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Back in what the kids today call “Web 1.0,” then Netscape CEO Jim Barksdale famously posited, “There’s only two ways I know of to make money: bundling and unbundling.” In his retelling, the ’90s World Wide Web audaciously unbundled the walled gardens of Microsoft and AOL in favor of open-source software and protocols. The giants of Web 2.0, led by Facebook, Google, and Netflix, overwhelmingly succeeded in rebundling our online lives a decade later. But now the technologies underpinning “Web3“—blockchains, smart contracts, and tokens, to name just a few—promise to decentralize the internet all over again by transforming users into creator-economy owners while upending business as usual in the process.
“Web3 is the next version of the internet, and crypto is enabling this next wave of the Web—one that’s user-owned and community-governed,” says David Grider, head of research at Grayscale Investments, a leader in digital currency investing. New protocols and incentives will yield new types of digital assets and new forms of organizations to make and distribute them—leading to entirely new business models in the process.
Nowhere will this be more evident than in the dawning landscape of the Metaverse, posing an open alternative to the ultimate walled garden Meta’s Mark Zuckerberg has in mind. Grayscale projects this virtual marketplace for digital goods and services will soon be worth $1 trillion. “We’ve just scratched the surface on the kind of transformational experiences these technologies are going to deliver,” promises Grayscale CEO Michael Sonnenshein.
So, what will those experiences look like, exactly? And how will they transform our concepts of ownership, status, community, and loyalty? Here’s what business leaders need to know about the next phase of the internet in the making.
USER OWNED AND OPERATED
The fundamental premise of Web3 is that users rather than platforms own digital property. This is what blockchains record in their immutable ledgers. It’s what cryptocurrencies and nonfungible tokens are, regardless of dollar exchange rates and JPEGs. More than just currencies, Ethereum and its ilk are decentralized mechanisms for recognizing and governing the goods and services built atop them—whether a pair of digital Nike or Adidas sneakers or a plot of virtual land in Decentraland’s 3D Metaverse. This is Why brands such as Samsung and JPMorgan Chase have chosen Decentraland for their Metaverse presence, and why the government of Barbados is opening an embassy there. “They’re open economies,” Grider explains, “and because they’re open, they’re also interoperable.”
This interoperability is key to unlocking Web3’s predicted trillion-dollar market. For example, virtual black markets have flourished in online games for nearly two decades despite bans on buying and selling items. Creating NFTs and other unique objects on chain rather than tethered to any one game will vastly increase their utility and desirability across the entire landscape. That’s why Microsoft paid $68.7 billion in January to purchase the “building blocks of the Metaverse,” World of Warcraft developer Activision Blizzard, in its largest acquisition ever.
The switch from simply using services such as Facebook to owning them in the case of Decentraland will have massive repercussions for online business models as well. If the watchwords of Web 2.0 were “if the service is free, you are the product,” the credo of Web3 may be “play to earn.” The latter underpins the game Axie Infinity, which has minted its own tokens, called “shards,” and set aside tens of millions with which to effectively pay avid gamers to play. Worth only pennies at the start, shards now trade at close to $80, giving players a literal stake in its success.
Network effects have always been the flywheel of hyperscalable internet businesses, but play-to-earn and similar dynamics represent a sea change in how the benefits are distributed. “Web3 empowers new networks to bootstrap themselves by creating incentives for communities to help grow them and not be blocked from sharing the value they create,” Grider says. The “creator economy” has been a boon for platforms such as Instagram and TikTok, but not so much for the creators themselves. Web3 will change all that.
THE FUTURE OF LOYALTY
Finally, decentralization also means that brands minting tokens and dropping NFTs will soon face competition from “metalabels,” “headless brands,” and “decentralized autonomous organizations” (DAOs). A prominent example of the latter is Friends With Benefits, a blockchain-based collective whose 6,000 token-holding members include musicians like Erykah Badu and Azealia Banks along with the VC firm Andreessen Horowitz, which led the funding round valuing the DAO at $100 million. Not content to be merely a clubhouse, members voted in December to develop a FWB-branded yerba mate drink, their first physical product.
For companies, DAOs and Web3 represent the future of loyalty. Rather than simply awarding points with each purchase, granting tokens to early adopters of a new product or service would literally make them invested in its success, and in doing so, harness the creativity of their audience. “A loyalty DAO would mean new product ideas, governance over potential marketing tactics, and rewards based not only in short-term gain but long-term upside,” argues the e-commerce consultant and investor Web Smith. In this scenario, he writes, “corporate governance would be tiered: traditional C-suite, stock-based premium shareholders, and the loyalty DAO.”
The great unbundling underway will require companies to fundamentally rethink their relationships with shareholders, customers, and employees—because the same person may effectively be all three. While a lot of organizations talk about aligning stakeholder incentives, that’s exactly what Web3 does by rewarding those who create value in the first place. It’s a mind shift promising to transform how business is done.
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