Consumer Web3: onboarding the next billion users

Despite the levels of investment and ink spilled on crypto and web3, we are far from ready for mass adoption. For the general digitally-literate population, web3 is not only difficult to understand, it’s difficult to use.

New incentive structures in the forms of tokens have driven a tremendous amount of speculative activity and wealth for early innovators and investors in crypto protocols and DeFi. Building the infrastructure is a necessary first step, but consumer-centered applications of today’s nascent web3 tech are still in their infancy and hold great promise to make the technology more accessible and approachable. Onboarding next billion users will be the evidence of web3’s promise, but we have a lot of work to do.

The state of the market

The number of companies focused on Web3 has exploded and is accelerating. The industry is now beginning to grow beyond the protocols and infrastructure that has been the focus until now and is fragmenting into more consumer-focused territories. This is in sync with growing user numbers: MetaMask monthly active users surpassed 21 million in November and the number of active developers has seen a surge and looks to be growing exponentially.

Today’s Funding Landscape

Off the back of media hype, expanding use cases and increasing token value, global venture investment exceeded $30 billion in 2021, 4x the previous high in 2018.

Valuations outpaced this growth and the growth of valuations in non-crypto sectors by 141%, with over 60 companies obtaining unicorn status.

Opportunities

Today’s users are largely developers and speculators. The market potential is far greater than that, but web3 requires huge improvements to onboard the early majority. In order for web3 to run alongside web 2.0 or act as a substitution, the experience must be comparatively better for end users.

Companies must be relentlessly focused on bridging the chasm between early adopters and the early majority and they can do that with improved accessibility, user experience and safety.

The following will outline what I deem to be valuable attributes of web3 native companies that create compounding growth and cover future trends that should be the focus of builders and VCs in the space.

Token-fueled x brand building

If we use MetaMask as a proxy for number of users participating in web3, we can assume that there are roughly 21 million web3 users. That’s a mere 0.4% of the overall number of users on the Internet. There is significant growth potential.

The disconnect between the crypto market cap and the relative few numbers of users has an explanation. Conversely from web 2.0, the crypto value is generated mostly from the protocol layer (the Fat Protocol Thesis, which I covered here). As stand alone applications therefore, it will be rare to see the same sort of valuations as we’ve experienced in web3. You can see this clearly illustrated in Sparkline Capital’s diagram that compares number of projects to the relative market cap.

As the application layer is built out, we will be seeing more companies that look and behave like consumer tech brands that we’re familiar with.

Consumer web3 brands can use both on and off-chain elements to create and maintain a strong audience engagement ecosystem using a brand flywheel framework. The addition of a protocol layer gives a brand the ability to generate a significant competitive moat. I wrote about this concept here.

Companies that can leverage both components to the Double Flywheel will be able to create compounding effects that will keep users engaged and invested in the success of the company.

Composability by Design

The decentralized ideals of web3 may take some time to come to fruition, but consumer dApps can make good headway towards those ideals today. Composability holds huge promise to unlock new sources of value for both users and companies. As opposed to web 2.0 companies, which siloed data and experience, we now have the ability to cross pollinate between dApps and achieve compounding effects by:

Increasing use cases / creativity in how Dapps are used (aka “idea legos”)
Driving economies of scale by having more developers / creators / users building together
Accelerating network effects by combining forces with collaborating parties and raising their collective user numbers

Composability by design will allow startups to collaborate or pivot into the overlap between the consumer web3 areas of focus. These adjacent areas offer opportunities to create new revenue streams or grow outside of their core focus.

Culture-fueled growth

Web3 moves fast. Projects live and die by the early interest and traction gained. Network effects are accelerated through a deep reservoir of community engagement. To an extent, this is being driven by speculation. But culturally, this is the direction that customer acquisition is moving towards (away from advertising).

The growth levers that consumer web3 companies should be looking for are hype (anticipation, drops, scarcity) and community.

Usability

Onboarding the next billion users. That’s how web3 can make a lasting impact. We have infrastructure now. But with today’s user experience, onboarding the next million will be challenging enough. The big areas for focus and innovation:

Initial onboarding and wallets
Blockchain education and literacy
De-risking and security
Ease and efficiency of use
Web3 cultural accessibility (reducing jargon, crypto bros and technical language)
User friendly platforms to leverage the infrastructure already built in service of the creator economy

It’s worth remembering that web3 is still in it’s very early days. The equivalent of pre-AOL for the Internet. But much like those early days of AOL, what seems a sure thing today may not last. As Rita McGrath from Fortune notes:

The business was up against a phenomenon I refer to as transient advantage; namely when a combination of capabilities that at one point made a firm a leader, erodes and is replaced by the next form of competitive advantage.

AOL didn’t keep pace with its users transitioning to broadband and a $226 billion company withered. The pace of evolution in web3 is astonishing and it’ll require a relentless and judicious focus on the next users… all one billion of them.