The Web3 Opportunity: What's Next
The Web3 opportunity, catalysts for 2023, and why every brand needs to start thinking about it now.
2022 was the year of “Web3” and the “Metaverse”.
As a result of the hype, people started using the terms inflationary until they became almost meaningless buzzwords.
Jay-Z and “Ye” would say: “No one knows what it means… but it’s provocative… it gets the people going!”
It’s true.
Among marketers, it became en vogue to have a “Web3 strategy” or to “have a presence in the Metaverse”. The media fueled the hype further.1 Even Time Magazine was carried away by it: “Into the Metaverse: The Next Digital Era Will Change Everything”, it titled in July 2022.2
As we approach the end of 2022, nobody knows exactly what they mean, or even how they differ. For some, Web3 is Bitcoin. Or cryptocurrencies. Or a scam. Or an unnecessary buzzword as often heard in nascent industries. Or the next version of the internet. Or the matrix. Or the Metaverse. Often, the terms are used interchangeably.
Also, people’s expectations about it differ wildly. It’s comparable to the internet in the early 90s. It varies from "it will change everything" to "it's the most unnecessary thing since Segways or Google Glasses".3
Spoiler alert: “Web3” and “Metaverse” are two separate things, even though they’re tightly related. And their potential is huge.
VC investments in Web3 in 2021 exceeded $32.4 billion in 2021. McKinsey expects the Metaverse to have $5 trillion in value by 2030. It’s “potentially the biggest new growth opportunity for several sectors in the coming decade”, they write.4
Over 30% of Interbrand’s best global brands have already entered Web3.
You can’t ignore this.
What’s Web3?
TLDR; Web3 is a vision of an open, equitable web.
The term “Web3” was coined by Gavin Wood in 2014. He talked about “web1”, starting off with the idea of an open and decentralized internet. Web2 — the internet we know today — then led to the birth of monopolistic platforms that have a strong influence over the internet and own a lot of the infrastructure the web is built on.
It became a major narrative that we move from
web1 (read)
to web2 (read + write)
to web3 (read + write + own).
Here’s an excellent summary from
on what’s happening with Web3:Decentralization of power — There is increasing mistrust in concentrated power. Whether it is government, central banks, or global omegatech corporations that have become more powerful than nations. The trend of deplatforming, behavioural mandates and censorship has created new interest in building trustless and censorship-resistant platforms that can empower ordinary people and fractionate existing power structures.
Ownership of value — With Web2, the web changed from “read” to “read and write”. The web became social and participative; the age of user-generated content began. Modern tech companies host content sourced from users and then monetize it privately. They exploit our desire for social interaction and compound them with addictive product-patterns, interweave adverts and extract all of this user-generated value for shareholders. By the time you’re able to to become a shareholder in these companies, they’re already valued at multiple billions and insiders already got rich.
What the heck is “ownership of value”?
Simply said, digital files can now be put onto the blockchain, an immutable, decentralized open-data structure that anyone can write to and read from.5 On the Internet, every file that is “shared” (e.g. sent via email) was actually “duplicated” from server to server and owned by some centralized platform (e.g. email hosting service). Now, files are easily transferred, from owner to owner, without any centralized platform.
That’s possible thanks to NFTs, or “non-fungible tokens”. NFTs enable a standardized universal digital representation and ownership layer for any natively digital “thing” such as game assets, digital art, or domain space. With NFTs ownership and authenticity can be transparently managed.
Blockchain & NFTs level-up the internet with three new revolutionary features:
Digital ownership
Transferability
Permanent data storage
This has led to novel concepts like the “ownership economy”, meaning that creators can actually own and monetize their assets instead of locking them away on platforms.6 According to a16z, Web3 paid out $174,000 per creator in 2021, while Meta paid out $0.10 per user, Spotify paid out $636 per artist, and YouTube paid out $405 per channel. “Web3 is tiny but mighty”, they add.7
a16z often speaks about the “take-rate”:8
The take-rates of web2 giants are extortionate; web3 platforms offer fairer economic terms. In 2021, primary sales of Ethereum-based NFTs (ERC-721 and ERC-1155), plus the royalties paid to creators from secondary sales on OpenSea, yielded a total of $3.9 billion. That’s quadruple the $1 billion – less than 1% of revenues – that Meta has earmarked for creators through 2022.
Web3 technology also enables to create digital, portable identities. According to data privacy startup, Mine, the average consumer’s personal data is held by 350 different brands. Instead of tying one’s identity to a specific platform (“in-platform identities”), identities can now become portable, interoperable, and self-sovereign, disentangled platform relationships from real world identity except where absolutely necessary.
This could enable users and creators break free from the inevitable cyclical rise and fall of social protocols (cf. Google"+, MySpace, Digg, …) and protect themselves from data breaches.
The promise of Web3 wallets is the ability for people to take their data with them and share it with – or even sell it to – brands and companies they trust.
Here’s a great comparison between the Web2 and Web3 paradigms:
Web3 critics argue that it’s either a fad no one needs or a giant Ponzi scheme. Others believe in the vision, but contend that true decentralization is impossible at scale.
Web3 optimists argue that users will prefer credibly neutral platforms that lack altogether the capacity for arbitrary censorship, undue rent extraction (also in the form of privacy costs), or sudden cessation. They see Web3 as a self-sovereign internet of value with an open creator economy and a universal digital ownership layer via NFTs. They see it as the future of a more open, equitable internet.
The optimist in me always wins.
The Metaverse is not Web3
The majority of people describes the “Metaverse” as collective virtual worlds with advanced AR/VR visualization, persistent digital objects, and immersive experiences (in whatever form). It is a concept that originated in science fiction.
There’s a consensus that the Metaverse will be:9
Virtual and physical combined
Social, but with an individual sense of presence
Interoperable
Data persistent (for things as identity, digital assets, etc.)
When brands speak about the “Metaverse”, like Adidas, they usually mean a mix of all those concepts.
For some, such as Mark Zuckerberg, the Metaverse is not necessarily decentralized, but just a virtual experience. This is usually referred to as the “closed” metaverse.10
The big thesis: Across the internet, time spent in virtual spaces increases, particularly among Gen Z and millennials. According to McKinsey, the share of millennials excited about the metaverse is 40 percent higher than that of Gen Z. More time spent online will lead to more value created and consumed digitally.
I argue that the “Metaverse” will eventually combine several technologies to create those experiences:
AI
AR/VR
Web3
JPMorgan is on point:
The elements of a new digital age are converging at scale. The metaverse is the driving force bringing these elements together in a unified, immersive experience.
Web3 will be an invaluable building block for the metaverse.11
The Web3 opportunity for brands, creators and users
Let’s recap. Here’s a quick rundown of the big shifts that are happening:
We move from web1 (read) to web2 (read + write) to web3 (read + write + own).
Digital ownership becomes possible thanks to blockchains; they enable digital ownership, transferability, permanent data storage. This will potentially change the monetization model of the internet.
We see an ongoing increase of time spent on virtual spaces, particularly among Gen Z and millennials.
We see new immersive experiences due to convergence of technologies at scale (AR/VR, AI, Web3, etc.).
This creates opportunities for brands to innovate, market, build client relationships, foster communities, or co-create in entirely new ways; and for users to claim back control of their data.
This is why folks are talking about the “Web3 opportunity”.
Let’s make that more concrete.
I see the following Web3 use cases for brands & creators:
Amplify customer and brand experiences (e.g. Philipp Plein launched its world first crypto concept store, bought Plein Plaza, a piece of Land in Decentraland for $1.4 million, to experience the brand; From storytelling to “storyliving”: Panerai issues NFTs in exchange for experiences money can’t buy; or Balmain’s NFT membership program)
Building communities (e.g. the Club Soda 3.0 community by Scotch & Soda; Netflix rented space in Decentraland to bring fans into a maze as a promotion for the film “The Gray Man.”)
Enable co-creation (e.g. Nike partnered with RTFKT and collaborated with 19 emerging artists to launch the Space Drip NFT collection).
Access new customer groups such as digital natives, Gen Z & millennials or Web3 communities (e.g. M&Ms partnered with BAYC to create limited editions M&Ms).
Monetize IP (e.g. Atari, in celebration of their 50th anniversary, launched an NFT collection as well as a metaverse experience, Room 133).
Representation / fractionalization of assets
Verifiability, provenance, and reduction of counterfeiting through digital twins on the blockchain (LVMH, Prada Group and Cartier founded the Aura Blockchain Consortium; Arianee, an independent company, has similar ambitions).
Creation of verifiable rarity
Recurring revenues on royalties & commissions beyond first sale
Loyalty (e.g. Starbucks Odyssey)
I see the following Web3 use cases for users:
Collect rarity (NBA Topshots, FC Barcelona’s “In a Way, Immortal”, etc.)
Utility in an ecosystem such as virtual land, tickets & coupons, loyalty points, certificates or web3 domains (e.g. Starbucks)
Accessing & belonging to a community (Proof Collective, BYAC, etc.)
Self expression, identity, social status (PfPs, wearable fashion, skins, etc.)
Influence on projects through governance rights (cf. Snapshot, currently one of the leading platforms for token-enabled on-chain governance)
Verify provenance of products (e.g. Christie’s 3.0 platform that removes the need to produce certificates of authenticity – instead, buyers can view the NFT, the blockchain address, and the bidding history of the NFT).
While brands are trying to capitalize on Web3 and the Metaverse with their first Web3 experiences, content will likely a success factor to engage users.
Here’s a best-in-class example of Nike’s entry into Web3.
Example: Nike
Nike has been making strides in the Web3 space for some time, starting with the patent for "CryptoKicks," a blockchain-linked sneaker. The company also conducted a blockchain trial with Macy's and Auburn University's RFID Lab in March 2020 to improve product data sharing across the retail supply chain.
In November 2021 Nike launched Nikeland in Roblox. It’s a virtual world in which users can customize avatars with Nike wearables, upload to Snapchat and play games. Physical movements are being captured by accelerometers of mobile devices.
In December 2021, Nike acquired NFT sneaker studio RTFKT Studios to accelerate their entry into Web3. RTFKT is responsible for the 20,000-piece CloneX NFT collection, which had a trading volume of $806.52m and royalties of $40.33m as of today. The partnership announcement is Nike’s top 11 performing Tweet ever.
In April 2022, Nike launched a virtual sneaker line called “RTFKT x Nike Dunk Genesis CryptoKicks”. Each CloneX holder was eligible to receive a customized pair of CryptoKicks via an airdrop. The CryptoKicks announcement generated more than 850k views on Twitter and Instagram.
In July 2022, Nike launched the RTFKT x Nike AR Geneses Hoodie NFT, available for private mint for holders of CloneX and CryptoKicks NFTs. Wearable by Clones in virtual spaces, it could also be forged into a physical product to wear in real life. The physical hoodie came with a near field communication (NFC) chip that enabled AR effects (e.g. virtual wings).
In November 2022 the company announced its .SWOOSH platform, which will allow community members to create and trade digital collectibles, unlock access to events and products, and co-create products.
As of now, Nike generated a total revenue of over $185m with its NFTs, of which $92m are royalties on re-sales.12
Big bets and big money: Web3 revenue by major brand
The first boom and bust cycle of NFTs took place within collectibles and digital art.
And we’re just getting started.
From Nike to Budweiser to Tiffany, some of the most famous brands in the world are making big bets, and big money, with NFTs and other Web3 projects.
Just in Q3 2022, all these brands entered the space: LimeWire (Yes, THE LimeWire!), Reddit, Netflix, Tag Heuer, Gucci, Tiffany & Co. , NFL, Hello Kitty, GameStop, Puma, Mastercard (June 22), Zara, Balmain.
For some brands, Web3 turns into significant source of revenue. Here’s a list of top NFT revenues of as of now: 13
These brands will use Web3 not only to drive revenue through sales and royalties, but also to increase customer loyalty and increase customer engagement.
The most exciting Web3 catalysts for 2023
I’m incredibly excited for the 2023-version of Web3. Why?
After a year of experimentation follows a year of building infrastructure and tools to reduce friction. I believe that we’re about 2-3 years away from mass adoption. For that, I expect:
New interfaces & UX to increase usability and reduce friction when onboarding to Web3 or interacting with dApps (e.g. Magic Link, Web3Auth, Dispatch, Spaceport, NiftyKit, Crossmint etc.)
Mobile: Better wallets to manage digital assets (cf. Ethereum account abstraction), better web3 browsers to increase accessibility to dApps; I hope we’ll no longer be fiddling around with the clunky Metamask; I still haven’t figured out why ConsenSys can’t build a proper wallet! I see wallets as the biggest catalyst for adoption (e.g. Rainbow, Kukai; etc.)14
Scaling: Adoption of L2s (Optimism, Arbitrum and Polygon) and and progress L2 scaling solutions (e.g. ZK-Rollups) so users can forget about transaction fees.15
Regulatory: Clarity on IP, licensing of web3 assets, and classification of NFTs (e.g. as securities).
… across verticals such as:
Marketing & community: Building closer, more direct relationships with consumers; protocol-to-wallet communication systems; co-creation and community building; community-first, product-later models that boost customers’ connection with a brand. From experience to participation and ownership (e.g. Daylight, Spindl, Bubbles, Sumer, etc.).
Identity & data management: creating solutions to enable the digital data management, selective privacy, and identification of users crossing over from the physical to virtual worlds (e.g. Disco, ENS, Spruce, Galxe, etc.).
Social protocols & communities: Spaces where people can bond and belong; token-gated communities (e.g. Lens, Farcaster, etc., including DAOs)16
Content: dApps on which people can create (e.g. Mirror, Paragraph, etc.)
Marketplaces, minting & discovery: Tools that help to create and curate (e.g. Blur, JPG, etc.).
Virtualization: Bringing physical assets into the digital realm (e.g. BNV.me, etc.).
Analytics: Building out the Web3 marketing conversion funnel (e.g. Rarify).
I also see a big opportunity for “connectors”, i.e. tools, platforms, and partners who help web2 companies move into web3 at scale (e.g. Hi, Hype, Vayner, NFT Kred, etc.).
Here’s a rough idea of how that landscape could look like:
In short: 2023 will be here to build infrastructure for real world use cases that start capturing value for brands and users.
The products and services that will define Web3 – the next generation of the Internet – will be those that turn users into owners that shape, use, fund, govern, or advocate for a brand – as co-creators, community members, and participants.
We’re just getting started
Blockchains are the hit product of a new computing wave, just as PCs and broadband were in the ‘90s and 2000s, and as mobile phones were in the last decade. – a16z17
Web3 is still a promise. We are far from realizing a user-owned, “open, equitable” web. Regulation is vague. The interfaces are still complex and clumsy. After a generation of Web2, users will need to learn the concept of “ownership” of their data and the utility of a “wallet” as a tool to unlock Web3 beyond payments.18 Brands are still experimenting, finding out what works and what doesn’t.
But the promise stands. And it’s a big one. And the time to engage is now.
Soon these paradigm shifts will remodel our online lives, but without the buzz about Web3, tokens, or blockchains.
Asking in 2022 "will every consumer brand have a web3 strategy one day?" is like asking in 1994 "will every brand have a website one day?" - Adam Brotman
Let’s claw back some control. Let’s redefine how we think about ownership in this next, digital era. Let’s build culture, identity, experience.
The future belongs to the fearless.
– Marc
Header image: “Falling #16” by Tom Fabia.
Sources & Further Reading:
a16z. (n.d.). How to Win the Future An Agenda for the Third Generation of the Internet. Retrieved December 22, 2022, from https://a16z.com/wp-content/uploads/2021/10/How-to-Win-the-Future-Deck.pdf
Accenture. (2022, December 15). Accenture life trends 2023 (formerly Fjord Trends). Accenture. Retrieved December 21, 2022, from https://www.accenture.com/us-en/insights/song/accenture-life-trends$
Andjelic, A. (2022, November 8). How brands are experimenting with WEB3. Harvard Business Review. Retrieved January 2, 2023, from https://hbr.org/2022/05/how-brands-are-experimenting-with-web3
Ball, M. (2022). The metaverse: And how it will revolutionize everything. Liveright Publishing Corporation, a division of W.W. Norton & Company. Amazon Link
Banerjee, A., Byrne, R., Bode, I. D., & Higginson, M. (2022, September 28). Web3 beyond the hype. McKinsey & Company. Retrieved December 21, 2022, from https://www.mckinsey.com/industries/financial-services/our-insights/web3-beyond-the-hype
The Chainalysis State of Web3 report. Chainalysis. (n.d.). Retrieved December 21, 2022, from https://go.chainalysis.com/2022-web3-report.html
Cobie. (2022, January 3). WTF is WEB3. Wtf is web3. Retrieved December 21, 2022, from https://cobie.substack.com/p/wtf-is-web3
Esper, J., & Kominers, S. D. (2022, May 16). Why build in WEB3. Harvard Business Review. Retrieved January 24, 2023, from https://hbr.org/2022/05/why-build-in-web3
Herrman, J., & Browning, K. (2021, July 10). Are we in the metaverse yet? The New York Times. Retrieved December 21, 2022, from https://www.nytimes.com/2021/07/10/style/metaverse-virtual-worlds.html
Introducing the 2022 state of crypto report. a16z crypto. (2022, August 4). Retrieved December 21, 2022, from https://a16zcrypto.com/state-of-crypto-report-a16z-2022/
Jin, L., & Parrott, K. (2022, November 8). Web3 is our chance to make a better internet. Harvard Business Review. Retrieved January 2, 2023, from https://hbr.org/2022/05/web3-is-our-chance-to-make-a-better-internet?ab=seriesnav-bigidea
Liz Harkavy, E. L. (2022, September 1). 7 essential ingredients of a metaverse. Future. Retrieved December 21, 2022, from https://future.com/7-essential-ingredients-of-a-metaverse/
Opportunities in the metaverse - J.P. morgan. (n.d.). Retrieved December 21, 2022, from https://www.jpmorgan.com/content/dam/jpm/treasury-services/documents/opportunities-in-the-metaverse.pdf?ref=tokendaily
Stackpole, T. S. (2022, November 8). What is web3? Harvard Business Review. Retrieved December 21, 2022, from https://hbr.org/2022/05/what-is-web3
Status quo of nfts - part II. Status quo of NFTs - Part II. (n.d.). Retrieved December 21, 2022, from https://www.bitcoinsuisse.com/research/decrypt/season-2022/status-quo-of-nfts-part-ii
Value creation in the metaverse. McKinsey & Company. (n.d.). Retrieved December 21, 2022, from https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/value-creation-in-the-metaverse
Some examples:
The New York Times, 7. October 2022: “This is Life in the Metaverse”
The New York Times, 18. January 2022: “What’s All the Hype About the Metaverse?”
The New York Times, 10. July 2021: “Are We in the Metaverse yet?”
Wall Street Journal, 28. October 2022: “What the Metaverse Will Mean”
Wall Street Journal, 28. April 2022: “What is the Metaverse? The Future Vision for the Internet”
Financial Times Metaverse section.
Google worldwide search trend for “Metaverse” (Red) and “Web3” (Blue):
Recently overheard in the US congressional hearing on #FTX on 14.12.2022: “I don’t get the point of crypto or blockchain. It’s like counting how many times you chew gum. It makes no sense to me. And there are less fraudulent ways to do that.”
“I don’t get the point of crypto or blockchain. It’s like counting how many times you chew gum. It makes no sense to me.”
Blockchain networks are operated with cryptocurrencies. That’s were the term “crypto” comes in.
How a16z thinks about the third generation of the internet.
Take-rates between Web2 and Web3, according to Variant Fund:
In his book “The Metaverse”, Matthew Ball defines is as:
“A massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.
Examples of big brands “virtual” experiences instead of Web3 enabled experiences such as ownership, transferability and permanent storage:
Nike: "Nike On Demand," which allows users to try on and purchase products in a virtual environment. Nike also built up “Nikeland” on Roblox.
Coca-Cola: "Coca-Cola Beach," which allows users to socialize and relax in a virtual beach environment.
Red Bull: "Red Bull Air Race VR," which allows users to experience the thrill of Red Bull Air Race events in a virtual environment.
Toyota: "Toyota VR Test Drive," which allows users to test drive Toyota vehicles in a virtual environment.
Sony: "PlayStation VR," which allows users to play games and experience other content in a virtual environment.
Samsung: "Samsung VR," which allows users to experience virtual reality content and socialize with others in virtual spaces.
Warner Bros.:"The Matrix VR," which allows users to experience the world of The Matrix in a virtual environment.
HTC: "Vive," which allows users to experience virtual reality content and socialize with others in virtual spaces.
Google: "Google VR," which allows users to experience virtual reality content and socialize with others in virtual spaces.
The tech layers for the next internet according to Messari:
Nike’s total revenue in 2021 was $44.538b, so NFTs account for about 0.4% of total revenue.
Also see individual collection stats as of 20. December 2022:
If we look at the total revenue generated in the Web3 space in 2021, NFTs are still a small part:
Here’s a good article on Web3’s wallet opportunity: https://medium.com/collab-currency/web3s-wallet-opportunity-f294cb4135a3
Polygon is planning to integrate zero-knowledge rollups to become a “true” layer-2 solution for Ethereum. At the moment, Polygon is still a separate and independent blockchain with its own protocol, consensus mechanism, and native token (MATIC).
This is a great overview of Web3 DAOs by Chainalysis:
DeFi protocols like Uniswap ($UNI) and Sushi ($SUSHI).
Social clubs like Friends With Benefits ($FWB) and Bored Ape Yacht Club ($APE).
Grant-makers like Gitcoin ($GTC) and Seed Club ($CLUB).
Play-to-earn gaming guilds like Good Games Guild ($GGG) and Yield Guild Games ($YGG).
NFT generators like Nouns (1 NFT = 1 vote).
Venture funds like MetaCartel and Orange DAO.
Charities like Big Green DAO and DreamDAO (1 SkywalkerZ = 1 vote).
Virtual worlds like Decentraland ($MANA) and Sandbox ($SAND).
Source:
Instead of users onboarding their data to individual service providers, service providers would have to onboard to them.
This is such a great piece! I wrote a related article, and would love your feedback: https://nativemarketer.substack.com/p/web-30-what-does-it-mean-for-brands