Introduction
Monetization strategies have evolved drastically to match the speed of innovation in commerce across Web 1.0 and Web 2.0. From simple banner advertisements to the establishment of digital walled gardens, as well as everything-as-a-service and subscription-based business models, the evolution of monetization strategies has been intricately linked to technological innovations. As we enter the era of Web 3.0, new monetization strategies are emerging that can cater to the needs of a decentralized, blockchain-based internet.
What is Web 3.0
Web 3.0, popularized by Gavin Wood (co-founder of Ethereum) and other prominent technologists, signifies the forthcoming progression of the internet. It promises enhanced transparency, decentralization, and ownership of data and digital assets for businesses and users alike. These promises are inherently at odds with the conventional tried-and-true monetization models from previous years, as most models operate on the principle that large centralized entities collect and possess user data, which they can subsequently monetize.
The history of monetization of the web
Web 1.0, also known as the static web, was characterized by the static HTML pages of the 90s that provide basic information to the users via a network of links. There are rudimentary linkages between webpages and most large web 1.0 companies webpages were essentially a large directory of links.
Monetization strategies during this era were predominantly centered around web page advertisements such as intrusive banners and pop-ups, sponsorships fees, and revenue generated through partnerships with commercial entities. Additionally, numerous companies engaged in direct sales of products and services to users, as exemplified by Amazon in its early days as an online bookstore.
The advert of the browser cookie (learn more about cookies from this awesome Planet Money podcast here) fueled the growth of the next generation of companies in the Web 2.0 era. The Web 2.0, also known as the dynamic web, represented a shift in the way we, as users, interact with the internet.
It was no longer a one-way traffic of information from webmasters to viewers, as web 2.0 ushered in user-generated content with the advent of social media and the pervasive influence of mobile devices in all aspects of our lives. Likewise, monetization strategies evolved to align with the available tools during this period. To attract users, products were offered for free, even at the cost of profitability. Advertisements became more targeted, thanks to the ability of industry giants like Google to create user profiles based on web browsing history, facilitated by the widespread use of cookies and centralized account information (who hasn’t come across Google Sign-In?). These user profiles serve as the foundation of ad networks, where eyeballs were matched to the highest bidder.
Web 2.0 also saw the rise of mobile and walled-app gardens, with behemoths like Apple (AppStore), Google (PlayStore) and Valve (Steam) being able to exert a substantial tax on apps and games that rely on their marketplaces for distribution. This has led to various high profile lawsuits (ie. Epic Games v Apple) that challenges the legality of these walled gardens.
Subscription-based models became popular during the latter years of Web 2.0, with the emergence of SAAS companies and consumer facing services like Netflix and Spotify. Premium features and content were gated behind a paywall, often via a monthly subscription. As-a-service and subscription models were made possible by the rapid rise of Stripe, Ayden and similar payment processing services, coupled with the sharp increase in cardholders across the world. The technological improvements made by Stripe, MasterCard and Visa reduced the complexities and friction surrounding payment collection, particularly on recurring payment collections. Companies are now able to collect fiat from anyone across the world
Web 2.0 vs Web 3.0
Web 3.0 Monetization Strategies
Web 3.0 is the latest iteration on the web. It is characterized by decentralization through the use of blockchain technology, coupled with self-sovereign identity. This sets it in direct ideological contrast to web 2.0, which is predominantly governed by Big Tech. This ideological disparity creates several unique challenges for web 3.0 monetization but at the same time, provides several opportunities for new and improved strategies. It is worth noting that the most successful companies often employ a combination of the following monetization strategies.
Advertisements
Some Web 3.0 companies are using traditional advertising as a way to monetize their products and services. However, the lack of unifying identity across dApps makes it difficult to track users and deliver targeted ads, hence the possibility of scaling this monetization strategy remains limited. For advertisements in web3.0 to become a viable monetization strategy, these problems will need to be solved:
- On-chain Identity/ Reputation
- Reward disbursements
- Spam & Fraud protection
- Communication layer with wallets as the main component
- Data insights combining on and off-chain data
Companies like Idena and Space.id are looking to create and consolidate on-chain identity which is the base requirement for targeted advertisements to work. Sesame Labs is looking to create a native Web 3.0 marketing stack for dApp developers to tap onto.
One company that has been incredibly successful in building a business model around advertisements in Web 3.0 is Brave. Brave turned a commoditized product (the web browser) into both a customer acquisition tool and reward distribution tool, creating a positive flywheel of users who want to be rewarded for their views and advertisers who want to tap on the users views.
Brave’s approach involves integrating their native Basic Attention Token (BAT) into their browser. Users earn BAT by opting-in to view ads while browsing the web. Brave uses machine learning algorithms to match ads to users based on their browsing behavior, without violating their privacy. Users can then choose to reward their favorite creators, publishers, and websites with BAT for providing content that they appreciate.
Another approach to advertising in the Web 3.0 world is through decentralized advertising networks. These networks operate without a central intermediary and provide a platform for advertisers to target their audience and pay them for their attention directly. One example of such a network is Ambire AdEx, a decentralized advertising platform built on Ethereum. AdEx provides an ecosystem for advertisers and publishers to connect and transact without intermediaries, with payments made using the AdEx token.
Tokenization
Tokenization is a key monetization strategy for most web 3.0 companies. It involves the creation and issuance of digital tokens. These tokens may be fungible, which means that they act as a form of a currency or are non-fungible (NFT), which creates many interesting monetization use cases. These tokens or NFT are often a requirement for accessing desired products/services within the company’s ecosystem.
Tokenization is a very powerful tool to incentivize early adopters to become loyal supporters of the company, creating a positive flywheel for growth.
ANKR is a prominent example of a company that uses tokenization to monetize real-world services. The ANKR network’s premium services are gated behind its native token (ANKR). Users must pay with ANKR to access these services, creating loyal customers within the pool of token holders. In contrast, similar companies like Infura and Chainstack operate mostly as a normal as-a-service company that accepts fiat payments only.
Many dAPPs also rely on tokenization to monetize. Successful examples include Uniswap (UNI), TraderJoe (JOE), Helium (HNT) with their own token which promises ownership/ control over the project’s directions.
Another notable example of tokenization is Nouns DAO. Nouns represents a collective brand of NFTs characterized by their blocky and colorful characters, each adorning trademark sunglasses. Unlike other NFT projects which releases all their NFTs in one collection at one go, Nouns are generated on a daily basis and sold to the highest bidder. This approach artificially introduces scarcity by time-gating the creation of new Nouns. Furthermore, this creates the potential for a recurring revenue stream since there is no theoretical limit to the number of nouns that can be generated.
Tokenization can unlock unique ways to bootstrap demand and create positive flywheel for adoption, especially when paired with other monetization strategies like protocol fees.
Protocol Fees
Another monetization strategy commonly used by web 3.0 businesses is to levy a protocol fee. This approach involves charging a transaction fee on the volume of activities within a decentralized protocol or dApp.
The protocol fee model has the ability to extract value from both sides of a two-sided market, making it an effective strategy for businesses that facilitate the matching of supply and demand. Exchanges such as Binance and OpenSea have successfully implemented protocol fees by charging a percentage fee for the purchase and sale of tokens and NFTs.
Protocol fees are particularly powerful when paired with other monetization strategies like tokenization, as it can create unique opportunities to bootstrap demand and foster adoption.
GMX the decentralized perpetual exchange is a successful example of combining both protocol fees and tokenization into a monetization strategy. GMX provides traders the ability to go long/short assets with up to 30x leverage, with the fees generated from these trading activities (transaction fee, dynamic borrow fee, swap fee etc) going towards the revenue pool associated with their tokens GLP and GMX. This provides real utility to their token, creating a form of minimal price support, and also incentivizing holders of their token to only trade with GMX. For a deep dive into the mechanics of the GMX tokenomics, you can refer to this article here.
Protocol fees can be a powerful monetization strategy, but it’s important to strike the right balance between generating revenue and encouraging adoption. Excessive fees can lead to user dissatisfaction and push users to alternative, lower-cost platforms.
Paywalls & Subscriptions
Paywalls and subscriptions are also a popular monetization strategy employed by web 3.0 companies, especially those that offer premium content, research, and analysis. These companies often provide in-depth analysis, data, or research that is difficult or time-consuming for their audience to obtain elsewhere.
Paywalls and subscriptions are an established business model in the web 2.0 world, with companies such as The New York Times and The Economist generating significant revenue from their digital subscriptions. In the Web 3.0 world, the infrastructure for fiat payment collections is already well established, with Stripe and Chargebee being popular payment solutions.
However, in the realm of Web 3.0, the same cannot be said for crypto payments, as existing crypto payment infrastructure has limitations in supporting pull-based payments. As a result, companies that are championing the rise of cryptocurrencies as the future of commerce do not yet offer the option for payments in crypto.
Despite this limitation, Web 3.0 companies are exploring ways to integrate crypto payments into their business models. The potential benefits of crypto payments include faster settlement times, lower transaction fees.
How Suberra can help
Suberra is building the solution to the woes faced by these companies, providing them with the ability to collect subscription payments recurringly without users having to manually authorize the transaction every time. Suberra is currently live on Avalanche, Arbitrum and Polygon with additional EVM chains to be added. You can get started with Suberra by simply signing up for a totally free account at https://merchant.suberra.com.
Conclusion
In conclusion, the emergence of web 3.0 is transforming the way we think about monetization strategies. With increased decentralization, transparency, and ownership of data and digital assets, traditional monetization models are being challenged, and new hybrid models are emerging.
As the web 3.0 ecosystem continues to evolve, it will be interesting to see what new monetization strategies emerge. With the potential for increased user ownership and control over data and digital assets, the possibilities are endless. Companies that are able to adapt and innovate will be well positioned to thrive in the web 3.0 world.
