First Principles | Hold the hosannas for web3
If history is anything to go by, it appears unlikely that web3 will create a “new middle class”.
Among the more tantalising promises of the narrative around web3 is that it will enable a “new middle class”. This, because creators can imagine and own the content they create, interact directly with their users, get paid for their efforts, and do away totally with gatekeepers such as Big Tech companies and social media that now host content. (In India? Really?).
Web3 fanboys believe that as it becomes all pervasive and intermediaries are taken out, a “true fan” can pay creators directly using cryptocurrencies. Ownership of digital assets (or even an experience) can be established and authenticated using non -fungible tokens (NFTs). Digital marketplaces such as OpenSea.io exist to facilitate such transactions. As for frauds, cryptocurrencies and NFTs cannot be replicated because records are maintained using an immutable ledger system ie blockchain. For creators, this opens up infinite possibilities. But the problem with this narrative around web3 is that it is a dated one.
Old timers will recall that the internet we are familiar with now (web2 in technical lingo) became popular at the start of the 21st century. Anyone who creates blogs, podcasts, videos, or posts any content on social media could find “true fans” on the market place that is the web2 and get rewarded. This is why everyone wants to be a “digital influencer” today. Web2 was a big leap from web1, a place where mostly geeks used to hang out.
The “Creator Economy” that web2 spawned and the significance of why just 1,000 True Fans matter as opposed to searching for millions of fans was an idea Kevin Kelly, one of the early pioneers of the internet spoke about. “A true fan,” Kelly wrote in 2008, “is defined as a fan that will buy anything you produce.”
To do that, Kelly argued, “You need to meet two criteria. First, you have to create enough each year that you can earn, on average, $100 profit from each true fan… Second, you must have a direct relationship with your fans. That is, they must pay you directly. You get to keep all of their support, unlike the small percent of their fees you might get from a music label, publisher, studio, retailer, or other intermediate. If you keep the full $100 of each true fan, then you need only 1,000 of them to earn $100,000 per year. That’s a living for most folks.”
His essay left a global impact People did the math in their local contexts and have since jumped off the cliff to build “true fans” in every part of the world, India included. One among the earliest was a Mumbai-based software product company that built encryption software. The lone founder and two part time engineers were among the icons of this movement. Despite good reviews, much interest, and some infusion of capital, the company went nowhere. The company founder died of heart break four years ago after all efforts to monetise his “true fans” hit a wall.
But Kelly’s narrative stayed. More recently, during the pandemic, a foreign affairs analyst stepped outside his comfort zone to create a newsletter that looks at the world from an Indian prism. The idea was triggered by his reach on social media platforms and the comments his posts attracted. He now his back against the wall and is rethinking the future.
Multiple conversations over the years with the analyst and some others suggests that in markets such as India, people don’t mind being monitored or have their personal data compromised, as long as they get the content free. That’s what the gatekeepers to web2 figured and it made them phenomenally rich.
As things are, investors from across the world have poured at least $88 billion into almost 16,000 companies dabbling with web3. Of these, 79 are now unicorns of which at least three are headquartered in India.
Ironically, the last time such big monies had come in to build the internet infrastructure, it was in the aftermath of the global financial crisis of 2008. This time around, a pandemic has devastated the global economy. If history is anything to go by, it appears unlikely that web3 will create a “new middle class”. Creators appear to be readying for a future that may never happen. That’s the thing about history. We don’t seem to learn from it.