Foreword: From the development history of Web2.0, what new business models can Web 3.0 bring to us? If Web 2.0 represents a virtual digital mapping of the physical world, Web 3.0 is the first to embed an economic system in the underlying code, giving real value to native digital assets. Whether for companies, users, or investors, the roles are beginning to be interchanged.
The upcoming wave of Web 3.0 has gone far beyond people's imagination. Through a variety of applications, Web 3.0 has far more than just encrypting assets, but connecting personal, corporate, and machine data with machine learning algorithms. Thereby completing the rise of new markets and related business models.
The future impact of Web 3.0 will make a lot of sense, but the question is, which business model will provide the latest and sustainable value for today's economy?
- Observation | Is the open source of the blockchain the biggest flaw in the business model or the strongest defense?
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Web 1.0, web 2.0 and Web 3.0 business model evolution, source: Fabric Ventrues
Before delving into the ecosystem driven by Web 3.0, let's first look at the successful business models that the Web 2.0 era has brought us. Speaking of the success stories of the Web 2.0 era, it must be said that before the listing in 2004, Google went from 1988 to 2002:
In 1999, although Google had good traffic, they were still looking for a suitable business model. Mike Moritz, a major investor in Google, once said, " We really can't find a suitable business model. For a while we felt very desperate."
In 2001, Google’s revenue was $85 million, while its competitor Overture’s revenue was $288 million, as CPM-based online advertising business was declining after the dot-com bubble burst.
In 2002, using Overture's advertising model, Google launched the AdWords Select product: this is Google's own pay-per-click, auction-based search advertising product.
Two years later, in 2004, Google gained an 84.7% share of the entire network search business, and received a valuation of $23.2 billion through an annual revenue of $2.7 billion.
After four years of hard work, the small changes in the business model have put Google on the right track and become one of the most valuable companies in the world.
Review the business model of the Web2.0 wave
- Content area
The earliest version of the online content field was only reflected in the electronic version of existing newspapers and books, and now Rome (Alfonso Cuarón, a web-made drama) has won 10 Oscar nominations through the subscription streamer Netflix.
- consumer market
Amazon started out as an online bookstore, and no one thought it would be profitable at the time, but it has now evolved into a commercial behemoth that covers everything from gardening equipment to healthy food to cloud computing infrastructure.
- Open source software
The development of open source software began with interest and hoped that the software would become a publicly available product. The entire Internet is now running on open source software and generates $400 billion in market value each year. Among them, Github was acquired by Microsoft for $7.5 billion, while Red Hat provided services for Linux with annual revenues of $3.4 billion.
- Software as a Service (SaaS)
The incredible aspects of the early stages of Web 2.0 include: After completing a large amount of infrastructure investment, people can get commercial software through browsers and get economic benefits, and most of the B2B business systems now run on the SaaS model.
- Sharing economy
It used to be hard to believe that someone would be willing to take a stranger's car or rent a spare room to a traveler. Uber and AirBnB are now the largest taxi operators and accommodation providers, but they don't have any cars or assets.
- Online advertising
Although Google and Facebook experienced ultra-fast growth initially, they did not have a very clear plan for increasing revenue. And now online advertising models have proven to be a good fit for them, and they have earned 58% of global e-advertising revenue (total $11 billion in 2018), which has become the main business model for the Web 2.0 era.
Emerging Web 3.0 business model
Looking back at the development of Web 3.0 over the past 10 years, the initial business model tends to be repetitive or extensible, or simply replicate the Web 2.0 model. Despite some doubts about the viability of most of these business models, smart industry builders continue to work hard and build extremely valuable models over the next few years.
By exploring the more mature Web 3.0 business model, we can understand how these models can increase value over time.
- Issuing primary assets
- Hold a native asset and build a network
- Speculative tax (trading platform)
- Payment pass
- Burning pass
- Work certificate
- Other models
- Issuing primary assets
Starting with Bitcoin, Nakamoto used the workload proof to create the first fully open peer-to-peer network. This business model is based on its native assets: BTC. It is a provable scarce digital asset that is used to pay for block rewards to miners.
These native assets are necessary for the entire distributed network architecture and are also very meaningful for network security: by giving honest miners enough incentives to provide hashing power, as the price of the native asset increases, the fraudster commits the attack. The cost will increase; at the same time, as the security of the network increases, it will also lead to more people's demand for this asset, thus further increasing its value and price.
- Hold a native asset and build a network
As a result, many early companies entering the crypto asset industry have a goal: to make their networks more successful and valuable. Their ultimate business model is often: “Building the entire ecosystem by increasing the value of their native assets.”
Although this idea is very suitable for these companies, the business model is difficult to replicate in the initial stage of the industry: the tears and painstaking efforts to start and maintain the company's development, if there is not enough shares to obtain index-level returns, then the company is very difficult Success is achieved, but this sequence of relationships cannot be reversed . For example, any business model other than the central bank, if it is purely understood to rely on holding a large amount of dollars, is very unreasonable.
- Speculative tax on primary assets
At this stage, the generation's business model depends on the financial infrastructure of these native assets: trading platforms, custodians, and derivatives providers. These are based on a simple business goal: to serve users in the trading of these assets. Today, many trading platforms are already billions of asset-level companies, and they have no monopoly characteristics for the time being: they provide users with a simple trading environment and increase the value of the underlying network. These underlying facilities are open and license-free, which makes trading platform companies unable to monopolize by providing “specific services,” but their liquidity and branding also provide a defensive moat for trading platforms.
- Payment type certificate
With the rise of the license sales, the projects related to the payment pass in the blockchain field have gradually emerged: this will create two markets and allow these passes to perform any payment. As the economic value of these networks increases, so does the need for such limited issuance of payment passes, so the value of these certificates will increase. Although the value of such a pass model is still controversial, the user's transaction costs have increased significantly. The fees that can be paid in ETH or DAI in the past require an additional fee for both parties. Although this model was widely used in 2017, its friction-inducing properties quickly removed it from the forefront of development in the past nine months.
- Destruction type certificate
Enterprises and projects based on community-based income may not always bring the benefits of the certificate directly to the holders of the certificate. Some projects are based on repurchasing the certificate from the open market and then destroying it. The reduction in the supply of certificates will drive the increase in the value of the certificate. However, some people say that this way of repurchasing is not the same as equity repurchase, because no dividends are paid at all, and the “revenue from each pass” is always zero.
- Work type certificate
One of the business models in the current crypto-asset network is the work type pass: this model will focus on the way the network generates revenue providers, thus reducing the processing costs for users. A work-type pass requires the service provider to collateralize a portion of the native certificate assets to gain access to revenue from the network. One of the most powerful aspects of this type of pass model is the ability to give a sweet spot (rewarding work) while also giving a warning (the collateral will be recovered). In addition to motivating service providers to contribute to the network to ensure network security (because service providers have already mortgaged CB assets), they can also be assessed by providing predictable future cash flows to service providers collectively. Simply put, such a pass can be evaluated based on future predictable cash flows, which can be modeled based on assumptions about network pricing and usage.
There are many other models that are being explored and are also worthy of attention:
- Double pass model: One of the pass prices will fluctuate, and other pass certificates will serve as a more effective transaction for the stable currency.
- Governance Pass: This type of pass allows the holder to influence the transaction costs and development priorities, as well as to decide whether or not to fork.
- Pass-on securities: The electronic representation of existing assets (stocks, commodities, invoices, and real estate) whose value is based on underlying assets based on a potential premium of divisibility and borderless liquidity.
- Get the transaction cost of the feature : pay a small amount of transaction costs to improve functionality (such as scalability and privacy, etc.).
- Provide UX/UI services for the agreement and charge a small amount of referral fees and commissions.
- Network-specific services: now include equity mortgage providers, CDP managers or market management services, which charge an additional fee (a$% of the subscription or revenue)
- Liquidity service providers: Operating in applications that do not have a revenue-generating business model, some automated market makers can only benefit by providing liquidity.
As the value of these new business models emerges, we can clearly see that for traditional VCs, the roles of investors and capital are interchanged. Capital itself evolves into a primary asset in the network and has a specific role. From passive participation in the network to proactively promoting financial investments in the network (such as computing power or liquidity), and directly pushing the network in various modes of operation (eg, governance or CDP risk assessment), investors need to go based on de-trust The new organizational structure of the centralized network needs to be repositioned.
If we look back, we explored the Web1.0 and Web2.0 ecosystems to find the right business model, which also created the current technology giant. At the same time, we will not ignore the fact that the Web 3.0 era will still experience a difficult journey in the short term, but once a mature business model is produced, the network will become incredibly powerful: decentralized network needs Minimized trust, so individuals and businesses can trade with each other without relying on and looking for third-party intermediaries.
Now, we can see that more than 1,000 teams around the world are working hard to create, discover, and implement these business models. These models may not be applicable to the architecture of traditional enterprises, and investors need to be able to take on new roles and provide the corresponding capital, but as long as we can see predictable and reasonable valuations, then as risks become more Small, it is very meaningful for us to try and work hard.
Author: Max Mersch, build Fabric Ventures, Imperial and OpenOcean alumni.
Translator: Alex & Daxie Think Tank
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