Web3 is often associated with cryptocurrencies and Bored Apes — a non-fungible token collection of cartoon apes created by an algorithm. But it’s also possible that this latest, decentralized version of the World Wide Web may host tens of trillions of dollars’ worth of economic activity in less than a decade.
And there’s good news for businesses: Capitalizing on the opportunity that Web3 presents may not be all that different from adapting to the virtual communities that emerged from Web2, according to Peter Evans, MCP ’91, PhD ’05, chief strategy officer at McFadyen Digital.
“When we think about Web3, we really have to think about platforms. That’s how assets get delivered and exchanged,” Evans said at the recent MIT Digital Technology and Strategy Conference. “It’s a matter of third-party value creation and the network effects associated with these platforms.”
Evans discussed why Web3 has such dramatic growth potential for organizations that monetize digital assets and branch into the metaverse.
Assigning value to digital content
Where Web1 focused on static pages, and Web2 thrived on user-generated content, Web3 is about assigning value to that content, as Evans put it.
One of the advantages of Web2 was the ability to share digital assets at a low cost. But the information was easy to share because it was easy to copy. As a result, enterprise marketers didn’t invest much attention or money in creating high-value digital assets.
Web3 changes this by making it possible to assign to a digital asset a non-fungible token, which is a digital identifier that can’t be copied or changed. The NFT is then recorded in a blockchain, or a digital ledger in which records (called blocks) are linked using cryptography.
CitiGroup has estimated that the available market for Web3 will be as much as $13 trillion by 2030.
“There’s a host of ways to take advantage of this ability to use blockchain to assign unique value to a digital asset,” Evans said. In the past, “lots of creators have had a hard time getting fully paid because it's so easy to copy their work.”
Though blockchain technology has existed for roughly two decades, Evans said it’s only really taken off in the last three years. He described an “explosion of ecosystems,” with more than 150 active marketplaces for exchanging NFTs.
Suddenly, enterprise content isn’t a cost center. Nike made $40 million selling exclusive CloneX avatars as NFTs at just over $2,000 apiece. Budweiser made $55 million on NFTs released alongside Bud Light Next during this year’s Super Bowl. Mercedes-Benz sold NFTs that doubled as raffle tickets for luxury vehicles.
All told, CitiGroup has estimated that the total addressable market for Web3 will be somewhere between $8 trillion and $13 trillion by 2030.
“We're going to see an explosion of growth in virtual stores,” Evans said. “There's also a lot of interest in how you can tokenize basically illiquid assets and create whole new values.”
Viewing NFTs as more than esoteric pieces of art
At the recent MIT Platform Strategy Summit, experts discussed how Web3 will signal a paradigm shift in retail, whether it’s virtual versions of physical products or redesigned brick-and-mortar stores with fewer aisles of products and more space for experiences.
Retail is well positioned for this shift, Evans said. After all, brands such as Nike took advantage of Web2 to put more product information online and turn their stores into showrooms. Web3 simply tightens this integration.
“It’s not the metaverse over here and a store over there,” he said. “There are going to be things you can do in the metaverse that will earn you rewards you can redeem in the physical store. Or, you go to the physical store and redeem them in the metaverse. There’s going to be an exchange between these two spaces.”
Many retailers have treated the metaverse as another channel for sales transactions. But Nike went a step further and gave NFT holders access to physical goods that, once purchased, unlock new features on their avatars: Buy a certain sweatshirt, and give your avatar wings. “The NFT can give you a gateway into a set of experiences and engagements with a company,” Evans said.
The value isn’t just esoteric, either. Alfa Romeo released an NFT linked to a vehicle’s maintenance record, with upgrades available every time a driver schedules an appointment within the carmaker’s service network. The company clearly benefits, Evans said, but so does the customer: “You could potentially resell the car at a higher value if you had a very good maintenance record associated with it. And, if you can put it on a blockchain so it's impervious to fraud, the system is working well.”
Preparing for an uncertain future
As Web3 remains in its infancy, uncertainty remains about what it may look like in a few years’ time.
Proponents of Web3 advocate a decentralized and interoperable model, one in which the number of marketplaces only continues to grow.
“This opens up huge opportunities for people to participate and engage in co-creation and ownership [while protecting] digital identity and data sovereignty,” Evans said.
However, this model may be more prone to grifting, fraud, hacks, and attacks, he added. It doesn’t help that Web3 is so closely tied to cryptocurrency, which is heavily unregulated and therefore subject to misuse, abuse, and precipitous drops in value.
In this scenario, mass adoption won’t happen, Evans said: “We have this great 'rug pull' scenario — interest could just fizzle because of lack of trust.”
On the other hand, large technology companies may seek to develop a dominant position. In other words, Web3 may not look much different than Web2. “They have strong economic incentives to create their own platforms. In that case, we may see network tribalism emerge,” Evans said.
Here, though, early returns are less than promising. Meta has invested heavily in the metaverse — but thanks to its struggles, Facebook’s parent company is worth roughly one-third what it was at the start of the year.
Whatever happens, Evans said Web3 needs to be on businesses’ radars — just as, in the Web2 era, the most successful enterprises capitalized on the right combination of physical and digital assets.
Evans described these companies as “frontier firms” given their ability to embrace digital and operate at the edges of new markets. For continued success, companies need to be ready to move their platforms even closer to the edge.
“There's a lot of evidence that Web3 is going to be part of the next frontier. Thinking about how you invest in this space and how you position your company could be a big deal for the future,” Evans said.