Web3 has the potential to drive an equitable and decentralized internet. It can also drive exponential business models and unlock new revenue streams
Web3 has the potential to drive an equitable and decentralized internet. It can also drive exponential business models and unlock new revenue streams for enterprises. While Web3 is gaining adoption and scaling in enterprises, its productization at scale has several barriers. Many enterprises view Web3 as a nuance they must come to terms with, while others view it as innovative and disruptive. Layer-1 blockchains consider it a solution to everything in the world and the media considers it a hype of a lifetime.
There is some hype and truth in each perception. Observed reality indicates that enterprise-grade productization has been hard with rudimentary use cases being experimented with and pure Web3 protocols and companies failing to understand the enterprise rhythm. The bottlenecks are attributed more to issues with Web3 which have not made it easy to drive adoption and many have taken the view that Web3 will rip and replace Web2 — a fallacy.
The bigger opportunity for Web3 lies in the enterprises but multiple barriers must be addressed.
Interoperability
In real life, Web3 is most effective when it becomes domain-specific, use-case-specific or even industry-specific. A generic protocol must have scale (e.g., Ethereum, Polygon, etc.). Without scale, one must have the focus to succeed. It is difficult for layer-1 protocols to overcome the “cold start” problem and drive network effects, especially those that are not EVM (Ethereum Virtual Machine) compatible.
These can create more barriers by increasing the cost of developer acquisitions and creating a higher security risk while not offering existing network effects to enterprises. There are also added security risks from bridges between blockchains that should be accounted for. A lack of EVM compatibility could result in higher engineering, product and deployment costs while also impeding scale.
Generic protocols have their perils. They are broad enough to not be considered innovative and may not appeal to enterprises looking for specific solutions to their problems. Generic products may not gain adoption or scale, limiting the network effects and value accrued to the protocol — ultimately impeding valuation and growth.
The system integrator effect
For driving enterprise adoption, systems integrators play a key role in adoption. Systems integration (SI) is a science and requires an understanding of various enterprise systems, the hooks, interfaces and business processes that run their business today. Systems integrator adoption has also provided the scope and scale to the adoption and scale of any new technology (e.g., cloud computing, SaaS-based applications, ERPs, etc.) and blockchain/Web3 is unlikely to deviate from this. System integrators also provide the required network effect on the enterprise side.
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Many layer-1 blockchains have commissioned their own SI practices or offer professional services. This creates a competitive posture with the SIs who are a potent channel to resell and drive enterprise adoption. Enterprises typically go to their preferred and trusted SIs due to their knowledge of the environment and would rarely take a chance on a protocol builder implementing their own solution that adds operational risks. Web3 companies must enable the SI ecosystem to enable adoption. They could augment the SI on an as-needed basis like most enterprise software vendors.
Operationalization challenges for enterprises
Web3 will create value when it solves real enterprise problems and is not stuck in the proof-of-concept sandboxes or lab environments. This transition from sandbox to production varies from weeks to even years depending on the enterprise, the use cases, budgets and priorities. The majority of the time, the inability to migrate from sandboxes to live environments is caused by the lack of integrations and connectors to existing Web2 systems.
Layer-1 protocols are raw. It is like offering TCP/IP to an enterprise and asking them to build the internet. One must make this easy for them. Operationalizing Web3 products is not smooth due to a lack of clearly defined endpoints, missing integrations, L1 protocols seeking gas fees to be paid in their native tokens (enterprises must sign up to have crypto on their balance sheets), lack of APIs and lack of in-house talent. A lack of these components creates a lot of friction and costs for enterprises to boot up real-time use cases and an inability to justify a clear ROI.
Talent issues
There is an acute shortage of quality and quantity of Web3 developers, according to Electric Capital’s report, there are only 23,343 monthly developers in Web3 as of December 2022. The imbalance between business builders, deep engineers, dApp creators, product managers and UX professionals must be balanced and hit a critical mass…
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