Web3’s Transformation of Traditional Business Models

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Last updated on November 17th, 2022 at 12:16 pm

Web3 is altering the concept of the internet as we know it and the projects that are built on it. With Web3 Technology, users can benefit from a decentralized internet that gives them complete control over their data. They can enjoy unrestricted access to ultra-personalized internet services, while online brands can incorporate new tokenomics into their operations.

Web3 benefits individuals and companies by transforming business models and incorporating new features that improve operational efficiency. Some traditional firms have started exploring the Web3 concept and the benefits it can bring to their business operations when integrated into their architecture.

This article examines Web3 and how it is changing the traditional business concept.

What is Web3?

Web3 is the offspring of the traditional internet infrastructure known as Web2. Web3 is also called the semantic web, and it is a new internet model that promises improved functionality by incorporating innovative features such as AI, blockchain technology, machine learning, and much more into apps and websites.

The newer version of the internet was designed to solve the issues identified in its forerunner, Web2, such as centralization, censorship, and illegal use of data, among others. Decentralization is a key feature of Web3, allowing data to flow freely while granting users complete control. It starkly contrasts with Web2, which was characterized by centralization and dominated by a few tech giants such as Facebook and Google.

Customization is another feature of Web3, as brands do not have to stuff their articles and other content with keywords; instead, they can incorporate semantic metadata. This allows the appropriate content to be viewed by the appropriate client niche.

How is Web3 Transforming Traditional Business Models?

Web3 is improving the efficiency of business models by incorporating elements that were previously absent. The following are some of the ways that Web3 technology is changing traditional business models.

• Client Experience

Customer experience is critical for brands, and businesses invest heavily in providing an excellent user experience for their customers.

The main components of Web3 are artificial intelligence (AI) and machine learning (ML), which are important tools that can significantly impact user interaction.

Clients prefer brands that can anticipate and cater to their needs.

Such brands easily anticipate their clients’ needs and structure their operations to meet them. A superb customer experience is a yardstick by which brands distinguish themselves from their competitors.

• Marketing

Companies spend a lot of money on marketing, although these costs depend on the size of the organization. Multinational corporations such as Coca-Cola spend billions of dollars annually on advertisements.

According to reports, “over the last seven years, Coca-Cola has spent an average of 4 billion dollars a year on advertising worldwide, aside from 2020, with only about 2.8 billion U.S. dollars spent.”

Businesses are always searching for innovative tools to help them improve the efficiency of their market targeting and penetration strategies.

With Web3 features, marketing departments can tailor their advertisements to suit the needs of potential clients. They can efficiently target their niche based on demographics, resulting in a more effective marketing campaign.

In Web2, companies face the problem of spending money without getting any results or the appropriate outcome. This occurs due to ad fraud, where unscrupulous organizations charge brands for clicks and impressions that lead nowhere. Ultimately, businesses expend significant amounts of resources on marketing without seeing any return.

Besides that, users are also negatively affected by Web2’s advertising practices as their information is gathered and sold to the highest bidders without appropriate authorization.

Web3 eliminates the concept of user data theft as individuals decide to use their data in the way they deem fit. Data monetization is feasible on Web3.

• Fundraising

Raising funds is crucial for every organization, and traditional firms employ various fundraising methods. Some of these tools have drawbacks for both the raising company and potential investors.

Traditional fundraising events are often difficult for the average person to participate in because the buy-in amount is usually prohibitively expensive. This reduces investment opportunities for ordinary people.

The traditional crowdfunding process has an impact on businesses as well. Major fundraising events are exclusive to only a select few organizations. Before a company or startup can enter funding rounds, some notable leaders or organizations must recommend it. This makes it difficult for innovative businesses to access the funds they need to expand.

Web3 is changing this trend, especially with the numerous funding opportunities currently available to blockchain firms. Popular fundraising methods include Initial Coin Offering, Initial Game Offering, Initial NFT Offering, Initial Exchange Offering, and Initial DEX Offering.

An Initial Coin Offering (ICO): is a method of raising funds that is similar to the Initial Public Offerings (IPOs) that traditional companies do during their fundraising stage. Typically, a crypto project offers its native tokens in exchange for the capital raised. Investors participate in the hope that the native tokens will provide them with access to the project’s functionalities as well as the option to sell them at a higher value in the future.

An Initial DEX Offering (IDO): is a token offering organized by a decentralized exchange. Due to the permissionless nature of this type of exchange, liquidity pools are required for the operation of IDOs.

An Initial Exchange Offering (IEO): is a fundraising method utilized by crypto projects or companies to raise funds for infrastructure development while offering native tokens to their investors via exchanges.

An Initial NFT Offering (INO) is a method of raising funds by selling exclusive NFT collections on launchpads to potential holders. Such NFTs have certain utilities in the ecosystem of the issuing organization.

An Initial Game Offering (IGO) is another fundraising method used by gaming companies in which collectibles from the game are sold to raise funds to develop the game.

A Security Token Offering (STO) is the issuance of security tokens to the public in order to raise funds. Companies that host STOs are typically expected to pay dividends to those who purchase the tokens. The STO is more tightly regulated than other fundraising methods. Holding an STO-issued token also confers ownership, which is uncommon in other forms of fundraising.

It is important to note that some countries have stringent regulations regarding the fundraising methods mentioned above; hence, firms should consult appropriately before utilizing any of them. In the United States, for example, the Securities and Exchange Commission requires companies to obtain the requisite approval before issuing any type of security. In some cases, they may classify the methods mentioned above as a means of issuing securities.

To avoid falling victim to scams, it is crucial to always conduct due diligence before participating in any fundraising events.

• E-commerce

E-commerce will be revolutionized by Web 3 and its various elements. Traditional e-commerce is dominated by centralized companies that act as a bridge between buyers and sellers. The commission these organizations receive often erodes the seller’s profit. Most charge up to 40% as commission, reducing the seller’s or merchant’s profit.

Some of these platforms have strict rules that only benefit buyers, leaving sellers to bear the brunt of the implications. Aside from that, the operations of these platforms are usually ambiguous—web3 addresses these issues by providing a transparent, decentralized environment for buyers and sellers.

Sellers can easily sell to buyers without incurring hefty fees.

Chargebacks that irritate merchants will be drastically reduced, and merchants will be able to receive funds faster and efficiently, particularly via cryptocurrencies.

• Organizational style

Traditional organizations are known to be centralized and to suffer from the principal-agent dilemma. The principal-agent dilemma occurs whenever an organization is structured such that an entity or an agent acts as the central authority.

This agent is in charge of making decisions on behalf of the entire entity or the principal. The principal-agent dilemma demonstrates that, whenever such an entity exists, there is an inherent risk in the divergent goals, priorities, and safeguarding of the interests of all stakeholders. This means there is a risk that the agent might at some point be motivated to act in its self-interest rather than look out for the interests of the principal and its stakeholders.

The concept of Decentralized Autonomous Organization (DAO) is incorporated into the organizational style of Web3. A DAO is a blockchain-based organization that aims to solve the principal-agent dilemma. Organizations that use the DAO system involve community members or organization owners in decision-making. Everything that occurs within the organization is made public.

In Conclusion,

Web3 is a new internet model that promises improved functionality by integrating innovative features such as AI, blockchain technology, machine learning, and more into apps and websites.
The main elements of Web3 are artificial intelligence (AI) and machine learning (ML), which are important tools that can improve the overall user experience.
Web3 eliminates the concept of user data theft as individuals can choose to use their data in any way they deem fit. Monetization of data is feasible on Web3.
With Web3 features, the marketing department in an organization can tailor their ads to fit the needs of their potential clients.
Web3 incorporates the concept of DAOs into the organizational style of companies.
Web3 is transforming the venture capital and seed funding sectors, as blockchain firms now have access to a plethora of funding opportunities.

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