Author: Jiyun Kyung, Business Development (https://www.linkedin.com/in/jiyunkyung/)
[TL;DR]
- Web3 is a decentralized new internet.
- Web3 alternates between competition and coexistence with Web1 and Web2.
- Many global brands are engaging in Web3 business.
- There are four main types of Web3 business models.
- While we can't predict the future, we must prepare for the advent of Web3.
1. What is Web3? Defining Web3
In one sentence, Web3 can be described as the next-generation, user-centric internet built on blockchain technology. In fact, the outward appearance of Web3 is similar to the internet we use daily. Naturally, Web3 also includes familiar websites and apps such as social media, OTT services, news, media, and financial services. So, how does Web3 differ from the existing internet? What is the concept of Web3 business?
1.1 Differences between the existing internet and Web3
The existing internet consists of numerous websites and apps accessible via internet connection. Fundamentally, the vast amount of data displayed on websites and apps must be stored on servers. Servers are physical data repositories that facilitate data exchange when users access specific services or websites.
Generally, multiple servers are required to operate a service, and large-scale services like KakaoTalk use numerous servers to handle millions of simultaneous users. To operate a website or app, one must either set up their own data storage servers or rent them from cloud service providers. These providers offer server and maintenance services at relatively low costs, making it much more convenient for individuals and businesses to lease servers from these companies rather than operating their own.
Major service providers operate data centers worldwide, hosting app and site data across distributed data centers. Control over the servers lies with the owners, i.e., the companies providing the servers. We refer to this approach as centralized.
The central entity has authority over servers and services, and can verify someone's identity, censor, or modify and delete data as desired. While the centralized approach is relatively convenient, excessive centralization can lead to various issues.
Web3 departs from this traditional web operation model, pursuing decentralization. In short, Web3 processes all actions and decisions in a decentralized manner, without the need to trust a central authority (Trustless). Although Web3 may appear similar to the existing web, there is a significant difference in that the infrastructure supporting it technologically is decentralized.
Decentralization means that no single person or group can completely control the network. Web3 has a unique ownership model different from traditional server models. While servers are still necessary to host apps or websites, in Web3, many independent participants own and operate servers (nodes) instead of a central authority.
Although renting servers from cloud providers is physically distributed, it's difficult to call it decentralized because there's still a clear original owner of the servers. In contrast, Web3 nodes are not only distributed but also pursue decentralization.
This approach significantly impacts the future of the internet and how it's used. It's clearly different from the existing method, both technologically and ideologically. Ultimately, Web3 means putting control of not just the internet, but all digital assets and actions, into the hands of actual users rather than central entities.
However, Web3's ownership model is technically complex and difficult to implement. Therefore, Web3 utilizes technologies like blockchain and cryptocurrencies to encourage network participants to maintain nodes well and ensure a stable decentralized model.
But would individual participants maintain servers on their laptops or smartphones without any benefit? That's where cryptocurrency comes in as a form of reward to encourage active participation. This cryptocurrency has evolved to serve not only as an incentive but also as fuel and currency for the network to function.
1.2 Web1 vs Web2 vs Web3
Web1 has a structure that allows for reading (Read) information. Users can only read data on browsers and web servers. Most websites that don't allow interaction and only provide information one-way can be considered Web1.
While Web1 only allowed reading, Web2 enables both reading and writing (Write). Users can not only read information but also comment on it or input new information on the web. The emergence of platforms and social media is a typical case of the transition to Web2.
For example, in its early days, Naver simply provided news or content. This structure is Web1. As it evolved into a platform, users could post content through blogs and comment on news or webtoons. It transitioned from a one-way relationship to an interactive one, shifting from Web1 to Web2.
As Web2 became widespread, anyone could create and upload content, but issues arose regarding 1) data privacy and 2) centralization. We see examples like products we clicked on in online shops following us around all day, or being unable to use a service when a data center experiences a fire.
Web3 includes the concept of ownership (Own) in addition to reading and writing. If our data is managed through a single database, it's difficult to say we truly own it. However, if our data is on the blockchain and we are the owners, it's a different story.
This can potentially solve issues related to data privacy and centralization to some extent. For example, let's assume a game you enjoyed has been terminated due to the developer's circumstances. The character you've invested time in or the items you've worked hard to acquire feel like you own (Own) them while the game is operational.
However, if the central entity, the developer, stops operating the game, the characters and items disappear. In this case, you haven't truly owned your digital assets (characters, items). Conversely, in Web3 games, you have full ownership of assets like characters and items. Even if the game is discontinued, your ownership remains valid. However, it's true that even if a Web3 game is discontinued, it's still challenging to utilize these assets elsewhere due to copyright and interoperability issues.
In conclusion, the distinction between Web1, Web2, and Web3 is more declarative than technical. The way the internet operates hasn't changed significantly in decades. People have simply been considering how to build and interact with the internet, and new methods have continuously been added. This doesn't mean existing methods disappear; they blend with new approaches and evolve into forms familiar to people.
1.3 The Relationship between Web3 and Web2: Competition and Symbiosis
The relationship between Web2 and Web3 can be described as a complex interplay of competition and symbiosis rather than one replacing the other. Currently, Web3 is difficult to exist without Web2, and Web2 is also exploring transitions and new businesses utilizing Web3.
At present, Web3 is still technologically dependent on Web2 products and services. For instance, most blockchain networks supporting Web3 rely on cloud services like AWS. Operating nodes in the cloud allows for relatively inexpensive operation without the need to create or invest in proprietary data storage.
What about Web3 games? It's not easy to develop and operate games solely on the blockchain due to the relatively slow speed and high costs compared to existing games. Therefore, some are adopting an approach where games are developed on a Web2 foundation for entertainment value, with certain elements created in Web3.
In conclusion, it's difficult to clearly distinguish between Web2 and Web3. Web2 can always add Web3 elements to their business models, while Web3 often utilizes traditional Web2 business models or depends on their basic technologies and structures.
Nike sells its digital products on the Polygon network, while luxury brands like Louis Vuitton use Aura Consortium's blockchain technology to prevent imitations. Gucci is conducting unique campaigns in collaboration with Yuga Labs, the creator of BAYC, one of the world's top PFP NFT projects.
It's unlikely that Web3 will radically replace all of Web2. We have deeply ingrained habits of using the existing internet. Moreover, the distinction between Web2 and Web3 may become meaningless in the future.
2. Current Status of Global Companies' Web3 Business
In 2022 and 2023, 330 global companies conducted over 550 Web3 projects. Among them, about 50 brands from Interbrand's Top 100 Global Brands over the past two years have engaged in various Web3 businesses using NFTs. 40 of these brands started their Web3 businesses in 2023, and many more global companies are preparing to enter in 2024.
What does it mean that countless global companies like Starbucks, Nike, Louis Vuitton, Gucci, Adidas, Crocs, Coca-Cola, Dior, Honda, Mastercard, Visa, Puma, and 7-Eleven are conducting Web3 projects? How will Web3 create added value in existing businesses and foster an innovative environment in the future?
2.1 Definition of Web3 Business
Web3 business refers to business methods that utilize Web3 elements. This ranges from issuing tokens to create new protocols to one-time NFT projects, with varying methods and depths. Web3 elements here don't just mean creating new cryptocurrencies or NFTs, but also refer to the inherent characteristics of Web3 itself. Specifically, this includes user-centric ownership structures, community-centered activities, and tokenization of existing assets.
In conclusion, considering business direction and risks within companies, Web3 business types can be broadly categorized into three:
- Direct development of token issuance, mainnet, and ecosystem → WeMade's 'WEMIX Ecosystem'
- Combining Web3 elements with existing business models → Starbucks' Web3 loyalty program, 'Starbucks Odyssey'
- Providing blockchain-related infrastructure → Google Cloud's 'Blockchain Node Engine'
There are various other forms of Web3 businesses, and over 1,000 companies worldwide are directly or indirectly engaged in Web3 business. Even companies that haven't yet jumped in are indirectly preparing for Web3 business through trademark applications, and it's expected that the Web3 market will be activated at an opportune time.
2.2 Reasons Global Companies Engage in Web3 Business
Generally, Web3 businesses conducted by global companies can be classified into NFTs, metaverse, infrastructure, and cryptocurrencies based on type and preference. Among these, NFTs have been the most preferred Web3 business type for global companies from the past to the present.
The specific reasons global companies engage in Web3 business include: 1) To provide new experiences to customers, 2) To enhance customer engagement, 3) To revive past IP, 4) To use NFTs to sell new products. These can be summarized as follows:
- New Customers: Attract new, younger customers who spend a lot of time in virtual spaces, including the internet, and are familiar with cryptocurrencies.
- Increased Engagement: Enhance brand preference, brand appeal, and perceived value in consumers' eyes through fresh, innovative experiences and personalization via asset distribution.
- New Products: Develop new products, services, and business models such as co-creation and token-based utilities.
- Increased Revenue: Basically, virtual product sales have higher profit margins, and secondary sales fees from NFTs can generate additional revenue for companies.
While many companies still view Web3 as an experimental stage, it will gradually evolve into a form that can create new added value by connecting their business models and core competencies with Web3.
3. Four Types of NFT Use Cases for Global Companies
In this content, we'll examine how companies are utilizing NFTs, focusing on the following four types of Web3 businesses. Through case studies of leading companies corresponding to each type, we'll take a detailed look at how Web3 is innovating corporate business strategies
3.1 Redesigning Loyalty Programs Using Web3
Companies are now designing the next generation of loyalty programs using blockchain and NFTs. Going beyond traditional reward systems, they aim to strengthen consumer interactions by offering unique and transparent rewards through NFTs. This allows companies to provide consumers with unique digital assets and build trustworthy relationships.
- Fashion brand Lacoste's membership service, "UNDW3 (Underwater)"
- German airline Lufthansa's NFT loyalty program, "Uptrip"
- Visa's developing "Visa Web3 Loyalty Engagement Solution"
3.2 Connecting Physical and Virtual Through Phygital & Digital Twins
Companies are using NFTs to provide new forms of experiences connecting physical products with the digital world. By issuing digital tokens corresponding to products and creating them as NFTs for consumers, they enable unique digital content and interactions. This provides consumers with distinctive experiences blending reality and virtual worlds, contributing to increased brand visibility.
- Louis Vuitton's VIP community, "VIA Treasure Trunk"
- Adidas' new NFT collection, "ALTS by adidas"
- Gucci and Yuga Labs' collaborative silver jewelry, "KodaPendant"
3.3 Strengthening Community and Co-creation
Web3 and NFTs take the relationship between companies and consumers a step further. Brands use blockchain to build equitable communities with consumers and encourage co-creation of products or content. This allows brands to engage consumers in the brand, jointly develop products and services, leverage community power to generate innovative ideas, and enhance member brand loyalty and participation.
- Nike's co-created virtual sneakers, "Our Force 1"
- The Museum of Modern Art (MoMA)'s relay NFT postcard project, "MoMA Postcard First 15"
3.4 Monetizing IP Digital Collectibles
This is how companies effectively utilize their intellectual property (IP) by combining it with Web3. By combining NFTs with brand assets, digital art, music, etc., brands can offer unique digital collectibles to consumers and generate revenue. This is gaining attention as a way to blur the boundaries between art and business and demonstrate brand creativity.
- Disney and Dapper Labs' new NFT platform, "Disney Pinnacle"
- Gucci and Christie's digital art auction, "Future Frequencies"
- Coca-Cola's art NFT collection, "Global Masterpiece"
- Mercedes-Benz's collectible NFT collection, "Mercedes-Benz NXT (NXT ICON)"
4. Conclusion: The Next Era of the Internet
Web3 is a big wave encompassing cryptocurrencies, DeFi, NFTs, P2E, DAOs, metaverse, and AI. While technological expansion of blockchain itself is good, the most important thing is to consider the users adopting Web3, and mass adoption needs to occur.
No one knows whether Web3 will become the next era of the internet or, conversely, decline. However, Web3 is closer than we think and is creating many use cases. The high volatility of cryptocurrencies and questions about intrinsic value, which most people view negatively, are also part of Web3.
It's unlikely that Web3 will radically replace all of Web2. We have deeply ingrained habits of using the existing internet. Moreover, the distinction between Web2 and Web3 may become meaningless in the future. Therefore, what we need to do now is not make hasty predictions but prepare for and adapt to the coming Web3 era.
Many global companies are already adopting Web3 and moving ahead, while many others are still exploring opportunities. In Korea, many companies are challenging themselves with Web3 business, facing difficulties and growing. Although it won't be easy as it's an uncharted path, we expect companies to develop global competitiveness utilizing Web3 as a new growth engine.
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