Web3 is often associated with cryptocurrency and Bored Apes, a collection of non-fungible tokens of cartoon apes created by an algorithm. But it is also possible that this latest decentralized version of the World Wide Web will host tens of trillions of dollars in economic activity in less than a decade.

And there’s good news for businesses: Seizing the opportunity that Web3 presents may not be all that different from adapting to the virtual communities that have grown out of Web2, according to Peter Evans, MCP ’91, PhD ’05, director of strategy at McFadyen Digital. .

“When we think about Web3, we really have to think about platforms. This is how assets are delivered and exchanged,” Evans said at the recent MIT Digital Technology and Strategy Conference. “It’s a question of third-party value creation and the network effects associated with these platforms.”

Evans discussed why Web3 has such spectacular growth potential for organizations monetizing digital assets and branching out into the metaverse.

Assignment of value to digital content

Where Web1 focused on static pages and Web2 thrived on user-generated content, Web3 is all about assigning value to that content, as Evans put it.

One of the advantages of Web2 was the ability to share digital assets at low cost. But the information was easy to share because it was easy to copy. As a result, enterprise marketers have not invested much attention or money in creating high-value digital assets.

Web3 changes this by allowing a digital asset to be assigned a non-fungible token, which is a digital identifier that cannot be copied or changed. The NFT is then recorded on a blockchain, or a digital ledger in which records (called blocks) are linked using cryptography.

“There are a myriad of ways to take advantage of this ability to use blockchain to assign a unique value to a digital asset,” Evans said. In the past, “many creators have had a hard time getting paid in full because it’s so easy to copy their work.”

Although blockchain technology has been around for about two decades, Evans said it’s only really taken off in the last three years. He described an “exploding ecosystem,” with more than 150 active marketplaces for trading NFTs.

Suddenly, enterprise content is no longer a cost center. Nike made $40 million selling exclusive CloneX avatars as NFTs for just over $2,000 each. Budweiser made $55 million in NFTs released alongside Bud Light Next during this year’s Super Bowl. Mercedes-Benz sold NFTs that doubled as raffle tickets for luxury vehicles.

In total, CitiGroup has estimated that the total addressable market for Web3 will be between $8 trillion and $13 trillion by 2030.

“We are going to see an explosion of growth in virtual stores,” Evans said. “There’s also a lot of interest in how you can tokenize basically illiquid assets and create entirely new value.”

View NFTs as more than just esoteric works of art

At the recent MIT Platform Strategy Summit, experts discussed how Web3 will mark a paradigm shift in retail, whether it’s virtual versions of physical products or redesigned brick-and-mortar stores with fewer product aisles and more room for experiences.

Retail is well positioned for this change, Evans said. After all, brands like Nike took advantage of Web2 to put more product information online and turn their stores into showrooms. Web3 just reinforces this integration.

“It’s not the metaverse here and a store there,” he said. “There will be things you can do in the metaverse that will give you rewards that you can redeem in the physical store. Or, you go to the physical store and redeem them in the metaverse. There will be an exchange between these two spaces”.

Many retailers have treated the metaverse as another channel for sales transactions. But Nike went one step further, giving NFT holders access to physical goods that, once purchased, unlock new features on their avatars: buy a certain sweatshirt and give your avatar wings. “The NFT can give you a gateway into a set of experiences and commitments to a company,” Evans said.

Courage isn’t just esoteric, either. Alfa Romeo launched an NFT linked to a vehicle’s maintenance record, with updates available whenever a driver makes an appointment within the automaker’s service network. The company clearly benefits, Evans said, but so does the customer: “You could potentially resell the car at a higher value if it had a very good maintenance history associated with it. And, if you can put it on a blockchain to make it immune to fraud, the system works fine.”

Preparing for an uncertain future

Since Web3 is in its infancy, uncertainty remains about what it will look like in a few years.

Web3 proponents advocate a decentralized and interoperable model, one in which the number of marketplaces continues to grow.

“This opens up tremendous opportunities for people to get involved and participate in co-creation and ownership. [while protecting] digital identity and data sovereignty,” Evans said.

However, this model may be more prone to scams, fraud, hacking and attacks, he added. It doesn’t help that Web3 is so closely tied to cryptocurrency, which is not heavily regulated and therefore subject to misuse, abuse, and precipitous drops in value.

In this scenario, mass adoption won’t happen, Evans said: “We have this big ‘rug-pulling’ scenario: interest could fizzle out due to a lack of trust.”

On the other hand, large technology companies may seek to develop a dominant position. In other words, Web3 might not look much different than Web2. “They have strong economic incentives to create their own platforms. In that case, we may see network tribalism emerge,” Evans said.

Here, however, the first returns are less than promising. Meta has invested heavily in the metaverse, but thanks to its struggles, Facebook’s parent company is worth about a third of what it was at the start of the year.

No matter what, Evans said Web3 needs to be on companies’ radar, just as, in the Web2 era, the most successful companies capitalized on the right mix of physical and digital assets.

Evans described these companies as “frontier companies” given their ability to embrace digital and operate at the edges of new markets. For continued success, companies must be prepared to push their platforms even closer to the edge.

“There is a lot of evidence that Web3 is going to be part of the next frontier. Thinking about how you invest in this space and how you position your company could be a big deal going forward,” Evans said.

See “Preparing the company for Web3”