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My goal is to bring diverse minds together to accelerate our web3 education to build a better future. I hope that these recaps will be in service of that objective.
I have been having so much fun over the last few months!
I've had the chance to connect with web2 players like Stripe, Twitter, Reddit, Microsoft, and others exploring web3. We’ll call them “web2 explorers”. I've also connected with web3 native players like Opensea, Polygon, Mirror, and Solana. Many of them are starting to partner with web2 platforms.
Today, I wanted to highlight a few of the learnings I've had about how web2 explorers are entering this space. This will be interesting if you're in web3 thinking about how to work with incumbents or if you work at a web2 company and want to figure out where to start.
Here's the roadmap:
No one really knows what they are doing
The disruptors don't want to be disrupted
Focus on user problems, not just cool tech
Let's begin.
No one really knows what they are doing
Generally, the strategy on how web3 will impact web2 businesses is still being built. The narrative of "it's still so early" is accurate. It's hard to tell what in web3 will stick and what will fade. I don't think a lack of a coherent strategy is a bad thing. There is structure in their web3 explorations, but how it impacts their businesses are being defined. It's cool to witness. People are open-minded, challenging their thinking, and open to being proven wrong on beliefs they have had for years.
People want to work together. There’s a much more collaborative tone in discussions. Younger talent is also getting a chance to step into leadership roles. Friends in school a few years ago are being asked to share their thinking and shape their company’s strategies because they have been nerding out on that crypto thing for the past few years.
The culture, vibe, and technology from web3 are making an impact on web2 companies. The ideas and narratives of web3 (e.g., decentralization, users owning their data, novel payment networks, etc.) are starting to impact the thinking on how web2 explorers build products.
The disruptors don't want to be disrupted
The Innovator's Dilemma is classic. It's a book written by the late HBS professor Clayton Christensen. The premise of the book is the following:
Incumbents are focused on their existing customer base.
Due to the incumbent's size, niches within that customer base may not be served well.
This leaves room for a smaller company to enter the market and focus on a niche that the incumbent does not prioritize.
Over time, due to the speed of execution for the smaller company, they begin to take market share from the incumbent.
Eventually, the small company gets more prominent, and the cycle starts again.
Web2 explorers have done this to their former competitors. Facebook disrupted the social networking business, Google disrupted the search business, and LinkedIn disrupted the recruiting industry. Many leaders of these companies were there when that happened. It is naive to think that they won't be mindful of how they can be disrupted themselves.
Instagram is an interesting example. They make money through advertisements. They are incentivized to keep you on their platform to collect more data that they’ll share with advertisers. Advertisers will continue to pay them money if they have more detail on who those ads will be sent to.
On the surface, this goes against web3 principles of data ownership and portability. If the data is yours and you can take it off Instagram, wouldn't that hurt their business?
As I wrote about last week, Adam Mosseri, CEO of Instagram, is still open to these ideas. Below is an excerpt from this interview with Ben Thompson of Stratechery.
"On the Instagram side to start, I think there are two ways it can benefit our business. We are a marketing channel for a lot of creators. Creators share a bunch of content and tell a story, build an audience, and then monetize that audience, whether through rev share on YouTube or branded content deals on Instagram or subscriptions on Twitch, and they drive a lot of impressions for us. So you don't even need to pay us directly for you to create value for us and for us to create value for you. If we are a great platform for you to build an audience, you're creating compelling content, and we can advertise against that content the same way we advertise against everything else."
Adam seems to be pointing out that web3 tools can help their business. If Instagram enables creators to monetize through crypto tipping, NFTs, or social tokens, it helps create more content, which can later be monetized through ads. Like I mentioned before, Adam and Instagram are exploring.
What about Twitter? They just got acquired by Elon. They will now be a private company which will give them a bit more leeway to experiment without the scrutiny of the public markets. Being at LinkedIn over the past few years has shown me the importance of this. The counterfactual is impossible to determine, but LinkedIn has become a $10b+ growing at 30%+ y/y business with a healthy-ish feed due to our longer-term thinking. Microsoft’s acquisition has helped with this. It's hard to say if we would have the ability to do what we have done as a public company.
Elon has already said that he wants to make more of Twitter’s algorithms more open. He also has mentioned he wants Twitter to be a protocol for developers to build on top of. This smells and tastes like a lot of what is happening in web3.
There might be a spectrum on how "web3" a web2 company wants to get. Twitter might embody the majority of web3 ideas. Instagram might be closer to what they are while dabbling in crypto. It's hard to tell.
They are trying to figure out where these new technologies make sense in their business. It doesn't mean they won't be disrupted but they'll go down fighting if they do.
Focus on user problems, not just cool tech
I think companies risk just copying each other with any innovation. You saw that with stories. Snapchat created it, and many platforms followed. The product and engineering teams worked hard to build it for their platform. Some succeeded (e.g., Instagram Stories) and others failed (e.g., Twitter Fleets).
We're starting to see the same dynamic happen with web3 products.
Twitter has been a leader of web2 explorers. Their first product was integrating Opensea to connect your NFT with your profile picture. Pretty cool! But does every other platform need to do the same? Maybe, if their users want them?
I’ve been impressed with how Stripe has entered this space. Stripe has a history of enabling crypto features through its APIs. In 2014 they accepted Bitcoin as a payment method, but in 2018 depreciated support due to lack of demand and fraud risk. In February, they announced a suite of products to give customers access to tools and APIs that make it easier for customers to buy and store crypto tokens, cash out, trade NFTs and handle compliance workflows.
Now they will make it easier for creators to get paid out in crypto. They will start with a few creators on Twitter but plan to release a set of APIs to enable platforms to send and receive USDC from web2 platforms to creators (i.e., imagine Substack allowing writers to accept crypto as payment.
Stripe is an excellent example of focusing on focusing their web3 explorations in alignment with their vision:
Stripe helps new companies get started and grow their revenues, and established businesses accelerate into new markets and launch new business models.
If you’re entering into this space, here’s a heuristic to think through so you don’t get lost in the sauce:
Identify the problems that are most important to your users or customers.
Learn how web3 products are solving those problems.
See if there is room for integrating those web3 ideas and tech into your product roadmap.
This is HARD. It's hard to be up to date with what is going on. It can be hard to understand your own business and what everyone is working on. Connecting those ideas and people is challenging, but where innovation can come from.
If you’re thinking through these ideas, let me know. Happy to brainstorm with you.