How decentralization and Web3 will impact the enterprise
As Web3 becomes a major new industry in the startup technology sector, the question is increasingly asked, as it has been with each prior cycle of digital innovation: How it will involve business and IT?
With all the innovations in the world, it can be difficult to separate the signal from the noise when it comes to often controversial subjects like cryptocurrency, blockchain, or NFTs. While not getting much respect in certain quarters, there is also little doubt that the technology innovations underpinning these trends have formed a major bow wave of innovation under the general rubric of Web3.
Cryptocurrency, blockchain, and NFTs have undergone numerous hype cycles and investment rounds already. Despite travails, the industry has steadily grown year after year, even as significant parts of it are currently undergoing one of the largest downturns to date. But these cycles now appear inevitable in a world where exponential technologies tend to accelerate and magnify major events. The question now is if Web3 has become important to the enterprise.
I now believe that the evidence is in: Web3 is an important category of technology to the business world. Should the average organization be investing in understanding and realizing Web3's dense layers of highly sophisticated ideas and technologies? Is it significant and inevitable enough now to warrant concerted investment and innovation? Let's take a closer look at what's happening in the space.
Web3 has grown up
One test of a technology trend is its venture capital activity, which attracts the current generation of up-and-comers and leading talent to fresh, green-field opportunities. Here is where Web3 currently has some impressive proof points: The respected venture capital firm Andreessen Horowitz is already into its fourth and largest-ever Web3-related fund, Crypto Fund 4, which raised an unprecedented $4.5 billion last month for a gamut of blockchain-related investments that will flesh out "the next generation of computing." Another proof point is the number of decentralized apps or 'Dapps', which are used in Web3 ecosystems. These recently crossed the 4,000 mark and are growing fast, according to the State of the Dapps industry tracker. There are other proof points.
What's clear to me, having tracked and been on the front lines for the industry-changing Web 2.0 revolution a decade and a half ago, is that, at the very least, the underlying technologies of Web3 are here to stay. This is strong cryptography combined with digital signatures for trusted chains of transactions, decentralized and collectively owned ledgers like blockchain to underpin them, and long-term digital stores of value like Bitcoin. On the other hand, it's the crypto exchanges, NFT marketplaces, and even the cryptocurrencies themselves that will largely come and go.
So what does leave in Web3 that is truly enduring and important to most of us?
A more evenly distributed but very different future
As I noted in my initial analysis of the broader Web3 phenomenon, there is a very important concept embedded right at the core of Web3: Namely, decentralization, or the notion that instead of large sections of the Internet being owned and controlled by centralized entities, ownership is instead distributed among its builders and users. The design of Web3 is intended to be inherently difficult to co-opt (though importantly, not impossible), as the rules for radically distributed ownership are baked directly into the design and architectures of the underlying Web3 technologies.
But isn't this just the same sort of naive, new-age language around the democratization of tech that we've seen throughout the history of the medium? Virtually every wave of the Internet and the Web have had empowerment and easy participation as one of their core intents. With global tech firms and even bad actors having ever-increasing dominance in these domains, these ideas of simplistic openness and massive collective sharing certainly have skeptics now. It's not that the Internet, the Web, or the online world has not succeeded in providing value. Far from it. It's that they keep getting co-opted by those who possess and then wield a more sophisticated understanding of the underlying rules of these new digital markets.
So, precisely to that end, a new generation of idealistic, highly talented innovators and entrepreneurs are now using that same sophisticated understanding in an attempt to build a fairer, smarter, and far more savvy digital universe that's ostensibly designed not for the tech insiders, but for the rest of us. Web3 also represents world-building at a massive scale, based on the endless journeys one can make through the various projects, initiatives, and frameworks that have been created for it. Everything about the nature of the digital world is seemingly being questioned and rethought. About how forward-thinking digital systems should work today, who should own/control them, how open and inclusive they should be, and what trust, safety, and privacy actually look like in an ever-more dangerous digital world.
So what technology most underpins Web3 and makes it what it is? Many in the space regard blockchain, a technology pioneered by Bitcoin, as an absolutely vital new fundamental building block for this digital future. Others believe that it's actually the concept of decentralization, which blockchains embody but don't own exclusively, leading directly to a contest for who will create the next software stack that will run the future of the Internet. It's possible they are both right. And they start to help us understand how Web3 will affect the more slowly evolving enterprise world.
So how will these great experiments unfolding today in the fast-moving and hyperbolic arena of Web3 actually cross over into the enterprise? And if they will cross over, how significant will they be? This question is becoming more significant as the trend's potential opportunities and disruptions become clearer.
What is Web3 in the enterprise?
For one, over time, Web3 will almost certainly become a vital approach to the way our IT systems work. Decentralization is now a significant industry trend that will be insisted on by a growing number of tech consumers and businesses as well. Instead of storing information in our own databases and running code in parts of the cloud that we pay for or otherwise control, businesses will have to get used to relying on Web3 resources (data, compute, etc.) and sharing more of that control. Much of the important data we need to run our businesses will increasingly be kept in more private and protected places, stored in blockchain and other types of distributed ledgers. A rising share of our applications over time will be more akin to open source projects and run using smart contracts that all stakeholders can transparently view, verify, and agree to. Even our businesses will have strange new subsidiaries that are actually embodied entirely in code and run automatically on their own, using digital inputs from stakeholders (the new active shareholders in the Web3 world).
And this is just the beginning. The cryptographic systems and immutable transaction ledgers of Web3 have now stood enough of the test of time to prove out and show the way. And while it's far from the only way tech will evolve (as the technology universe is easily big enough to accommodate many large revolutions at once), decentralization is increasingly proving to be a fundamental revolution. Web3 speaks directly about shifting the central notions and core technologies that run our organizations, from information technology (IT) to customer experience to our business models and management structures.
Of course, a more straightforward transformation will occur as well, such as simply accepting some forms of cryptocurrency as payment or issuing intellectual property in the form of NFTs. But these are not the deep and meaningful shifts that will occur over time. We've learned as an industry that digital transformation is a shifting target, and the goal posts keep being moved with each new major technology advance. Web3 is such an advance and, like Web 2.0 before it, will require the enterprise to think truly outside the box about its motivations and operations in very different ways than before.
The enterprise opportunity of Web3
If history is any such guide, most organizations will have a challenging and uneven time adopting many of the ideas inherent in Web3, from new forms of finance to decentralization itself. But that's not to say that there aren't already many good targets that enterprises can begin developing strategies for and experiment with targeted prototypes and proofs of concept. The second figure above is my latest map of where organizations can likely take on tactical experiments with the technologies and ideas of Web3.
From this, we can see that there are at least seven key areas where enterprises can begin applying Web3:
Metaverse. Much speculation and investment has been made into virtual worlds based on virtual or mixed reality, many based on decentralized concepts. Many of the most valuable internal business use cases (team collaboration, onboarding, learning and development), as well as external use cases (shopping, marketplaces, customer experience), can be realized using a metaverse construct. Metaverses can range from just virtual worlds that have been around for years to more advanced and Web3-like services like Decentraland or Voxels.
Distributed Autonomous Organizations (DAOs). The concept of a DAO is embodied in a smart contract, with the rules posted for all to see. Tokens are issued, and stakeholders have a well-defined decision-making process. Essentially a new type of digital corporation, DAOs can be used in an enterprise context for everything from open innovation and investment to IP-based professional services or industry-scale consortiums.
Web3 Apps. Naturally, out of the lower elements of the Web3 stack, useful applications can be built, which for enterprises will include internal business apps that operate on decentralized data, customer-facing apps that engage in transactions or provide data services, and decentralized ERP and CRM systems, which are just beginning to emerge, such as Energy Ledger for industry-specific supply chains.
Creator Economy for Web3. One of the more vibrant areas of Web3 is in enabling the creation and trading of media and other digital assets, including art, music, and NFTs. Many companies are in this business or have assets they can utilize here, especially in merchandise, prediction markets, business media, design, and open data.
Crypto and Digital Assets. Businesses are about monetization, and cryptocurrencies offer a dizzying array of opportunities, including turning loyalty programs into digital currencies, issuing tokens for corporate social responsibility, creating asset and commodity-backed currencies, and much more. Accepting cryptocurrency as payment is one of the less strategic but increasingly useful paths for adoption as well.
Blockchain and Distributed Ledger (DLT). For years, industries have been abuzz about using blockchain for supply chain tracking, detecting counterfeits, storing data, fighting cybersecurity threats, and much more. All of these use cases are now maturing, and some effective industry-specific blockchain consortiums have emerged as well.
Decentralization. Some decentralized approaches are remaking human activity and industries at a fundamental level. Probably decentralized science or DeSci is among the leading areas of research and development. Other areas include decentralized work, government, and of course, finance, which has become the largest of all. These focus areas deserve their own call out, in my view, because they are intentional Web3 transformation of entire industries, and not just organizations.
For now, most non-tech industry organizations will still not see large competitive pressure yet to adopt Web3 (though on the tech side, the talent war is already beginning with companies like Google building out their Web3 teams.) And the lesson of the past is that this is the perfect time to learn the skills, experiment, and find out what works in a given industry while you have time. The depth and complexity of the underlying technologies -- to protect the integrity of the systems, prevent co-opting by one large entity, and secure systems that handle increasing amounts of financial transactions (the total market cap of crypto is in the many hundreds of billions of dollars) -- will require a longer and larger than usual adopt effort for emerging technology.
While Web3, for now, will remain more in the purview of the chief technology officer (CTO) than the chief information officer (CIO), I am presently very bullish on the long-term potential. If one uses the original iteration of the Web and then Web 2.0 as prior guides, vast new companies that dominate the world will (and are already today) grow out of the Web3 startup community. Some portion of that can be seized by early enterprise adopters of Web3.
However, evaluating the opportunities and realizing their potential success will be very different than in previous generations. Web3 is explicitly designed to be inherently hard for enterprises to seize control of or direct. But the promise is certainly there, as long as organizations are willing to give up some control, which, as I've written, is an absolutely prime rule of digital systems. Web3 is a distributed ecosystem approach to digital, with a seat at the table for everyone that wants one that will almost certainly lead to one of the most quixotic adventures in digital yet, and perhaps the most promising so far. Now is the time to explore it.