This article explores how the next generation of the internet will change business strategies and what business leaders should be considering to continue to thrive in this new era.

What is Web3?

Web3 is the coined term for the next generation of the internet, utilising new technologies to fundamentally change how consumers and businesses interact with the internet.

A short history lesson takes us back to the first generation of the internet, Web1. Going all the way back to 1990, the internet was a very different place. With this generation of the internet, users were able to read information from basic HTML and some CSS that started to improve the user experience.

From around 2004 we transitioned into Web2, the important difference in this internet evolution was users were now able to write as well as read when interacting with the internet. Internet users were able to upload their own information for the first time. Social media was born during this era, which is a fantastic example of Web2 and internet user generated content.

Some argue, that Web2.5, an evolution of the basic Web2 generation allowed for transactions to take place online. Building the way for e-commerce and online financial services. This is the world in which we live in right now.

Web3. This is the next phase of the internet. It promises to alter the way that we use the internet with new ownership and transactional models. Utilising blockchain technology, internet users can, for the first time, genuinely own digital assets in a similar way to physical products.

Web3 looks to move away from a centralised digital world and move towards a world where user digital identity can exist.

How Web3 is changing business models and strategies

To understand how Web3 might change business models it’s important to look at successful Web2 business models. Is there anything more impressive than Google’s business model?

Big Tech is built on Personal Data — DALLE

Google is arguably the most successful Web2 business model, controlling many of the core internet services we use daily.

“Google has made it their business to know your business”.

Google processes 2.5 exabytes of data each day across its network of products, much of that data containing sensitive personal data, as soon as it enters the Google network, the user, you, sacrifices a lot of control. Google is not alone, or at fault, and recently there has been a growing trend of controls made available to users to that you can see what data is held about you and to control what is shared.

Google uses this data, if you’re not too pessimistic, to “personalise” your Google experience. Google Search Engine personalises the results based on what it thinks it knows about you, Google Maps recommends that Coffee Shop or Restaurant it thinks you’ll like based on previous movements and the list goes on. Google is fundamentally an advertising business, but it’s built on your data.

Web3 looks to disrupt this very model. If you shift the data control away from Google and into the hands of the user, Google’s model simply doesn’t work as users will inevitably restrict what data it shares. Google are currently selling advertising space to airlines, for example, and displaying those ads when users, who like travelling, are searching through its search engine. If Google loses that data, as users restrict what they share with Google, that advertising space becomes less targeted and therefore, less valuable.

Reading into the success of the Google business model also allows you to read into the problems of the Web2 generation. You, the user, don’t control your own information or data. If you buy an app on the App Store, do you own it? If you buy a song from the music store, do you own the song? Can you decide, “I’m not sure I want this anymore”, and sell it to someone else in the economy like you could with a physical alternative, like a CD?

Digital assets are rarely owned in a Web2 world — DALLE

One of the biggest controversy’s during the Web2 era was large organisations selling personal data. Many businesses were caught doing this, Yahoo! being one of them. Whilst we might all agree that we don’t really want our personal data being sold, I think we all agree that if you are going to sell our personal data you might as well let us have a share of the revenue — if the user is in control of their data, they can profit from the value of that data to other organisations.

Fundamental Web2 Problems

This is one of the fundamental problems with the Web2 model. Web3 looks to fix that. All assets and transactions are recorded on the ledger within the blockchain network. Owners and creators are defined, smart contracts can be written, for the first-time creators and consumers can trade with each other, rather than through a centralised platform… like Amazon or Ebay.

There are some many examples like this… as you start to think about the disruption to start to see how traditional Web2 business models are going to be forced to change and the power shifts from big, centralised organisations into a decentralised system where the power shifts to the people, to end users.

Challenges and considerations for businesses transitioning to Web3

With any technology transition there are challenges and considerations. Just because we have the technology there should always be the question, should we use it?

CASE STUDY: Starbucks Odyssey Loyalty Programme

The famous coffee chain, Starbucks, has arguably the most powerful loyalty programme in the world with 34.3 million customers signed up. In 2022 they rolled out an “on-chain” loyalty programme.

Starbucks invests big into Starbucks Odyssey — A Web3 Project — DALLE

Programme Overview

It lets users collect stamps by completing gamified, branded journeys. These stamps generate points that unlock rewards.

Odyssey had about 35,000 members and generated about £800,000 of revenue in the first year and shows impressive revenue potential once rolled out to a broader user base.

However, in March 2024 this loyalty programme was abandoned. It was always in a BETA phase and Starbucks are promising something “new and exciting” to roll out to customers in April 2024 but you can’t help but feel that they may have abandoned the full roll out of an on-chain solution.

The biggest factor?

The challenge of customer adoption and return on investment. Starbucks have invested multi-millions ofdollars into this programme, they want and need to see conversion of customers onboarding onto the loyalty programme and increasing revenue.

Regulatory Uncertainty

With any new technology there is always uncertainty how Governments and Regulations may impact it. Cryptocurrency, whilst not a ‘Web3’ technology, leverages blockchain technology which of course is fundamental to Web3 architecture. Cryptocurrency is currently a hot topic in the eyes of the SEC in America, as they decide whether cryptocurrency is a security or not.

Without certainty that regulation may be brought in that restricts what was possible or introduces financial limitations makes it difficult for businesses to invest into Web3 projects. What if a business invests into a project, 12 months later to find that they are no longer allowed to continue. This type of uncertainty will stagnate development of Web3, or any innovative technology.

User Adoption

Web3 is a shift in the “normal”, users are, not against change, but reluctant and are set in their ways. With Web3 needing users “on-chain” and with digital wallets, there is an incredible challenge in getting users onto Web3 technology and not just using new Web3 platforms.

There’s also a question of, does the average user care? Some people might be thinking: “I quite like that [INSERT BIG TECH BRAND HERE] personalises my experience based on the data they’ve collected from me over the last decade”. I, personally, can’t argue with this sentiment. I too like the personalised services that we have become custom too, but can we achieve this without the lack of control over our own data?

Web3 Core Preposition

This article has explored how Web3 can benefit users, businesses and the way strategies may have to change if businesses want to thrive in a Web3 world. Currently Web3 is well within its infancy stage, there’s a lot of throwing s!*t at a wall and waiting to see what is going to stick. We’ve seen this ‘potentially’ with the Starbuck’s Odyssey Programme. There isn’t a compelling, mature, use-case for Web3 quite yet, and this does make it difficult for many businesses to justify a move into Web3 just yet.

Future outlook for businesses looking to adapt

A Web3 Future is exciting, how might businesses adapt? — DALLE

So, you’re a business, how should you adapt?

Firstly, I’m not a business. Or a business owner. So, my opinion is pretty worthless. I am a builder, and fascinated by the solutions that Web3 offers. There is no argument that Web3 is coming, by it’ very nature Web3 is the next generation of the internet and as with anything technological, we are always finding ways to advance and innovate.

What is unknown is what Web3 looks like, what is will offer end users and the genuine value that users are looking for from the next generation of the internet. In early 2024, my advice, to business leaders is to be learning about Web3. Keeping up to date with the latest innovations and experimental projects — brainstorming ways that they can apply those projects to their own business.

I think within the next 5 years all businesses will be supporting an element of Web3 within their business, whether that’s fundamental technical architecture becoming decentralised or offering a digital loyalty programme using a blockchain network and non-fungible tokens.