Research Summary
The report discusses the impact of web3 technologies on competitive strategy, using Porter’s Five Forces Framework. It highlights how web3 intensifies competition but also offers opportunities to grow the overall market. The report emphasizes the importance of embeddedness and community cohesion as competitive advantages in web3.
Key Takeaways
Web3 Intensifies Competition
- Increased Threat of New Entrants: Open development on public blockchains makes it easier for new firms to enter the market, enhancing the threat of new entrants. New entrants can leverage established user and content networks, as well as existing protocols and codebases.
- Enhanced Threat of Substitutes: Composability and the possibility of protocol forks strengthen the threat of substitutes. Entrepreneurs can take the open source code of another platform and add additional features to create a new product that might serve users’ needs better than the original.
- Greater Bargaining Power for Users and Stakeholders: In web3 applications, users and stakeholders are typically given direct ownership of their data and other digital assets, which are portable and interoperable across platforms. This enhances their bargaining power.
Web3 Offers Opportunities for Growth
- Value Creation through User Contribution: The features that make competing in web3 difficult also offer an opportunity to grow the pie in terms of value creation by incentivizing users to contribute. This leads to a bigger pie, such that capturing a smaller share can still lead to a bigger slice than in the traditional model.
Embeddedness and Community Cohesion as Competitive Advantages
- Embeddedness: In web3, firms can have their protocols or assets become embedded in many other systems and business processes to establish competitive advantage. The more a given protocol becomes an established standard, the more it contributes to the value of the network.
- Community Cohesion: Web3 facilitates the process by which users become personally attached to and engaged in a firm’s ecosystem. When users have a preference for using a given platform and a vested incentive to contribute to its success, they may choose to stick with that platform even when it’s possible to switch.
Actionable Insights
- Embrace Open Development: Companies should consider leveraging the open development nature of public blockchains to enter new markets or enhance their existing offerings.
- Focus on User Empowerment: Firms should prioritize giving users and stakeholders direct ownership of their data and other digital assets, enhancing their bargaining power and fostering loyalty.
- Invest in Community Building: Companies should invest in building a strong, cohesive community around their platform, as this can serve as a powerful source of competitive advantage in the web3 space.
