Web3 and its discontents

The trough of disillusionment is inevitable

For various reasons, I have Web3 on my mind. The next episode of The Rebooting Show will feature a conversation I had with Troy Young on why Web3 matters for media. Like many, I’m still trying to separate the hype from the reality. What I’m pretty sure about is we’re at the start of a period of turbulence in tech that through lots of money and building will result in a changed landscape for media businesses. This might not become apparent for a few years, I think it’s better to be fashionably early than rudely late.

In the pre-iPhone era, there was a go-to joke if you were sitting blue blazer to blue blazer on an advertising panel: Predict the year in mobile – for the fifth or tenth year running. Always good for some murmurs from the audience. I suspect the Year of Web3 will be the same.

Of course, the year-of-mobile jokes were rooted in a weariness with the endless hype that surrounded a new computing paradigm. For years, I heard about how people in Scandinavia bought sodas from vending machines with their cell phones. In the U.S., mobile phone technology was far behind. I got one of those Nokia N95s and found it baffling. There were flyers in Greenwich Village for classes you could take on how to use the N95. That’s never a good sign.

The iPhone changed all that, of course. It’s hard to think back now, but the shift from desktop to mobile had plenty of skeptics. I mean, I wrote plenty of stories about Facebook’s “mobile problem.” That didn’t age well. My guess is the story will likely repeat for crypto, a new technology shift that elicits the kind of binary reactions so prevalent in the current climate. Gideon Litchfield, the editor-in-chief at Wired, sums up the folly of this dogmatism:

“The lesson of the last 30-odd years is not that we were wrong to think tech could make the world a better place. Rather, it’s that we were wrong to think tech itself was the solution—and that we’d now be equally wrong to treat tech as the problem. It’s not only possible, but normal, for a technology to do both good and harm at the same time. A hype cycle that makes quick billionaires and leaves a trail of failed companies in its wake may also lay the groundwork for a lasting structural shift (exhibit A: the first dotcom bust). An online platform that creates community and has helped citizens oust dictators (Facebook) can also trap people in conformism and groupthink and become a tool for oppression. As F. Scott Fitzgerald famously said, an intelligent person should be able to hold opposed ideas in their mind simultaneously and still function.”

The backlash against Web3 is picking up, as VCs and tech types war on Twitter (where else?) and the doubters ask what problems do these new technologies actually solve anyway – and please be specific in your examples. After all, it’s quite possible Web3 is just a rerun of “Big Data,” a vacuous marketing term that tech companies hoped would help them sell new services. It certainly is in Facebook’s interest for people to talk about the metaverse instead of genocide, and for Web3 itself just to be fancy new term for crypto, which has an odor about it thanks to many sketchy characters it counts among its most vocal boosters. (This is a good primer for the fundamentals of Web3 and how it compares with previous computing eras.)

On a more substantive level, there is the question of whether Web3 is just a reaction to all the things people find disappointing about the current state of tech: the centralized power of platforms, the rampant data collection, the horrible user experience and misaligned incentives of ads as a dominant business model, the rent-seeking behavior of platforms at the expense of content creators, and the reality that mastering distribution techniques mattered much more than the quality of content. On the last point, you can imagine publications rewarding its community with tokens to incentivize distribution rather than devote energy to growth hacking techniques geared to algorithms. To be sure, many of these concepts are just that: conceptual, bordering at times on the level of fantasy.

Use cases are still nascent. One project worth watching is Cherie Hu’s Water & Music, a publication focused on the music business. She’s using NFTs, tokens and a DAO to build a collaborative community that rewards collaborators and contributors through token distribution. My hunch is the adoption will be slow – about 30% of Water & Music’s members opted to receive the token – and regular membership models will operate in parallel with Web3 models geared for specific projects or the most hard core of loyalists.

Ari Paparo, possibly the smartest and definitely the funniest person in ad tech, recently went point by point with his case against “Web3 shit.” The key point, I believe, is his bet that regular people – the ones we call consumers and users – tend to prefer centralization with its drawbacks to the chaos of decentralization. I agree with Ari that the idea of people making money from their data has long been a loser. I fell for that with Root Markets, a Web 2.0 attempt to create a market for your attention data. Turns out it’s impossibly difficult to orchestrate – and more importantly, people’s individual data on its own isn’t worth as much as they think. Maybe this time it will be different, but history has shown this idea to be a pipe dream, up there with the concept of compensating people for viewing ads. The third-party cookie had its flaws, but who knows if crypto wallets can get the mass adoption needed to serve as an identifier.

The year ahead in Web3 is likely to be one of backlash against the hype and those who benefited simply from being early. Jealousy and FOMO will take hold. The inevitable crypto pullback – even crash – will be a healthy development. The dot-com implosion flushed much of the silliness from the market. The naysayers used the Nasdaq crash and death spiral of heralded dot-com firms as evidence they were right all along that the internet was just a fad, another tulip mania. Of course, that was true in part, but that didn’t stop the inevitability of internet adoption as charted by the growth in broadband adoption.  The trough of disillusionment always follows inflated expectations.

Former Hearst Magazine president Troy Young remarked in a recording for next week’s episode of The Rebooting Show that we’ll start to see crypto currencies quoted on their own, without converting them to fiat currencies like the U.S. dollar. Inevitably, crypto will rise and fall based on its cultural pull. Current issues with the user experience, fraud, speed and fees will be solved, if history is a guide. After all, eBay was synonymous with fraud and delivery problems ruined Christmas one year. Navigating the early internet was a pain in the ass, and let’s not forget how mobile started out.

Yet to Litchfield’s point, there’s the need to acknowledge that many of the current manifestations of crypto are either silly toys or fly-by-night cash grabs and yet still keep an open mind to the possible, even likely, evolutions. Expect to hear more stories of crypto’s shortcomings, silly endeavors like a DAO to buy the Blockbuster brand and turn it into a streaming studio, ridiculous scams and food fights among impossibly rich people who seem to spend a lot of time tweeting.

And yet there are DAOs like LinksDAO, which has raised $10 million for a new golf community with an eye toward buying a golf course and reinventing the idea of a golf/country club. The Bored Ape Yacht Club in just eight months has become a paradigm for a new type of luxury brand. You don’t need to squint much to see how this model could apply to local news and other publishing areas, along with the usual caveats. DAOs remind a bit of kibbutzim and nudist colonies: far better on paper than in reality. Hierarchies are annoying and unfair, yet they tend to be more efficient than, say, a Lord of the Flies situation. It’s still to be seen if DAOs can navigate around the tendency for most group endeavors to devolve into food fights. The contracts might be smart, but many participants will inevitably be dumb. And adding money into the mix tends to bring out the worst in people.

I don’t believe Web3 will be some kind of digital media nirvana. New paradigms rarely wipe away previous ones. Web 2.0 didn’t kill Internet 1.0. In fact, in digital media, some of the most ascendant companies – Dotdash, Red Ventures, Ziff Davis – share Internet 1.0 DNA. (If you were going to bet on an algorithm, Google’s was a better one than Facebook’s.) The same story should repeat itself again, but new opportunities will arise as power shifts to creators and new community-and participant-based ownership structures emerge.

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5 things to check out

Bloomberg Media CEO Justin Smith and New York Times media columnist Ben Smith are building a new publication that’s aimed at the global elites. Predictably there was plenty of snarking on Twitter – yes, they share the most common last name in the English language and the idea of catering to rich English speakers isn’t new – but a larger point is we’re starting to see an entirely new crop of publishers emerge, as the lightweight content of the search and social eras give way to, ideally, more substantive and premium brands. The cycle of 2007-2012 saw the emergence of the last wave of digital media companies, and I expect we’re at the start of a similar cycle.

Reflexive pessimism is a business risk for publishers. Reading The New York Times these days is enough to make one want to go back to bed. Dan Pfieffer, a former Obama administration staffer, lays the blame at business models that either reward attention or conforms to the worldviews of subscribers. I generally take with a grain of salt criticisms of “the media” – it doesn’t exist, this singular entity – but it’s undeniable that many publications have gone extremely dark in their outlooks. The coverage of the Omicron surge is a good example.

Axios is expanding its local news foray with plans to increase local editions from the current 14 markets to 25 by the end of the year. The manifesto – “We want to bring smart, modern, trustworthy local news to every community in America” – was met with, you guessed it, more snark and complaints from the Twitter crowd. (I’m sensing a pattern.) Axios isn’t going to “save” local news. But I’d bet on it making more of a contribution than a mismanaged newspaper chain owned by some rapacious private equity firm.

The Trump slump isn’t getting any better for news publishers. It was inevitable the close of the histrionics of the Trump era, in addition to the end of Covid lockdowns, would lead to a pullback in news consumption. Expect more diversification into lifestyle areas.

Email newsletters have an analytics issue. Privacy changes by Apple with iOS 15 are inflating email open rates by firing tracking pixels by default. The average open rate for Apple email subscribers tracked by ConvertKit rose from 30% to 34% over the course of three months. That’s only going to get higher as iOS 15 adoption grows (it’s currently installed on 63% of iOS devices.)

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