Web3 for TradBiz — Web3 implications and opportunities (11 of 14)
Web3 impact on TradBiz markets and business models
How Web3 impacts TradBiz markets and business models, creating opportunities and challenges for organizations
Web3 has the potential not only to disrupt TradBiz markets and business models, but also enable compelling new growth opportunities for those who seize them. In this chapter, we will explore differences between token-based and traditional markets, including using tokens to bootstrap early-stage Web3 networks, vastly lower take rates of Web3 ecosystems compared to Web2 companies, how Web3 characteristics may evolve industry structures, potential business model impacts, and Web3 opportunities for existing businesses.
Token incentives bootstrap Web3 networks. Let’s start with how Web3 networks use tokens to bootstrap their growth, providing early ecosystem users with financial value until network effects kick in. As Chris Dixon from Andreessen-Horowitz points out, Web2 startups require significant venture investment to fund sales and marketing campaigns to attract new users. According to the so-called Metcalfe’s Law, the value of a network dramatically increases with the number of participants. In other words, a social network isn’t very valuable when there are just a handful of users; however, it becomes indispensable when there are a billion global users connecting each day. Once Web2 companies have scaled with network effects kicking in, it’s rational for them to try and extract as much value as possible from users through data monetization, increased subscription prices, and other revenue streams.
Web3 ecosystems, however, reward users with token-based financial utility during the early stages of network growth to make up for the lack of native utility, with rewards tapering off as the network and its associated utility scales.¹ A user may be happy spending time in early versions of a play-to-earn game, such as Axie Infinity, since they can earn tokens that have the potential to appreciate significantly as the network grows. The same user may be incentivized to continue playing when token rewards decrease, but only if the game itself has evolved substantially to provide significant more value.
If you’re an entrepreneur with a new idea, consider how you might bootstrap your network with a Web3 solution while minimizing the need for traditional venture funding. If you’re already in an established company with scale, be on the lookout for emerging competitors wielding distributed models with the potential to unseat you by luring your customers to their network with token incentives.
Web3 take rates are much lower than Web2 equivalents. Because Web3 ecosystems are designed to be owned by and give back value to users, they often have much lower take rates than comparable Web2 offerings. Just as Jeff Bezos frequently stated, “Your margin is my opportunity” when explaining Amazon’s low-price, low-margin strategy to establish market share,² Andreessen-Horowitz’s Chris Dixon describes the transition to Web3 with an updated, “Your take rate is my opportunity.”³ Think of take rates as how much of the financial value a network generates is retained by the network provider rather than the users. Overall Web3 ecosystems tend to have much lower take rates than Web2 companies, often due to inherent designs to incentivize and be owned by users, but also because ecosystems often require smaller amounts to maintain and evolve platforms, and do not spend significantly on customer acquisition and marketing. Since users frequently own a majority of Web3 ecosystems, the bulk of revenue generated is returned to them. Moreover, because many ecosystems utilize open-source software, those ecosystems with higher than needed take rates incentivize others to fork the project, in essence becoming a competitor providing similar services with lower take rates.
Comparing Web3 with Web2 take rates shows how big a difference this makes. Let’s take Facebook as an example, which for all practical purposes has a 100% take rate. In other words, no one gets paid to spend time on the app; instead, Facebook monetizes your time and personal data, providing what appears to be free services that in fact have very high hidden costs. We see similar examples in other areas. Web3 gaming apps like Axie Infinity and The Sandbox utilize take rates around five percent, while online gaming companies operate at 30 percent and above. Digital asset NFT marketplaces, such as OpenSea and Rarible, operate with five percent or lower take rates. Compare that with Meta’s recent announcement that they plan to take a whopping 47.5% commission on digital asset sales in their proprietary Metaverse properties.⁴ Web3 content platforms, such as Rally and BitClout, regularly return 90 percent of value back to content creators, whereas Web2 comparables like YouTube, Spotify, and Twitch take 30 to 50 percent. The same take rate disparity is true when comparing different forms of Web2 marketplaces, including exchanges, labor markets, and app stores.
If you happen to work in an established company where most of the network value is siphoned off as operating expenses and shareholder profit, you may be at risk of Web3 entrants operating with much lower take rates. As you explore the impact Web3 may have on your company, anticipate where you could be at risk, and consider making business model changes to protect your position, such as delivering value propositions better aligned with Web2 capabilities that may retain advantages against decentralized ecosystems. Even if your take rates are low, think about how you continue to evolve value to your customers to ensure long-term sustainability.
Decentralized systems may create more competitive markets. Web3 has the potential to evolve existing industry structures into more competitive markets by decentralizing access to data, trust, and technology. Today’s Web2 markets are characterized by companies providing platforms made up of proprietary technology, data, and applications designed to create competitive moats that lock users in from leaving easily. This established playbook has resulted in large, powerful companies incentivized by financial markets to put shareholders ahead of users, resulting in less-than-optimal outcomes like personal data monetization, high subscription costs, customers not owning their data, barriers switching to competitive platforms, and the risk of being de-platformed due to violations in ever-changing terms of services or government requests. While APIs enable varying levels of integration between Web2 applications, today’s markets are largely composed of siloed companies operating with a winner-take-most mentality, creating two-to-three major competitors in each market.
As we have discussed elsewhere in this series, Web3 enables solutions that are open source, permissionless, transparent, and composable, built on top of a rapidly evolving Web3 technology stack that includes blockchains, protocols, distributed applications, aggregators, and many more innovations. In this paradigm, users maintain ownership over their data, which can be used by different dApps through composability, and accessed across blockchains with the help of bridges.
This has the potential to democratize access to data, technology, and trust, evolving industry structures into more competitive playing fields than what we have with today’s Web2 environment. While it’s possible that blockchains and dApps will follow a winner-take-most outcome due to the network effects we discussed earlier, it is equally plausible that the emergence of ecosystems will enable competition between members, accelerating innovation, and perhaps making industries less concentrated.⁵
Web3 can impact nearly every aspect of TradBiz models. The TradBiz executives and investors we work with find it useful to explore how Web3 can create both opportunities and threats for their businesses. The Business Model Canvas, a widely used framework for developing and evaluating business models, is a useful tool for exploring Web3 impacts across business functions.⁶
Starting on the right side with customer segments, Web3 provides companies with opportunities to expand geographies served as well as target crypto-native customer segments, while also facing the risk of losing share to Web3 alternatives offering compelling value propositions combined with token incentives. Evolving customers into members of token-enabled communities can deepen customer relationships, helping prevent losing customers to competitive businesses and other communities. Web3 ecosystems can also serve as valuable channels, allowing established companies to connect to and serve new customers who participate in these communities. We believe there are significant opportunities for TradBiz organizations to improve their value propositions, including integrating existing products and services into Web3 offerings, as well as developing entirely new Web3 solutions that combine the best of Web2 and Web3 capabilities.
There are additional opportunities to leverage Web3 capabilities and practices that improve a company’s efficiency and effectiveness. For example, key business processes, or activities, can be automated using blockchains, smart contracts, and machine learning. Borrowing lessons learned from decentralized autonomous organizations (DAOs), there may also be opportunities to attract and leverage resources globally, potentially aligning and incentivizing them with token-based rewards. Partnerships also can be improved through blockchain enabled supply chains, and by developing new B2DAO relationships.
By going through this business model assessment process, leadership teams will discover that Web3 has the potential for delivering attractive financial benefits as well as threats. On the revenue side, pursuing Web3 opportunities can create meaningful new revenue streams from new and enhanced Web3 offerings, better market access, and deeper customer relationships. At the same time, be aware of potential price pressure from Web3 ecosystems targeting customers with token-based incentives and lower take rates. From a cost structure perspective, Web3 enablement may help reduce operating expenses and improve capital efficiency, whereas the risk is failing to improve relative to emerging Web3 alternatives.
Opportunities exist to Web3-fy companies and plug into Web3 ecosystems. We’ve identified five opportunities for TradBiz to explore as a starting point when evaluating Web3 opportunities: B2DAO, Web3-fied offerings, token-enabled communities, Web3-fied operations, and Web3 native innovations.
Expanding beyond traditional B2B sales, TradBiz organizations have opportunities to pursue B2DAO opportunities, providing products and services that enable DAOs and other Web3-focused businesses. Services needed by DAOs include accounting and finance, legal and regulatory compliance, marketing and community development, smart contract auditing, tax management, and treasury management. Chainalysis, for example, provides compliance and risk management solutions to Web3 ecosystems, financial institutions, exchanges, government agencies, and others to protect and grow the adoption of crypto.⁷ OpenZeppelin performs smart contract audits to ensure that they execute processes as intended, counting distributed networks like Augur, Basic Attention Token, Compound, and Maker among its clients.⁸ And Microsoft’s software development platform, GitHub, is where Web3 developers collaborate to develop, manage, and evolve the code distributed networks.
Companies can also Web3-fy offerings, integrating crypto and Web3 capabilities, features, and uses cases into their existing products, services, and business models. Consider accepting crypto payments, providing customers with native crypto wallets, incorporating crypto into software user interfaces, integrating Web3 capabilities into existing offerings, and extending social logins to Web3 apps. Twitter, for example, rolled out a tipping feature that allows users to support or tip other users using different payment options including crypto.⁹ Twitter also enabled the use of verified NFTs as Twitter profile pictures (PFPs).¹⁰ PayPal now allows users to buy, sell or trade cryptoassets within their apps, and has introduced a “Check-out with Crypto” feature enabling users to pay for online purchases with crypto.¹¹ Pharmaceutical company Merck has created a blockchain-based, Internet-of-Things powered platform for supply chain management that allows companies, laboratories, suppliers, and logistics providers to connect and exchange data seamlessly.¹²
Established businesses can also explore creating token-enabled communities, using tokens to enable communities of engaged and empowered customers and other stakeholders. Here there are opportunities to sell products and services, provide rewards and loyalty programs, encourage referrals, involve stakeholders in proposals and decision-making, and reward users with value-appreciating tokens. The U.K. football team Manchester City, for example, launched the $CITY fan token that allows holders to vote in polls organized by the club, access exclusive promotions and content, and receive VIP treatment during games and other social activities.¹³ In the U.S., Mark Cuban-owned, NBA team Dallas Mavericks is releasing player profile pictures and photos as NFTs during home games, which fans can redeem by signing up to a dedicated portal and having their mobile tickets scanned during the game. According to the basketball club, this is one of their ways to reward users, understand consumption behavior and incentivize more people to attend live games.¹⁴ The discussion platform Reddit is testing a new program called “Community Points” on an Ethereum testnet, in which subreddits can reward users for their contributions and allow them to vote on important decisions.¹⁵ The file sharing platform BitTorrent launched the BTT token after being acquired by the Tron Foundation in 2019 to expand its peer-to-peer file sharing network and incentivize participants for sharing and hosting files.¹⁶
TradBiz organizations have additional opportunities to Web3-fy operations, incorporating Web3 networks, capabilities and practices which enhance operational efficiency and effectiveness. Potential impact areas include supply chain management, human resources, accounting and finance, treasury management, and predictive asset maintenance, among others. For example, Walmart launched the blockchain-based Food Traceability Initiative in partnership with IBM, allowing users to trace the provenance of selected products, including data on manufacturer, certifications, temperature, and handling.¹⁷ The Canadian Imperial Bank of Commerce, or CIBC, partnered with the National Bank of Australia using Ripple to facilitate cross-border payments between them, and explore expanding on a broader scale to enable global settlements.¹⁸ Several high-profile companies, including Tesla, Block (formerly Square), and MicroStrategy, hold or have held Bitcoin or other cryptoassets as part of their corporate treasury, with the aim to further diversify and maximize returns on cash for shareholders.¹⁹
Finally, TradBiz can consider creating Web3 native innovations, creating entirely new offerings and value propositions enabled by Web3 technologies and models. Opportunities to explore include creating virtual worlds, building public or private blockchains, releasing NFT collections, catalyzing decentralized marketplaces, and establishing Web3 on-ramps for users. Samsung, for example, has introduced a television-based NFT explorer and market aggregator.²⁰ The company has also created its own virtual world within Decentraland, 837X, where users can win exclusive NFTs by entering and consuming content.²¹ Nike acquired RTFKT, a well-known NFT studio, to venture into the Metaverse and NFT space.²² RTFKT has since released RTFKT x Nike Dunk Genesis CRYPTOKICKS, a collection of 12,400 Nike-branded virtual sneakers.²³ They have also launched RTFKT X NIKE MNLTH, a collection of 10,000 NFTs that look like floating black boxes which they distributed to CloneX and PodX holders.²⁴ Upon completing certain quests, the MNLTH boxes will open, revealing customizable digital sneakers and another MNLTH box. Semiconductor firm AMD launched W3B Cloud, a joint venture with Consensys, that aims to provide cloud computing blockchain infrastructure for enterprises. Components include validation, computation, nodes, and application development.²⁵
Web3 will create disruptions that leading TradBiz’s will seek to exploit. In this chapter, we’ve discussed how Web3 may impact markets, including the use of token incentives to bootstrap Web3 networks, how Web3 take rates are much lower than Web2 company equivalents, and why open, composable decentralized systems may evolve industries into more competitive markets. We’ve seen how Web3 can impact nearly every aspect of TradBiz models both positively and negatively, including customer segments, customer relationships, channels, value propositions, activities, resources, and partners, potentially transforming both revenue streams and cost structures. Finally, we’ve outlined five starting points for established companies to take advantage of Web3 evolution — B2DAOs, Web3-fied offerings, token-enabled communities, Web3-fied operations, and Web3 native innovations — and shared how leading companies are already actively evaluating, experimenting with, and launching Web3 initiatives.
In the next chapter, we review some of the Investment opportunities brought about by Web3.
Monchester Macapagal and Kris Caigas of AcceleratingBiz contributed significantly to the research, writing, and production of this series.
Explore other Web3 for TradBiz insights and resources at acceleratingbiz.com.
Click on the links below to progress through the Web3 for TradBiz series:
[1] Web3 for TradBiz introduction
Web3 and crypto foundations
[2] Why embrace Web3 now
[3] Inevitable Web3 future
[4] Crypto and Web3 basics
[5] Advanced Web3 topics
[6] Using crypto wallets
Use cases and value propositions
[7] Web3 use case categories
[8] Decentralized finance (DeFi)
[9] Non-fungible tokens (NFTs) and the Metaverse
[10] Decentralized autonomous organizations (DAOs)
Web3 implications and opportunities
[11] Web3 impact on TradBiz market and business models
[12] Emerging Web3 investment opportunities
[13] Evidence of mainstream Web3 adoption
End notes:
¹ Chris Dixon, “The Web3 Playbook: Using Token Incentives to Bootstrap New Networks,” Future.com, accessed April 12, 2022, https://future.com/the-web3-playbook-using-token-incentives-to-bootstrap-new-networks/.
² Adam Lashinsky, “Amazon’s Jeff Bezos: The Ultimate Disrupter,” Fortune, accessed April 18, 2022, https://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/.
³ Dixon, “1/Topic: Going from Web2 to Web3.”
⁴ Owen Fernau, “Meta’s Plan to Keep 47.5% of Metaverse Sales Draws Skepticism,” The Defiant, accessed May 19, 2022, https://thedefiant.io/meta-take-rate/.
⁵ Philipp Stauffer, “Thin Heads and Fat Tails: Understanding the Crypto Reinvention of Capitalism,” Knowledge at Wharton, accessed April 25, 2022, https://knowledge.wharton.upenn.edu/article/web-3-0-welcome-new-sober-internet/.
⁶ Business Model Canvas adapted from Alexander Osterwalder et. al., “Clarifying Business Models: Origins, Present and Future of the Concept,” https://www.kth.se/social/files/546b8d75f276546614d2dffc/Osterwalder+(2005).pdf and discussed in his book Business Model Generation, published in 2010.
⁷ “Chainalysis: The Blockchain Data Platform,” Chainalysis, accessed April 21, 2022, https://www.chainalysis.com/.
⁸ “Security Audits,” OpenZeppelin, accessed April 21, 2022, https://www.openzeppelin.com/security-audits.
⁹ Esther Crawford, “Bringing Tips to everyone,” Twitter, accessed April 21, 2022, https://blog.twitter.com/en_us/topics/product/2021/bringing-tips-to-everyone.
¹⁰ Ivan Mehta, “Twitter launched NFT profile pictures — people are hella mad,” The Next Web, accessed April 21, 2022, https://thenextweb.com/news/twitter-nft-profile-picture-hex-analysis.
¹¹ “Buy and Sell Cryptocurrency,” PayPal, accessed April 21, 2022, https://www.paypal.com/us/digital-wallet/manage-money/crypto.
¹² “Digital Platform,” Merck, accessed April 21, 2022, https://www.merckgroup.com/research/innovation-center/en/Lightpaper_Digital_platform_Merck.pdf.
¹³ “Manchester City Fan Tokens ($City),” Socios.com, accessed July 27, 2022, https://fantoken.com/city/.
¹⁴ “NFT FAQ,” Dallas Mavericks, accessed July 25, 2022, https://www.mavs.com/nft-faq/#1637012183071-a111ac1a-a02d.
¹⁵ “Community Points: Own a piece of your community,” Reddit, accessed April 21, 2022, https://www.reddit.com/community-points/.
¹⁶ “What is BitTorrent,” Kraken, accessed April 21, 2022, https://www.kraken.com/learn/what-is-bittorrent-btt.
¹⁷ James Laney, “Walmart’s Blockchain Enabled Food Traceability Initiative,” DataDrivenInvestor in Medium, accessed April 21, 2022, https://medium.datadriveninvestor.com/walmarts-blockchain-enabled-food-traceability-initiative-628b9df5febb.
¹⁸ Godfrey Benjamin, “Banking Giants CIBC and Aussie’s NAB Partners to Use RippleNet Solution,” accessed April 21, 2022, https://blockchain.news/news/banking-giants-cibc-and-aussies-nab-partners-to-use-ripplenet-solution.
¹⁹ “Bitcoin Holdings by Public Companies,” CoinGecko, accessed July 21, 2022, https://www.coingecko.com/en/public-companies-bitcoin.
²⁰ “Nifty partners with Samsung for smart TV NFT platform,” Ledger Insights, accessed April 21, 2022, https://www.ledgerinsights.com/nifty-partners-with-samsung-for-smart-tv-nft-platform/.
²¹ “Experience Samsung 837X,” Samsung, accessed April 21, 2022, https://www.samsung.com/us/explore/metaverse-837x/.
²² Alexandra Pauly, “Nike Acquires RTFKT, Setting the Stage for Swoosh-Certified NFTs,” Highsnobiety, accessed April 21, 2022, https://www.highsnobiety.com/p/nike-rtfkt-nft-metaverse-acquisition/.
²³ Jade Gao, “Nike X RTFKT Unveiled CryptoKicks through Gamified Mechanics,” DappRadar, accessed July 25, 2022, https://dappradar.com/blog/nike-x-rtfkt-unveiled-cryptokicks-through-gamified-mechanics.
²⁴ Ross Wardrop, “Everything You Need To Know About RTFKT MNLTH NFT Sneakers,” last updated April 25, 2022, https://nftevening.com/everything-you-need-to-know-about-rtfkt-mnlth-nft-sneakers/.
²⁵ W3BCloud, accessed April 21, 2022, https://w3bcloud.com/.
