To preface this, I am cautiously optimistic about what web3 can offer merchants. I wrote this to provide some thoughts on the products I’ve seen over the past year and my subjective experience building a native web3 candle company, Humankind.place. My background is primarily in B2B SAAS and the previous startups I was at were funded by SV Angel, YC and more.
I’ll be talking primarily about payments, identity, and infrastructure on physical commerce products. I also want to say that I am not subtweeting any specific company, product, or person.
I want to first go over the current challenges that web3 commerce faces:
Why fees don’t matter to merchants (but people are building payment infra anyways, at my peril):
Everyone is focused on building payment infrastructure because historically payments in crypto were high friction and expensive. This year gas has lowered, making minting and buying more accessible. Only within the last year or so crypto builders are able to say to merchants that the fees are lower than Visa or Mastercard. This value proposition of cheaper fees is new, and that means that this pitch to merchants is untested amongst web3 commerce startups.
Lowered fees don’t matter, because I’ve already factored in the Visa/Mastercard 2.5% into my business model. My margins depending on the distribution channels range from 15% to 70%.
On the merchant side: The 2.5% really only matters to companies at a humongous scale, and we all know those companies are slow to adopt crypto right now. Ultra small businesses who care about the 2.5% fee will also complain about the $40/mo Shopify subscription fee (just have a look at the Facebook comments complaining underneath Shopify’s ads), and won’t be profitable to crypto builders making payment infrastructure. I have only seen builders target small local businesses or corporations, and not businesses in the mid-level market, who have the bandwidth, curiosity, and tech savvy-ness to adopt a crypto product.
On the customer side: In web2, Visa/Mastercard fees are basically invisible to the customer because it happens on the merchant side. In web3, the customer pays a gas fee upfront. It is unusual to web2 customers if we make them pay the transaction fee and it’s not automatically included in the merchant expense.
Bad UX (yeah I know, obvious). A repeated trend I keep seeing amongst new founders is that they are building features, not companies. And please don’t confuse features with an MVP.
Payments have had every type of remix possible. Merchants don’t care about how payments are made, or to split it amongst multiple team members (like a DAO), or to put a productized NFT on a secondary market. These are what I consider bad products. Slightly changing the mainstream way of payments and adding these features with worse UX just makes a bad product. Merchants and customers just want to tap and forget. Until the UX is brought to that level of feature parity, secondary markets, splits, or decentralized fulfillment will not happen for businesses at scale. I strongly believe that the ease of crypto payments must reach parity with web2 payments and then all the other stuff will happen. How do I know this? 99% of my customers are on Warpcast yet 50-60% of them still pay me in fiat. Native crypto users don’t even want to use crypto for commerce products, even with lower fees and 2 tap pay-and-sign transactions.
I spend very little time thinking about payments. There are only a few processors for me to pick from and I’ve already picked. Why would I spend even 30min on a demo to learn about how my customers can experience more friction to ordering when they can order in less than 5 seconds on Shopify? I have bigger issues to worry about, which is how I’m going to sell candles and how I’m going to retain customers. I doubt other merchants think about payments this much too.
Shipping addresses are not attached to crypto wallets. Addresses are usually attached to credit cards, and it makes autofilling shipping forms easy for the customer. When I have to collect an address manually there is room for error. I have made mistakes manually inputting addresses from crypto orders. And even then, customers often don’t write their addresses correctly, so I waste more time investigating their addresses by needing to talk to them or looking it up online.
Anonymous identities are an impediment to shipping physical products at scale. I used to just use folks’ Warpcast usernames as the name on their package. However, when packages get lost by shipping companies, they’re unclaimable by the recipient, and I also can’t use insurance to claim the lost package, because the name on the package @samantha does not match my ID, Sam C. A customer not receiving the product they paid for is the worst experience they could have. Until shipping companies adopt ZK proofs this is just another unnecessary loss to the merchant and waste of time for the customer.
Bad taste.
How many more goddamn t-shirts, stickers, and hats do we need? If you want people to get over the friction of paying with crypto, you have to make a product that people actually want so that they’re willing to overcome the friction. Please, no more mid T-shirts.
On top of building an actually good commerce product, that commerce product has to retain customers. This is usually where merchants fail, and as a result, the web3 commerce startup also fails.
Web3 builders are bad at working etiquette, which makes working with merchants difficult.
Sorry, but some of the web3 startups I’ve talked to are bad at working etiquette and make me not want to work with them. Basic stuff like being responsive to emails, delivering the product on time, etc. At Humankind,a huge focus is on the customer experience, and if my internal vendors are not good at that, I won’t use them. It’s easy to win me over if you are enthusiastic and responsive to feedback.
Phew. That’s all my criticism! Now,I want to look toward the future of web3 commerce by expanding on Greg Isenberg’s recent newsletter today “The future of commerce.”
“Human support is the new luxury. Getting to talk to a real person will feel like walking into a store and them handing you a perrier. Luxe. Brands will use human customer service as a flex.”. This goes back to my point on web3 builders having better working etiquette for merchants.
“Community will trump discounts. The best brands (the ones with the highest LTV/word of mouth/retention) will build loyal followings like CrossFit, where belonging matters more than saving a few bucks.” Warpcast is great for launching a brand, because you can literally talk to your customers everyday. Customers are also willing to go through more friction to buy a product, and both merchants and web3 startups are able to talk to the same customers to create feedback loops.
“Customers will become co-creators. Like Lego Ideas,but for everything, your power users will drive product development, ensuring built-in demand.”. Easy to make a Ponder poll and ask customers what they want.
“Creators will be the new product curators. We’ll trust individual tastemakers over algorithms to tell us what’s worth buying.” No algorithm on Warpcast could’ve come up with a pistachio cream and Japanese milk bread candle. Web3 commerce startups need to consider the taste of the products they’re selling.
“‘Buy with friends’ will explode. Your friends will become part of your shopping experience, voting on your choices in real-time.” One commonality between web2 and web3 commerce is that FOMO drives buying. Web3 makes identity easy, and with something like onchain testimonials (already built into humankind.place) there’s another layer of social buying that can drive FOMO.
Web3 commerce startups need to focus on how to make customer relationships and feedback loops better for merchants. Then they need to focus on helping merchants (who already have existing good taste products), retain customers.
Notes:
When I refer to “bad” products, I mean products without good traction or adoption amongst merchants and their customers. I make no moral judgment on the builder doing this, and if you’re doing this, I am still cheering you on (even if I disagree with the way you’re doing things).
