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Web3 Marketing is not about the Network Effectby@alix
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Web3 Marketing is not about the Network Effect

by alix park April 17th, 2024
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Traditional Web2 marketing tactics like airdrops don't fly in Web3. This article explains why and offers a new approach for achieving sustainable growth in Web3
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The internet has ushered in an era where individuals can invest like never before. A vast amount of information and trading tools are readily available online, empowering them to make informed decisions. Additionally, individual investor communities like r/WallStreetBets have utilized social media to create significant buzz around certain stocks, thereby influencing their prices. In short, the internet has radically empowered individual investors.


Now, a puzzling question arises. Despite the enthusiastic adoption and utilization of the internet so far, why aren't people embracing Web3 yet? Ironically, Web3 represents the next iteration of the internet, defined as "the Internet of Money."


The Web3 Adoption Gap: Users vs. Investors

Despite 580 million people holding cryptocurrency by the end of 2023, the daily average of Unique Active Wallets (UAW) interacting with Web3 or dApps remained modest at 4.2 million. Since the emergence of Web3, active users have comprised less than 1% of the global population.


Two primary factors typically impede the adoption of new technologies: lack of product-market fit and ineffective marketing and communication strategies. Given the sizable number of investors, it can be inferred that they are aware of the potential of Web3. Therefore, we may need to revisit the current Web3 marketing approaches.


Airdrop marketing, where projects distribute free tokens for specific actions, is often associated with crypto marketing. This method has the remarkable ability to transform a project from obscurity to achieving significant Key Performance Indicators. By immediately enlivening a project, airdrops attract users, generate transactions, create liquidity, and boost brand awareness. Recipients view airdrops as potential windfalls requiring no initial investment, making them highly desirable. While both projects and users favor airdrops for the excitement they generate around Web3, it's crucial to evaluate their actual effectiveness in driving meaningful adoption and engagement.


Web2 Marketing: Leveraging Rewards for Network Effects

Offering rewards to attract customers is nothing new, with origins dating back to the early 1700s. Initially used to foster customer loyalty, businesses provided discounts, points, coupons, and cashbacks to encourage repeat purchases. This approach evolved to directly incentivize customer acquisition with the rise of the Internet, particularly during the Web2 era characterized by the concept of ‘the web as a platform’.


PayPal's phenomenal marketing strategy, which attracted over 100,000 users within a month, set a benchmark for many startups. Elon Musk explained it in an interview, stating: “We started off first by offering people $20 if they opened an account. And $20 if they referred anyone. And then we dropped it to $10. And we dropped it to $5. As the network got bigger and bigger, the value of the network itself exceeded any sort of carrot that we could offer.” The more users a platform has, the more valuable it becomes - this network effect has been the hallmark of web2.


Traditional marketing focused on maximizing revenue and profit by targeting specific customer segments who could afford their products. However, the internet era shifted the focus to user acquisition. In particular, startups aiming for rapid scale-up coined the term 'growth hacking' for marketing strategies solely focused on recruiting the maximum number of users in the shortest time. This made the role of a growth hacker the most sought-after position in marketing.


Online vs. On-chain: Calibrating Marketing for Divergent Users

Based on indicators alone, it appears that a record-breaking successful growth hacking is occurring in Web3. Last February, Starknet announced the STRK token distribution worth $2 billion, the largest airdrop in crypto history, to 1.3 million eligible wallets. Blast has not launched its mainnet yet, but secured $1.1 billion worth of liquidity by promising an airdrop in May 2024. This substantial amount of deposits was collected on a network that is not even operational. As a result, there is a growing perception that the hallmark of Web3 is a pyramid scheme.


Observations suggest that user engagement and liquidity sharply decline immediately following the airdrop events. In contrast, PayPal reportedly invested around $60 million in rewards marketing and ceased the program upon reaching 100 million users. Yet it has sustained its growth, currently serving over 400 million users. This raises the question: what is amiss with Web3's marketing that prevents it from fostering sustainable growth?


An important distinction to make is that Web2 online platforms and Web3 on-chain networks differ fundamentally in their nature. As a result, the audiences they target are bound to diverge as well.


1. Platform vs. Protocol: Network Effects in Infrastructure

Web2 platform companies can only sustain growth by locking users into their platforms and monopolizing the market. However, Web3 represents a ‘protocol network’ characterized by ‘interoperability’ and ‘composability.’


For instance, you may have heard of Airbnb's famous growth hacking story, where Airbnb reverse engineered Craigslist's high-traffic website to acquire early users. In contrast, Web3 projects operate within a decentralized system owned by their communities and based on open source principles. These projects can seamlessly integrate with others, either by building their dApps on existing platforms or interacting with other dApps. They do not need permission from other projects to collaborate or access their users.


From the perspective of integrated projects, as more projects combine with its protocol, the ecosystem expands and the token value increases, nurturing a virtuous cycle that attracts even more users and projects to join. This phenomenon, particularly prominent in DeFi, is referred to as ‘money legos,’ where each DeFi dApp serves as a building block, continuously delivering new and diverse products.


In the Web2 era, the 'network effect' was synonymous with acquiring a large number of users. However, in the Web3 era, the power dynamics have shifted. A large user base no longer holds the same influence, as users are more interchangeable. Instead, the network effect at the infrastructure stage is more crucial. Marketing strategies that solely distribute airdrops to secure early users may overlook the essence of Web3.


2. Platform vs. Community: Users vs. Owners

The most common definition of Web3 is the "internet of value," allowing value to be exchanged peer-to-peer without intermediaries. From a marketer's perspective, this definition only explains the features of blockchain technology and is not enough to explain user benefits. The true innovation lies in (a) that anyone can issue their own currency (b) that activities on the network establish economies, and (c) The token price can increase through the joint efforts of the community, so the community members collaborate with the common goal of growing the project. As a result, while the Web2 network is owned by the company, the Web3 network serves as a public infrastructure where users collectively own the protocol and have a vested interest in its success. To sum it up in one word, it is a community, more precisely, an economic community.


While traditional marketing viewed customers as ‘consumers’ focused on purchasing products, the Web2 era redefined them as ‘users’ expected to interact with the network through actions like following, liking, and sharing. In Web3, however, customers take on a new role as ‘community members’ who actively contribute by investing in project tokens, participating in governance, and proposing and promoting initiatives. This represents a shift from the Web2 approach, where marketing efforts aimed at increasing passive user interactions. Web3 marketing should focus on engaging users to foster a sense of belonging and loyalty, encouraging their active participation in the project's development and adoption.


Although the Web3 network operates as an open public infrastructure, it is not a product for everyone. To cultivate a robust community, targeting individuals with the financial means to invest, the time to dedicate, intelligence, interest in technology and the economy, and a passion for economic empowerment provided by Web3 is essential. Therefore, marketing that focuses on accelerated scale-up in the early stages does not align with Web3.


Conclusion

If the network effect was the driving force behind Web2 growth, Web3 is defined by the powerful community effect. In this new era, the path to growth lies not in mere user acquisition but in curating a dedicated community of quality members. Marketing efforts must be tailored to identify and invite individuals who can actively engage and contribute their expertise, ideas, and passion. Empowering these invested members with avenues for continuous collaboration and value creation is the key to unlocking the true potential of Web3 projects and propelling them toward long-term sustainability and impact.