Web2 reach has maxed out market reach, is in the process of extracting all value from its networks, and has arrived as common sense for all businesses. These are the reasons that I know the web2 era is on its way out and that web3 is on its way to make a major impact on the world. Before diving into each of these topics, let’s do a quick recap of each era of the internet so that we’re on the same page.
Web1
The read era
Started in 1990’s
Only reading websites, users not uploading content
Think random websites owned by people, not aggregated on a few platforms
Web2
The write era
Started mid 2000’s
Users began uploading content and interacting with websites
Mobile computing (phones)
Centralized usage amongst Big Tech platforms: Facebook, Apple, Google, Twitter
Web3
The own era
Started late 2010’s or early 2020’s
Enabled by blockchain technology
Allows users to own their data, accounts, and virtual goods
Cuts out the middlemen in many aspects of virtual life - banks, social media
Now coming back to the first point: one of the reasons we know web2 is done is because reach is almost 100% and there’s no one else to capture. Reach is the ability to make contact with users in a market and it’s always the goal of the marketing team to expand and grow their reach. No web2 company has 100% reach, but as a whole, web2 companies are very close to 100%. In fact, 90% of US adults use a smartphone. So one could say that one of the most important web2 technologies, smartphones, is at 90% reach. Another key innovation of web2 was social media and even that has reached a fully saturated market. For example, 91% of companies larger than 100 employees are expected to use social media. If nearly everyone is using social media, then social media is a saturated market. Both of the key web2 innovations, smartphones and social media, are now saturated markets. And guess what? A saturated market is a key indicator of a new innovation cycle coming!
This concept of saturation preceding a new innovation cycle was explained by Carlota Perez in her Technological Revolutions and Financial Capital:
“The favorable conditions for the next revolution are created when the potential of the previous one approaches exhaustion.”
So now that the web2 market is fully saturated, what happens next? Extraction of that market. Extraction occurs once companies feel there is nowhere else to grow externally, so they look inward at their existing customer base and take more and more from them. Chris Dixon puts it like this,
“Almost all new technologies follow an “S-curve,” a growth-over-time chart that resembles the letter S. The curve starts out flat in the first phase, as a technology’s developers search for a market and find early adopters. As the builders find product-market fit, the curve begins to tilt up quickly, reflecting mainstream uptake. The curve then flattens again as the product saturates the market… To keep profits coming, platforms start capturing more of the money that flows through the network.”
Where can you see Big Tech extracting more and more in real life? One of the biggest examples is ads: both ads shown to the end users and also the amount of ads businesses need to pay for to remain relevant.
One clear example is LinkedIn. Go to the jobs section and you’ll see that all of it is promoted. It wasn't always this way. In the early days of the company, you would be able to post a job and get visibility without needing to pay for a promoted job. So we've gone from jobs shown based on engagement metrics to jobs shown based on how much money the business has to spend on recruiting.
Another example of a web2 company in a full extract phase is Google. You’ve most likely noticed that all of the top search results are promoted. It wasn't always like that. In the early days, only websites that truly deserved to be at the top were at the top. You had to have a compelling and engaging website - you did not have to pay to be at the top.
In the defense of web2 and Big Tech, going from maximizing reach to maximizing extraction of customers makes logical sense for the business. If there's no way to increase revenues from adding more customers, then a business needs to try and create more value from the customers it already has. This thought process to fueled by the thought that businesses need to grow every year regardless of how saturated the market is.
The more reach web2 has achieved, the more extraction is needed to continue growth. The more extraction, the harder it is for people to compete. The harder it is for people to compete, the more likely they are to use or build alternative products. When many people are open to new ways of doing things, they stumble upon new technology and adopt it - usually making more money doing so. When they make more money, they continue to develop that new technology. And once that first few waves of new technology starts to emerge, you have the beginnings of a new innovation cycle!
I think we're at this stage when it comes to web3 and blockchains. People are starting to feel taken advantage of by Big Tech (too many ads!!) and are open to trying new products. Instead of using a Google account, people might be willing to use a crypto wallet to log into websites. Instead of Twitter, people are open to trying decentralized social media like Warpcast (add me @chasesommer.eth!). Instead of posting on Instagram and not getting any revenue share, they post on Zora and get paid in direct relation to engagement.
A final point on how we know web2 is done is again from Carlota Perez:
“The full assimilation of a technological revolution and its techno-economic paradigm occurs when society has accepted its common sense, put in place the appropriate regulatory framework and the other institutions and learned to gear the new potential to its ends.”
What this means is that not only has the technology captured the market and begun to fully extract from its users, but using the technology is so prolific that it’s common sense in mainstream culture. To spell it out how common-sense web2 is, here’s some statements that I doubt many businesses would disagree with:
All businesses need a website
All businesses need to optimize SEO for Google rankings
Most businesses need an app
All businesses need a social media presence
These are all common-sense. Because they are common sense, that means we’re ready for the next era. Now we’re ready to develop what’s currently considered uncommon sense. I believe that means web3 built with blockchain technology.
So what next? Well I invite you to begin your web3 journey by beginning to learn about blockchains and how they could benefit the industry you’re interested in. Whether gaming, art, energy, politics, or finance, there are plenty of applications for you to explore and be inspired by.
I’d highly recommend Read Write Own by Chris Dixon as a starting place. Also, reach out to me and I’ll do my best to guide you on your journey!
