In the age of services like Netflix, Dropbox or Amazon Prime, it’s easy enough to forget about the days when customers lined up for boxed digital goods like software or entertainment media with one-time purchases. The era of annual fees began when consumer products became subscription-based services.

The same transformation happened about a decade ago in the business world as companies reinvented old solutions like enterprise resource planning or customer relationship management as ongoing services monetized through recurring billing. Thus, the business-to-business (B2B) software-as-a-service (SaaS) model was born in the 2000s and revolutionized the way business technologies have worked in the past two decades.

B2B SaaS was largely unaffected by the thriving blockchain and crypto ecosystem until last year, but a long-running bear market made early Web3 startups realize they should leave no stone unturned to survive. harsh market conditions and face increasing competition. .

From providing enterprise-grade Ethereum infrastructures to blockchain-based document storage systems, Web3 SaaS (or SaaS3) companies offer decades-old business services reimagined in the Web3 environment, and recent data shows that the business world is open to trying new ways of doing old things.

An attempt by venture capitalist Tomasz Tunguz to assess the total addressable B2B SaaS3 market calculated that 57 Web3 SaaS projects generated revenue ranging from $500,000 to over $100 million in the second half of 2022. On-chain revenue from startups Web3, largely dominated by Ethereum, indicates a total addressable market of $231 million by 2022.

The total addressable market, or TAM, is an admittedly optimistic graph that multiplies the potential number of customers for a project with the budget set aside for the service. It doesn’t imply any real life competition or limitations, hence the probability implied by the “addressable” part. TAM is the potential market opportunity for a product or service, and the B2B SaaS3 space had over a quarter of a billion dollars of that opportunity last year.

Cashless Society Goals Work in Web3’s Favor

Mark Smargon, CEO of blockchain-based payment platform Fuse, believes that B2B SaaS in the Web3 industry can benefit from a host of factors, including the growing adoption of mobile, internet, and e-commerce platforms, as well as a shift towards cashless societies in many countries.

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Inherent issues like high costs, privacy concerns, and geographic restrictions make traditional payment systems expensive and challenging for merchants. That’s why Smargon noted that Web3 startups would see the biggest growth opportunity in serving Web2 businesses and making it easy to onboard and use Web3 solutions, applications, and payment gateways. blocks. He told Cointelegraph:

“It all comes down to Web3 startups giving companies a way to give their customers experiences on par with what they’re used to on Web2, while improving efficiency, value proposition, and stickiness.”

Web3 startups should start introducing the blockchain-based way of doing business to traditional companies with small steps, according to the CEO of Fuse. “Salesforce users think of non-fungible tokens (NFTs) less as collectibles or art and more as the next generation of loyalty programs for their best customers,” Smargon said. “NFTs can be changed on the fly to adjust terms and unlock physical and digital rewards as customers engage more with a business.”

Web3 adoption begins with the departure of Web2

The real tipping point may come when companies use blockchain solutions to manage day-to-day business activities such as accounting, procurement and billing, Smargon posited.

When it comes to payment services, developing countries where a significant portion of the population is unbanked or unbanked add some unique opportunities, he explained. In such countries, companies are not entrenched in legacy systems or locked in by vendors, leaving them “free to innovate and commit to Web3 solutions from the start rather than having to adapt.”

Adding companies to Web3 has another challenge for startups, Smargon noted: “They must first disassociate themselves from the companies [from Web2] and then incorporate them into Web3-based systems. The key for companies to understand that there are viable alternatives is to provide them with compelling business and efficiency benefits, Smargon said:

“To do that, [Web3 startups] They need to produce solutions for companies to build secure products without taking on the burden of custody, reaching customers without incurring compliance and licensing costs, and delivering exceptional consumer experiences without building wallets from the ground up.”

But it doesn’t end there: Smargon added that Web3 users should also be able to move value in and out of their companies without facing high costs or barriers. “Changing consumer demand drives change at the grassroots level, which means companies must adapt or die,” he said.

Web3 still needs its ‘picks and shovels’

On the surface, the SaaS movement and the Web3 movement are quite misaligned in their interests, according to Nils Pihl, CEO of decentralized protocol developer Auki Labs:

“While Web3 encourages people to take ownership and responsibility for their own digital presence, the central philosophical tenet of the SaaS movement is to handle the complexities of the digital realm for you.”

However, when looking at it from the opposite perspective, SaaS has already gained space from Web3, Pihl said: “Platforms like Infura and Alchemy run large portions of the Web3 ecosystem because so few can, or even want to, run their own nodes.”

As such, many of the companies that actually earn reliable revenue on Web3 actually provide tools (as a service, commonly) for other Web3 projects, Pihl explained, adding:

“In a world where killer apps have yet to be found, a safe bet is to sell picks and shovels to those who are digging.”

He went on to say that many Web3 companies are so passionate about Web3 that they design for ideology rather than finding the right product for the market. Pihl believes that if startups start out by saying “we’re a Web3 company,” they limit their perspective or ability to listen and understand their prospects’ business needs early on.

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Although the B2B SaaS market is huge, people shouldn’t assume that “product X on the blockchain” is a winning idea. The creator could raise money for it, but if the new on-chain “product X” doesn’t solve the problem any better than the one already in use, there’s no reason to switch to the new product, according to Pihl.

Assuming that customers will be excited to adopt a Web3 product because its developer finds it philosophically, ethically, or aesthetically superior is not a good approach, according to Pihl:

“You need to solve a pressing problem for the client, or they won’t engage.”