THE PROMISE OF A DECENTRALIZED INTERNET:
WHAT IS WEB 3.0 AND HOW CAN FIRMS PREPARE?
Lundquist College of Business
University of Oregon
Darden School of Business
University of Virginia
Lundquist College of Business
University of Oregon
Forthcoming at Business Horizons
May 31, 2022
THE PROMISE OF A DECENTRALIZED INTERNET:
WHAT IS WEB 3.0 AND HOW CAN FIRMS PREPARE?
What is Web 3.0 and what does it mean for established companies? Web 3.0 describes a
broad range of emerging Internet applications being built on blockchain technology—a
decentralized, public database that allows information to be securely recorded on a network of
computers rather than verified and controlled by centralized entities. Central to this evolution of
the Internet are four distinct blockchain-enabled applications: cryptocurrencies (fungible tokens),
non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), and metaverses.
In this article, we define each of these applications and discuss their capacity to increase peer-to-
peer interactions, decrease control of information and services by large companies, and facilitate
access to networks of users at a much lower cost than currently possible. These distinctions make
Web 3.0 both a natural evolution of Web 2.0 and a broader paradigm shift that may
fundamentally alter the ways in which people interface online, organizations are structured, and
business is conducted. We conclude by addressing how established companies can prepare for a
more decentralized Internet.
Keywords: Web 3.0, blockchain, cryptocurrencies, NFTs, DAOs, metaverse, decentralization
THE BURGEONING WORLD OF WEB 3.0
In February 2022, Budweiser unveiled a Super Bowl commercial titled “Zero in the Way
of Possibility” to introduce its Bud Light Next beverage. In one scene, the commercial depicts a
man in an art museum staring at a classical painting of a woman wearing an animated pair of
blue glasses. For many, the animated glasses seemed out of place but of little significance. Yet
for a small subset of the population, the glasses signified a high-profile example of an established
company dipping its toes into the burgeoning world of Web 3.0—the next-generation Internet
built on blockchain technology and the futuristic-sounding applications it enables, including
cryptocurrencies (fungible tokens), non-fungible tokens (NFTs), decentralized autonomous
organizations (DAOs), and metaverses. We will address each of these applications in greater
detail soon, but first, how does a Budweiser commercial and an animated pair of glasses relate to
what some are calling the future of the Internet?
For starters, Budweiser did not unilaterally decide to include the animated pair of glasses
in its commercial. Instead, the decision stemmed from a partnership with Nouns DAO, an online
organization with no formal managers or employees that formed to oversee the Nouns NFT
project, which comprises a series of unique digital artworks depicting pixelated characters
wearing animated glasses. Prior to the Super Bowl, Nouns DAO owners voted on a proposal to
buy back one of these unique digital artworks—a pixelated beer mug wearing glasses—for
approximately $394,000 and gift it to Budweiser. In exchange, Budweiser agreed to change its
Twitter profile picture to the image of the pixelated beer mug and feature a signature pair of
Nouns glasses in its upcoming Super Bowl commercial.
This example illustrates the wild and uncharted world of Web 3.0! In fact, several aspects
of this transaction are “very Web 3.0.” First, the exchange of the pixelated beer mug was fully
digital. It was executed on the Ethereum blockchain protocol, a new type of decentralized
Internet protocol that enables information to be transmitted from computer to computer with
greater transparency than the foundational Internet protocols in use today, such as Transmission
Control Protocol (TCP) and Internet Protocol (IP). Second, no U.S. dollars (or any fiat currency
for that matter) were exchanged. The transaction to acquire the digital artwork was denominated
in 127 Ether tokens, the primary currency for the Ethereum protocol (also referred to as a
cryptocurrency). Third, the digital artwork was a Nouns NFT (non-fungible token), or a one-of-
a-kind digital asset, that was created by the online organization, Nouns DAO. This NFT not only
comprised the pixelated image of a beer mug, but it also granted its owner a vote on proposals
for how to spend Nouns DAO’s treasury of Ether tokens (worth approximately $58 million as of
February 2022). For instance, those who possessed Nouns NFTs in January 2022 had the right to
vote on whether to use Nouns DAO’s funds to buy and gift the NFT of a beer mug to Budweiser.
Finally, the NFT was electronically transferred from the Nouns DAO to Budweiser entirely on
the Ethereum blockchain in a transaction that can be verified by anyone (Etherscan, 2022).
Consequently, after receiving the NFT, Budweiser not only possessed a token that
represented a unique digital artwork, but it also gained a vote on future Nouns DAO proposals
(as well as the right to put forth Nouns DAO proposals). And Budweiser’s involvement in Web
3.0 did not stop there! In February 2022, Budweiser launched its own set of 12,722 collectible
NFTs, selling for $399 each and granting exclusive voting rights on future Budweiser initiatives
to their owners. As a result, Budweiser is now both an NFT-holding member of a DAO as well
as an NFT-issuing company.
The Budweiser example is a lot to absorb, but it illustrates a potential future of the
Internet where companies can readily engage with individuals and online communities, and
individuals and online communities can increasingly access and influence large established
companies (Hackl et al., 2022). Though Web 3.0 is still in its infancy, it is developing at a rapid
pace, far faster than the growth of Web 1.0 and Web 2.0. We therefore provide a primer for
managers seeking to understand how Web 3.0 may influence the future of business. We first
trace the evolution and emergence of Web 3.0, beginning with the early days of Web 1.0 in the
1980s and 1990s. We then provide an overview of key blockchain-enabled applications that are
coalescing to give form to Web 3.0. Specifically, we discuss cryptocurrencies, NFTs, DAOs, and
metaverses. Finally, we highlight several contemporary examples to articulate ways in which
established companies can strategically position themselves in a Web 3.0 world.
FROM WEB 1.0 TO WEB 3.0
Web 1.0: Laying the groundwork
Web 1.0, which many users first encountered in offices, libraries, and schools during the
1980s and early 1990s, was relatively decentralized. No single entity, or group of entities,
controlled this iteration of the Internet. Anyone could build directly atop its open protocols:
TCP/IP for basic transmission of data on the Internet, HTTP for Internet applications such as
websites, SMTP for e-mail, IRC for chat, and FTP for file transfer. In the mid-1990s,
improvements to chat room and instant messaging clients made real-time communication on the
Internet possible for wider adoption. However, outside of e-mails, chats, and instant messages,
many Web 1.0 users were in “read-only” mode because creating content (e.g., building websites)
required technical coding skills. Moreover, a robust educational infrastructure to learn how to
develop content for Web 1.0 did not exist.
As Internet adoption became more widespread, two glaring holes in Web 1.0 became
increasingly apparent. First, Web 1.0 protocols were “stateless,” meaning they did not capture
meaningful individual user data. For example, a stateless protocol, such as HTTP, cannot display
a “Welcome Back!” message to a repeat visitor to a website. To address this problem, Lou
Montulli, a programmer for the Web 1.0 Internet browser Netscape, invented cookies—data that
websites and browsers can locally store on users’ computers to save certain pieces of “state”
information. This innovation was widely adopted, enabling features such as shopping carts that
preserve contents if users navigate away from a webpage, and customized product
recommendations for repeat visitors to e-commerce websites. Second, because Web 1.0
protocols were open and free, there was no inherent financial incentive for developers or creators
to build atop them. Anything on the Internet was essentially open and accessible. In other words,
the early Internet was not an environment where content, applications, and services were
naturally thought of as “businesses” like today. Together, given the technical challenges
associated with building content on the Internet, and the lack of financial incentives for those
who had the capability to do so, Web 1.0 had a glaring content problem.
Web 2.0: Facilitating content generation
Addressing the content problem was a key driver of Web 2.0—a more dynamic Internet
where all users are simultaneously consumers and creators, even if passively and unknowingly
(Kaplan & Haenlein, 2010). The ability to store, analyze, and interpret user data using cookies,
alongside other innovations, unlocked huge potential revenue sources for companies, first from
advertising, and later from understanding user behavior to fine-tune product offerings and sell to
other companies. Businesses began to close off and generate profits from once open protocols by
aggregating data and services into platform ecosystems (Kretschmer et al., 2022; Subramanian et
al., 2019). For instance, web browsing via HTTP became a battleground for companies
developing browsers and complementary software, such as Microsoft’s Internet Explorer/Edge
browser and its Outlook webmail application and Google’s Chrome browser and its G-mail e-
mail application. Further illustrating Google’s robust Web 2.0 ecosystem, its G-mail application
not only collects data on user behavior, but it also integrates with other Google applications to
lock users into its expansive suite of offerings, allowing Google to collect even more data and
sell additional features (e.g., cloud storage) to users. This model of collecting, using, and selling
user data further fueled the emergence of social media and created new contexts for businesses to
interact with and advertise to customers (Hanna et al., 2011; Kaplan & Haenlein, 2010).
Yet what can sometimes be idealized as a symbiotic relationship between platforms and
users is not fully equitable. Companies hold the power over these ecosystems, and only a small
fraction of creators get compensated for the content they produce. Given the vast oceans of Web
2.0 content, it can also be difficult for creators to gain visibility for their work. What was once an
open and generally free Internet has become increasingly gated, with creators paying companies
to publish their work and users paying companies for access to it.
Web 3.0: Decentralizing the Internet
Web 3.0 promises a more decentralized online experience, allowing individuals to take
back control of their data and information, monetize the content they create, and easily organize
with others who share common interests and objectives (Cook et al., 2020; Hackl et al., 2022).
This iteration of the Internet is being built on open blockchain technology, also referred to as
distributed ledger technology. Blockchain technology is a decentralized, public database that
allows information to be securely recorded on a network of computers rather than verified and
controlled by centralized entities (e.g., Malhotra et al. 2021). Essentially, blockchain is a digital
accounting system that records “who owns what” and maintains all state changes over time.
Importantly, information recorded “on chain” (i.e., on the blockchain) is decentralized
because it is securely maintained on a network of computers rather than a single server. Data
accuracy and integrity are then maintained through consensus, or agreement, among all network
participants, thereby eliminating the reliance on a centralized entity, such as a firm or an
organization, to record information and ensure its legitimacy (Lee, 2019). Many of the
blockchains in use today are also open, such that digital records of information are public and
visible to all parties. As a result, information stored on an open blockchain is transparent,
immutable, and traceable (Casino et al., 2019; Zheng et al., 2017). Thinking back to the
evolution of the Internet, these properties of blockchain technology address the Web 1.0 gap of
statelessness and the Web 2.0 problem of centralization, wherein companies effectively “own”
access to certain subsets of the Internet and use that power to generate profits from users.
Critical for the functioning of many Web 3.0 applications is blockchain technology’s
ability to store and run smart contracts—computer programs that reside on the blockchain and
automatically execute with the properties of transparency, immutability, and traceability when
predetermined conditions are satisfied (Murray, Kuban, Josefy, & Anderson, 2021). Smart
contracts allow developers to be confident that the encoded rules of the application they build
atop blockchain protocols (e.g., Ethereum or Solana) will execute autonomously for perpetuity,
even if the people behind the protocol go away. Taken together, it is possible to think of
blockchain protocols as massive shared global computers upon which any user can immediately
and directly interact with other users, write programs, and create applications that can be
accessed by all. Combined with the fact that anyone can deploy a smart contract on a blockchain,
and anyone can use a smart contract once it is active, blockchain-enabled smart contracts (and
the applications they enable) are a game changer!
For example, Modum is a start-up company integrating smart contracts into
pharmaceutical supply chains to track shipments of perishable medicine and ensure coded
conditions, such as temperature, are satisfied in transit. Not only does Modum greenlight or
redlight shipment conditions without relying on human actors, but it also sends real-time updates
during transit to flag instances where conditions deteriorate to undesirable levels (Huang et al.,
2021). In this way, Modum automates supply chain transactions based on real-time immutable
data rather than relying on human interpretations of data, thereby generating more seamless and
reliable transactions between supply chain partners (Murray, Rhymer & Sirmon, 2021).
The openness and decentralization enabled by blockchain technology are also part of the
broader cultural movement behind Web 3.0. Many believe incorporating blockchain into the core
functionality of the Internet will transfer more power to smaller organizations, thereby reducing
the trend towards consolidation and centralization. The technological differences of blockchain
protocols that allow websites and applications to easily collect payments from users could also
reduce companies’ reliance on harvesting and selling user data to extract profits from the
Internet. Others see significant opportunities for innovation and new competition because the
barriers to entering and scaling are likely to be reduced on open blockchains due to the
accessibility of blockchain user networks. Still others see a more decentralized Internet as a
renaissance of peer-to-peer interactions, enabling a new generation of user-developed content,
applications, and services that are super-charged by the infrastructure of the existing Internet. In
this way, a more decentralized Internet has the potential to shift power and influence into the
hands of smaller online communities, which can now form, communicate, and organize more
efficiently than ever, allowing them to have an even greater impact on business and society.
The breadth of applications Web 3.0 is purported to offer, combined with a global
pandemic that has sparked a wave of interest in Internet innovation, signals the need for
businesses to be in learning and exploration mode when it comes to the future of the Internet.
Moreover, the speed with which users can discover and adopt new applications, and the ease
with which they can interact with one another online due to the widespread infrastructure and
capabilities of Web 2.0, means that Web 3.0 will likely develop even faster than previous
iterations of the Internet. Thus, while the advent of a new Internet era offers opportunities for
companies to change existing competitive structures and standards, it also means companies will
need to cope with uncertainty as they seek to understand the knowledge, resources, and
capabilities necessary to adapt, survive, and thrive.
WEB 3.0 APPLICATIONS
Web 3.0 investment, development, and activity are accelerating rapidly. Individuals are
learning to code smart contracts atop blockchain protocols, while platforms such as Aragon and
DAOstack are assisting individuals, even those with little to no technical coding skills, to
develop a host of blockchain-based applications. In this section, we discuss four key blockchain-
enabled applications converging to create the backbone of Web 3.0: (a) cryptocurrencies, (b)
NFTs, (c) DAOs, and (d) metaverses.
Cryptocurrencies and decentralized finance (DeFi)
Cryptocurrencies, which are digital assets denominated in virtual tokens, are likely the
most well-known blockchain application. Many of the largest (by market capitalization) and
most recognized cryptocurrencies have the primary function of being the native token of a
blockchain protocol (Chen, 2018). A helpful analogy might be to think of native tokens
(sometimes referred to as digital coins) like physical tokens (metal coins) that were once widely
used to pay fares for public transportation systems. Much like physical tokens were once tied to
specific transit systems (e.g., New York Subway tokens could not be used to ride the DC Metro),
native tokens are tied to specific blockchain protocols and have no inherent utility outside the
context of their protocols.
Native tokens are one of the most important ways that Web 3.0 protocols differ from the
free Internet protocols of Web 1.0 and Web 2.0. Essentially, any activity that requires the
creation of information on a blockchain requires payment in the form of its native token. This
payment is known as a transaction fee, sometimes referred to as a gas fee, and is primarily used
to compensate the people and organizations (validators) who run the physical hardware
(computers) that comprise the decentralized network for a given blockchain. These essential
stakeholders are known as network validators because their computing hardware is responsible
for performing the computational tasks necessary to add new “blocks” of data to the blockchain.
However, as a blockchain protocol grows and more applications and services are created
atop of them, native tokens begin to function more like national currencies, serving as the
principal store of value and medium of exchange for “citizens” of a blockchain network. Not
only is the native token needed to pay for transaction fees, but it may also be used to pay for
digital goods and services. Further still, just as we need to exchange currencies when we travel to
other countries, users must also exchange or otherwise acquire different cryptocurrencies if they
want to partake in different blockchain protocols. In other words, different blockchains (e.g.,
Bitcoin, Ethereum) are akin to different countries on the Internet. Yet unlike many countries’ fiat
currencies, native tokens have a transparent and fixed supply and clear rules that automatically
execute based on smart contracts to dictate when new tokens are issued, or existing tokens are
removed from circulation. For instance, Bitcoin ($BTC) is the native token of the Bitcoin
blockchain protocol, and there will only ever be 21 million bitcoin (tokens) in circulation as
determined by Bitcoin’s underlying protocol.
The idea of digital currencies within Internet ecosystems is not new. People “load” value
into Web 2.0 ecosystems all the time by converting fiat (e.g., U.S. dollars) into value that is
stored within a platform ecosystem such as the Apple App Store or the Google Play Store. Yet
digital value stored in these platforms suffers from three critical limitations. First, digital value
within nearly all Web 2.0 ecosystems is centrally governed by the platform owner. What
someone owns within a Web 2.0 platform, such as the App Store, is solely dictated by what
Apple says they own. Second, digital value is captive. Once someone puts money into a platform
ecosystem, it cannot be removed unless authorized by the platform owner. Third, stored value or
digital purchases (e.g., music, movies) cannot be freely transferred or sold, not even to other
users of the same platform. Taken together, in most cases, users do not really own anything at all
on Web 2.0. Instead, users pay for a platform owner to provide access to stored value and/or
other digital goods that are captive and locked to a specific platform.
All three of these limitations are largely addressed by blockchain and cryptocurrencies.
With blockchain, there (1) is no centralized authority that governs native tokens, (2) are ways for
cryptocurrencies to be easily exchanged for fiat currency, and (3) are no restrictions in how users
can send cryptocurrencies to other users on a given blockchain. These properties make it easy for
users to create new applications and get paid directly from other users, which, in turn, drastically
reduces the need for intermediaries to secure, insure, and mediate digital transactions.
While transactions involving native tokens form the basis of financial activity on Web
3.0, there is also another crucial innovation that is essential for understanding the growing
financial systems on blockchain: decentralized finance (DeFi). DeFi allows any individual or
organization to easily create their own currency atop a blockchain protocol. And because these
user-created tokens use the same blockchain protocol as a native token, they can easily be
transacted with one another. As such, Web 3.0 comprises a multitude of cryptocurrencies with
use cases including projects, applications, and organizations.
Some of the most noteworthy applications being built atop blockchain protocols to date
are decentralized exchanges (DEXs) such as Uniswap or Sushiswap. DEXs are the backbone of a
robust DeFi system because they enable users to convert between native and non-native (i.e.,
user-created) cryptocurrencies on a blockchain. This is possible because users can directly create
liquidity pools for the exchange of different currency pairs. For example, the company Yuga
Labs recently created a token called Ape Coin on the Ethereum blockchain to serve as the token
for its planned ecosystem of applications. Liquidity pools comprising pairs of Ape Coin and
Ether were available almost immediately, enabling users to convert between the two tokens. This
means that any user-created token can, in theory, receive a “valuation” in terms of another token
or cryptocurrency. DeFi can have broad implications for the future of Web 3.0 businesses and
economies, though it should be noted that it offers none of the protections of existing financial
institutions and it can also be used to defraud unsuspecting users.
A robust DeFi system supports growth of other Web 3.0 applications and services by
supporting lower cost scaling, especially by reducing reliance on centralized intermediaries such
as banks and payment processors. As Web 3.0 continues to grow, protocols and platforms are
also emerging to enable activity between different blockchains (i.e., cross-chain), and
applications are being built to enable Web 3.0 benefits in the analog world. For instance, the
Aave Protocol, built atop the Ethereum blockchain, is a DeFi service that facilitates borderless
peer-to-peer lending without credit scores or accredited lenders. This application makes it
possible for individuals to receive quick and automatic loans using cryptocurrency as collateral
and/or receive interest on peer-to-peer loans without relying on centralized intermediaries.
All this said, the acquisition of cryptocurrencies for new users is non-trivial and
represents one of the most acute growing pains of Web 3.0. Specifically, the most common way
for new users to acquire cryptocurrencies today is by purchasing them on centralized
cryptocurrency exchanges. These businesses sell cryptocurrencies to users in exchange for fiat
currencies. Therefore, the primary “on-ramp” to Web 3.0 and a decentralized Internet is
controlled by a small number of centralized (public and private) firms. Businesses will need to
innovate methods to make it easier for new users to seamlessly integrate into Web 3.0.
Non-fungible tokens (NFTs) and digital ownership
NFTs are non-interchangeable tokens recorded on a blockchain (Chohan & Paschen,
2021; Wilson et al., 2021). Unlike native tokens and user-created cryptocurrencies that are
interchangeable (fungible) and can be fractionalized (e.g., you can send Bitcoin in fractions of a
whole token), every NFT is distinct. Thus, only a single user can own a given NFT at a time.
Moreover, NFTs can be programmed to store information and traced with a level of specificity
that is not possible with fungible cryptocurrency tokens. For these reasons, NFTs offer a critical
step in the evolution of digital ownership. Specifically, with NFTs, legitimate and verifiable
ownership of digital assets no longer requires a third party!
To date, NFTs have been used in the provenance and exchange of several creative
products, such as digital artwork, music, and collectibles (Chalmers et al., 2022). In March 2021,
a piece of digital art entitled “Everydays: The First 5000 Days” by the artist Beeple, became the
first digital artwork sold at Christie’s auction house. While most of the media coverage focused
on the digital artwork (a collage of 5,000 different digital works) and the fact that it sold for
$69,346,250, an actual image file (i.e., jpeg) was not transacted. Instead, a specific NFT (token
ID 40,913) was minted (created) by Beeple using a MakersPlace smart contract. This NFT is
associated with metadata linked to the digital image file hosted on InterPlanetary File System
(IPFS), a decentralized file system, and its value is derived from its digital provenance, or its
indisputable record of digital ownership. Specifically, this NFT has a transparent, verifiable, and
immutable record of being minted on February 16, 2021, and its owner possesses a singular
token associated with the artwork’s creation on the Ethereum blockchain but not the intellectual
property rights of the artwork.
Following this record-breaking sale, the use of NFTs boomed for digital artwork,
collectibles, music, videos, and even text-based works. In August 2021, more than $3 billion
worth of NFTs were transacted on OpenSea, an Ethereum-based decentralized marketplace.
Collectible projects, in which a fixed number of tokens are linked to digital content, were a huge
driver of such growth. For example, the CryptoPunks NFT collection, an early NFT project
created in 2017 by LarvaLabs, is a set of 10,000 computer-generated pixel avatars with randomly
assigned attributes, such as facial hair or sunglasses. Today, a single “Punk” is valued at over
$100,000, with some of the rarest valued in the millions.
Several other individuals and businesses have also jumped aboard the NFT bandwagon.
Established artists including Damien Hirst and Tom Sachs launched original NFT art projects.
Companies like Adidas, Nike, Dolce & Gabbana, Prada, Visa, Mastercard, and McDonald’s all
made investments into NFTs to generate excitement amongst consumers. For instance, in
November 2011, McDonald’s released a limited number of NFTs to honor the anniversary of its
McRib sandwich. Professional sports leagues, such as the National Basketball Association
(NBA), also launched collectible NFTs to commemorate players and game moments. Even
smaller companies, such as The Hundreds, a California streetwear brand, have invested in NFTs.
The Hundreds launched an NFT collection called the Adam Bomb Squad (ABS) and, in
collaboration with Shopify, became the first major brand to integrate token-gating into e-
commerce in which access to purchase limited edition products is exclusively granted to owners
of certain NFTs.
Despite the activity and interest in NFTs in the realms of creative projects and
collectibles, the far-reaching benefits of verifiable, traceable, and immutable tokens are only just
beginning to be realized (Angelis & Da Silva, 2019). For example, groups and organizations are
beginning to use NFTs as digital keys and membership tokens to define boundaries and grant
levels of access based on token privileges. NFT projects are even experimenting with ways to
use tokens as access passes to offline events, such as networking events, parties, and sporting
matches. Additional NFT use cases are also starting to generate traction across diverse settings
ranging from registration and ownership documents, supply chains, controlled substances, and
patient medical records (e.g., Min, 2019; Montecchi et al., 2019). Overall, the use of NFTs is still
in its infancy and has the potential to unlock new forms of exchange, ownership, and interaction.
Decentralized autonomous organizations (DAOs)
DAOs are organizations “managed entirely through protocols that are encoded and
enforced via smart contracts rather than human managers” (Murray, Kuban, Josefy, & Anderson,
p.623). Specifically, DAOs enable key aspects of organizational structure, governance, and
activities to be programmed into smart contracts that reside on a blockchain (Lumineau et al.,
2021; Vergne, 2020). For instance, smart contracts can grant membership in a DAO to those who
hold certain NFTs, thereby allowing these individuals to put forth proposals and vote on other
members’ proposals. Much like enterprise software in more traditional organizations,
blockchain-based smart contracts enhance security, increase transparency, and reduce the ability
for individuals or small groups to break policies or rules due to automation. Yet, unlike
traditional organizations where humans must often interact with digital systems to approve and
verify certain actions, smart contracts allow DAOs to automate a host of actions when certain
conditions are satisfied. For instance, if a DAO is formed to facilitate a collaborative project,
each member’s contribution(s) can be tokenized and assigned a unique NFT. In turn, when the
group-developed innovation is later commercialized, compensation amongst the organization’s
members can be automatically determined based on each member’s unique contributions as
indicated by the NFTs they possess. Similarly, smart contracts can facilitate a more secure and
fair governance process by ensuring only members who possess specific NFTs are able to vote.
DAOs also create opportunities for individuals to organize quickly and securely, raise
funds, and govern themselves while retaining anonymity or pseudonymity. These advantages
may result in DAOs becoming the next generation of online communities, sub-Reddits, and
forums. To date, many DAOs have formed around a shared interest in developing and governing
Web 3.0 applications. For instance, NounsDAO formed to create and support the Nouns NFT
project. Similarly, the SushiSwap DEX is governed by a DAO. Moreover, a prominent example
of a DAO that formed rapidly in pursuit of a shared interest was ConstitutionDAO, which raised
$47 million in November 2021 over the course of a few days to collectively acquire a copy of the
U.S. Constitution at auction. When ConstitutionDAO failed to win the auction, it returned all
funds to the original contributors and disbanded as quickly as it formed. Taken together, DAOs
provide a way to define membership in an online collective and facilitate increasingly
decentralized forms of organizing to coordinate virtual collaborations (Levis et al., 2021;
Lumineau et al., 2021).
Metaverses are online worlds that give three-dimensional form to individuals’ digital
lives. Metaverses allow users to create, outfit, and use digital avatars to represent versions of
themselves in online social spaces. In these virtual spaces, users can interact with others in a
dynamic and quasi-realistic manner when compared to the posts and news feeds of Web 2.0’s
social networking platforms. What was once just a trope of science fiction is rapidly becoming a
reality into which investors and firms are pouring billions of dollars, as evidenced by Facebook’s
evolution into Meta in 2021, a clear signal that the company plans to establish itself as a Web 3.0
The initial metaverses of Web 3.0 are predominantly virtual games where users own and
exchange land, clothing, and other digital assets (e.g., NFTs). Whereas online video games have
historically been closed, highly centralized experiences in which developers create fixed content
for players to explore, future metaverses will increasingly rely on user-generated content. In
these virtual worlds, users’ avatars can interact with one another through voice or text chat. For
instance, Decentraland is a functional metaverse accessible via users’ web browsers that allows
avatars to interact, buy land, and exchange digital goods. Similarly, The Sandbox is a Web 3.0
reboot of an online video game in which users create their own worlds and games. Additional
metaverses, such as Meta (formerly Facebook), are expected to incorporate virtual and
augmented reality technologies to develop even more robust alternative realities. It is anticipated
that many major technology companies will expand into metaverses as extensions of their
existing social media and social networking platforms in the coming years (Balis, 2022).
Beyond virtual worlds for online video games, the array of metaverse possibilities
include robust economies for the exchange of digital assets, exclusive events, and interactive
communities. Since these alternative realities are more open, businesses will be able to
participate by creating and selling digital clothing and experiences. For instance, in March 2022,
Decentraland hosted a fashion week in its “Luxury Fashion District” that saw 108,000 unique
attendees over a four-day period. Established brands such as Esteé Lauder gave out wearable
NFTs for users’ avatars while Dolce & Gabbana showcased its new line of virtual pieces.
Moreover, many companies, including video game developers, fashion brands, and celebrity
enterprises have acquired significant plots of land in Decentraland and The Sandbox in
anticipation of new virtual marketplaces, sometimes purchasing this real estate for millions of
dollars. While many see these investments as speculative in nature, rapid acceptance of the
metaverse as a concept has made the prospect of digital real estate attractive. Imagine having a
digital storefront that is passed by millions of user avatars each day!
THE CURRENT STATUS OF WEB 3.0
Despite the flurry of Web 3.0 development, much of the “new Internet” still resembles
the old one. Indeed, in many cases, Web 3.0 applications still require a Web 2.0 interface (i.e., a
website), and most of the Web 3.0 applications look very similar to those of Web 2.0, if not
worse. Furthermore, most of the Internet’s critical functions, such as e-mail, chat, and social
media, currently have no comparable Web 3.0 alternatives. However, many Web 3.0 applications
are currently in the “good enough” phase where many disruptors begin (Christensen, 2013).
While these applications do not match those of Web 2.0 on usability, performance, or cost (yet),
they do offer advantages to small, but growing, niches.
For Web 3.0 applications to achieve mainstream status, developers must enhance the user
experience (UX) and lower costs. These challenges are evidenced by the many Web 3.0
applications being built on the Ethereum protocol. The UX of these applications is often
confusing for all but the most indoctrinated users, while the gas fees associated with Ethereum
(i.e., the cost to conduct a transaction using the Ethereum blockchain) are high, approximately
$1.53 to process and validate low-speed transactions and $1.64 for high-speed transaction as of
March 2022. In addition to these key considerations, as more blockchains emerge (e.g., Solana,
Avalanche, Fantom), developers are increasingly focused on facilitating a more robust Web 3.0
ecosystem through interoperability, data control, and access. Each of these considerations, and
current efforts by Web 3.0 projects to address them, are described below.
Interoperability across blockchain protocols is essential. Mainstream users are not likely
to be concerned with which blockchain they use, they simply want applications to work
intuitively and easily like they do on Web 2.0. Different blockchain protocols are already
differentiating themselves in terms of speed, security, and functionality, and several projects are
creating protocols to connect them. One of the most prominent projects, Polkadot (DOT), aims to
provide a scalable and secure network protocol for Web 3.0. If its protocol successfully enables
interoperability, the barriers of cross-chain utilization will likely become negligible, reducing the
need for fees, mitigating the complexity of transferring assets, and furthering the push towards a
less centralized Internet. As protocols improve and interconnect, new possibilities will then be
unleashed due to improved decentralized applications and organizations.
While Web 2.0 creates and uses an extraordinary amount of consumer data, many users
are blissfully unaware (or accepting) that their data is mined (and monetized) constantly.
Moreover, those who are aware are nearly powerless to do anything about it since they cannot
utilize many of the most popular Web 2.0 websites and applications without this implicit trade of
data for services. In contrast, many Web 3.0 applications are being designed to restore autonomy
and privacy to users by reducing the need for companies to collect and sell user information. In
this vein, protocols such as Cirus are emerging to provide a means for users to monetize their
data as they see fit. Additionally, many Web 3.0 applications no longer require users to create
separate accounts for each website or program they use. Instead, a blockchain-specific user
identity, referred to as a wallet, can be used universally to access various applications on a given
protocol. Perhaps more importantly, users can revoke access to specific applications or websites
at any time since the data about their history of interactions is stored in perpetuity on the
blockchain rather than with the actual application or website.
One function of NFTs that has yet to be fully unlocked is their use as access keys. The
digitization of certain “keys” (e.g., event tickets, reservations, coupons) has already emerged as a
way to reduce paper waste and mitigate the eventuality of losing a physical key (e.g., a paper
ticket) in the Web 2.0 world. Yet NFTs take this a step further due to their programmability.
Imagine if a ticket to see Ariana Grande perform also had built-in properties that offered priority
tickets for the next concert, exclusive access to merchandise, or a chance to win a digital raffle
for a meet-and-greet event. Consider if a coupon had a code that automatically reactivated
whenever its owner spent enough money at the grocery store. The possibilities of NFTs are only
limited by those coding them. In this vein, Lit Protocol aims to work with Web 2.0 businesses to
offer “blockchain-defined access” to events and services such as Zoom, Google Docs, and
Shopify. Such a service would allow Google users to create documents that require individuals to
hold certain NFTs for access and editing privileges. In organizational settings, NFTs also offer a
way to grant access to certain documents and accounts without giving more access than needed.
HOW CAN COMPANIES PREPARE FOR A WEB 3.0 WORLD?
As developers build and improve Web 3.0 applications, the buzz around the next
generation of the Internet continues to grow. For some, Web 3.0 promises a decentralized online
experience where no single entity controls access to essential services or information, such as
individuals’ private and behavioral data that currently serves as the currency with which they pay
to connect, learn, and share on Web 2.0. Many believe Web 3.0 will create an Internet that is less
reliant on centralized firms to intermediate (and extract value from) communication and
exchange. For others, Web 3.0 promises a renaissance of peer-to-peer interactions, thereby
enabling a new generation of user-developed content, applications, and services that are super-
charged by the infrastructure of the existing Internet. Importantly, the ability for creators and
developers to immediately access users on public, decentralized blockchain networks means that
ecosystems will be less reliant on single firms as gatekeepers to deploy and enjoy new content.
Web 3.0 does not remove monetization from the system. Instead, it reallocates some of
the value to those who use, maintain, and improve the network. It also reduces some of the value
that can be captured by simply facilitating certain interactions since intermediating features are
built into blockchain protocols. Web 3.0 also provides users with behavioral data and records of
what they create and own, thereby enabling them to profit on their digital ownership across Web
3.0 applications. In other words, the notion of “user-owner” is critical to the vision of the new
Internet. Taken together, a robust decentralized Internet is enticing for individuals seeking to
capitalize on the content they produce as well as start-ups that adopt the ethos of
decentralization. Yet it begs the following question: how will established companies succeed in a
Web 3.0 world? In this section, we address what companies can do to prepare for this potential
Reconsider the role of network effects
Web 3.0 has the potential to undermine the business models of large, centralized
platforms that follow predictable lifecycles. These platforms begin by recruiting users and third-
party complementors (e.g., developers, businesses, media, etc.) to make their services more
valuable via network effects (Afuah, 2013). As platforms become widely adopted, their power
over users and complementors steadily grows as both groups increasingly depend on the
platform’s offering(s). Then, as platforms mature, their relationships with network participants
shift from positive-sum to zero-sum because obtaining data from users and extracting profits
based on this information is the primary way for them to keep growing. In contrast, Web 3.0
networks exist on public blockchains and therefore cannot be controlled by a single entity. For
instance, anyone can build a decentralized application atop the Ethereum blockchain and, as a
result, access individuals who possess $ETH tokens. As such, competitors or alternative
platforms can immediately access and benefit from the same user base and network effects that
established players enjoy.
While companies like Amazon and Google have long capitalized on strong network
effects, Web 3.0 is likely to bring about a shift in competitive dynamics since new entrants can
immediately access large networks of potential users by building their applications atop open
blockchain protocols. Specifically, as more individuals possess a blockchain’s native token,
companies can capture more value from a blockchain’s built-in usership of native token holders.
As a result, business models based primarily on network effects may become less viable since
users’ switching costs will be drastically lower given that they can own (more of) their data and
thus take it with them when they move between applications or services built atop a blockchain
protocol. However, network effects will likely continue be a source of competitive advantage,
perhaps becoming more valuable than ever, given the ease of monetizing users. Taken together,
businesses will need to devise new and creative strategies to protect their user networks by
actively sharing in the value they create with users.
Tokenize intellectual contributions
Web 3.0 applications hold the promise of more effectively coordinating user-developed
content, applications, and services that may not have been possible with a Web 2.0 infrastructure
(Dahlander & Frederiksen, 2012; O’Mahony & Ferraro, 2007). For example, rLoop is a
decentralized organization comprised of over 1,600 engineers who collaborate virtually on an
array of projects, including a pod for the Hyperloop and a personal flying machine. To
coordinate their collaborative efforts, rLoop uses blockchain technology to issue tokens
associated with individuals’ intellectual contributions. Once contributions are tokenized, smart
contracts can then be used to automatically divide revenues among members based on their
specific contributions, thus enabling compensation to be distributed with greater precision.
Using blockchain in this way will have profound implications for companies attempting
to keep human capital inside a firm’s boundaries. If individuals can receive compensation based
on their direct contributions to multiple DAOs, centralized firms will need to adopt a similar
model that compensates individuals based on their specific contributions while also embracing
their ability to make intellectual contributions to multiple firms. Otherwise, firms will be forced
to pay a premium for knowledge workers to agree to terms of exclusivity.
Reconsider organizational hierarchy (to a degree)
The hierarchical structures of most businesses are designed to effectively delegate tasks
to individuals in defined roles. While some companies are more horizontal, with the lowest
employees on the totem pole only a few steps away from the CEO, others are so vertical that the
top is hardly visible from an entry-level position. While structure varies across companies,
positions are ideally filled by those best suited to meet shareholder needs, and permissioned
information is only accessible to those in certain roles. As such, DAOs have the potential to
reshape delegation, hierarchy, and structure by quickly and efficiently defining roles and
permissions through access coins, or specific NFTs that indicate an individual’s permissions,
responsibilities, and points of contact.
More research, development, and experimentation are needed to create DAOs that offer
enough of a competitive advantage for existing companies to shift their entire centralized
structures to decentralized structures. Perhaps a more likely way for established companies to
initially integrate blockchain into their organizational structures would be as “centralized semi-
autonomous organizations” or CSOs. Here, continued centralization would facilitate a
company’s strategic initiatives in accordance with its vision and mission statement, while semi-
autonomy at lower levels of the organization would enable workers to delegate authority to
themselves within the bounds of their responsibilities while also allowing their chosen actions to
be vetoed by higher-ranking authorities. Such a structure would likely provide the centralized
authority needed to set and implement overarching goals while also empowering employees to
work when and how they want to a degree (Murray, Kuban, Josefy, & Anderson, 2021).
Double down on stakeholders and communities
Web 3.0 will likely grow and develop at a much faster pace than Web 2.0. First, Web 2.0
is already in place to disseminate information and facilitate communications. Second, Web 3.0
development is now, and will continue to be, global. Talent and knowledge are distributed
around the world and there are clear economic incentives to build in the Web 3.0 space,
especially for individuals from smaller economies that may have the opportunity to leapfrog
existing Web 2.0 companies. While companies may be enticed by the notion of creating Web 3.0
projects to secure a slice of the Web 3.0 pie, they should not proceed blindly or expect “business
as usual” on the next-generation Internet. Instead, given the heightened power of users and small
communities, as well as the broader cultural movement of decentralization underlying Web 3.0
development, user outreach and engagement will be paramount. For instance, the fast-food
restaurant brand Wendy’s, which has become widely known for its Twitter feed featuring
“roasts” of other fast-food chains, could leverage its social media capabilities in its Web 3.0
strategy by creating NFTs to engage and activate followers, while also using the broader Web
3.0 infrastructure to enable stakeholders to profit from their engagement with the company.
The rise of digital and decentralized ownership thrusts stakeholder management to center
stage, increasing the importance of shared success or “win-win” value systems. Revenue- or
value-sharing will be much easier to achieve on blockchain protocols, and thus more likely to be
a way for organizations and firms to strategically attract users and build tighter relationships with
stakeholder communities. Furthermore, companies are unlikely to retain the same data privileges
they have now. Users will have much more control over how their information and behavioral
patterns are monetized and distributed, and firms will be forced to devise creative solutions to
incentivize users to share their proprietary data. One possible solution is the use of transparent
incentive programs, such as offering coupons for those who voluntarily share their information
with a company. Another possible solution is the pursuit of community-based strategies, wherein
companies foster social identification amongst users to build strong brand loyalty (Fisher, 2019;
Murray et al., 2020).
Exercise caution when investing in Web 3.0
Web 3.0 has even lower barriers to entry than Web 2.0. Anyone can create a blockchain,
DAO, or cryptocurrency. Open-source code abounds, and it is easier than ever to copy, paste,
and edit smart contracts to create new, custom applications. In contrast, the “cartels” (e.g.,
Amazon, Google) of Web 2.0 have created an anticompetitive space where new players are
discouraged by overwhelming economies of scale and expansive partnerships. Combine this with
the resources it takes to flesh out a professional website and it becomes clear why it is difficult
for new entrants to garner market share. Yet blockchain technology allows developers to take
complete control of their creation(s), offering many ways to source cash flows, edit protocols,
and remain competitive. More importantly, public networks mean that network effects will be
harder to moat off from competitors through centralized control of user data, thereby leveling the
playing field. In other words, competition will be fierce, imitation will be expected, and
protecting valuable strategic positions will require different approaches due to the openness and
decentralization of Web 3.0 protocols.
Businesses seeking to strategically position themselves vis-à-vis Web 3.0 should also
consider the potential for future regulation. As more people migrate to crypto, more regulation
will likely follow. Currently, regulations are too broad to be effective, cannot be enforced, or
ignored, thereby giving developers free reign over this “Wild West” of the Internet. Yet
governmental oversight could limit the current advantages for entrants. Moreover, Web 3.0
presents multiple areas of vulnerability, ranging from cryptocurrencies, to DeFi, NFTs, and
DAOs. Of course, businesses will benefit from having legal and compliance capabilities to
monitor—or influence—the rapidly changing regulatory environment, which is far behind that of
Web 3.0 development. Legal and compliance teams’ interpretations of regulations and risk
tolerances will also play a crucial role in shaping businesses’ strategic decisions.
ENTERING THE METAVERSE(S)?
Web 3.0 offers enormous opportunity for creative products, entrepreneurial ventures, and
existing companies. It has the potential to usher in a new generation of the Internet, one that
serves as a platform for new types of businesses and alters the ways in which people interact
with one another. Of course, there is the possibility that after an early deluge of projects, such as
the booming market for NFT artwork and collectibles in 2021 and the metaverse landgrab in
2022, there will be a shake-out and consolidation in the Web 3.0 space. Existing companies
should exercise caution when making investments into Web 3.0 but also recognize the
considerable opportunity to devise innovative means of value creation as new forms of digital
ownership and organizing suggest the possibility of new markets for companies, both new and
old, to embrace. While a Web 3.0 Internet may be more fragmented, more diverse, and more
rewarding for users than its previous iterations, we expect to see increasing Web 3.0 interest and
entry from existing companies across a wide spectrum of industries as they continue to learn
about blockchain technology, experiment with the applications it enables, and identify novel
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