What’s the Killer App for Web3?

(Dear readers: this is a scaled-down excerpt from a larger project I’m working on. I’ll let you know when that effort is ready for broad distribution.)

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Every technology is good for something. But there are use cases, and then there are Use Cases™. The extremely compelling applications of the technology. Those that lead to widespread adoption and increased legitimacy, almost becoming synonymous with the technology itself.

Do people still use the term “killer app?” It’s not my favorite—I (unfairly?) associate it with Dot-Com business-bro culture—but I have to admit that it captures the spirit of that dominant use case. So I’ll hold my nose and use it here.

If you reflect on the emerging-tech landscape, you see the following killer apps:

• Early-day internet: E-commerce. Hands-down.
• Cloud: The legion of SaaS tool startups, on its first go-round; then AI for its victory lap.
• Data science/ML/AI: Advertising. Advertising. Advertising.

And then there’s the new kid, web3. I’ve noticed that people are more inclined to ask me “what’s it good for?” rather than “what is it?” Which is fair. Every technology has to pull its weight, and sometimes What It Enables People To Do counts more than What It Actually Is Under The Hood. (Hence, my usual crack that machine learning is just linear algebra with better marketing. But I’ll save that for a different article.)

While I can walk those people through a few use cases, I still haven’t figured out what web3’s killer app is. That’s not for a lack of trying. I’ve been exploring the topic for a couple of years now, which is what led me to launch the Block & Mortar newsletter so I could share more of my research in public.

Why It’s Tough

Sorting out web3’s killer app(s) has proven difficult for a number of reasons, including:

• Mixed bag/layer cake: The term “web3” is as slippery as “AI,” which has already changed names a few times. Both are umbrella terms for several different concepts. Today we have the three-layer cake that is blockchain-cryptocurrency-NFTs, plus this “metaverse” term that is itself very fuzzy. We may add more to that list as the field grows.
  
  So when we talk about a use case for “web3,” we first need to decide which of those concepts we mean. (It’s sort of like how  “internet” sometimes means “the underlying network connectivity layer,” and other times, “the web.”)
  
• Rearview mirror: We usually notice killer apps after the fact. The technology is built to do X (and it may do a middling job of that) but someone else realizes that it would revolutionize Y.
  
  Bitcoin—the most recognized name in this space—has been around since 2009, but the wider web3 ecosystem is maybe half that age. As it’s still developing, we’re still in that phase of throwing it at everything to see what sticks. That’s probably what will uncover the killer app, but we won’t know until something really takes off.
  
• Deja vu, all over again: A common reaction to web3 use cases is, “we already have that.” Or even, “crypto is a terrible version of that.” Both of which are usually true. Blockchain is an absolutely terrible replacement for a relational database. But so was MongoDB. And Hadoop. And every other non-relational data store that’s come along. The point is to notice where a relational database doesn’t work so well, when it’s creaking at the edges, and then see how another tool would do in its place.
  
  (Do you have one entity in charge of managing all the data? You’re pretty safe to default to a relational database. Do you have several peers, all of whom need to see and validate the data, and none of whom want to trust one member with all the keys? Blockchain is your friend.)
  
  We had search engines before Google. Social networks before Twitter,  and physical stores before e-commerce. “Why would I need to boot up my computer to go shopping? I can just hop in my car and browse in-person.” How long did it take merchants to see the value in a web-based storefront, backed by a warehouse-and-shipping infrastructure? And why’d it take consumers so long to realize that it’s nicer to click around a website at 3AM from the comfort of their couch?
  
  The new way of doing things is often convenience masked as discomfort with the unfamiliar. It takes time for us to learn that it’s not so uncomfortable after all.
  
• Guilt by association: Most people use “web3” and “crypto” interchangeably, which is not exactly fair. They also associate “crypto” with “crime,” which is much harder for me to refute. Most  mainstream cryptocurrency news stories involve phishing scams, a token’s meltdown, or a fund collapsing. Mix that with the environmental impact of crypto mining and I can see why people would assume it’s good for nothing.
  
  (One could argue that web3 has proven very good for criminals, and that the killer app is separating people from their money. I won’t dispute that. But for now, let’s focus on legitimate use cases that will have mass appeal.)

What It Won’t Be

My gut feeling is that targeted, invasive advertising will not be web3’s killer app.

It will certainly get some traction as companies try to make it happen. Adtech drove a lot of web2 and I already see attempts to ride that wave into web3. To advertisers, a metaverse property is a surface on which to show ads, in a (semi-)walled garden, where they can collect contact details.

And, frankly, that’s the problem. Web2’s “collect personal info to try to identify specific individuals who may be interested and then pummel them with messaging” is incompatible with web3’s ethos of “honor pseudonymity and give people the opportunity to tell you when they’re interested.”

Web3 shifts the power of outreach to the buyer. That sounds like a better system to me, because of the strength of self-selection. But to get there, marketers will have to unlearn old habits and embrace this world in which they derive greater benefit yet have less control. Understandably, they will have trouble letting go.

So if not advertising, then what?

Based on my research, I suspect web3’s killer apps will come out of two unlikely fields: fashion and loyalty programs.

Fashion-forward

The fashion industry was an early adopter of web3. From accepting cryptocurrency as a form of payment, to token-gating events (including special NFTs for VIP passes), to virtual models. Well-known fashion houses have created wearables and perfumes for metaverse avatars, some of which are digital twins for real-world items. They’ve even flipped that around, to road-test digital products before releasing them in physical form. Much of this work has led to the understanding of using NFTs to build community.

That’s admittedly more of a sampler platter than a single use case. There’s no clear leader in there. Yet. But if the best way to find something is by looking, then the fashion industry is poised to find that killer app precisely because they are running so many experiments. They’re testing web3 tools in public, in real-world situations, and they are learning at each step.

Even if you know zilch about fashion, you can still keep an eye on this field’s web3 work and adapt it to your own. I highly recommend Vogue Business as a start. That’s right, the eponymous fashion magazine has a dedicated publication for behind-the-scenes industry issues such as technology, sustainability, and economic trends. Stumbling onto that website jump-started my understanding of web3. I saw real business use cases outside of DeFi, and got my first taste of what I would later refer to as NFTs With Benefits: using the tokens as access passes and for VIP status.)

Rewarding Loyalty

Loyalty programs are an interesting bunch. They’re the other side of the marketing department, with a very different approach compared to their siblings in the advertising arena.

The idea behind a loyalty program is that someone is already a customer, and they have expressly signed up to join your fan club. (That sounds a lot like the web3 ideal of letting people self-select, does it not?) Membership in a loyalty program gives rise to a virtuous cycle: people like what you do, so they patronize your business more; you then find new ways to keep them happy, so they continue to like you.

The value in this positive feedback loop becomes clear when you consider that the cost of acquiring a new customer is typically much higher than keeping an existing customer engaged. And that repeat business adds up.  Major airlines’ frequent-flier programs rake in billions of dollars each year. Businesses have a strong incentive to keep those loyalty programs humming.

How does web3 fit in here? Loyalty programs are often built on a gamified structure, such as “fly X miles within Y months to get Z status.” Companies create web3 games that let people show how engaged they are with the brand. Chipotle customers rolled virtual burritos inside a Roblox eatery as a way for the chain to introduce its Garlic Guajillo Steak dish. Universal Studios gave out NFTs for participation in its in-person scavenger hunt.  And Starbucks recently unveiled blockchain-based updates to its Rewards program, challenging people to earn “Journey Stamps”—NFTs in everything but name—for trying different drinks.

This is when you’d ask why companies can’t build these games on existing technologies. That would be a fair question, since nothing I’ve described thus far really needs a blockchain. But it does offer two perks:

First, a loyalty program operates on a sequence of transactions such as “spend points,” “acquire points,” “use service.” Blockchain technology is purpose-built to record transactions to a tamper-resistant ledger. And a blockchain’s decentralized nature makes it easier for members in a shared venture—think airlines with codeshare agreements, or airlines partnering with hotels—to get instant updates on member activity. They can even build all of this behind the scenes, shielding customers from the underlying crypto wallet management.

Second, for those loyalty programs that expose the blockchain functionality to members, those crypto wallets serve as digital identities. True fans won’t just achieve status in a program; they’ll be able to broadcast that status by showing off the associated NFTs in a public-facing wallet. And that is a strong form of organic marketing.

Time Will Tell

Fashion and loyalty programs are poised to uncover web3’s killer apps, whatever those may be. At least, that’s how it’s adding up right now. I look forward to reviewing this article over the next few years to see whether this turns out to be true.

Whatever it is, I think back to something Mike Loukides has told me: “I think the winner will be whoever can build a blockchain that you don’t even know you’re using.” This is true. Consumers rarely care what technology runs their favorite apps; they just want them to work. Additionally, web3 still has a reputation problem. If companies are to reap blockchain’s technology benefits, they’d do well to keep them behind the scenes. Or at least follow the Starbucks example and give the tools new, brand-specific names.

We should also consider what happens when those killer apps finally surface. That will be the end of one race and the start of another. The outsized interest in building on and monetizing those killer apps will drive improvements in the underlying technology. And those improvements can be applied elsewhere.

Consider how much adtech has poured back into the AI ecosystem. Google and Facebook drove advances in neural networks, contributing code (TensorFlow, Torch, Prophet), hardware (custom TPU chips), and tooling (autoML and model hosting infrastructure through Vertex AI). That’s not to speak of the educational material that’s sprung up around these tools and services. Combined, these have lowered the barrier to entry for individuals to learn about neural networks and for businesses to put those powerful models to use.

So I look forward to the continued quest for the web3 killer app(s), in part for what that will do for the space as a whole.