There is an emerging technology ecosystem that promises to revolutionize physical and digital business models: Web3.

Web3 is more than a singular technology. It’s more than a convergence of technologies. It’s an ethos that has the potential to empower consumers while strengthening the relationship they have with the brands that are willing to operate with them in this space.

Web3 is fundamentally changing the way business is conducted and the way we connect with each other on a personal level. In fact, Web3 is expected to fundamentally change the way we think about our online presence in the coming years.

I. Origin, issues, how does it work, what should we understand about web3?

The original web (1) simply connected computers and users around the world (hence the name World Wide Web) and is often called the “read-only” internet. Web2, often referred to as the “read-write” internet, expanded content and connections to include things like social media, real-time content/news, online shopping, and more elaborate web applications. That’s where we are today, where we are all creating and sharing content on social media. But most of this data is owned and controlled by platform companies.

Web3, often referred to as read-write-property, is the next big step in the evolution of online interactions. It bridges the physical and virtual worlds by introducing new ownership and transaction models that span and blend the digital and physical domains.

Web3 brings a fundamental change that leads to a truly decentralized ecosystem where users own and control their assets, thanks to emerging technologies.

At the heart of Web3 is the concept of decentralized ownership, currently facilitated by blockchain technology. The distributed ledger establishes a verifiable and traceable way to ensure the authenticity of items and assets. It also allows individuals to be compensated for their time, data and contribution, while allowing them to retain control of their personal data. An advertiser, for example, could offer consumers a form of currency if they agree to share information about their income.

Suddenly, it’s possible to pay or reward customers and brand followers who collaborate on a new product or service, whether it’s a clothing line or an eye-catching label for a bottle of soda. Digital NFTs can also be bought, sold and traded, as well as tokens representing “ownership” in the physical world or digital sports cards in a virtual NFT gallery.

There are three main components to web3.

• Ownership: Until web3, tokenization was only available at the point of contact for a specific transaction or interaction in progress. This imposed limits on what was possible online. However, blockchain enables an entirely new model of ownership. In this new world, digital assets are more like physical assets. People can take their digital assets with them wherever they go and transfer those assets to others at any time. A movie or book purchased online can suddenly be sold to a friend, a transaction that must be done physically in the moment.
• Aligned incentives: Web3 promotes closer alignment between brands and consumers through digital ownership. The importance of this point should not be ignored. In a Web3 world, one-way connections, and things like linear subscriptions, disappear. Consumers suddenly become partners, even owners. With participation in the web3 world, a company suddenly has the opportunity to create a new, more actively involved type of brand advocate. A social media influencer, for example, might choose to promote a brand or product on their individual platforms because of incentives beyond money – perhaps influence over how a company is run, participation or co-branding opportunities.
• Community: It’s tempting to think of community as a completely separate entity from ownership and aligned incentives. In reality, the three are deeply intertwined. The incentives and rewards created by tokenization produce a new and potentially more valuable community. Companies that successfully solve this equation may have the opportunity to achieve a new category of super-fidelity. Collaborative communities can generate online art, videos, photos and messages that help marketing teams and web designers build a brand. No less important: community members are likely to increase their transactions in the physical world.

II. How the web3 works and concrete examples of applications

A person has the option of sharing data once, for a set period of time, or in perpetuity. The level of compensation for the counterparty could change depending on the choice. However, if that person decides to get the data back, they could do so – also for a cost.

All aspects of the transaction – information to be shared, coins to be granted, terms of recovery – are codified in a smart contract that is enforced automatically by the blockchain. Coins/tokens could also be granted for performing services necessary for web3 to function, such as bug reporting or transaction validation.

Like current crypto-currencies (such as bitcoin, where an individual receives bitcoins for helping to validate the bitcoin network), web3 will use this concept in existing web2 services while leveraging new decentralized and incentive-based mechanisms.

Let’s say a person becomes an ambassador for a major sports shoe manufacturer. This shoe manufacturer produces a unique limited edition shoe, the NFT, which is only available to members of its community. The NFT can be purchased and worn on an avatar. But that’s just a starting point. The same NFT can represent a purchase order for a physical pair of the same shoe. So when that person walks down Main Street or Metaverse Street, others in the community will give them a nod. These “likes” could even translate into discounts on future purchases.

Consider today’s loyalty programs, for example. Customers are limited to using their loyalty rewards on an existing platform. They have the ability to spend their rewards on additional services or products only with that brand. A web-based loyalty program3 opens up the possibilities of what can be done with loyalty rewards allowing direct ownership and the ability to sell to other users for a currency. This is mutually beneficial for all parties involved – the brand, the seller and the buyer. It invites new users into the marketing funnel and generates additional revenue and demand for the brand through the collection of secondary sales revenue.

In web3, it is possible to hold items in both physical and virtual spaces. It is also possible to transfer digital assets, including NFTs, to create new, enhanced and reinvented types of ownership – and new business models. Trust is built into the system through technologies such as blockchain.
Inserting this type of ownership model into the internet has the potential to change the way consumers and brands interact. Suddenly, online spaces are becoming more like the physical world. Web3 can also change business-to-business (B2B) partnerships by connecting goods and services in ways that were not possible before.

Web3 is still in its infancy. Over the next few years, we expect a company’s online presence to be heavily reliant on digital ownership and transactions, whether it is its digital identity, virtual real estate, supply chain, or social networks.

III. Between disruption and business issues, what should decision-makers do in the face of the Web3 revolution?

Although the foundations of web3 technology already exist, it will take time for individuals and organizations to implement it. Here are some things to consider.

A. Web3 is coming fast, so we need to get familiar with it.

Innovation in Web3 is happening fast. Once organizations understand how to use it and see the success of testing projects, adoption should accelerate. Companies that understand the technology and use it effectively can gain an advantage, in the same way that some brands have leveraged influencers and social media to make significant gains. For now, it’s in the best interest of business and technology leaders to become familiar with Web3 and develop a strategy to capitalize on the opportunity it presents.

B. Web3 can change the way governance and oversight is done.

Because of its decentralized nature, there is no longer a need for a third party to oversee operations. Similar to the way crypto-currencies currently operate, Web3 has the potential to be self-regulating and self-monitoring, simply by virtue of the way the protocols are created. Regardless of the level of involvement your company is considering, you need to learn how the infrastructure of a web3 world works and what you need to do to get used to it.

C. Brands and relationships need to be rethought.

Web3 represents more than an incremental change in the way brands and consumers interact. Business leaders need to rethink and expand their view of relationships and prioritize authenticity. Among other things, Web3 introduces a true two-way channel with each customer, offering several opportunities to engage with the company. It is possible to buy things from them while selling to them. Companies have the opportunity to view brand advocates as partners rather than consumers or subscribers.

D. Web3 introduces new revenue streams and business models.

While the initial sale of digital goods and services increases revenue streams, it is only part of the picture. Residual value can also be realized in perpetuity when NFTs and other assets are bought and sold downstream. The most obvious examples are in art or music, where a creator is compensated each time one of his creations changes hands. In some cases, this can produce a perpetual revenue stream. Other concepts to watch include token-based loyalty programs that allow individuals to buy and sell their points or currency; NFTs that serve as tokens of access to value-added products, services, or components; and blockchain-based supply chains that introduce a single source of truth among multiple companies.

E. To make gains, you’ll probably have to step outside your comfort zone (or at least rethink some things).

One of the consequences of Web3 and a new approach to ownership is that customers suddenly have more control over things like loyalty points and NFT assets. This may come as a shock to business owners who are used to having total control over their assets and the people who create them. Other areas to consider are ethics, privacy and cybersecurity. While blockchain allows for authentication of transactions, it does not eliminate the possibility that malicious software or flawed technology could compromise a Web3 business model.