This week’s podcast is about web 3.0. I view most successful web 3.0 companies like Coinbase as platform-protocol hybrids.
You can listen to this podcast here or at iTunes and Google Podcasts.
Here is my new book:
Here is a typical marketplace platform
Here is a web 3.0 platform-protocol hybrid.
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From the Concept Library, concepts for this article are:
- Protocol Networks
- Platform-Protocol Hybrids / Web 3.0
From the Company Library, companies for this article are:
- Coinbase
Photo by Kanchanara on Unsplash
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Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the topic for today, Coinbase and how Web 3.0 is different. Now this is kind of a big topic, Web 3.0. It’s kind of a new early stages idea. It’s also often called decentralized platforms. A lot of talk about it at the major venture capital firms, especially in Silicon Valley. I think most of the thinking I think is probably wrong at this point. We haven’t seen a lot of companies emerge and do this yet, but we’ve seen a couple and I’ll talk about those. And there are some interesting strategy lessons in here and some important ideas. Okay, so that’ll be the concept. For those of you who are subscribers, I did send you out two decently in-depth ways of sort of articles about Web 3.0 in the last week. I think These are my, this is my initial thinking, right? I’m still working on it myself, but I think it’s pretty solid as a first take on what’s really going on. But I’m gonna send more in the future, and as more companies emerge and go public with these types of business models, we’ll get a lot more sort of granularity in the thinking. But right now, there’s actually not that many companies to point to that have gone public where we can really see the numbers yet. A lot of it’s like VC-backed, early stage stuff. So anyways, that will be that. Let’s see other housekeeping stuff. The part one and part two of my book, Moats and Marathons is out, available on Amazon. I’m starting up part three in the next week. So it’s gonna be five parts in total. I’ll have it all done in the next couple of months. And I know that’s what everyone in the world really wanted, a five book series on competitive advantage. So I may be the only one that reads all five, but. Who knows? Anyways, that will be the topic for today. Okay. Standard disclaimer, nothing in this podcast or in my writing or website is investment advice. The numbers and information for me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate. Overall, investing is risky. This is not investment advice. Do your own research. And with that, let’s get into the topic. Now, as always, there are some sort of key concepts for today. And these are basically new ones. This is sort of the two key ideas I’m using to take apart web 3.0 I haven’t really talked about either of them at this point. So number one is protocol networks Which is you know in the past I’ve sort of made the argument. There’s a difference between a business model. That’s a platform Marketplace payment platform and the assets that make up that platform, which is a network Sometimes they can be the same thing. Sometimes they can be a bit separated. I’ll talk more about that But usually I’m talking about people based networks. You know, I connect with a buyer or a seller and you know merchants and companies and it’s kind of person to person or person to company, something like that. But you can also have networks based on protocols where it’s you set specific rules that let one computer talk to another computer, talk to another computer, ethernet, TCP, IP. So this is sort of how a network of computers would connect. We generally call that a protocol network. So that’s idea number one. I’ll talk more about that later. Idea number two is what I’m calling the platform protocol hybrid. And that is basically my explanation for what is really going on with Web 3.0. This business model that people keep talking about, it’s a decentralized platform. I’ll talk about that. I don’t think it’s accurate. I think that thinking is wrong. in my opinion, wrong. What I’m seeing is a new type of business model which I call the platform protocol hybrid and I’ll explain what that is. So those are the two ideas for today. Now let’s start with just sort of what is web 3.0 and for me what I think is really going on, there’s kind of a lot of things happening at the same time when people talk about web 3.0. Like people are talking to sort of different things. Part of it is about And this is, I think, let’s say in my opinion, 80% of what’s going on. It’s about blockchain. It’s about this new technology where you connect computers together and you create ledgers, distributed ledgers, distributed computing power. And what can that technology do? How do you incorporate that into a business model? How do you incorporate that into a company? Like, hey, we can run our inventory on blockchain or we can come up with an entirely new business model. So we’re seeing a new technology paradigm. And when I sort of think about what’s really important when it comes to digital, I used to have three things in my head. It used to be digital economics, digital platforms, I’ve talked about both of those a lot, and AI. I’ve really added blockchain as the fourth major bucket of important things happening out there and I’m trying to dig into it a lot more. Okay, so one it’s like, okay, we have this entirely new business, this new technology and let’s build new businesses on it and we see, you know, you could argue Bitcoin is part of that, you could argue a lot of cryptocurrency, a lot of, okay, that’s one dimension. The other thing that people often point to is what we’re really seeing with web 3.0, which would be businesses built on blockchain We also see a new type of governance that Instead of being a company with a CEO and a leadership team let’s build a business model where the decisions the control and the value created goes to the community and The community can be users, it could be developers, it could be content creators. But this idea that you have a couple people in Silicon Valley that have tremendous authority over what everyone can say and do on something like YouTube, or let’s say we have the US government which has tremendous authority on what happens with money, the US dollar, and they’re printing and printing. Let’s build business models with a degree of independence from centralized authority. and decisions and things like that and the benefits will go to the community that builds those things. So you hear a lot about that. You hear that a lot in especially in the cryptocurrency space. There’s a lot about let’s make a currency independent of fiat money. But we also hear the same thing of let’s be content creators and create videos but not be at the whim of censorship by YouTube. Or let’s. have developers create lots of things and not have to give Apple 30% of our revenue. So there’s a sort of rebuilding something beyond any sort of central authority. That’s a decent part of it. And then there’s some smaller stuff, but I think that’s kind of, I guess the third one would be, look, if you want to really see what the driving force of Web 3.0 is, I think it’s an attempt to disrupt the dominant. digital platforms that have emerged in web 2.0. So the YouTubes, the Googles, the Facebooks, all these companies I talk about so much, which are very, very powerful, this is an attempt to disrupt them straight on. And the people who are active in this make very good points. They say, look, these companies have tremendous power now and they have become abusive. And they will point to things like, look, you know, they are extracting huge amount of money and keeping most of the money in profits. You know, YouTube creators get nothing for the most part. Developers give them huge amounts of money, 30 percent of their sales. People who write articles and blogs, you know, they don’t get any of that money. They do it for free. Merchants get told every year they have to spend more and more on marketing and things to keep being competitive on Taobao. So there’s this idea that they’ve been extracting very large rents from their suppliers in particular, but also their customers. They have been commoditizing their suppliers. They have been changing the business terms at will, where it’s like, hey, you’re a merchant on Amazon. By the way, we’ve changed our new terms. Press accept or remove your store. and you could argue they have stifled innovation because you know there was a lot of developer work on Facebook and Twitter for a while and then both companies just changed the rules one random day and shut them all down. There’s a lot of people who do not want to do content on YouTube or any of these platforms because you build a big following and then they change the rules on you. So they’re looking for sort of independence and because people aren’t willing to invest anymore There’s this idea that innovation has been stifled because nobody trusts them Why would I build my business on something that can be changed and it’s not like they haven’t done it a lot So there’s much less innovation because nobody trusts them Which is true. Anyway, so you could say web 3.0 business models based on blockchain and also based on new types of governance are a reaction to this situation and they’re trying to disrupt them. I think that’s a pretty decent summary of sort of what’s going on. I’ve been reading what like Andreessen Horowitz and some other people have been writing. There’s a couple people who write, Andre Haggio and Julian Wright. They’ve been writing about this somewhat. I don’t really have the same take they do, but they did say… which I thought was good, what’s the difference between Web 3.0 and Web 2.0 is basically everything from 2005 to 2020. They said the two big differences are these new Web 3.0 companies have a credible commitment not to exploit participants, or at least not without giving them a say. Point two, the other difference is there’s a better alignment of incentives with participants. The value created by the platform is shared with everyone. decision is making is done by voting and consensus not one CEO with dual class shares that can never be removed That’s not a bad summary and okay if that’s web 3.0 Which is still a bit fuzzy, you know, you can point to Bitcoin as the first version of this and arguably a very very simple use case You know Bitcoin is really simple We’re gonna connect computers We’re going to set a few number of rules and this entity will call Bitcoin really only does three things. You can send money, you can receive money, you can store money. But it’s very simple. I mean there’s not like massive user interfaces and an evolving technology and this is a great customer experience and we’re helping merchant build up. So it’s a very simple, simple business. And Web 3.0 in that case has worked quite well. It is outside the authority of most all governments. They, you know, if you, if the U S government wants to change Bitcoin, there’s nobody to order because there’s no central authority. It’s a protocol and it’s connected computers and it, there can be changes made, but it takes a tremendous consensus across all the users for any changes to be made, which is very hard to do. And then Bitcoin was followed by Ethereum. which is a much bolder idea. If Bitcoin is basically distributed money, digital currency, a global currency, Ethereum is trying to create a global computer. that is outside of control of any authority, whether it’s a company or a government, and any developer can write apps that run on that computer and can never be stopped and never be controlled because it’s outside of the authority. Now that is a much more complicated endeavor. And it’s a much bolder idea, but everyone is pretty much focusing on Ethereum as perhaps a new foundational computer technology that everyone builds on. And it is designed to be outside of the control of any authority from day one. Sort of. Okay. So if that’s the story and we have what they’re trying to disrupt and what the model is, why haven’t there been any big successes? There’ve been a couple. Definitely Bitcoin, but I think that’s a very, very simple use case of a global digital money. But if you’re talking about the global computer, like we’re going to replace YouTube, we’re going to replace Facebook. And we have seen blockchain versions of these companies created. People have tried to replicate Airbnb, Facebook, and all these others. They by and large have not been very, very successful. With one big exception, which is DeFi. decentralized finance has been rocking and rolling. And that’s really sort of the next evolution of Bitcoin. It’s a much simpler scenario. So that is actually moving very, very quickly. But outside of that, we haven’t seen it sort of take on these big companies successfully thus far. It could be on the way, but we haven’t seen it. So why have there been no major successes, even though it’s early? I mean, there’s probably been a couple, but it’s hard to point to too many. Well, Andreessen Horowitz, which is good at this stuff, there’s a guy there named Jesse Walden. I think it’s a guy, Jesse could be a girl, I suppose. You know, basically said there’s three components that are required to success in crypto, which is really kind of what we’re talking about. Sort of number one, you need product market fit. Number two, you need community participation. Number three, you need sufficient decentralization and Basically, community ownership. So those second two things, community participation, sufficient decentralization, that’s kind of what I’ve been talking about, Web 3.0. But it’s the first one. You need product market fit. You need to create a good service that people like, and in many cases, such that they’re willing to leave YouTube, or at least switch over to your site to watch videos, or go to Mines instead of Facebook. And that’s really where the problem is because if you’re going to have a successful company, like a Facebook type company, it’s not, you know, part of the value proposition you’re going to offer is, hey, this is decentralized, which means it can’t be censored. That is good, but it’s only part of the value proposition. It’s got to be fun. It’s got to have a great user experience. It needs to be free. But there’s a lot more to succeeding as a business than just these two dimensions. And Most of them haven’t got that. It’s like, it turns out Airbnb, Facebook, all these platform business models you’re trying to destroy, it turns out people really like them. They may have some issues with them, but they also like them. So getting a success is more than just saying we’re decentralized. The other problem, which is the inherent conflict in all of this, the primary pitch of these companies is we are decentralized. We use community participation so we can’t be censored or controlled. Okay. That’s a plus for many people, but to achieve that, you have to make decisions very, very, you make decisions by consensus and that happens very slowly and very rarely. Well, that is very much in conflict with how you create a successful service. I’ve been talking at you for a year and a half. about digital operating basics, that you have to be fast, you have to be data driven, you have to make decisions, you have to constantly be innovating on the customer experience, you have to build, well, all of that takes management decisions, but I’ve just said the whole point of this is to remove the ability to make decisions. How do you build an innovative, hard charging service that’s always improving? if making any decisions is very, very difficult and slow and requires a massive consensus. So you can see why in some businesses they are at such a disadvantage to compete because of their decentralization. It’s like, dude, I don’t think you’re ever going to win. But in other situations like Bitcoin, well, once you set up the rules of Bitcoin, it pretty much runs on its own. You don’t have to make a lot of decisions. day by day, month by month to be competitive. It’s a pretty simple service. So that decentralization is a plus, but it really does mean you are operating without the ability to have active, aggressive management that can make decisions and execute. You’re removing that ability. That’s a big problem in running a competitive service. Anyways, so that’s kind of how to think about, I think, where we are today. in my opinion. Okay, so let me sort of give you my take and we can talk about Coinbase. For those of you who have bought cryptocurrency at any time, you’ve bought it on an exchange, most likely. Now you could, you know… acquire this stuff directly from a person because it’s on the blockchain. So if I wanted to sell you crypto, I could literally transfer it right to you. You could send me whatever and it would be in the blockchain. You know, the whole point of this is you don’t need a bank to buy and sell this currency. It works on the blockchain. But most people do this through a centralized service like Coinbase, which is a currency exchange. You can go on, you can buy and sell various types of things. And if you want, you can transfer those, you know, out. Okay, so we would have just called that a traditional marketplace platform. There’s people buying currency, there’s people who are selling currency. The more people buying, the more people selling, we get network effects. We’ve seen that model many, many times. It’s a standard marketplace platform. And underneath that, you have various enabling capabilities, like in this case, security. finance operations and then lots of web servers and things like that. I mean I’ve shown you graphics like that, you know, so many times But within all of those graphics my sort of blue diamond and I’ll put a I’ll put that graphic in the show notes Within those blue diamond Graphics, I’ve always sort of made an assumption which is the blue diamond Which is you know has the the user groups on each side plus the network impact in between And then within the center, I usually put the three assets that make up the platform, which are users, participation, and data. Within that, I’ve always kind of made an assumption that that’s the demand side picture, but you could think about that as two different things stuck together. There is the platform business model. You know, a platform business model is a network based business model. It is in the business of enabling interactions between participants, between people, between computers, between railroad stations, whatever. But there’s also the asset, which is the network. And in some companies you can separate those and say, well look, you’re a platform business model, you offer, let’s say cable television, or you offer internet service through a landline, that would be the business model, that would be the platform business model, but the asset you’re building on is really all the physical fibers that are stretched all over, connecting everyone’s house. That’s actually the asset. that you’re using to build. So you can, in some cases, this doesn’t make sense, especially when you’re talking about something like Facebook, because the platform business model and the assets, which are the people, are pretty much the same thing. But other times you can separate them out pretty clearly and say, in this case, look, a factory is an asset, but if you’re in the making shoes business, that’s your business, you just happen to be using that asset. And I’ve made this point before, if you go back and look at podcast 110, I talked about, you know, look, networks and platform business models are often indistinguishable, it’s just one thing. But sometimes you can kind of separate them into two different things. And in that case, the network, which is made up of nodes and linkages, that’s kind of the asset that you’re building on, and then the business model sits on top of it. And that asset can be tangible, can be intangible. social networks versus railroad lines. On top of that then you build the platform business model which is a network-based business model. You can separate that and one that becomes important is sometimes a platform business model is being built on a network they don’t control. Facebook controls the users within Facebook but it actually doesn’t control the mobile networks that it is running on. Sometimes they do control them. The first railroad lines, the train company owned the rails, they owned the train stations, and they owned the platform business models on top of that, which might have been selling transportation services for people, selling transportation services for cargo. Sometimes it’s the same, but over time, those railroads separated those out, and one company owned the network, and then the platform business model used that. So there can be varying degrees of control and ownership between the network and the platform built on it. And that’s going to be the key thing we’re going to talk about with Web 3.0. And I’ll just jump to the so what so you’ll see where I’m going. I think what we are seeing is in the past, most of the times I’ve sort of talked about these companies, YouTube, Facebook, whatever. They are a platform business model with absolute control over the network. Facebook will never give other companies access to its social graph. YouTube doesn’t let other people use its massive library of content. It doesn’t give people its users. These companies have an iron grip on the network on which their business model runs. Blockchain is basically separating that out that we are moving the network from the platform business model. one company to a public domain. So it’s like the network was private and now the network is being public and you can build platform businesses on top of it, but so can everybody else. It’s like early Facebook, like Facebook and YouTube are like companies that own all the roads in a city. And then they put stores on those streets, but they also own the roads. And this is like saying, no, no, no, no. You can put stores on the streets, retail, whatever you want, but you don’t get to own the roads. Those are public goods. Anyone can use them. And that’s kind of what I think is actually going on. And that’s what I call the platform protocol hybrid. I think we are separating out that blue diamond, and I’m going to put a graphic of this in the notes, into two things. It’s a platform that sits on top of a network, a protocol network. And for these new types of businesses the protocol network will be public anyone can use it and then companies can basically build various platform business model so Imagine if you wanted to be YouTube How would you create YouTube well? All the content and all the users are held within Facebook’s servers I’m sorry not Facebook YouTube servers, and they are never going to give access to those If you build a version of YouTube on the blockchain as a Web 3.0 model, you are basically separating that into a platform business model and a public protocol network where all the videos users upload, they sit on the blockchain and anyone can access them and put them together into various services to offer. So suddenly YouTube has lots and lots of competitors because the barrier to entry just got wiped out. And that was sort of the takeaway I sent out to subscribers was, I think what these web 3.0 business models are really about is moving the network assets, the protocol network in this case, from private ownership to public domain. And by doing so, it wipes out the barriers to entry to competing companies to go head to head with them. So I don’t think it’s necessarily going to put YouTube out of business, but I think it is going to open the door to a lot of competitors that just… If I’m a YouTube creator, I’ve made some videos on YouTube, instead of uploading them to YouTube, I just upload them to the blockchain and I set the rules by which anyone can use them and then you know various companies can come along and create alternatives to YouTube and draw on the videos of hundreds of thousands of people into a service and they could do it very quickly so it really hits that barrier to entry. That’s one big impact. The other big impact is it changes the power dynamic between the platform and its users. Right now, YouTube could pretty much dictate whatever changes it wants and what are the users going to do, what are the consumers going to do, what are the content creators going to do. Nothing. Because what are they going to do, just leave all their, you know, if you built a big following on YouTube, we just walk away? You can’t transfer it. Right? They have tremendous power. and they are exercising it with abandon these days. Whatever hesitation they had about censoring and removing, they are almost drunk with power in the last couple years. Well it’s harder for them to do that when they know if they make their users mad that those users have already put all their videos up on the blockchain and they could change it. Because there’s this thread of competition and that this is now public. Their ability to act the way they’ve been acting is curtailed. It doesn’t put them out of business, but it definitely changes the power dynamic between the platform and its users. And I think that is sort of what’s mostly going on with Web 3.0 right now where I can see successes. So let me go back to Coinbase. What is Coinbase? Coinbase is a marketplace platform. So I could draw a very standard blue. diamond picture of people sending money to each other and exchanging currency. It’s a marketplace. But the assets within that marketplace, the currency, it is not sitting on the servers of Coinbase, the company, which is now public. You can look at their numbers, all those assets, how many crypto, how many Ethereum coins I have, those are all sitting up in the blockchain and it’s public. You can do a search right now on ether search or whatever. And you could, if you knew my public, you could see how many coins I have, because they’re registered there. I have some NFTs. You could pull that up and I could very easily give permission. And anyone can do that. So it’s not really a platform business model like YouTube, where it’s an integrated situation. They control all of it. It’s a hybrid. Yes, it’s a platform business model in the sense that Coinbase is a marketplace platform. but the network it sits upon, the network of assets, which I’m calling the protocol network, that is in the public domain. So that’s why I call it a platform slash protocol hybrid. Now another way you can think about this, you can think about it as integrated versus modular business models. When a new technology emerges, especially when it’s a major shift or a new product that’s very complicated, Usually you see an integrated approach. Tesla, they build everything in-house. All the cars, they don’t have a tier one, tier two, tier three suppliers and then they put all the pieces together. Because when you’re creating something new for the first time, it’s too difficult to get it to work. So you really have to have control over everything and that’s how Apple launched the iPhone. They did it all in-house because it was the first That’s what Tesla’s doing, that’s what SpaceX is doing. They do everything in-house in a vertically integrated model. And we see that all the time. And then as the industry matures and what they call dominant design is established, when suddenly there’s an industry and everyone knows what’s in a car, everyone knows what’s in a smartphone. Once the design is established, which is called dominant design, then we see the industry shift to a modular approach. where companies start to become specialized in various aspects of the assembly. And then we have one company that just makes the batteries for smartphones, and another company that just makes the glass for the touchscreen. And that’s Android. I mean, Android is a modular approach. Apple has largely stayed integrated. Cars are made modularly. I mean, Volkswagen doesn’t make every component in the car. They’ve long ago parted out certain ones. Tesla is still doing everything in-house. So you could argue that the platform business models of Web 2.0, that was an integrated approach to a platform business model in a newly connected world. But now we kind of know the design and now it’s being modularized. And the part that is being pulled out to, you know, specialty system is the network. You could see it that way and that’s kind of true but the difference here that’s probably more important is that the network the business model runs on the platform business model is shifting from private ownership to public domain. So anyone can do that. That’s probably a more important factor but you can think about it that way. So concept number one for today was the platform protocol hybrid. And if you look in the show notes, you’ll see how I’ve put a graphic in there to show that the platform is the blue diamond, because that’s always been my blue diamonds in these. But I pulled out the protocol, which is basically a protocol network as the green diamond. And you can see I’ve separated them. And that’s kind of how I’m thinking about it right now. At least these are the companies that are, quote unquote, Web 3.0, that have shown significant success. They mostly look like this to me. But these are early days, so we’re gonna see other things coming, but I think it’s a solid first take. Now the other concept for today I mentioned was protocol networks. You know, I’ve given talks on this in the past, and I’ve basically said, you know, you can think about what is the network, you know, a network is nodes and linkages. We have, could be people, it could be a physical network. Or it could be, the three I usually talk about are physical networks like railroads, telephone lines, canals, streets, people and company networks, where the nodes on the network would be people, or they’d be a company, one buyer, one seller, and then the linkages might be a payment, it might be a transaction, it might be a social interaction. That’s most of what I’ve been talking about is that bucket. But the third type, which I never really talked about, which was protocol networks. And this is where the nodes on the network are computers and the linkages are how they interact with each other. And there’s really not any people involved. This was actually a big deal in the 70s and 80s when this idea of connecting computers for the first time came along. And for those of you who are familiar with Metcalfe’s law, which is not a law, I don’t know why people call it that, and it’s not right, I mean, I think it’s wrong almost all the time. The idea is the more nodes you have in a network, the value… quote unquote value goes up exponentially. Well, the guy who did that, Metcalf, I mean, he was selling protocols. I mean, he was selling to clients, the more computers you connect together, the more value it is to you, so you should buy more of our connections. And he was kind of in the protocol business. But we don’t really talk about this too much, protocol networks. Well, blockchain, that’s what it is. It’s a protocol network. We’re gonna take mining, Bitcoin mining computers, which are all over the world. Those are pretty specialized devices, and we are gonna set the rules for how they can connect and interact. That’s the protocol. And when we do that, we get a global network of connected computers that doesn’t really have any people involved in the decision making. You can work with a computer, but how they connect is just happening. So that would be an example. And then Ethereum is a more complicated version of that. And… Ethereum is just absolutely fantastic. I mean I’ve been reading a ton about Ethereum. It is one of the boldest ideas and you know it’s such a cool thing for those who aren’t familiar. You know it was founded by a 19 year old just five years ago with a tremendous idea of and he was a Bitcoin guy. He had been studying Bitcoin and its original white paper and he had run a magazine about Bitcoin. this idea of we’re going to create digital connected money that’s global and he’s like let’s go further let’s make a global computer and he added smart contracts and things like that it’s a whole subject it’s awesome I mean I’m not too much of an expert on crypto I’m not an expert on crypto but you know that’s a pretty fantastic approach we’ll see if he’s successful because it’s a pretty big idea now that’s most of what I wanted to talk about I just want to make one last point here, which is, okay, if you buy this idea of what is really moving, in my opinion, in Web 3.0 is these platform protocol hybrids, which is you could argue it’s just a modification of the platform business model I’ve been talking about for quite some time. It’s just a new version of that with a separation, a modularization of the platform and the asset where we’re just separating them a little bit. and the network is going into the public domain. Okay, now if you look at my standard graphics for this, within the blue diamond, I’ve always had the assets that make up the platform, which are users, participation, and data. And then there’s usually a network effect, right? I put the little sigma infinity sign there. Okay, if I’m separating these things into a protocol network and a platform business model, where do those four things sit? Do they sit in both places? Do they sit only on one? Who really controls the users? Well, let’s say it’s the YouTube example. We have a version of this for YouTube. You could argue that the platform business model still controls the viewers because they’ve created the service. They’re getting the viewers coming and watching. Okay, so you could say the users are mostly on the platform business model and whoever owns that. But what about the content creators? They are probably on the protocol network. They are probably not loading their videos up into YouTube anymore. They are probably loading them up on the blockchain and letting anyone use it. So the content creators, which is one user group, they’re mostly on the public domain blockchain, but the consumers and the viewers are probably controlled mostly by the corporation, the YouTube platform business model. Okay, what about data? Where does that sit? Well, it probably sits mostly on the platform business model and not on the network, but there’s some there. Money, unclear, participation, data. I mean, you have to kind of realize we’re going to have those assets spread across two entities now as opposed to one. And that leads to the big, big question. OK, who has the network effect then? If the network effect stays within YouTube, that’s very powerful. If the network effect shifts to the public protocol network where anyone can access it, ooh, that’s really big because most of these businesses are built on creating network effects. Chris Dixon, who’s a very good, well, I know, very good, he’s a very famous venture capitalist, he’s been arguing like, look, the big thing that’s happened, I’m paraphrasing this obviously and paraphrasing it badly. Why this is so important is not because it necessarily disrupts YouTube. It’s because it it weakens their power dramatically and that’s my language. And the network effect probably moves down to the protocol network and is available to everybody and it’s no longer YouTube’s. Maybe. I’m still struggling with that question. It’s not clear to me where it is. But different businesses it will play out differently and when you look at say NFT marketplaces you know these non fungible token people making jpegs and putting them up on the blockchain and you can buy them I can take a picture of my foot mint it on a company like open sea or I’ll polygon or something and put it up there and you could buy it and then it would be up on the blockchain forever picture of Jeff’s foot and it’s owned by somebody who paid me money and that’s there forever. You know that’s all on the blockchain. So a company like OpenSea and Rarible those are both marketplaces for buying and selling NFTs. We see a difference for OpenSea. it is very centralized as a platform. Most of the power and most of the control is on the platform business model, which is OpenSea. But for Rarible, they have shifted much more towards putting things on the blockchain. So that balance between the two is important in terms of strength, and I think content creators and such will see where they end up. But it’s evolving. My takeaway is I’m not sure where the network effect lies. What I am confident in saying is when you go from a traditional centralized platform, Web 2.0, to a Web 3.0 platform protocol hybrid, the barrier to entry gets devastated. That is a clear conclusion that’s very common. Suddenly to start a new version of YouTube, I don’t have to convince users to come and upload their videos to me. And that takes a long time, years and years to get millions of videos. No, because those videos are already located on the public domain and I can access them and just put my platform right on top and start to draw them in. So that is devastating to the barrier to entry. And then the other thing I’m confident in concluding at this point is it does change the power dynamic between the platform and its users. because that threat is there now. You’re not gonna be able to abuse developers and content creators like you could before because they will shift to the blockchain. So those two things I’m confident in saying, the rest I’m still learning. And I think that is enough for today on this. The problem with this is there’s not a lot of, so much of this is venture capital type thinking and that’s not what I do. I study… established business models where they’re public and I can see the numbers. Well, we don’t have a lot of companies like that in this web 3.0 space yet. It’s mostly in DeFi, Coinbase, things like that. So it’s, I’m hoping more and more will come and I could, I can sort of check them out. But yeah, this is pretty early stage for, you know, for me. Okay. I think that’s it. As for me, it’s been a… It’s been a pretty spectacular week. It’s, I’m calling, I’m in Las Vegas right now. I was in Sri Lanka and then I kind of flew into California and then I came to Vegas to attend a wedding. It’s been really fantastic. That’s also why I’m a bit late this week. I’ve been jet lagged and bouncing around the world and had to sort of get settled. I am on my way down to Brazil tomorrow and I’ll be in Sao Paulo, mostly, probably maybe Rio and Porto Alegre a bit. for about a month. So that’s fantastic. I’m really looking forward to that. Gonna work with some companies. It’s gonna be a pretty good thing. Oh, another, just randomly, I got a letter in the mail yesterday that officially I’m a Canadian. So that was kind of exciting. I’d been doing that for a while, going into process, and I have family from there, so it was a relatively straightforward process to claim citizenship. Yeah, but as of, I guess, yesterday, I’m officially Canadian. That’s kind of exciting. It’s nice to have multiple options. Plus, it’s just a beautiful country. So I’m pretty happy about that. But yep, that’s pretty much it for me. I’m heading out, going over to the Venetian. And it’s pretty fun on a Saturday night in Las Vegas. Anyways, I hope everyone’s doing well. Hope everyone’s staying safe. And I will talk to you next week. Bye bye.
I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.
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Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.
