Web2 vs. Web3: Why Monetization Models Are About to Change

March 30, 2022
5 min read

With all the talk about Web 3.0 and how it is, or will be, replacing Web 2.0, we thought we’d start this piece with a quick description of each. You’ll get lots of opinions on this, so we are generalizing a little.

Web 2.0 is primarily about content distribution, social media and ecommerce. It includes software as a service (SaaS), hosted services (Google Maps), web applications (Google Docs, Microsoft 365), cloud-based commerce platforms (Amazon), video-sharing sites (YouTube, Vimeo), wikis, blogs, social networking (Facebook, Instagram), and real-time information services (Twitter), among other things.

Web 3.0 typically refers to blockchains and blockchain-based technologies, including non-fungible tokens (NFTs) and cryptocurrencies. Some conflate this decentralized tech with the metaverse, and they can and do overlap. When speaking about the paradigm shift possible via Web 3.0, most are referring to the combination of ‘the decentralization of everything’. This ranges from direct exchanges of funds to the immutability, audits and authentication powered by blockchains, as well as access to virtual worlds, goods and services made possible in the metaverse.

The primary difference between Web 2.0 and Web 3.0 is that Web 3.0 empowers:

  • Direct payment for transactions without an intermediary
  • New models for community based on decentralized decision making and governance
  • New ownership models, including being paid royalties for asset creation in perpetuity

At Next League we are more excited about the ‘philosophy of Web 3.0’, which is based on these concepts of community and ownership, than we are about specific blockchains, programming languages, or other specific technologies, because those things will change as the ecosystem matures.

The beauty of the technology world is that it is in a constant state of flux and attention tends to follow whatever is new. Our partner Doug Perlman, who runs Sports Media Advisors, made a really interesting statement about ten years ago. He said: “90 per cent of the money in sports is in broadcast television, but 90 per cent of the conversation is in digital technology.”

If you look at how things are today, we could update that quote to read: “90 per cent of the money is in Web 2.0, but 90 per cent of the conversation is in Web 3.0.” By this, we mean that in the B2B technology product and services space Web 2.0, with billions in existing investments and revenue, still dominates and it will be a while before that changes.

Why Web 3.0 dominates conversations

As previously mentioned, Web 3.0 is dominating conversations but – as with any new trend – excitement is also accompanied by resistance. Humans hate change, especially change that’s difficult for them to grasp.

If you do a web search on ‘the internet is a fad’ you’ll see a ton of examples of late 1990s articles focused on the general disbelief that the internet would be as meaningful as many were saying. Blockchain-based technologies are getting similar treatment from some vocal detractors. The fact is that the Web 3.0 philosophy is upon us, even if the technology landscape has not yet matured. (Remember, AOL dominated the early days of the internet only to be replaced by the likes Amazon and Google.)

In Web 2.0, digital content distribution strategy had to include social platforms and it still does. Most publishers, and sports properties specifically, were frustrated by the social media distribution model which provided reach but little in the area of monetization.

Generating revenue through social media distribution continues to be a real challenge for businesses. One senior sports executive, who asked to remain anonymous, told me: “Here we are getting millions in rights fees from broadcasters and we’re not only giving content away on social platforms, but allowing them to monetize it.”

So, as Web 3.0 platforms began to emerge the idea of taking more content or rights away from owned and operated platforms to put on to blockchain-based platforms was initially met with reticence. Massive licensing fees removed those issues pretty quickly. With a business model based on licensing and revenue share, the world’s most visible sports properties soon inked NFT deals with companies like Dapper Labs, Candy Digital and Sorare. These models created a collectibles marketplace and revenue streams where none had previously existed and did so in a decidedly non-Web 2.0 way for sports properties. Where Web 2.0 was about content monetization, Web 3.0 began as licensing deals and for sports properties these are two very different revenue streams.

Mike Conley, Cleveland Cavaliers’ chief innovation officer, is a friend of Next League. The Cavs are leveraging blockchain technology through partnerships with NFT platforms Recur, Sweet and Socios, as well as looking for that utility beyond just the value of the digital collectible. This type of approach answers questions like ‘what kind of access can you get?’, or ‘what’s the broader strategy beyond just signing a deal for collectibles?’

But is there a path for Web 3.0 that can exist, or coexist, with Web 2.0’s owned and operated technology platforms with a focus on content distribution? Does blockchain-based technology even help with content distribution models? The short answer is: it will take some time.

Eventually, the philosophy of Web 3.0 will deliver a better version of the way we approach community and incentivize engagement and participation through ownership.

Final thoughts

The challenge that many of our clients have as Web 3.0 topics continue to arise is being patient. No matter what technologies emerge, sound business fundamentals always rule the day and a sober, deliberate approach to what your organization should do will yield the best results.

In 1998 business executives were constantly being asked why they didn’t have a website and most then just built one that did little for their business. What it did do though was introduce them to technology that would dominate the business world for the next twenty years. This trend repeated itself in 2009 when Apple’s App Store opened and mobile application development began to dominate the digital technology landscape. In both cases it was years from the time the technology was available to the time where there were standards and strategies that led to revenue.

Business fundamentals do not change. When we are unrealistic about costs or revenue our companies suffer and organizations will always strive to offer products and services that their customers need and love. What does change is the pace of change itself, specifically in technology.

There are two lessons I’ve learned about technology in the 25 or so years I’ve been in this business. First, technology will continuously move forward and accelerate. You need to design an approach to keep up with it, or fall behind. Second, humans hate change and will resist it. We like predictability and gain confidence with patterns repeated over time. Adapting to new things makes us uncomfortable.

The Venn diagram of innovation and consumer adoption is where the money is.