Small Business Labs

HBR on the Promises and Perils of Web3

Recently Web3 has replaced Web3.0 as the preferred way of referring to Web3.  

Although we've actively followed Web3 for years - we first covered Bitcoin in 2013 and Blockchain in 2015 - we don't know when or how this name change happened.  

But we see this change as an excellent example of the constantly swirling world of Web3 world, which the Harvard Business Review article What is Web3 describes as:

"... the confusing, contested, exciting, utopian, scam-ridden, disastrous, democratizing, (maybe) decentralized world of Web3." 

HBR's What is Web3 is the opening article in a Web3 series by HBR. The chart below (click to enlarge) shows the other articles in the series.

The series covers both the potential positives and negatives of Web3.  

We're not going to attempt the summarize the series - the opening alone is about 4800 words.  

All the articles cover the promises of Web3, which can be summed up as democratizing the Internet, freeing us from Big Tech and exploitative capitalism.

They also cover the potential perils, including failure to accomplish the promises while significantly increasing fraud, scams, and other illegal activities.

Interestingly enough, these promises were pretty much the the same in the early days of the PC.  

Apple's famous 1984 ad is an example.

These promises were also made when the Internet first came out (Web 1.0) and when social media arrived (Web 2.0).

And, like these other technologies, the reality of Web3 will likely be neither as utopian as the promises, nor as dystopian and perils.  

Overall, we consider ourselves Web3 optimists and we think it will create new opportunities for businesses and users.   

Because of this, we liked articles 4 and 5 the most. They talk about tangible applications of Web3 tech.

But the others are also well worth reading because the perils are real. The recent collapse of stablecoin cryptocurrencies is a good example.  

We also suggest Wired's Paradise at the Crypto Arcade: Inside the Web3 Revolution.

It's another long article covering the potential good and bad of Web3.  

Keeping Up With The Metaverse

Activity around the metaverse continues to grow. And keeping up with it continues to get harder.

But as the activity grows, so does the coverage. And we found two recent sources on the metaverse to be quite informative.

Wunderman Thompson's New Realities: Into the Metaverse and beyond report is 80 pages long. It covers data from consumer surveys on the metaverse and details how corporations are participating in the metaverse.

The industries covered include retail, finance, health & wellness, food and drink, entertainment and sport, beauty, and government.

And the coverage of corporate metaverse early adopters is excellent.  

The report chart below (click to enlarge) illustrates where consumers are on the metaverse - 74% say they are aware of it, but only 15% can explain it.

Wunderman Thompson is a leading global consumer marketing firm. Because of this, the report is well worth reading for anyone interested in consumers and the metaverse.

Insider's article Insider's Guide to the Metaverse: How to play, make money, and party in 7 of the most popular virtual worlds right now is also quite interesting.

The seven virtual worlds covered in the article are Axie Infinity, Cryptovoxels, Decentraland, Roblox, The Sandbox, Somnium Space, and Star Atlas.

Most are games, but all are described so that metaverse novices (and non-gamers) will understand how the operate.  

The metaverse is already a big industry (most definitions include online games) and is growing very fast. 

But despite its size and growth, most small businesses don't need a metaverse presence today. But over the next few years, the metaverse will, in some way, impact most companies (especially consumer businesses).  

So we think it's worth starting to pay attention to the metaverse.

What is the Ownership Economy?

The VC firm Variant recently released The Ownership Economy - A primer on the state of Web3.  

Variant defines the ownership economy as:

"... the products and services that will define web3—and the next generation of the Internet—are those that transform users into owners. We call this the ownership economy."

The essay points to crypto tokens (also called social tokens) as the main method of transforming users into owners.

Crypto tokens are a form of cryptocurrency. Because of this, they have many features that make them a better choice than traditional equity for sharing ownership. Key quote from the essay:

"Tokens have a richer and more frictionless design space. They can be distributed programmatically, with the potential to reward participants versus those who buy-in; they are effectively free to deploy, and they can transfer value in the same way we transfer information—instantly, to anyone, anywhere in the world."

So, in theory, anyone who uses a digital product or service could buy, or be given, crypto tokens that provide ownership in the product or service - or at least some form of participation in the value created by the product or service.  

We've covered several examples of how this works in prior articles:

1. What are Social Tokens (also called Creator Coins) and Why You Should Care covers how creators use tokens to engage, build, reward, and monetize a community of fans and customers - and provide a way for the fans to benefit from being a fan financially.  
2. The Rise of Crypto Clubs covers how tokens are being used to create new member-owned social and business organizations. And because the members are also owners, they benefit financially if the organization has financial success.

The hope of the ownership economy - and Web 3.0 - is that the financial rewards generated by the Internet will become much more decentralized and democratized.  

In more simple terms, instead of VCs and company founders becoming billionaires while users get nothing, the wealth created by goods and services will be broadly shared with users.

This is hardly the first-time technology democratization claims like this have been made. So far, these claims have failed to materialize.

And although the four words most wrong in forecasting are "this time is different," this time could be different.

The essay's primary focus is to educate startups and founders on potential ownership economy opportunities.

The essay chart below (click to enlarge) shows the wide range of firms currently working in this area.

Many terms in addition to "the ownership economy" are used to describe how technology is empowering new ways for people to become entrepreneurs or solopreneurs.

These include the passion economy, the creator economy, the empowerment economy, the freelance economy, and - of course - the gig economy.  

But no matter what you call it, it's clear technology is creating more opportunities for people to become self-employed and owners.

McKinsey on the Metaverse

The metaverse is a hot topic, so it's no surprise that the influential strategy consulting firm McKinsey generates a lot of content on the subject.

They recently released Your Guide to the Metaverse, a 3 part podcast series:

1. What is the metaverse—and what does it mean for business?: provides an overview of metaverse, including the fact that a broadly accepted definition of the metaverse doesn't yet exist.
2. The promise and the peril of the metaverse: covers early use cases, ways it could change business and society, and potential downsides.
3. Innovative and practical applications of the metaverse: the title is pretty self-explanatory.

The series is available on McKinsey's At the Edge podcast, and the series provides a nice introduction and overview to the metaverse.

They also have transcripts of the podcasts on their site (click on the podcast titles to view the transcripts).  

As we pointed out in our article Working in the Metaverse Deja Vu, this isn't the first rodeo for the metaverse.  

Back in 2007, the virtual world Second Life was hot, and many (including us) were forecasting that use of virtual worlds would become popular and widespread by 2017. 

We were wrong.

A big reason for this was that the technology wasn't ready, which is something we should have realized at that time.  

The technology still isn't ready, but it's gotten much better.

And we believe that over the next few years, the metaverse will start to reach the potential we envisioned over a decade ago.

BTW, the picture is from Venture Beats' article CES 2022: Eyeing an enterprise metaverse.  It covers potential enterprise metaverse applications.  

The Rise of Crypto Clubs

The New York Times' This Social Club Runs on Crypto Tokens and Vibes covers the social club Friends With Benefits (FWB), which the article describes as a "decentralized Soho House" and a V.I.P. lounge for crypto's creative class." Key quote:

Friends With Benefits is what's known as a decentralized autonomous organization, or D.A.O. — a kind of digital co-op that uses cryptocurrency tokens to coordinate access, make payments and vote on group decisions.

Friends with Benefits works like an online country club. Key quote from Wunderman Thompson's Crypto Clubs article:

Like a country club, membership is selective, vetted and tiered. To join, prospective members must submit a written application, which a committee of current members reviews. Once approved—only 20% of applicants are admitted—admittance requires a minimum buy-in of $FWB tokens, the club's proprietary cryptocurrency, which represents meaningful ownership in the organization.

The last time we checked, it cost about $4,000 to buy enough $FWB tokens to be considered for full membership. The price moves with the price of the $FWB crypto token.  

In addition to online activities and access to their Discord server for online chats, FWB also hosts IRL (in real life) events in several cities.  

FWB is by far the best-known crypto club. But there are more every day.

A good example is Flyfish Club, which they describe as:

"... the world's first member's only private dining club where membership is purchased on the blockchain as a Non-Fungible-Token (NFT) and owned by the token-holder to gain access to our restaurant and various culinary, cultural and social experiences."

In addition to their members-only restaurant in New York City, they plan on providing IRL events and online activities.  

They have two membership levels (shown below, click to enlarge). 

A regular membership costs 2.5 ether, about $7,500 at today's prices.

The $12,500 option provides access to their "club within a club" Omakase room. The club is expected to open early next year.

These clubs sound exclusive at best, silly at worst.

But the use of cryptocurrencies and NFTs allows new forms of membership models and business models. They also make it easier for members to have ownership in the clubs and profit from them.

Most new crypto clubs allow members to rent or sell their memberships. So if the price goes up, members can profit. They can also lose money. The price of FWB's tokens, for example, has fallen quite a bit since last year.

New business and membership models that make it easier and cheaper to create and operate crypto clubs likely mean we will see many more in the future.

Not Many are Excited About the Metaverse

According to the recent Axios/Momentive What's Next 2022 Poll, only about 40% of Americans are familiar with the metaverse, and just 7% are more excited about the future because of it.

The low metaverse awareness number is also likely overstated.  

This is because when you ask about awareness of trendy or aspirational topics in surveys, you get a lot of false positives. This is especially true if the topic is trending online and in social media.

As the Axios/Momentive chart below shows (click to enlarge), younger people, not surprisingly, are more likely to say they are familiar with the metaverse than older people.

We found the survey's excitement and scared question and data (see chart above) quite interesting. 

The question is, in our opinion, oddly worded and prone to misinterpretation. So although it's interesting, we're not taking the results too seriously.  

But it does seem to indicate that few are more excited about the future because of the metaverse - even only 14% of younger respondents said they were more excited. 

Also, the scared data is, at least for the industry, scary.

Not only does one-third of respondents say the metaverse makes them more scared about the future - it's true for all age groups.

These data points indicate that the industry's excitement, hype, and hope about the metaverse may be overblown.   

It definitely shows that the metaverse industry needs to do a lot more explaining and education. 

The Axios/Momentive poll covers other topics, including consumer views on smart cities, micro-mobility, and electric vehicles.  

BTW, Momentive is the company formally known as Survey Monkey.

Working in the Metaverse Deja Vu

The metaverse continues to attract much media attention, with recent articles from Quartz, The Wall Street Journal and A16Z focused on how the metaverse will change work. Examples include:

The point of all these articles is that we should soon expect to spend at least part of our work lives in metaverse settings.

Quartz's article suggests there will be three main ways the metaverse will change work:

1. The metaverse will become an office alternative, with many office workers spending at least some of their time in virtual offices.
2. Training will increasingly become metaverse based,
3. The metaverse will become the new office lounge and place for what used to be called "water cooler" discussions.

The Wall Street Journal article covers much of the same ground and focuses on the metaverse being a place where people will meet. Key Quote:

When we need to get together with colleagues or customers to do more than chat, we'll log into virtual spaces so realistic it will seem as if we're physically in the same room. We'll see each other in the form of avatars that, if we choose, look nearly identical to our real selves. 

A16Z's article focuses on whether or not the metaverse will fully replace traditional offices.

The article's view is that it will augment rather than replace physical spaces and real-life meetings. Key quote:

The metaverse won't replace the physical office, but it will transform it for the better, and the distinction between virtual and physical offices will soon melt away.

We agree with most of these views of how the metaverse will change how and where we work.

But we've been around long enough to have more than a bit of deja vu on this topic.

In 2007 we published a report with Intuit suggesting virtual worlds (what is now called the metaverse) would blossom as a business tool and location over the next decade.

The picture below is from the report and shows an avatar leaving The Gap's Second Life retail store.

Our forecast was wrong, but virtual worlds stayed hot for a few more years. 

For example, Network World's 2008 article IBM, Second Life create business-friendly virtual worlds covered a joint-venture between IBM and Second Life to develop virtual world work and business applications. Key quote:

IBM also opened a virtual sales center in Second Life last year and, separately from the Second Life partnership, is building an internal virtual world where workgroups can have meetings.

We attended several meetings in IBM's Second Life meeting center, and we joined many large corporations in opening a virtual office in Second Life.  

The four words that are most wrong in forecasting are "this time is different." 

But we think things are different for the metaverse than they were in 2007. 

The technology is dramatically better, and the shift to remote and distributed work provides an excellent opportunity for the metaverse to succeed. And we think it will.

Crypto's Fraud and Scam Problems

We recently listened to a podcast on creating cryptocurrencies.

We were pretty surprised when the podcast's guest "expert" laid out a crypto pump and dump scheme, which he said was guaranteed to make money.

We were equally surprised when the podcast host responded positively to the approach.

It's still unclear to us whether or not the podcasters knew what they were describing was illegal. 

But what is clear is that the crypto space has fraud and scam problems.  

According to Investopedia, cyrpto users and investors lost $10.5 billion due to theft and fraud in 2021. This is up from just $1.5 billion in 2020.

Related recent media articles include Rolling Stone's NFT Scams Are Everywhere. Here's How to Avoid Them, The Information's Crypto's Town Square Has Become "a Scammer's Paradise.", Yahoo Finance's Data: Illicit crypto wallets hold over $25B as hacks, thefts mushroom, and our favorite, Gizmodo's 7 Crypto Projects That Were Total Scams (January 2022 Edition).

Gizmodo's article is our favorite because it only covers large scams they found in January of 2021. Key quote:

We're taking a look at the biggest crypto scams of the month. And it should probably be noted this isn't necessarily a comprehensive list. These are just the largest scams we came across. 

Other crypto fraud-related news include last week's U.S. Department of Justice announcement they'd seized more than $3.6 billion in bitcoin allegedly stolen in a 2016 hack.  

And circling back to pump and dump scams, a group of investors recently sued Kim Kardashian and others for allegedly using such a scheme to defraud them.  

The crypto space is often (and correctly, in our opinion) described as the wild west. 

And just like the wild west, regulations and law and order will eventually tame it.  

We consider ourselves crypto optimists and are not suggesting you don't participate in the crypto space.   

But if you do, we suggest you follow Gizmodo's advice and "be careful out there, folks."

BTW, the picture is from last year's Evolved Apes scam, which netted the scammers $2.7 million in investor funds.

What are Social Tokens (also called Creator Coins) and Why You Should Care

A social token (a.k.a. creator coins) is a form of cryptocurrency used to build communities and provide benefits to community members. Selling social tokens also generates revenue for the token creator. 

The main way social tokens are used is for membership and reward programs. Think of social tokens as crypto-based frequent flyer programs.  

There are two main types of social tokens:

1. Creator coins are created and used by content creators and usually sold (but sometimes given away} to the creator’s fans. Token holders receive benefits such as unique content, access to group chats, the ability to buy exclusive merchandise.  

Many bands and musicians have creator coins that they sell to their fans. The coins generally grant access to online chats with the musicians, early access to new releases, discounts on merchandise, and often special seating sections at concerts.  

Creator coins provide musicians with an efficient way to generate revenue while also providing benefits to their fans.  

A wide variety of professionals have released creator coins.

For example, the well-known technology analyst Jerimiah Owyang has a creator coin (which we own).  

We also own tokens from several other consultants and analysts. In all cases they provide coin holders exclusive content, discounts of various forms, and access to the analysts.

2. Community tokens are issued by a community and provide benefits and access to token holders, much like the creator coins.  

The Friends With Benefits (FWB) community, for example, is a popular virtual community with Web 3.0 and crypto enthusiasts and has several thousand members. They have active online chats, education programs, social programs, and events. Think of FWB as Soho House without the house.  

Anyone can join FWB, but you need to buy 75 $FWB tokens, which currently costs about $2500. 

This is quite a bargain since only a couple of months ago, 75 $FWB would have cost closer to $8,000. 

Like all cryptocurrencies, social token prices are volatile.  And the recent bitcoin and cryto price swoon has also hit most social tokens.  

But most people who buy social tokens aren't doing it to make money (although that is a nice potential side benefit).  They buy tokens to be part of a community and access the associated benefits.

The why you should care about social tokens is straightforward.  

Social tokens can be an efficient and effective way for creators, solopreneurs and SMBs to engage, build, reward, and monetize a community of fans and/or customers.  

Because of this, we expect to see growing numbers of creators, solopreneurs, SMBs - and even large enterprises - develop and use social tokens to engage with their customers.

The short video below is from Rally, a leading social token minting service and marketplace.  It describes the advantages of creator coins.  

What are DAOs (Decentralized Autonomous Organizations)? And Why You Should Care.

The simplest way to describe DAOs - distributed autonomous organizations - is they're online communities owned and controlled by their members.   

The basics are a group of people with a common goal get together online, pool their resources and collectively attempt to accomplish the goal.

Think of them as online co-ops.

But unlike traditional co-ops, DAOs are governed by smart contracts ((collections of computer code) that define the DAO's operating rules. 

These smart contracts operate on blockchain technology, which provides rule transparency (everyone can see them) and security (the rules can't be changed without member approval). 

Key DAO operating decisions and changes to the DAO's  smart contracts are made collectively by the members voting.  

A good example is the recently formed Constitution DAO, which had the goal of acquiring an original copy of the United States Constitution at a recent auction.  

Their bid failed, but in just a few weeks, an online core group of about 35 people was able to form the DAO, recruit 17,000 members, raise $47 million, and bid to buy the Constitution.  

This effort nicely illustrates some of the advantages of DAOs,

They can be formed quickly and easily, they can tap into online audiences for members and supporters, and the members share in the rewards or accomplishments of the DAO. 

Another important advantage is the rules-based nature and transparency of smart contracts means trust is built into the system. 

The last point is very important. Without that trust, it's very unlikely the Constitution DAO could have recruited so many members and raised $47 million so quickly.

As the chart below, which is from The Bankless DAO's article  State of the DAO 3 - Overview of the DAO Ecosystem, shows (click to enlarge), most any kind of organization can be formed and managed as a DAO. 

See the Bankless DAO article for more information and details on the various types of DAOs in the chart.

DAOs are important because they are proving to be a cheaper and more efficient way to form and operate for certain types of organizations than more traditional corporate structures are. 

For example, we think DAOs are likely to become a popular teaming mechanism for groups of independent workers.  

Using a DAO, groups of independent workers could quickly and easily form up to accomplish a task, and deform when finished.  

Having said that, there are still unresolved issues and problems with DAOs.

A big issue is a lack of laws and legal clarity around DAOs.  So far, only Wyoming has passed a law providing legal status for DAOs (they're a type of LLC if registered in Wyoming).  

This means when problems occur, the legal ramifications are unclear - and potentially very problematic.  

DAOs also face the same issues traditional co-ops face, with a big one being that management by voting can be inefficient and/or contentious.  This often results in co-ops being less able to respond as quickly as more agile organizations in the face of change.  

But it's clear that DAOs have advantages relative to other organizational forms.  And because of these advantages, we expect to see many more DAOs formed in the coming years.