Let’s face it — It’s time for Web3 Social — Part 1
Why we need web3 social networks, why & how will they win, investing in the protocol layer vs. application layer, and thoughts about biz models and gameplan for app developers on top of them.
This is an overview of the emerging web3 social space I covered as part of a lecture on this topic. The purpose is to cover the basics, and dive into different questions that immediately arise. I tried to provide a good framing for anyone trying to wrap their head around the potential for web3 social networks to break into mainstream user adoption, and tackle some of the questions around economics, value capture and defensibility when it comes to building applications on top of web3 social graphs
The case for web3 social
Social network is all about communication to and consuming content from others.
Web2 platform is doing it great, but the platforms and users are in zero sum game:
- Conflicting interests — platform is motivated to maximize usage & engagement by promoting polarization and user addiction
- Users are the ones creating the value of the platform by generating content & activity but the platform capitalize on 100% of this value
- Web2 social locks you to a platform — The platform has more economic leverage over you as the content creator, I can’t take my audience with me to another platform, limited in level of interaction to the platform itself, and de-platform risk.
Web3 social fixes this
When it comes to communicating and content creation:
- Direct relationship with your audience
- Own your audience — take it with you if a better tool or front end is preferred
And when you are on the content consuming side:
- No cold-start problem when moving from one app to the other
- Easy opt-out if the “algorithm” doesn’t work for you — just move to another app
- User can decide how to optimize between experience/value — if they wish to consume freely they can “pay” via be presented to ads or sharing personal data. Alternatively, they can pay for use and see no ads, retain full privacy.
It’s true that today users are totally fine with all these issues and problems that come with web2 social. We could assume these are not real pain points that drive users to look for alternatives.
But if we focus on the next generation of creators / their fans, we may see a shift that is driven purely by superior monetization / experiences.
We already experienced a shift from one to many (web1) to many to many (web2). It feels like this move is a continuation of the trend that gives more control and empower users. Substack is communicating and taking measures that sound very web3 native, so it is just natural to assume more web2.5 companies will follow, and the future of social will move towards that direction.
How web3 social wins
It’s hard to imagine something taking over Twitter / Facebook / Tiktok, but those shifts happen very quickly once the inertia has started (Gradually, then suddenly).
We hear a lot “You can’t win the existing web2 platform”. Their network effect is their moat — they hold the distribution, and so it’s hard to imagine any new social app taking over. It makes sense that it’s simply impossible to compete with the incumbents if you need to get to the same network effects Facebook, Twitter, Tiktok have.
But — what if the next generation of creators don’t need the wide distribution of web2? What if they can use a new monetization path that gets them to similar income with a fraction of the exposure?
A good framing by @musicben_eth focused on the music distribution segment (can be applied to other content and media publication domains):
What if they are able to create THEIR OWN distribution network (1000 true fans thesis? and Kevin Kelly’s post), with greater control and therefore are not competing with the unmatched distribution of the incumbents?
Path to mainstream adoption
How do we get there, that’s still up to same first principals of product 101
- Build something people really want
- Leverage web3 to offer it in a superior way no web2 alternative can compete (some examples below)
- Reduce friction during onboarding and while using the app (tedious wallet onboarding, transaction signing etc…)
I believe a superior tech and value proposition will find it’s way as in previous cases where innovation and new tech disrupted the incumbents (Kodak, Blockbaster, DeFi? Bitcoin?). it’s not obvious at first, but those that won’t embrace it, will get extincted.
First — web3 offers experiences web2 platforms cannot offer. some examples could be:
- Merge the financial and social experience (i.e — wallstreet bet all happen on the same platform instead non synced on Reddit +Robinhood,
- Token-gated communities (be part of the discussion only based on your on-chain credentials)
- Shared ownership of treasury (Promote shared goals and collaboratively enjoy the benefits)
- Shared ownership over platform (Those who create value become also the owners — a more aligned ownership structure between platform stakeholder
Web2.5 companies emerge — traditional web2 companies embrace web3 narratives and practices. A good example is what substack is doing to empower users with more ownership and share of the pie). This in turn creates pressure on the inumbents side, and allow them to challange their leadership position.
This is followed by more acceptence and adoption of web3 native offerings that offer the OG experience — Users get to be part of something new, help it grow and be part of the decision making on it.
Lastly, via acquisitions of web3 social apps to integrate with the incumbent’s user base. will they open-source their entire social graph? probably not. Traditional platforms will not give up control and retain most of the value, while web3 native apps will be able to give much more value back to users — content creators and consumers.
With Account abstraction and new onboarding flows already in production, we are getting to the point web3 UX is comparable to web2, and it’s all about the product and a compelling (and fun) value proposition.
It can’t scale. How do you get to 100m users?
Lets tackle this in 3 aspects
On the technical level — most activity will happen off-chain, or dedicated rollups (layer 3’s) will emerge to give the promise of open and transparent social graph. Federated solutions like Mastedon and Farcaster will also be one of the ways to tackle scalability issues
Adoption — web2 social is getting challenged more and more:
- User ban
- Shadow banning (reduce discoverability of content platforms do not want to promote)
- Regulators scrutiny (”we need to censor calls for bank run”, political influence)
- Data & privacy concerns (Cambridge Analytica)
- Generational Shift — GenZ with much more focus on values and don’t take the status quo of platform <> user relationship as given
The nature of building open source protocols offer faster path to adoption as protocols can leverage other protocols to expedite the pace they reach to relevant audience and offer better functionality (example — Lens to integrate it’s naming service into ENS — this drives an immediate expansion of the eco system of applications and integrations supporting the protocol.
This means the next wave of developers is going to build on top of web3. The open source movement combined with the virality of social apps will lead to an explosive adoption trend that will make it obvious WHY WEB3 SOCIAL WIN
Is it winner takes all game?
The short answer — for the foreseeable future no. over time, protocol network effect will drive consolidation.
- Short term — we’ll see many competing social graphs. focused on the different user base (geography, domain focus, languege etc…)
- As mainstream adoption grows, aggregators will abstract the back-end. Users will be able to seamlessly move between social graphs and decide on which one they want to record their social on-chain activity (simple opt-in)
- Longer term — consolidation phase — once clear winners will become obvious, there will be motivation for cross-integration -
- Either via API (on closed source networks) or via open social graph
- “bridges” that match same wallet profiles between different social graphs
Web3 Social Application
The most common question I get is — why should one build an app if the social graph is open, what moat does that app has? Let’s explore.
Application layer — Can they win?
Having a shared and open social graph allows any app developer to focus on the user experience.
They will optimize for a specific need and usage, and grow the user base based on EXPERIENCE and not lockup
It’s true that the first wave of web3 social applications are mostly trying to imitate the web2 alternatives, but new wave of purely web3 native experiences will supercharge the offering to be superior.
Example verticals:
- LensTube — video focused
- Lensta — Image focused (a-la-instagram)
- Interface — Social on-chain activity
- Spinamp — Social music app
How value is captured
Applications have the stickiest relationship with users but are most dependent on brand name and user experience.
They can be protocol agnostic, and monetize the user experience in various ways:
- Affiliation fees (take a portion of the protocols fees they direct to,
- Market up on service they use (relayers, aggregators and other service providers)
- Premium services
- Traditional ad-based
- Data
Think about it as you would on traditional economies with physical goods:
- Multiple service providers and vendors across the supply chain, each specialized on a niche — raw material producer, transportation, assembly, packaging, distribution. warehousing — Those are abstracted away to the end user, and the user doesn’t care nor mostly knows who they even are, what is their economic model
- Selling point — This could be brick-and-mortar shops that sell goods, or on-line shops that the user interact with. The user chooses the brand they trust and have emotional / brand affinity to.
Both type of business can be profitable and build a moat around their business. It’s a different moat and a different GTM, but value accrues in both:
But, is there a moat ? One may claim web3 store front is not a real moat and I can agree — but it does provide another type of defensibility — abstraction of the protocol layer risk — The app is not subject to the “winning protocol” risk — the app has the closest touch with the end user and de-risk the need to bet which protocol wins.
- In case of one protocol takes them all — you avoid the risk of betting on the right one
- In case of multiple protocols co-exist — you are able to be the aggregation layer
To summarize the point: Protocol — higher moat through network effects, higher risk (all or nothing if the protocol wins or not
App — lacks the moat, but has a better risk distribution
Web3 Social landscape
There are several leading players that already show initial signs of traction, each one with a different approach, here are some worth mentioning:
- Lens Protocol and an ecosystem map by @hc_Capital and list
- Farcaster
- Deso (ex- bitclout)
- CyberConnectHQ
- GalxE
- Orbis
And some resources for anyone looking to further dive into:
- Road_to_Mass_Adoption by Binance research
- Lens protocol dune analytics
- Farcaster dashboard and applications dashboard
- Web3 Social Hub — curated list by Fei and
- Social Front-ends: A Glimpse into the Future by @fabri.lens
Closing remarks
We already live in a world that our social network and online footprint is one of the most important assets we have. At a personal & professional level.
Bringing web3 social on chain also brings the promise to merge the social and financial layer. Any Social community becomes an LLC, every online community is managing resources they can invest and collaborate with. Just imagine the opportunities.
The entire value that is siloed today within web2 platforms can be distributed to the users and brands, if they just wish to, and a more equitable future of positive sum game can emerge.
I’m excited of what is yet to come. if you are building cool stuff in web3 social, I’d love to meet and learn more. You can comment here, or dm via lens protocol, Twitter, linkedin
Thanks for all the people that inspired me to dig into the web3 social rabbit hole, from my friends at Collider.vc and for those commenting and providing feedback on this post, Nir Kabessa from Yup.io, Rob Schmults from Blockchange.vc
