Web3 for Product Managers

Did you get the memo? Web3 is going to make our current internet seem like a warm-up act for the coming digital nirvana. While I’ve learned over the years to discount technology hype, I think there is truth to this. And that is why, after several years of dabbling in web3 projects, I decided last year that the ecosystem had matured enough to warrant a career pivot. I am now proudly focused 100% on web3.

I now hear frequently from other product managers who are wondering if they should also make the leap and what to expect on the other side. So, I thought it would be useful to summarize the main cultural, technical, economic, and UX differences that I’ve observed. Web3 is definitely a rabbit hole and there’s a lot to cover so this will be a multi-part series. Ready, set, go!

What is Web3?

First, let’s define our terms. What is web3? This definition is a good starting point:

“… a new iteration of the World Wide Web based on blockchains, which incorporates concepts including decentralization and token-based economics.”

Two words jump out here: “blockchains” and “decentralization.” Use of blockchains is a minimum requirement for web3 applications, but the amount of decentralization between apps can vary widely and most are in a gray area many call “web2.5.”

For example, the NFT marketplace, Opensea, relies on blockchains to store the NFTs it lists on its site. However, much of the metadata for those listings is centrally stored, and features like search and bidding run on traditional web servers.

On the other end of the spectrum are automated crypto exchanges like Uniswap and SushiSwap. All of the code for these apps is stored in smart contracts that are hosted on a blockchain. Even so, it’s not practical to store images and text on blockchains (especially if they change a lot), so this content is centrally hosted.

Finally, despite their varying degrees of decentralization, there is one thing these and all other web3 apps have in common; users need some form of blockchain-based token — either an NFT or cryptocurrency — to interact with them. Keep this in mind because this is what drives many of the differences we will explore.

OK, now that we’ve got our terms straight, let’s dive into the differences.

Key Difference #1: Addressable Market

As product managers, users are at the center of everything we do, so we’re going to start by looking at some differences between web3 and web2 users. As we’ve defined it, a web3 app requires that the user have either cryptocurrency or an NFT. This means that as a web3 product manager, your TAM will likely be orders of magnitude smaller than what you’re used to. According to Pew Research only 16% of Americans own cryptocurrency. Compare this to the 93% of Americans who use the internet and the 97% who own smartphones. As for NFTs, it has been estimated that fewer than 3% of Americans own them.

But that’s not the end of the story. The TAM narrows considerably when you consider that most of this crypto isn’t actually available for use with web3 applications. That’s because most people store their crypto with custodial services like Coinbase (this is also true for NFTs, but to a lesser extent). Therefore, to use any web3 app these users must take custody of their crypto by transferring it to a wallet like Metamask. This can be a daunting process for even the most tech-savvy user, involving complex network configurations, inputting of public key addresses, and the risk of irreversible loss if mistakes are made. On top of this, it’s likely the user will have to pay gas fees to complete the transfer.

Key Difference #2: User Demographics

Given these technical barriers, it’s not surprising that web3 demographics are quite different from the general population. According to Gemini, 74% of US crypto users are men and 74% of those are between the ages of 25–44. Another interesting difference comes down to ethnicity. According to Pew, Blacks, Hispanics and Asians have significantly higher rates of crypto ownership than Whites.

Key Difference #3: Data Transparency

User data is the lifeblood of modern web2 applications, and we freely exchange it for the benefits it offers. Google uses our search history and other signals to personalize our search results. Facebook uses clicks and likes to personalize our news feed.

But while such data technically belongs to us, we don’t really control it. It’s stored on the company’s servers and we need their permission to take custody of it. And once we do, it’s unlikely we’ll be able to transfer it to a competing service, because this model hardly exists in web2.

Web3 attempts to shift this paradigm by removing the intermediaries. All user data is stored on publicly accessible ledgers that offer permissionless access to any application that wants to read it. This has two big implications for product managers:

1. Data moats dry up — Because all applications have access to the same user data, you can no longer use data as a competitive advantage. As a result, user experience — in other words, what your application does with that data — becomes much more important.
2. Analytics are public by default — Imagine being able to track sales volume, revenue and user counts for all of your competitors or an entire industry — in real-time. In web3 this data is freely available for anyone to ingest. On-chain analytics platforms like Dune Analytics and Dapp Radar make it easy to visualize and parse every transaction ever committed to a blockchain.

Key Difference #4: Asset Ownership and Portability

There’s also a big difference between web2 and web3 in terms of how applications handle users’ assets. In web2, it is standard for users to give third parties custody of their assets in exchange for certain benefits. For example, we park our cash with banks, and in return, they enable us to send it around the globe with a click. And we park our stocks with online brokerages, enabling us to trade them instantly. It’s a pretty good tradeoff except for the fees charged by these middlemen (more on that later) and the fact that transferring such assets to a new service can be painful.

With digital assets, such as game items, music, and movies, the tradeoff is a bit steeper. The platforms where we purchase these assets hold them in custody and enable us to enjoy them, but good luck transferring them out for use on another platform.

One again, web3 flips the paradigm. Users maintain custody of their assets and can freely move them between applications. As product managers, this means we can no longer use custody of assets to increase switching costs and lock users in. Competition comes down to which application does the most useful or entertaining things with these assets.

That’s it for this post. I hope you found it useful. In upcoming installments, we’ll talk about other technical differences and go deeper into the financial, cultural and legal differences. Meanwhile, let me know in the comments if you found this helpful and whether there are other topics you would like me to cover.