[Feature] The Inevitable Integration: Being a Web2 Brand in a Web3 World

The emergence and rise of Web3, cryptocurrency, and blockchain has captured the attention of investors, entrepreneurs, and tech enthusiasts alike. While some Web2 companies have embraced these new technologies and integrated them into their business model, others remain sceptical.

Before we can delve into understanding why some are staying on the sidelines while others are already riding the wave, we need to know the basics of Web2 and Web3.

Web2 is defined by centralised platforms with platform-centric business models, whereas Web3 is defined by decentralised protocols and new mechanisms for value creation. According to an article by FINTECHNA, Web2 serves as a gatekeeper for Web3, you cannot get to one without going through the other. Also, Web3 has by necessity outsourced costly operational overhead to Web2 ─ custody, compliance, customer support, insurance, and more, which leads to a dependency.

The article went on to state that "…without Web2 platforms, Web3 would have a hard time attracting net new users and liquidity. Without the allure of Web3, there would be less demand for Web2 services. For now, there is a symbiotic relationship between the two.”

That being said, there are two factions: the Web2 companies that have welcomed Web3 integration and those that are on the fence. There are a myriad of reasons but some are more obvious.

The Yay-Sayers
They view it as a way to diversify their revenue streams. Many Web2 companies have struggled to monetise their platforms beyond traditional advertising. But by incorporating cryptocurrency and blockchain into their business models, these companies can potentially create new revenue streams and attract a new user base.

Web3 represents a new frontier for innovation after all, so a lot of Web2 companies are feeling the pressure to innovate and stay ahead of the curve. By embracing Web3 and cryptocurrency, these companies hope to differentiate themselves from their competitors and position themselves as leaders in the industry. If you cannot be a pioneer, at least you can be one of the leaders right?

The Nay-Sayers or Benchwarmers
They see it as a risky investment. The volatile nature of cryptocurrency and the lack of regulation in the industry have many Web2 companies hesitant to invest significant resources into this new technology.

In addition, they perceive it as a threat to their existing business models. Web2 companies rely heavily on advertising and may view these new technologies and innovation as a potential threat to their advertising streams.

At the massive four-day Consumer Electronics Show (CES) held around mid-January, numerous Web2- and Web3-native companies were present.

“I think you will start to see people creating real solutions to real problems, not just for the sake of technology…Ultimately, the metaverse will be incorporated into people's daily lives much like the internet is or your iPhone is, so you won't even have to think about it," CEO and founder of metaverse agency Virtual Brand Group, Justin Hochberg said. He predicted that as more companies embrace Web3, they will move beyond simple activations and work to create seamless solutions for their users.

According to CoinDesk, "Large tech companies native to Web2 are also looking to integrate into Web3 and are creating technologies to do so. From Microsoft's global chief strategy officer of mobility, automotive and transportation Henry Bzeih's bullish take on the metaverse to LG's 'show-case' NFT product, household names are looking to build for the long term.”

However, a hasty transition just for the sake of not being left behind without much thought or planning, is not the right way to go.

An article on Medium listed a case study done on Porsche which announced its release of limited number of digital collectible cars on the Ethereum (ETH) blockchain near end of January. It was a case of "how not to join Web3 for Web2 companies".

The case study pointed out two issues with the ETH_Porsche NFT project.

First, the mint price of 0.911 ETH (a cheeky reference to its iconic 911 model). Based on the case study, despite it being a brand that caters to higher-net-worth individuals, the high price comes across as a red flag and bearing no thought for the 'community' ─ "arguably the opposite objective of the project, which is not only to continue providing value to existing holders and onboarding them in Web3 but also reaching and capturing a niche of Web3 natives into the project.”

The exorbitant mint price effectively excludes a lot of individuals from being able to participate. Moreover, it does not align with the decentralised and community-driven values of Web3.

Second, is the community involvement. Debate sparked around the value proposition and utility of these NFTs. The approach was criticised by some for being too money-making concentrated rather than building a community. Questions were raised about the true utility and value of digital collectibles in the Web3 ecosystem. The case study stated that "If companies are simply using blockchain technology as a way to create digital versions of physical assets and charge exorbitant prices for them, it may not add much value to the decentralised ecosystem.”

To put it in another analogy, it is not about exercising as much as possible but doing the RIGHT exercises. That is most suitable for you.

For Web2 companies to transition into Web3, there are many factors that come into play. One major advantage is the huge community and brand recognition that they have. Alluding to the above case study, a hasty dive will more often than not, result in ill-advised projects. Embracing Web3 correctly means concentrating on the existing community who is already loyal to your brand and ensuring to include them in the digital evolution by offering a real contribution and real value.

Some of the other advantages include:

- Possible advantage over competitors who are slow to adapt. Kind of like the saying: "the early bird catches the worm”

- New ways to monetise products and services, such as through tokenization, NFTs, and decentralised finance (DeFi)

- Greater user control over data and privacy

- Decentralised systems and blockchain technology used in Web3 can enhance security by eliminating central points of failure

When we talk about the positive side of incorporating Web elements, we cannot miss out on the potential down side:

- Possible significant changes to a company's infrastructure and processes which can be tedious and time-consuming

- As this new technology is in its nascent stage, regulatory frameworks around it are still in the midst of development

- Alluding to the point above, it is still in its infancy so adoption by the mainstream is still somewhat limited

Nike also jumped into the NFT space last year with its CryptoKicks collection which allows customers to buy limited edition virtual sneakers that are customisable and tradable. Other brands like Gucci, Coca-Cola, Starbucks, and the likes, have also jumped onto the bandwagon.

The transition from Web2 to Web3 seems inevitable but it is not an overnight thing, it will be slow but gradual. Being sceptical is one thing, but haphazardly diving into it head first is another. It is crucial that Web2 companies approach this integration in a way that aligns with the decentralised and community-driven values of the ecosystem. If not, they run a risk of alienating potential consumers, and may not be able to entirely leverage Web3's potential.

Executive vice president and chief creative officer at iHeartMedia, Rahul Sabnis' belief is that brands need to maintain fans' engagement. He put it best when he said that "entertaining things are the things that matter most in people's lives.”