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This week, Pitchbook unveiled its latest report, the Emerging Tech Indicator (ETI), tracking early-stage investment activities among the world's most successful venture capital firms. The report aims to assess which areas of technology are capturing venture capitalists' attention. In the third quarter, Web3 emerged as the top recipient of VC funding, securing nearly $900 million according to the ETI report. Surprisingly, this surpassed fintech, biotechnology, security, e-commerce, gaming, and many other conventional industries. Web3 has consistently dominated the ETI report for five consecutive quarters. In the last 12 months, over $6.5 billion of ETI capital has been invested in Web3, more than doubling the next highest category, fintech, at $2.7 billion. Despite the current challenges faced by cryptocurrencies, with their combined market capitalization dropping by two-thirds since last November, investment interest in the sector remains stronger than in other industries. Why? Because entrepreneurs are still eager to initiate Web3 ventures.
Defining a successful Web3 startup is a challenging task. First and foremost, explaining what makes a startup Web3 is even more intricate. Attempts have been made to articulate it. A16Z, a leading Web3 investor, describes it as "the Internet owned by creators and users, orchestrated with tokens." Gavin Wood, Ethereum's co-founder who coined the term Web3, describes it as "an alternative vision of the web, where the services we use are purely algorithmic and hosted by everyone." Web3 has also been termed as "the hyper-financialization of all human existence" and where "every product is simultaneously an investment opportunity." Quite perplexing, isn't it? Here's a simpler definition: a Web3 startup interacts with data stored on a blockchain. That's it.
Read Ethereum via an RPC provider? You're a Web3 company. Send a transaction on the Solana network? Web3. Implement a Connect Wallet button on your website? The same. Blockchains, shared public ledgers, are the building blocks of Web3 data, and if you use any of this data in your product, then you are also part of Web3. Now, why is this intriguing for entrepreneurs? It's because access to data has not been freely available for a long time.
All consumer products require data. If you're creating a restaurant discovery website, you need reviews. If you're creating a shopping app, you need a product catalog. If you're creating a service for sharing photos, music, or videos, you need (obviously) photos, music, or videos. Sure, you can get users to create that data for you; after all, user-generated data is the central principle of Web2. But it takes a lot of users to create a useful amount of data, and until then, the product experience for those few initial users will be incomplete or simply bad, which then is a hindrance to acquiring more users. So, you're not stuck in a vicious circle but in a circle of stagnation. For entrepreneurs over a decade ago, data used to be readily available online. You could scrape it (e.g., Airbnb scraping apartment listings from Craigslist) or subscribe via RSS feeds that publishers widely distributed. Platforms like Facebook and Google were also generous with their data, providing robust API access (remember all the social games that used Facebook's Graph API?). There even used to be a whole category of products called mashups based on this idea of shared data that were composable. Unfortunately for today's entrepreneurs, data is no longer easily accessible. RSS has largely been abandoned, most sites prohibit scraping and will litigate to prevent it, and APIs from platforms like Facebook and others have been completely shut down or severely limited. More than ever, the Web is a collection of walled data gardens controlled by a handful of gatekeepers and for good reason: the data and the infrastructure that runs it are incredibly valuable.
Gartner reported last year that 80% of the global cloud infrastructure market is controlled by just five companies: Amazon, Microsoft, Alibaba, Google, and Huawei. It's no coincidence that these are 5 of the world's most valuable tech companies. The "rich" (companies with data) generally no longer want to share with the "poor" (startups), which is why Web3 has become so appealing to entrepreneurs: you can build with data in Web3. With blockchains, data is freely available to all. There are no data gatekeepers in blockchains because ownership is decentralized among tens of thousands of individuals or entities running their own shared copies of the data. You can spin up your own Ethereum node in minutes and download the entire blockchain in about 1 TB of storage. That would fit on many laptops, so not much expensive infrastructure is needed either. Thanks to blockchain ledgers, access to data in Web3 is equal. Every startup has access to the same tokens, wallet addresses, transaction history, etc., and can create as comprehensive a customer experience as any other company. We're all "rich" in Web3, but is what we have valuable? In other words, Web3 startups can now create new products that are filled from day one with all this public blockchain data. But do these public blockchain data help create products that customers actually want to use? What lies beyond financial speculation?
There has been a dominant customer value proposition for all Web3 startups this year. A powerful use case in which all their Web3 products, from games to art and fitness tracking, have assisted customers: making money. During the last cryptocurrency bull market, every Web3 product became a speculative asset, and making money became the only scenario Web3 companies had to think about. When your product promises to generate positive returns for customers, it doesn't have to promise much more.
Take, for example, NFTs, whose popularity skyrocketed this year and millions of people own them. In the bull market, NFT startups focused all their energy on helping those millions of users make money because the primary use case for NFTs was financial speculation. In their quest to drive up the price, most NFT product innovation focused on creating reward systems for holding NFTs (i.e., staking) as well as creating walled gardens around NFT ownership (i.e., content controlled by tokens). But these features came at the expense of investments in possibly more interesting product explorations, such as being able to do things with NFTs and making them interact with other projects.
Remember, NFTs are stored on blockchains where anyone can freely access the data. Therefore, Web3 entrepreneurs should create all sorts of novel and interoperable experiences with NFTs, just like Web2 entrepreneurs did with mashups. But because everyone was so fixated only on the price rally, NFT projects created complete products designed to prevent people from doing anything with their NFTs or interacting with any other project. The pursuit of financial speculation above all took inherently open data and closed it off. But now we're in a bear market where returns are negative. Web3 products can no longer rely solely on the use case of making people money but must provide another value to earn customers' time and patronage. We're going to see a lot of entrepreneurial time and energy shift from innovating in financial speculation to seeking new ideas about what can be done with data stored in shared ledgers besides making money. Will customers find these new scenarios valuable? Will products filled with public blockchain data be useful?
Who knows for sure. But as entrepreneurs still want to create Web3 startups and investors want to fund these companies, we're about to find out.
For more updates and to explore how AMR Industries can revolutionize your venture in the world of Web3, visit our website: AMR Industries News