"Why Web3 Matters: The Power of Niche Markets and Ownership in the Future of the Internet"

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Hatched by Glasp

Jul 12, 2023

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"Why Web3 Matters: The Power of Niche Markets and Ownership in the Future of the Internet"

We are currently witnessing the dawn of the web3 era, where the decentralized nature of web1 combines with the advanced functionality of web2. Web3 represents a shift in the ownership and control of the internet, giving users and builders the ability to own pieces of internet services through tokens. These tokens, both non-fungible (NFTs) and fungible, provide users with property rights and align network participants towards a common goal - the growth of the network and the appreciation of the token.

In the traditional web2 model, companies often accumulate the value generated by their users and end up in conflict with them and their partners. However, in the web3 era, ownership and control are decentralized, allowing for a more collaborative and mutually beneficial relationship between network participants. This addresses the core problem of centralized networks and creates a more sustainable and inclusive internet ecosystem.

Furthermore, the concept of niche markets plays a crucial role in the success of companies in the web3 era. While venture capitalists have traditionally been obsessed with targeting large total addressable markets (TAM), this approach may not be as effective in the web3 landscape. Instead, it is essential for companies to focus on their positioning within the market and strive to own their niche.

Market share, rather than market size, becomes a leading determinant of profitability. By dominating a specific market, companies can generate significant profits from their position of strength. This is exemplified by structural monopolies in niche markets, where limited competition allows the dominant firm to enjoy outsized margins. These markets are often too small to accommodate multiple winners, providing an opportunity for companies to establish a sustainable advantage and generate long-term cash flows.

While the pursuit of a large TAM with a compelling story may have been sufficient in the past, the web3 era demands a more nuanced approach. Companies must have the mechanisms in place to create a sustainable advantage that goes beyond mere market size. The ability to adapt to market uncertainties and build for optionality and agility becomes crucial in capturing dominant market positions.

One of the key advantages of focusing on niche markets is the reduced competition it offers. Small or declining markets simply cannot support multiple players capable of driving long-term profits. By capturing a dominant market position in a smaller market, companies can operate more efficiently and produce higher levels of profitability. This is evident in vertical software businesses, which spend less on sales and marketing compared to their horizontal competitors, yet generate higher levels of EBITDA.

In conclusion, the web3 era presents a transformative opportunity for the internet, where ownership is decentralized and niche markets hold significant power. The ability to own pieces of internet services through tokens empowers users and builders, fostering a more collaborative and sustainable ecosystem. By focusing on niche markets and capturing dominant positions within them, companies can establish competitive advantages, generate profits, and strategically expand their addressable market. To thrive in the web3 era, companies should prioritize niche market dominance, build for optionality, and leverage the power of ownership and decentralization.

Actionable advice:

  • 1. Embrace the web3 era by exploring opportunities to own pieces of internet services through tokens. Understand the power of ownership and its potential to align network participants towards common goals.
  • 2. Shift your focus from targeting large total addressable markets (TAM) to owning your niche. Invest in building a sustainable advantage and dominating your market share, rather than solely relying on market size.
  • 3. Prioritize agility and optionality in your business strategies. Recognize the uncertainty of market sizes and adoption rates, and build a foundation that allows for flexibility and adaptability. This will enable you to capture dominant market positions and strategically expand your addressable market.

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