How to compete when users have zero switching costs and all code is forkable?
Competition is the art of acquiring and managing scarce resources to create advantage. Changes in technology have changed the scarcity of resources and thus the basis of competition. The “new competitor” looks different from the “old competitor”, in large part because the scarce resources are different now than they were before.
Openness adds an interesting dimension to competition. Open organizations can discover latent capabilities, enrich them, and transform their scarcity. Likewise, opening up a previously scarce resource into a commodity will change the basis of competition.
With the rise of web3, we are entering a new era of competitive advantage. Scarcity has changed again, and so has the basis of competition. This article (part of our upcoming web3 walkthrough) offers some initial thoughts around this new scarcity and how companies will compete in this new era.
Competition comes with scarcity
To understand where the new scarcity lies, we need to better understand how firms acquire and manage scarce resources.
In the industrial age, the basis of corporate competition is access to scarce resources. Scarce resources include access to special sources of supply (such as oil fields and mines) or unique intellectual property (such as the recipe for Coca-Cola).
For companies in the digital age, most of this translates into a competitive advantage. Google’s search algorithms continue to be protected as trade secrets, a key resource that provides them with a competitive advantage.
When Airbnb successfully grabbed Craigslist and pulled Craigslist’s user base to itself, Craigslist lost its scarce resource — listings created by sellers — and moved to Airbnb. In response, Craigslist began issuing cease and desist letters to all startups trying to emulate the Airbnb integration.
Resource-based competition is centered on the acquisition and management of scarce resources. Access to scarce resources may involve acquiring new sources of supply, or acquiring the best innovators who can create unique intellectual property. Therefore, managing these scarce resources requires building the necessary moats (both structural and legal) to prevent others from gaining access to these resources and to use them for competitive advantage.
Web2: Data as the new scarcity
With the rise of social networking, businesses discovered a new basis for competition: user data. Scarcity moves from merely acquiring and managing internal resources to acquiring and managing user data.
Data collection – advocates of web2 struggle to capture user data – so companies have developed new ways to let users submit data (remember LinkedIn’s profile completion progress bar?) and become a point of contention, while also developing exchanges and A complete backend industry dealing with data.
It is extremely uncomfortable to compare farming to data collection, which may be collected when users “seed” their attention. Therefore, the competition for data is actually the competition for attention. Companies invest in behavioral design to “engage” users and make them cyclically increase their consumption of data. Dark UX is surreptitiously extracting data. Corporate mergers followed. While industrial-age companies acquire competitors with similar or complementary scarce resources, digital-age companies are busy acquiring similar or complementary user attention and data resources. Facebook bought Instagram and WhatsApp, Google bought Waze, all to hoard more scarce resources.
To manage this scarce resource, companies initially invested heavily in big data processing technologies (2008-2013), and then shifted their focus to leveraging artificial intelligence and machine learning to create value (after 2010).
Centralized platforms, mandated by a lax regulatory regime for data protection, compete on this new scarcity. But that’s changing day by day. The rise of GDPR and other data protection regimes has made data extraction increasingly difficult. Likewise, the rise of web3 heralds a new era in which ecosystems can be organized without centralization and abstraction.
Scarcity is starting to change again!
Web3: Tracking the new scarcity
The rise of Web3 has changed many assumptions about scarcity. Data is portable and is no longer the basis for competition. Users can switch services easily, and user attention and data may no longer be accessed, collected, and managed as they are in the web2 world.
The open ecosystem of Web3 also erodes the advantages of vertical integration that the web2 platform benefits from. For example, competition for user interface (and user attention) will intensify in web3 as the user interface is decoupled from the underlying platform. The vertical integration of the Web2 marketplace platform into the search interface ensures the monopoly of both. The web3 protocol that manages market transactions may support many search proxies, as I explained earlier.
For example, marketplaces like Ebay bundle together seller onboarding, seller analytics, buyer onboarding, buyer decision support, search functionality, and transaction infrastructure. All these components will be unbundled in the web3 world.
Therefore, we move from a central market maker architecture to a decentralized agent-based architecture, all coordinated through a shared common protocol. It’s like a Hollywood-style talent market, minus the relationship-based gates.
So, where will the new scarcity emerge?
Developer participation will be the new scarcity in the age of open ecosystems.
As I explained in Split and then Split, developer engagement is the core value driver of the web3 ecosystem, as market infrastructure is no longer built by central platform businesses, but by ecosystem developers Modules complementary to the core protocol. Developer participation is the main source of value in the infrastructure layer of the web3 ecosystem. For developers, this requires the developer to invest time, resources, capabilities, and more.
There is another reason for the scarcity of developers. Developer involvement and resource commitments involve high multi-hosting costs (the cost developers pay to build multiple platforms simultaneously). By building and dedicating resources to a particular ecosystem, developers implicitly choose not to dedicate their limited time and resources to other (competing and non-competing) ecosystems.
Not all developer ecosystems
all the same
Managing the developer ecosystem is also an important consideration for the web2 platform. So how exactly does Web3 change?
To understand how the web3 developer ecosystem is different, we need to revisit the building blocks argument I made in an earlier newsletter.
In any developer ecosystem, developers perform two key categories of activities: they may contribute to solution development (value creation), or they may create different integrations that drive solution usage (value distribution).
Open source projects rely heavily on developer ecosystems for solution development. The software is then packaged, delivered, and supported through traditional company-owned channels, such as Redhat’s relationship with Linux. This is shown in the upper left quadrant.
Many web2 platforms are related to the developer ecosystem. However, the core platform of the value proposition is built and delivered by in-house developers. Most web2 platforms rely on developer ecosystems, either to create complements to core platform technologies, or to build integrations and drive usage of the platform. The latter is especially evident in companies like Stripe and Twilio, which provide API-based functionality (as a service). These companies have invested heavily in the developer ecosystem, but mostly to drive usage (value distribution) of the solution. This is shown in the lower right quadrant.
Unique to Web3 ecosystems (for that matter, any ecosystem that follows the Building Blocks Thesis), these ecosystems attract developers to value creation, solution development, and value distribution by facilitating the use of solutions. This is shown in the upper right quadrant.
For example, Lens Protocol’s developer engagement spans solution development and usage. Similarly, Boson Protocol’s bug bounty program development platform leverages developer participation in the development of solutions and security, while Boson’s roadmap to v2 expands the scope of developer participation in solution development and solution use.
The Value and Defenses of the Web3 Ecosystem
As mentioned above, the web3 ecosystem is unique and value creation across the value chain is driven by the developer ecosystem.
The Web3 project needs to establish a developer engagement program for solution development in order to accumulate value for its token tokens. As the solution becomes more comprehensive, the value of the token will also increase.
Equally important, the web3 project needs to establish a developer engagement program that encourages the use of the solution through integration. The defensibility of a solution increases as it is integrated into more projects. New competitors sharing codebases may replicate codebases, but it’s hard to replicate the myriad integrations built through developer engagement projects that drive usage of the solution.
That’s why web3’s competitive advantage will revolve around the ability to attract developers.
A thriving developer ecosystem serves two transformative functions.
- They increase the token value (increasing the attractiveness of the project) and attract more developers in a self-reinforcing cycle.
- They increase defensibility (ensure that it is harder to replace related items).
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/identifying-web3s-new-scarcity-open-source-developers/
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