Things are about to change, and maybe for the better.

The titans of today’s Internet got that way by getting early adopters to do what they wanted. To understand how Web3 startups are winning the race to create tomorrow’s Internet, you need to understand that while their strategy is the same, their tactics include a powerful new tool even the most entrenched Web 2.0 overlord can only dream of: bribing users to get what they want.

Let’s start with a quick look at how we got here.

How It Started: A 1-Minute History of the Internet

The earliest days of the Internet were all about building blocks… protocols and infrastructure, from the hard-to-install TCP/IP stack to the foundation technologies of email, FTP, Apache, Usenet, Linux, Mozilla, and — eventually —the simple usability of the World Wide Web.

As Web 1.0 adoption crossed the chasm from 14% of U.S. population in 1995 to 22% in 1996, the stage was set for mass market adoption. Netscape went public, Jim Clark and Marc Andreessen got rich, and the Dot-com Boom began.

I remember Yahoo! on the Akebono server at Stanford back then, and despite being little more than a directory, it felt like the greatest thing ever. The service became unwieldy as it grew though, and simplified search engines from Lycos and AltaVista stripped away the bullshit and got you what you wanted fast. That’s when Google was born, and the first time I used it (to search “Star Trek,” as I recall,) I couldn’t believe how much great stuff it uncovered. Larry and Sergey, still working in their dorm rooms, had built a machine that got better the more people used it. It was a revelation.

Everyone started using Google, and it just got better and better at predicting what we all wanted. As the Dot-com bubble burst in early 2000, Google launched AdWords, and quickly became a money printing machine. Pointy-headed investors and technical entrepreneurs in Silicon Valley saw that Google’s advantage wasn’t really its technology — which open protocols had pretty much standardized by that point — but something else. Looking at the intersection of its product advantage and its ad model, they looked past Google’s users, and focused on the massive repository of proprietary data those users created.

Network Effects Take Over

Capital began to flow into Web 2.0 soon after, with Facebook launching in 2004, YouTube in 2005, and Twitter in 2006. Each came to power by getting more people to share in new ways, and to spend more time gawking at what others had shared. eBay and Etsy appeared around the same time, and began to get traction by getting people to sell and to shop in their stores. Spotify came later, and their astounding user growth gave them the leverage to get the record labels on board, which put more music on Spotify and attracted more users. Netflix turned a first-mover advantage in streaming video into subscriber revenue it could pour back into programming, then got more people to subscribe with better stories and bigger production values.

Here’s the critical point… It was our collective choices to use these platforms that first created and now sustain their market dominance. The same is true for AirBNB and Alibaba, LinkedIn and Lift, Progressive and PayPal, TikTok and Tencent, WhatsApp and Waze. It’s been estimated that over the last 23 years, 70% of the value in tech was created by these “network effects,” rather than by “technical” innovation as we understood it last century. I believe it.

While VCs and engineers tend to focus on the role of proprietary data in creating these Internet behemoths, it’s equally true to say it was we users who did the work to put them on top. In return we got the ability to use these services “for free,” which really means we went from being the users to being the product.

Setting questions of basic fairness aside… the unintended consequences of this bargain have been significant, and dire. While the current generation of the Internet created unprecedented wealth, its power dynamics concentrated it in the hands of the big winners. The top 1% of Americans now control nearly a third of the nation’s wealth, about the same as the bottom 90%. With social mobility at an all-time low and economic insecurity rampant, large swaths of the country are scared, angry, and looking for someone to blame. We’re more divided than ever, to the point where many would argue Democracy itself is now under threat.

Which brings us to where we are now.

How It’s Going: The Current Moment in Web3

After some early entrants demonstrated the promise of a digital store of value (Bitcoin) and a decentralized virtual machine (Ethereum,) new entrants have entered the fray looking to compete for a chance at becoming a foundational pillar of the new paradigm (the “Level 1's,” including Solana, Terra, Near, and Algorand.) Meanwhile functional building blocks are falling into place (DAOStack for governance, Filecoin for storage, Civic for identity, Chainlink for data, Poly for interoperability…), and the rate of new application development is accelerating across spaces from decentralized finance (DeFi) to the creator economy (NFT.)

The basic infrastructure of Web3 is now in place. Crypto is crossing the chasm in the U.S., from 14% owning it in 2019 to 23% as 2021 came to a close. Millennials — now the largest generation of parents — are leading the way, with 29% of all millennial American parents now owning cryptocurrency.

If history is any guide, the platforms who’ll dominate the next generation of technology are being created today. In the competition to become one — unfolding at each tier in the emerging tech stack — candidates are competing on the same dimensions as before (including market timing, brand identity, influencer outreach, and product.) But they’re adding a potent new tool in changing user behavior — hard-dollar financial incentives — and I don’t think its persuasive power is well enough appreciated by skeptics of the space.

Token Incentives: Buying the Behavior You Want

As discussed earlier, it’s not really the “data advantage” that starts the flywheel of market dominance, but the “user advantage,” meaning the ability to get early users onto your platform to start the virtuous cycle that creates the network effect.

Contrary to popular belief, marketing played a critical role in deciding who would dominate today’s Internet. While it’s true advertising never built a Web 2.0 giant (sorry, Bing,) other forms of marketing clearly did. Twitter is a great example… starting with the cheeky genius of that name and brand ID, and extending to the buzz they created among early digerati at SXSW in 2007. Today it’s hard to displace Twitter, because we’re all on it. Same for Google… and for Facebook, YouTube, eBay, Spotify, Netflix, and all the rest.

Marketing alone won’t do it, and it’s notoriously hard to “out-product” a mature platform with an army of engineers and lots of users who know it well… especially when it’s “free.” It would take something else to pull enough of us off Twitter to create a viable alternative, something revolutionary and original.

What if you paid people?

Now that might work.

It turns out you can buy love, or at least that it’s a lot easier with Ethereum. It happens every day in the crypto space, as new entrants airdrop (literally) currency in the form of platform tokens on their earliest adopters.

How does this make economic sense? Well, remember our collective choices to use the dominant Internet platforms first created and now sustain their market dominance. Who benefits from that dominance today? While it’s true we get to use their service “free,” Twitter is now worth $51 Billion. AirBNB is worth $100B, Netflix $225B, Facebook (Meta) $842B, and Google (Alphabet) $1.5 Trillion.

Know what they’re all worth without us? It’s hard to say, but a lot closer to $0.

Given that, don’t we deserve our share? Is it really crazy to tear down the titans of today’s Internet, then re-build it on a system that “bribes” its users, changing them once again from being the product to being the owners?

I don’t think so, in fact I think that’s exactly what’s starting to happen, all around us. And you know what? I think it’s great.

What do you think?