Is Web3 all a bunch of buzz or is it the next great wave of Internet companies to come?
Both sides of the argument are valid from where we currently stand.
The thesis that underpins the enormous potential of the space going forward is less about how blockchain-based currencies can act as a ‘transfer of value’ (ie. Bitcoin) and more about how they can act as a mechanism of commerce.
A combination of “number-go-up” incentives (yolo investments) and friction in most areas around digital wallets (for almost all major digital currencies) mean that transacting efficiently within the walls of Web3 is a difficult task at the moment.
But a new batch of Web3 Social Commerce marketplaces are proliferating, indicating that some founders and investors see true commerce on the horizon, beyond just NFTs.
Web3, Wallets & Social Commerce
- The History of Web 2.0 – Social Media
- Web 3 – Own Your Data, Be Your Own Bank?
- Web 3 – Digital Wallets
- Web 3 – Comparing to Credit Cards
- Social Commerce – TikTok Shop & Marketplaces
- Social Commerce as a Mass Adoption Mechanism?
- More Social Commerce Posts
The History of Web 2.0 – Social Media
The late ’90s was the inception or beginning of social media, or Web 2.0.
It wasn’t until nearly a decade later that the massive wave of momentum began, turning blogs and chatrooms into new networks of friends, colleagues, and strangers almost overnight.
Live Journal (still alive) was a platform that launched in 1999, enabling social bloggers to become friends with one another. Friendster launched in 2002, LinkedIn in 2003, MySpace in 2004. Then of course came Facebook in 2004, and the new era of social media was born.
Aside from LinkedIn, “Web 2.0” had no real business model. It’s hard to remember the golden years of Facebook until late 2007, a time when there no advertisements.
One major feature that caused Facebook to breakout was sharing photos. Flickr was another popular social network in that era, but one couldn’t share photos with another’s friends. Until Facebook.
Instagram and Pinterest came along in 2010, the former being acquired by Facebook for $1 Billion in 2012. Since that time, there have been small, moderate iterations in the space but nothing major.
What is major is the business models built by these companies turning into Billion-dollar Ad businesses. Digital Advertising has forever reshaped marketing, media, and virtually everything in between.
Nevertheless it has come at a cost. The cost of privacy. User privacy data is a black hole into an abyss that nobody seems to truly understand, and this was one of the original premises of Web 3.0.
Web 3 – Own Your Data, Be Your Own Bank?
It hasn’t quite gone down like that. Bitcoin or Ethereum users who self-custody their coins on digital wallets own their own coins (be your own bank). This has been a major innovation to date in the eyes of many, a censorship-resistant store of value.
‘Be your own bank’ comes with tradeoffs around convenience and potentially losing everything, but many have been happy to make those tradeoffs.
‘Own your own data’ is another story. The majority of the ‘Web 3.0’ Dapps (decentralized apps) have virtually amounted to nothing; no protocol has anywhere near enough market penetration to make this premise relevant on social applications.
Why has much of Web3 failed to take off?
- poor user experience due to underdeveloped technology? (future use case remains strong)
- lack of demand for web3 apps? (future use case remains weak)
- competition against current payment rails is too strong? (non-existent future use case)
It is hard to say, definitively, but we look into how a poor user experience is among one of the leading sources of friction across the entire Web3 ecosystem.
Web 3 – Digital Wallets
It may seem overly simplistic to suggest digital wallet ‘friction’ (ie. difficult for average users to use) is a reason why Web3 hasn’t taken off, but relative to the story of Web 2.0 listed above, it is plausible.
Until users really had something to share (principally photos), there was no real mass-market demand for social networks. Once they had something to share, the networks had to make that process seamless.
Flickr was not the first major social network to break through, even though it was the first major photography-based social network.
In the same light, there is nothing really for people to exchange on Web3 at this point, other than an array of random tokens or NFTs. Digital Art and Photography have some use cases, but those who typically do well in this space are selling for a higher price point.
In the even a major use case emerges, friction across most major digital wallets prevents seamless transactions between users.
Web 2.0 = Flickr/Facebook : Web3 = ?
Having Bitcoin or Ethereum, for example, in moderate or large quantities amounts to wealth, but what is the incentive to exchange them?
- fees remain high (disincentivizes commerce)
- value per unit remains high (more like equities than currencies)
- friction per new user remains high (need to teach about wallets, etc.)
Most ‘wallets’ are more akin to brokerage platforms like Robinhood than an actual digital wallet; they are a place to store tokens, which are akin to securities.
There are Fintechs like Revolut that seek to hybridize the digital wallet of the future between cash and crypto, but that is more of a banking bet on the future than something that will achieve mass-market adoption for their own banking platforms.
Presuming people in a local market have something they want to exchange, typically leads to one of several very clunky options for a digital wallet to exchange, and ultimately hold, ‘value.’
This isn’t an easy problem to solve because the solution is not a ‘username + password’ system like banking, it requires finesse between the typical seed-based security solutions and back-end integrations with liquidity platforms.
Nevertheless, as Digital Wallets become more frictionless to onboard new users – without compromising security – major use cases for Web3 commerce will likely emerge.
Web 3 – Comparing to Credit Cards
There has been a lot of attention and innovation in this space in the last ~year, with most of it being design innovation against the backdrop of security.
Those within the ‘niches‘ of certain protocols may be able to now transact conveniently, but many in the mainstream will say:
“Why would I ever use crypto vs. cashless payments (debit, Visa, etc.)?”
The simple reason is that mainstream payments protocols charge extremely high fees (~2-3%) to the merchant for credit card transactions, and lower fees for debit.
Merchants have a huge incentive to transact in debit, cash, or crypto. But typical Bitcoin or Ethereum users (or other cryptocurrency) will be paying high fees (in most cases) to even send their coins to a merchant, depending on network traffic at that moment.
From micropayments to everyday transactions for smaller goods (< $50), there is space in the market – globally – for new payments rails with lower fees.
Social Commerce – TikTok Shop & Marketplaces
The recent launch of TikTok Shop in the USA likely indicates the doors opening of the future $Trillion+ social commerce market across the global market.
The key tenet of social commerce is that the social elements are combined with the payment element in one, frictionless experience. Users will typically see a video (short form or livestreamed) and buy the product from the same app.
TikTok Shop has its own payments platform. Meta is partnered with Amazon for payments, while YouTube Shop uses Shopify.
There are a host of other marketplaces being built in verticals like fashion (ie. Lemonade Fashion) on traditional payments rails.
There are also, now, early-stage Web3 social commerce platforms being built to similarly allow users to buy goods using their cryptocurrency of choice.
Most of them remain relatively obscure, but their potential remains relevant if we start to see a wave of social commerce worldwide in the years ahead.
Social Commerce as a Mass Adoption Mechanism?
If payments on Web3-driven social commerce platforms become seamless and efficient, then the opportunity for mass adoption of a certain digital currencies seems plausible.
Trust is the major factor.
It is more likely that these types of Web3 platforms blossom in more Eastern and Southern markets, where people trust less in their governments (and thus the local currencies) and are willing to take a chance.
Western cultures will be more likely to adopt mainstream platforms like TikTok Shop, Meta Shop, YouTube Shop, and the corresponding payment rails.
Platforms built around communities, where trust is high, can experiment with these new models and scale rapidly into other verticals if they work.
The key success factors will be:
- appealing range of products/services in line with the local economy (not just digital goods)
- low payment processing fees for the merchant, incentive to accept as payment option
- stability and/or major liquidity in the underlying asset, not a gamble
- low ‘wallet friction’ for users to onboard and transact