Web3 has made a big splash in recent years as Web3 offers an alternative choice for users from the traditional Web 2.0 establishments. Web 3 aims to leverage blockchain technology to create a safer, more private and more streamlined internet ecosystem that benefits its users.
But, if Web3 is designed so that the users and community members are to benefit the most from it, how do these firms generate their revenue and justify continuing their existence? By understanding how these Web3 companies generate their revenue, we can better understand the working processes of Web3 and how Web3 separates itself from the centralisation of Web 2.0 applications.
We’ll be exploring the different ways in which Web3 companies make their money, and how these business models have forced traditional Web 2.0 applications and businesses to adopt similar strategies in order to stay competitive.
Generating revenue from Web3
The revenue streams that Web3 companies differ greatly from the business models of Web 2.0 companies. Web 3 enterprises often source their revenue from two avenues: the provision of a service or the ‘tokenising’ of their business models. These avenues to generate revenue are extremely malleable and can be adapted into many different forms, which allows entrepreneurs and investors to create innovative business models and platforms.
Web3 companies are still companies, and thus they must achieve a profit in some way. As Web3 applications operate using blockchain technology, they can operate using tokens as a way to facilitate the exchange of goods and services. The same blockchain can also be host to decentralised applications, or DApps, where these applications are able to be used in exchange for a set amount of tokens. These DApps are created to be open-source and thus the code is available for everyone to contribute and modify as needed. Because they are decentralised, DApps are also not controlled by any one entity, meaning that control is shared among everybody and not centred around one entity.
Web3 companies also make money by ‘exporting’ their expertise to other clients through providing consultation services. Web3 companies are naturally low-margin in operation, meaning that they have a lot of expertise in structuring and operating their companies efficiently and leanly. They are used to running on tight budgets in order to remain low-cost and competitive with other Web3 companies. This allows them to price differentiate themselves and their product or services and makes it available for any user to participate without added cost. This often comes in the form of small teams and little investment in office equipment, and other ‘frivolous’ things that they can do without. This business model is easily exportable to not just other technology sectors, but any other sectors that require a high amount of initial capital in order to set up.
The added bonus of running your companies leanly is that Web3 companies can look more appealing in terms of returns for investors. Low running costs mean that you have a larger profit margin, making it more likely for investors to deem them as a safe investment that can provide stability, which will result in a larger pool of capital available to Web3 teams to continue development and even potentially upscale operations.
The splash Web3 companies are making
In our modern times, the internet has become inseparable from our daily lives, and it’s hard to imagine our world being able to run without the seamless integration that we have with the internet. Web3 aims to further this integration into our lives, giving us added convenience as well as security, which is becoming a larger issue the more we rely on internet services. It also aims to give us more control in our use of the internet, which in Web 2.0 we have been sorely lacking.
Token providers and users
Cryptocurrencies are the current hot topic and what’s most associated with Web3. Cryptocurrencies aim to provide an alternative monetary system that is devoid of any direct government intervention. Not only that, but cryptocurrency payment systems also provide a transaction system that is near-instantaneous and low-cost; blockchain technology is also easily scalable as more users join and become members of the ecosystem.
Merchants and service providers that accept cryptocurrency, also known as tokens, are known as token users.
Web3 companies often issue tokens as a way to entice community participation and investors in their blockchain. This is a great way for Web3 companies to get a flood of initial investment, where these users and investors ‘buy in’ into the ecosystem by exchanging real currency for these tokens. These are referred to as a first coin offering, and many people are clamouring to be the first few people into a project that shows promise, as the potential gains that can be made are astronomical.
With their issued cryptocurrencies and blockchain networks, these Web3 companies can establish their own marketplace and ecosystems. They do this by licensing their blockchain ecosystems to different companies that wish to host their marketplaces on the system, and also through charging users for making transactions on the blockchain. This provides an ecosystem where members of the community can use their tokens to purchase products or services without participating in national currencies. These purchases are recorded on the blockchain, but the identity of the persons making the transactions are kept anonymous, meaning that your activities are made public but no one knows who is making the transactions.
Web3 has resulted in an exciting time for the internet, where we can see a new age of the internet emerge and provide a better internet that we can’t even foresee yet. It is still early days for the technology, and many are still rightly sceptical about the feasibility and ability of Web3 to deliver on the promises it makes. Nevertheless, it is important that everyone be aware of what this future could bring for us and how it operates so that they know how to leverage this new technology and be aware of Web3 being an alternative to our current Web 2.0 ecosystem that is becoming increasingly out of our control.