 models will see strong adoption when the technical barriers associated with their use start to erode.
Legal Contracts in a Digital Era
Ethereum is famous for “smart contracts,” yet we’re still quite far off from a reality where our ordinary web2 snail-mail contracts can be fully migrated on-chain. Having said that, web2 businesses today could still implement some very basic on-chain methodologies to further secure their contractual agreements and reduce risk.
For example, collateralized loans are robustly handled on-chain by protocols like Compound and Aave. Even uncollateralized loans have started to grow with groups like Goldfinch tackling the messy problems around real-world integrations and corporate credit. Leveraging smart contracts to address these fundamental business components allows for potentially faster execution, greater surety of counterparty compliance, and higher visibility into default risk.
It’s tough to imagine from where we sit now, but it’s possible in the not-so-distant future things like your house, your employment agreement, and potentially even your wedding license will be migrated into an on-chain format. It’s certainly easier to verify and track documents that way, and we all might save a ton of headache.
Net, Web2 Can Leverage Web3, Even Today
In sum, there are certain aspects of web3 that web2 companies can leverage to improve their product experience and user metrics even today. While web3 remains nascent, and it isn’t a panacea to all the worlds’ myriad problems, it’s certainly a valuable tool that older companies would be remiss to ignore. Keep an eye out for web2 companies starting to carefully position adjacent to the blockchain space as technical barriers fall over the next few years.
¹Excluding scenarios associated with “privacy chains,” which are still being engineered and are yet to see widespread adoption.
Sam is the CEO of Playground Labs, a web3 protocol dev organization, and Partner & Head of Interactive at Hivemind Capital, a crypto-focused multi-strategy fund. Follow him on Twitter.
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