Demystifying web3

There is an emerging tech ecosystem that promises to revolutionize physical and digital business models: web3.

Web3 is more than a singular technology. It’s more than a convergence of technologies. It’s an ethos that has the potential to empower consumers while strengthening the relationship consumers have with brands that are willing to operate with them in the space. Web3 fundamentally changes the way business takes place and how we connect to one another on a personal level. In fact, web3 is expected to fundamentally alter the way we think about our presence online over the next few years.

What should I know about web3?

At the heart of web3 is the concept of decentralized ownership, currently facilitated by blockchain technology. The distributed ledger establishes a verifiable and traceable way to ensure that items and assets are authentic. It also introduces a way to compensate individuals for their time, data and input — while permitting them to retain control of their personal data. An advertiser, for example, might offer consumers some form of currency if they’re willing to share income information.  

Suddenly, it’s possible to pay or reward customers and brand devotees for helping to collaborate on a new product or service, whether it’s a clothing line or an eye-catching label for a soft drink bottle. It’s also possible to buy, sell and exchange digital NFTs, as well as tokens representing a “deed” of property in the physical world or digital sports cards in a virtual NFT gallery.

There are three primary components to web3. 

• Ownership: Until web3, tokenization was available only at the point of contact for a specific transaction or an ongoing interaction. This imposed limits on what’s possible online. However, blockchain allows for an entirely new ownership model. In this new world, digital assets become more like physical assets. People can take their digital assets wherever they go and transfer those assets to others at any time. A movie or book bought online can suddenly be sold to a friend, a transaction that has to be done physically at the moment.
  

• Aligned incentives: Web3 supports tighter alignment between brands and consumers through the ownership of digital property. The importance of this shouldn’t be ignored. In a web3 world, one-way connections, and things like linear subscriptions, go away. Consumers are suddenly partners and even owners. With a stake in the web3 world, a business suddenly has an opportunity to create a new and more actively involved type of brand advocate. A social media influencer, for instance, might choose to promote a brand or product on their individual platforms because of incentives that extend beyond money — maybe influence on how a company is run, equity or co-branding opportunities.

• Community: It’s tempting to think of community as an entirely separate entity from ownership and aligned incentives. In reality, the three are deeply intertwined. Incentives and rewards created through tokenization produce a new and potentially more valuable community. Businesses that get this equation right may have an opportunity to achieve a new class of super-loyalty. Collaborative communities can generate art, videos, photos and online posts that aid marketing teams and web creators in developing a brand. No less important: Members of a community are likely to increase their transactions in the physical world.

What could web3 look like?

Consider the loyalty programs of today. Customers are limited to using their loyalty rewards on an existing platform. They have the ability to spend their rewards for additional services or products only from that brand. A web3-based loyalty program opens up the possibilities for what can be done with loyalty rewards enabling direct ownership, and the ability to sell to other users in exchange for a currency. This is mutually beneficial for all parties involved — the brand, the seller and the buyer. This invites new users into the marketing funnel and drives additional revenue and demand for the brand through the collection of secondary sales revenue.

In web3, it’s possible to hold objects in both physical and virtual spaces. It’s also possible to transfer digital assets, including NFTs, to create new, enhanced and reinvented types of ownership — and new business models. Trust is built into the system through technologies like blockchain.

Inserting this type of ownership model into the internet has the potential to change the way consumers and brands interact. Suddenly, online spaces more closely parallel the physical world. Web3 also has the potential to alter business-to-business (B2B) partnerships by linking goods and services in ways that weren’t possible in the past.

Why web3 is disruptive and what to consider next

Although the foundations of web3 technology already exist, it will take time for individuals and organizations to put it into motion. Here are a few things to consider. 

• Web3 is coming fast, so become familiar with it. Web3 innovation is taking place rapidly. Once organizations understand how to use it and see success in test projects, adoption is expected to accelerate. Companies that understand the technology and use it effectively can gain an advantage in much the same way that certain brands have tapped influencers and social media to achieve big gains. For now, business and technology leaders can benefit from familiarizing themselves with web3 and developing a strategy to capitalize on the opportunity it presents.
  

• Web3 can change how governance and oversight occur. By its decentralized nature, the need of a third party to oversee operations is gone. Much like how cryptocurrency works today, web3 has the potential to be self-regulating and self-monitoring just by virtue of how the protocols are created. Regardless of what level of involvement your company is considering, you should get to know how the infrastructure of a web3 world could work and what you should do to get comfortable with it.
  

• There’s a need to rethink and rewire brands and relationships. Web3 represents more than an incremental change in the way brands and consumers interact. Business leaders should rethink and expand how they view relationships and prioritize authenticity. Among other things, web3 introduces a true two-way channel with each customer, providing several avenues to participate with the company. This makes it possible to buy things from them while also selling things to them. Companies have the opportunity to view brand advocates as partners rather than consumers or subscribers.
  

• Web3 introduces new income sources and new business models. While there’s an opportunity for increased revenue streams through the initial sale of digital goods and services, this is just part of the picture. There’s also an opportunity to realize residual value in perpetuity as NFTs and other assets are bought and sold downstream. The most obvious examples revolve around art or music, where a creator is compensated every time one of his or her creations changes hands. In some cases, this can produce a perpetual source of revenue. Other concepts to keep an eye on are token-based loyalty programs that allow individuals to buy and sell their points or currency; NFTs that serve as access tokens for products, services or value-added components; and blockchain-enabled supply chains that introduce a single source of truth among multiple firms.
  

• In order to achieve gains, you’ll probably need to step outside your comfort zone (or at least rethink some things). One of the consequences of web3 and a new approach to ownership is that customers suddenly have greater control over things like loyalty points and NFT assets. This may seem jarring to business leaders who are accustomed to retaining complete control over their assets and the people creating them. Other areas to think about include ethics, privacy and cybersecurity. While blockchain authenticates transactions, it doesn’t eliminate the possibility that something like malware or poorly functioning technology could undermine a web3 business model.