web3 and business model innovation
Particularly, but not limited to, start-ups, innovation includes discovering a new business model. While most of the focus is often on the technology or product features, these alone may not provide enough enduring advantage or be disruptive, versus sustaining innovations.
If we look to notable start-ups themselves, we do start to see this.
- Uber and Airbnb had a new model enabled by the renting of owned assets -- cars and homes -- to compete with fixed asset businesses like taxis and hotels
- Facebook enabled user generated content to scale as an advertising vehicle
- Tesla changed the traditional landscape through selling direct versus through dealers
However, I'd argue that many successful startups aren't startups because they had a new business model.
It's the underlying technology shift that gave tailwinds to the most successful start-ups.
web3 is considered an example of this shift.
In the same way 'web2' enabled user-generated and dynamic content ushered in new models, web3 is to do the same.
To explore this, we should first look at patterns of innovation due to the web2 shift and what could emerge in web3.
The biggest shift from web1 to web2 was the dynamic nature, the read+write. web1 was more of a static, publishing enabler -- static content blogs, websites, and so forth.
Web2 arguably then was ushered in with e-commerce, of which Amazon.com was the biggest and most successful first-mover.
And then extending the dynamic content ability to any user -- MySpace, Facebook, Twitter -- as well as Slack, Atlassian.
The web2 concept feels tilted more towards b2c businesses since another comparison is how web2 companies built their own closed, proprietary protocols to compete with the open, decentralized protocols such as FTP, SMTP, IRC.
If this comparison were true, however, many large and successful businesses grew big but didn't necessarily take existing open protocols and created closed businesses. They probably grew due to the interconnected nature of the Internet.
For example, Oracle in the database market and SAP ERP, were very large businesses, fueled in part by Internet driving the need for businesses to be more agile and global. These did not need to fundamentally change their business model of selling bits on CDs for a long time till Salesforce.com challenged this with SaaS.
This enablement of software as a service unleashed an entirely new business which took out the traditional businesses, created new businesses and widened markets. SaaS was a new business model enabled by the Internet (arguably the web2 nature).
So "picks and shovel" business, like SAP, Oracle, Cisco grew very big, very fast because other businesses needed to either Adapt to the changing businesses tides from the Internet or high-growth businesses which Attacked legacy markets and were also growing very fast.
So when looking for opportunities, one needs to see what changes from one technology to another.
The Internet (honestly, I am not completely clear on the value of distinguishing between web1 and web2 other than the comparison of open protocols and their closed successors which largely have been b2c companies) created huge opportunities, particularly for big-tech aggregators, due to a few things:
- Near-zero distribution
- Interconnected communication
- 24/7 access to end users
- Mobile access
There might be others but those are the attributes off the top of my head. The "primitives" that could influence a business model. There are lots of other technical capabilities under the hood that made things faster, more secure, and so forth, but I didn't necessarily include them because they didn't change the fundamental model.
For example, security such as TLS did enable proliferation of e-commerce; but it was the ability to read from a global inventory story and make a purchase 24/7 that created new business models (like Dell and Amazon, for example).
What then, do we really have in web3 that will change the business model (and these changes should be in the context of disruption).
- Immutability of data
- Incentivization of "provable" work
- "Ownership" via decentralized identity
- Trust-minimized execution and coordination
A business model which emerged with these properties, for example, has been Bitcoin.
Bitcoin introduced a new business model for the storage of value and the transfer of money.
Much of what it could do draws from these characteristics.
There may be other properties Bitcoin has, such as very granular fractionalization, but these don't necessarily depend upon these four.
What opportunities then come from these and execute on these well?
Before we can explore these, we need to first start with user problems or user benefits that emerge?
In the case of the Internet, including the growth of the tech giants, the benefits to consumers could be boiled down to "free."
Email was free. Microblogging/publishing was free. Access to the largest inventory of anything you want was free.
A close second was increased convenience by reducing friction (friction including walking to the store to pick something up; needing to return a DVD in the mail; waiting for the weekend in order to check your balance).
We see some of these consumer-driven conveniences emerge when it comes to finances: trading 24/7; not dependent on bank hours to deposit or retrieve funds.
So I think the next wave, particularly in finance for consumers, will continue to be eating away at these known user needs: cost, convenience, simplicity.
Business adoption also will want to see lower costs, increasing revenues, streamlining processes.