Harvard Business Review: Why build products in Web3

Published on 1 Months ago   175 views   0 Comments  

Note: the original text comes fromHarvard Business Review, written by Scott kominers, associate professor of Harvard Business School, and JAD esber, co-founder of koodos. The following is compiled by the way of defi.

Illustration: NFT artist Luke ABC

Today's dominant Internet platform is based on the aggregation of users and user data. With the development of these platforms, their ability to provide value is also increasing - thanks to the power of network effect - which enables them to stay ahead. For example, Facebook's (now meta) user behavior data helped it fine tune its algorithm, making its content supply and advertising positioning much better than what its competitors can provide. At the same time, Amazon has used its extensive understanding of customer needs to optimize distribution logistics and develop its own product line. YouTube has built a huge video library provided by many creators, so that it can provide viewers with content on almost any theme.

In these business models, locking users and their data is a key source of competitive advantage. Therefore, traditional Internet platforms usually do not share data, even aggregated data - it is difficult for users to export their social graph and other content. Therefore, even if users are more and more dissatisfied with a platform, they usually won't leave.

But all this may be changing. Although it is difficult for newcomers to challenge "Web 2.0" companies like meta with their own conditions, current companies -- working in what they call "web 3" mode -- are putting forward a novel value proposition. Although there is a lot of public discussion about metauniverse and various NFT projects of hyperfinance, Web3 is one that some developers agree withFundamentally differentMethod of. It is based on such a premise: in addition to using users' data to make money, there is another option - that is, establishing an open platform to directly share value with users will create more value for everyone, including the platform.

In Web3, users usually have any content they create (such as posts or videos) and the digital objects they buy, rather than the platform's complete control over the basic data. In addition, these digital assets are usually created according to the interoperability standards on the public blockchain, rather than privately hosted on the company's servers. This makes these assets "portable", that is, in principle, users can leave any given platform at any time, exit from the application, and transfer to another platform together with their data.

This is a major shift that may fundamentally change the way digital companies operate. The ability of users to bring their data from one platform to another creates new competitive pressures and may require companies to update their business strategies. If a platform does not create enough value for its users, they may leave directly. In fact, in Web3, new entrants can clearly motivate powerful users to move to them -- for example, looksrare, an NFT trading platform, recently passed the so-called"Vampire attack"Launch, reward people to transfer from the leading platform opensea.

But at the same time, the dynamics of Web3 is not zero sum, which means that the overall value creation opportunity of a platform can be greater. Built on an interoperable infrastructure layer, platforms can easily connect to a wider range of content networks, thereby expanding the scale and types of value they can provide to users. For example, a Web3 art gallery can be launched from the works of art that users have created on the chain, rather than requiring them to upload the works of art directly to the platform.

Even for established platforms, this can be a valuable source of content. Twitter recently launched a feature that allows users to display their NFT in their profile; Instagram is doing similar work. For the new platform, the ability to integrate existing digital assets is crucial to solve the so-called "cold start problem" - due to the lack of initial content, it may be a challenge for a platform to gain development momentum at an early stage.

In addition, the infrastructure layer means that the costs associated with building user trust in Web3 are much lower. Managing digital assets on public account books can help us understand more clearly what assets exist and who owns what. In the past, this was a difficult problem on the network. For example, if a digital artist claims that a new work of art is limited to 489 versions, potential owners can verify this directly on the blockchain - without trusting the artist himself or asking galleries or other intermediaries to provide such assurance.

This trust framework can be extended to software running the Web3 platform: key operations can be encoded as "smart contracts" on the blockchain, which are auditable and unchangeable. This makes it possible for platform designers to promise certain design functions in advance, such as pricing rules, royalty agreements and user reward mechanisms.

All this means that -- at least in theory -- it's much easier to launch products in Web3. Even an unknown entrepreneur can connect to an existing network and create products without the license of an established platform. In fact, in Web3, users sometimes don't need to trust the company (or person) behind the project; Instead, they just need to trust the code itself. For example, some recent fund-raising activities supporting humanitarian assistance in Ukraine are operated through smart contracts, which will automatically transfer all funds received to the Ukrainian government or relevant charities; This means that donors can trust that their funds will be used correctly, even if the event organizers are completely anonymous.

Of course, in view of the early financial use cases and high transaction volume of Web3, some bad actors have used hype to plan scams. Many Web3 experiences today are designed for advanced users who are proficient in technology, while ordinary users may have limited knowledge of the actual functions of an application or platform, let alone be able to review the source code to verify whether its functions meet the description. There is still a long way to go before Web3 technology is safe and available to ordinary consumers.

In addition, in practice, connecting to an existing network does not mean that you can automatically unlock a group of users who are willing to stick to it. Like all entrepreneurial projects, it is crucial to build a product that can meet the needs of real users. However, once you solve the needs of users and use the established network through Web3, you can deploy and expand more easily.

Making the back end of the platform open and interoperable can realize compound innovation and stimulate direct investment in building the infrastructure layer. For example, koodos -- a Web3 service that allows people to create a collection of things they like across the Internet -- is building a shared infrastructure that allows any network connection and improvement. ๏ผˆDisclosure: esber co founded koodos and kominers provided market design advice to the company๏ผ‰ใ€‚

Shared infrastructure means that applications can focus on building a good experience, thus paying more attention to platform design as a source of competitive advantage. An application's understanding of its market is reflected in its user experience and interface - so even in Web3, user insight will continue to make consumer applications different.

Web3 platform may also release a new and particularly powerful network effect through community participation and social cohesion. The ownership of digital assets promotes a psychological sense of ownership, which can make consumers feel the investment in products, so that it almost becomes an extension of itself. Users of a platform actually become "fans". They form a bond through the shared platform experience - fans similar to a sports team or unknown band regard themselves as a community.

Adam Bob Square NFT owned by kominers

For example, the hundreds, a popular street clothing brand, recently sold its mascotโ€œAdam Bomb"NFT with the theme of. Holding these NFTs can participate in community activities and buy exclusive products, providing a way for fans of the brand to know and contact each other - thus strengthening their enthusiasm.The HundredsIt also spontaneously announced that it would pay royalties (in the form of store points) to the holders of NFTs associated with Adam bombs, which are used in some of its clothing collections. It's like you can have partial ownership of the Ralph Lauren logo, and each new series using the logo will give you a dividend. In this way, the value part of the brand is decentralized, so that the hundreds community has more feelings for this IP and spared no effort to promote it -- so that some community members even tattooed Adam Bob tattooโ€Œใ€‚

Another example is sushiswap, which is the "bifurcation" of the decentralized financial platform uniswap - which means that the basic algorithm of sushiswap is the cloning of the code released by uniswap. The main difference is that sushiswap establishes a strong brand and community, and establishes a positive and continuous reward system for users, which promotes higher user participation and positive emotion towards the platform; This quickly made it a successful competitor to uniswap.

More generally, sharing ownership makes the incentives between products and their derivatives more consistent, creating motivation for everyone to become builders and contributors. The underlying technical standards also enable every Web3 company to build on them. This means that communities around a platform can co create in a less confrontational way than in the past, and there will be more derivatives circulating - making the platform ecosystem stronger.

In the short term, this model will distribute part of the consumer surplus to builders or creators. But because builders get more, they will be strongly encouraged to invest and make a big cake for everyone - which means that Web3 will also increase consumer surplus in the long run.

In a word, Web3 has the potential to open up a more valuable Internet for everyone. New companies can create communities around their brand and product concepts on the web 3 infrastructure, which is much easier than previous web iterations. Even established platforms can take advantage of these forces by connecting blockchain based content networks and giving their users some ownership of their data. All this means that the next Internet era may be very different from the era we live in today and more open.

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