Web 3.0 is a lane, not a highway

Facebook was not the first web 2.0 company, but it was the one that took it mainstream to a global audience. Consumers’ digital lives would never be the same again. Whereas web 1.0 had enabled them to visit and read websites, much like a digital evolution of newspapers and magazines, Facebook enabled consumers to participate, to comment, upload photos, converse, etc. It was a total transformation of the internet and enabled much of the digital world in which we live now. But it did not mean the end of web 1.0. Indeed, 18 years after Facebook’s launch, web 1.0 is alive and well, with websites being an integral part of our everyday digital lives. Sure, many of those have adopted web 2.0 components, such as comment fields, but they are still fundamentally web 1.0. With all the hype, or even, post-hype of web 3.0, it is tempting to think that our entire future digital lives will be lived in VR glasses and on the blockchain. But the actual future will be more prosaic, with web 3.0 being another lane to the internet’s highway, rather than an entirely new road to replace the old one. And that is no bad thing, nor does it undermine the vast potential that web 3.0 has. Nonetheless, it does warrant a reassessment of just what role web 3.0 will play.

Image credit: Wikipedia https://en.wikipedia.org/wiki/Gartner_hype_cycle#/media/File:Gartner_Hype_Cycle.svg

Many of you will be familiar with Gartner’s iconic hype cycle. The premise is brilliantly simple. When a new technology arrives, the world becomes obsessed with its transformative potential. The tech press builds it up, investors pour in money, and the world is awash with innovative new start-ups, from one-person passion projects to heavily funded companies with lavish booths at tech trade fairs and conferences. This is the peak of inflated expectations. Then, inevitably, the technology’s progress cannot keep pace with those elevated expectations. The tech press starts to turn, with stories emerging at an accelerating rate about failing start-ups and how they have overpromised and underdelivered. The image of well-funded Magic Leap’s AR prototype being the size of a backpack is a perfect example. As the hype turns into derision and doubt, the technology slips into the trough of disillusionment (which I always think sounds like a Radiohead album title). Sometimes this is the graveyard of new tech, but, most often, it is simply a recalibration. With the fierce gaze of the tech world no longer there, the new tech sector can start to grow at a more sustainable, organic pace. Eventually it will start to fulfil its true potential and steadily build up the slope of enlightenment, before fulfilling its original promise. 

This is the path that most new tech is destined to follow. This is because, when thinking about new technology, it is easy to underestimate the near-term potential but overestimate the long-term potential. And this is due to humans adopting new tech in depressingly predictable ways. The early adopters (who are most often also the ones who first make the new tech) can see the potential and adopt immediately, despite all of its bugs and teething problems. It is only when the tech is ready for primetime that early followers come on board, eventually opening up adoption from the mainstream and even the tech-hesitant laggards.

Web 3.0 is now shifting from the inflated peak to the trough. Just look at all of the stories about undersold NFT auctions, falling crypto prices, etc. But we have been here before, many times, even in recent years. Just think about how VR and 3D printers were hyped to change the world. Once the hype subsided, both sectors started to build sustainable futures.

With this considered there are four major factors that will define the future of web 3.0:

• Recalibration: Web 3.0 is neither dead nor dying – it is recalibrating. Will there be a wave of failed start-ups and investors losing money? Yes. But that is part of a long-proven pattern.
• Realism: We need to be realistic about what web 3.0 will be when it does finally reach the slope of enlightenment. Yes, it will change our digital lives, but it will not be all of our digital lives. Just like web 2.0, it will run alongside the rest of the internet. Will it replace some of it? Yes – but not all of it. Instead, the internet highway will have a third, new lane.
• User interface: Web 3.0 is still missing a crucial component: a user interface. Facebook succeeded not because it was a set of revolutionary protocols, but because it was a transformative user experience, allowing consumers to create, share and participate. Web 3.0 needs its interface. We have the building materials for web 3.0 but we do not have the building. Heck, you could argue that we do not yet even have the architectural plans.
• Focus: Web 3.0’s scope and remit are so vast that, in truth, it represents a collection of entirely different propositions that may have an underlying technology link but, to consumers, are entirely separate. Fortnite and Ethereum are as far apart as consumer experiences as a football and a credit card are. An overdependence on reaching for commonality may help get investors on board, but it makes it harder to build the necessarily diverse consumer messages if widespread adoption is to ever happen.

Web 3.0 will change the internet, but it will need to change itself first.

What Other Technology Sector Thinks That It Has Arrived At Its Destination?

The internet, smartphones, app stores, open source software, all have accelerated innovation at a rate that makes Moore’s law look positively pedestrian. What defines digital technology markets is disruptive innovation, the constant challenging of accepted wisdoms and of established practices. Nothing stays still long enough to give stakeholders the luxury of feeling complacent and to fall back on slower moving sustaining innovations. These are the the realities of consumer technology, unless you happen to be in the digital music business, in which case the prevailing attitude is ‘we have reached our destination’, we have identified the model that is our future and we’re sticking with it. That approach worked fine in the old days of innovation, when Consumer Electronics (CE) companies used to spend years hashing out market standards and then competing in a gentlemanly fashion on implementation. That approach brought us VHS, CDs, DVDs Compact Cassettes etc. Everyone got a bite of the cherry and technologies stuck around for decades. Now they stick around for years, at best. So why is the music industry trying to insist on the $9.99 subscription being the new CD, a 20th century approach to standards in the dramatically different 21st century? And more crucially, why is it able to?

Consumers Are Predictable Creatures

Consumers adopt technology in highly predictable ways. First come the early adopters, the tech aficionados who are always the first to try out new apps, services and devices, next come the early followers who supercharge growth, then the mainstream who bring scale of adoption and finally the laggards who adopt at a more measured pace and slow growth. The result is an ‘S-Curve’ of adoption, with slow growth followed by fast growth, followed by slow growth again at the top of the curve. Music services are no exception, usually starting slowly before accelerating and then slowing again when they have saturated their addressable audience. Exactly where growth peaks varies by service and is determined by the type of service, but the same shape of adoption curve plays out nonetheless, most of the time.

Spotify’s 30 Million Might Just Be The Start Of Maturation

Spotify yesterday announced it had it 30 million paying subscribers. A true digital music landmark. But in the context of its long term growth curve it looks like it might be the start of the end of rapid growth. (It is worth noting that the accelerated growth of the last 16 months has been supercharged by the $1-for-3-months promos so the maturation point may have otherwise been reached earlier or it may have happened at the same time but with a lower number). This isn’t however, some failing of Spotify, rather an illustration that the $9.99 stand alone subscription model is nearing maturity. And this is where the scarcity of innovation comes into play. The major record labels, some more than others, have become increasingly unwilling to threaten the $9.99 status quo. Services that don’t fit the mould either find it impossible to get licenses for new models or they are forced to adhere to the $9.99 cookie cutter subscription model (Soundcloud anyone?).

Video Sets The Standard For Streaming Innovation

Compare and contrast with the streaming video subscription market. Alongside the mainstream Netlfix, Amazon and Hulu Plus services (the Spotify and Deezer equivalents) there is a growing body of targeted niche services with diverse pricing. These include: Hayu (a reality TV, $5.99), MUBI (cult movies, $4.99), Disney Life (Disney shows and movies, £9.99), Twitch (live streamed gaming, $4.99), YouTube Red (YouTuber originals, $10), Vessel (short form originals, $3) Comic-Con HQ (Comic Con content, pricing tbd).

Of course music is drastically different from TV and it is far easier to have a video service with just one slice of all available content than it is for music. Nonetheless, in the video sector there is no prevailing attitude of not wanting to disrupt the dominant $7.99 broad catalogue model. TV and video industry stakeholders are not only willing to tolerate disruptive innovation (online at least!), they understand it is crucial to drive the market forwards. So why don’t labels take a similar view? A key reason is rights concentration. Because three labels account for the majority of music rights, each has de facto veto power. Most companies that are dominant in their markets pursue smaller, sustaining innovations that improve the product but that do not threaten their businesses. So it is fully understandable that major labels have not empowered disruptive innovations that could risk turning their digital businesses upside down. It would be like turkeys voting for Christmas. And yet the growth trajectory of most leading music services shows that by sticking with sustaining innovations they are unwittingly curtailing the scale of their future growth.

Again, compare and contrast with TV where rights are far more fragmented and are becoming even more so. No single TV network or studio has the ability to stop a service in its tracks. The result is a far greater rate of innovation.

Music Subscription Services Are Compelled To Behave Like CE Companies

Thus music subscription services are forced to behave like the old CE companies, competing on the implementation of fundamentally the same product. TIDAL do exclusives and high definition, Spotify do playlist innovation and video, Apple does curation and exclusives. But when it comes down to it they are selling the same $9.99, 30 million tracks, on demand, mobile caching product to largely the same group of consumers.

Postscript: The Unusual Case Of Apple

The keen eyed among you will have noted that Apple Music’s growth curve does not fit the S-Curve model, or at least not what we can see of it yet. It certainly appears that Apple is set for a very different adoption path. There are mitigating factors. The streaming market is far more mature now than when Spotify and Deezer launched. Additionally, Apple has a unique platform and ecosystem advantage that enables it to short cut adoption rates. It can sell straight to its user base of Apple-super-fans. Selling additional products and services to its installed base of 850 million iTunes customers will be key to the next stage of Apple’s story and music will play its role in that. (Amazon is potentially another exceptional case given its ability to sell directly into its customer ecosystem and also with its focus on a more mainstream audience.)

But even Apple will eventually reach the saturation for the $9.99 product within its user base. In fact, one reading of Apple’s adoption curve is that it skipped the first stage of slow growth, has had a brief period of mid period strong growth and is now settling down for a long gradual arc of adoption that looks like an amalgamation of the final 2 stages of the S-Curve model. Whatever the path, let’s just hope that long before Apple Music hits maturity, the record labels will have woken up to the need to support an unprecedented phase of experimentation and innovation to identify all the other opportunities for premium music that exist outside of the super fan beachhead. Remember its 2016 not 1986.