The Web3 Playbook

A lot has been written about the technology of Web3. Relatively little is understood about the business models of Web3. the widely accepted shift from pipelines to platforms will now shift further with the emergence of protocols as the foundational technology of Web3.

Platforms — re-architected value creation away from ‘mass production connected to mass consumption’ to ‘distributed production connected to personalized consumption. 

Protocols — more specifically, permission less blockchain protocols — provide a new organizing and governance mechanism to organize actors in an ecosystem.

Protocols bring decentralized ownership, giving creators greater control over what they’re creating. Alongside distributed production and market access on your own terms, you will now have the property rights to leverage as you choose.

Managing Web3 network effects requires not just kickstarting and managing market activity but also managing its coordination with the scaling of market infrastructure. When Web3 ecosystems achieve this balance, they benefit from a positive feedback loop which amplifies these ecosystems further.

Network effects powered the rise and dominance of Web2 platforms and captured the imagination of many over the past decade. Some believe that network effects will be even more powerful in Web3 while others believe that Web3 will kill network effects.

The answer to all the hype and confusion that plagues Web3 discourse today, lies in reshaping our mental models about network effects. Our understanding of the Web2 world may not apply as directly in a Web3 world. 

To understand network effects in a Web3 world, it’s important we rethink network effects from first principles and understand the five key mental models that drive changes as we move from Web2 to Web3.

For a long time now platforms have been concentrating and creating winner-take-all economics at a scale. 

All that is, however, poised to change. 

Web3 holds the promise of fundamentally rearchitecting market infrastructure and governance, backed by protocols designed for minimal extraction. Done right, this would move us from a world of winner-takes-all to a world of winners-share-all, as they build together and benefit together.

Interested in being part of this change? Drop in your query here.

Composability and allowing a larger developer ecosystem to innovate on top of your protocol enables competitive advantage. The more the value built on top of the protocol (complements to the protocol), the greater the value in using the protocol. Web3 provides a unique opportunity to strategize for composability not just at the level of protocols and ecosystems but also at the level of investment funds

Composability and forkability are two sides of the Web3 competitive strategy coin.  Forking, interoperability, and the possibility of vampire attacks create an entirely new competitive landscape in Web3. Forking is easy and inevitable.

Web3 ecosystems are naturally geared towards high competition. They need to actively design for both composability and forkability in order to create enduring competitive advantage.  Web3 ecosystems that are designed for composability and forkability will be the ones best positioned to harness that developer participation. A project that validates an opportunity creates an ever-growing incentive for competition.

Much of Web3 narrative centers around the idea of decentralization. To understand decentralization as a concept, we need to better understand the 3 key challenges posed by centralized platforms and; 3 ways decentralization can bring about change

With the rise of Web3, we’re moving into a new era of competitive advantage. Scarcity and the basis of competition shift again. The rise of Web3 changes a lot of assumptions about scarcity. 

• Data is portable and no longer a basis for competition. 
• Users may switch services easily and user attention and data may no longer be accessed, harvested, and managed the way it was in the Web2 world.

New competitive advantage lies in building comprehensive innovation ecosystems around composable services.

To understand how you can leverage Web3 for your business, drop in your query over here.

Power users play a key role in the creation of network effects. As centralized ownership of the platform decreases, power users play an increasingly important role by driving the growth of the platform and reaping the ensuing gains. Power consumers are responsible for driving demand. Power users drive outsized activity on the platform. Getting power users onto the platform early on helps overcome the chicken-and-egg problem that most platforms face.

Power users become even more important in Web3 because they gain ownership benefits, not just market access/participation benefits.